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 ERP or Flow Manufacturing?
Collaboration, Not Separation.

by Dave Garwood

JIT? Lean Manufacturing? Flow Manufacturing? ERP? MRP II? Which one do I choose? Or should I even care? Good question. The answer becomes clear and the confusion disappears once the evolution of these terms is understood.

Ending the Confusion
First, ERP is a term that evolved from MRP II. In the late 1960's, IBM introduced a new computer - the 1401 - and shortly afterward the 360 Series. This hardware made it economically practical for medium-size and up companies to have the computer horsepower to maintain the data and perform the calculations to determine future requirement for thousands of part numbers. The software could also signal when orders needed to be placed. However, a more significant power of the new tool quickly emerged -- the ability to keep "released" supplier and factory supply schedules aligned with real needs. The technique to do this, material requirements planning (mrp), was born and became an instant, commonly-recognized industry term. In less than 5 years, the profession enhanced the mrp technique and a concept to integrate business processes such as capacity planning, supplier scheduling, factory floor scheduling, customer delivery scheduling, etc. evolved. The new concept was supported by techniques such as sales and operations planning (SOP), master scheduling, capacity requirements planning, available-to-promise (ATP), cycle counting, etc. But this evolutionary new, holistic process needed a new name.

During the late 1970's, a writer for Modern Materials Handling magazine wrote a story about this evolution and labeled the new integrated concept Manufacturing Resource Planning (MRP II). It was a good story but a bad label. The acronym falsely implied that MRP II was computer software and the term implied it was a tool just for the manufacturing department. In addition, confusion set in as people did not separate mrp, the technique, from MRP II the concept. Additional confusion was piled on as people used MRP II software and the MRP II concept interchangeably. Many companies installed MRP II software, not MRP II concepts. And it was evident in the spectrum of results.

Later in the 1990's, MRP II software packages were enhanced with more capability to better integrate additional activities such as order entry, bill of material configurators, accounting, distribution inventory management, sales order management, etc. The enhanced MRP II software was repackaged as Enterprise Resource Planning (ERP). The migration to ERP was more about software enhancements than improving business processes. The results with MRP II/ERP were mixed. Many companies understood they needed to change business processes and old habits at the same time they implemented their new MRP II/ERP software. These companies enjoyed impressive results - inventories slashed in half, 95+% on-time deliveries and 20-30% cost reductions were common. Other companies were not as fortunate. They implemented the new software, sometimes even spending big bucks to modify it to emulate old practices and mindsets. Most of these companies realized some improvement, but were disappointed when the results fell short of their expectations. Of course, they blamed the software and/or the ERP concept.

More Confusion - Just In Time!
During the 1970's, the Pacific Rim wakeup call was ringing loudly. Many companies (and the business press) hopped planes to discover what they were doing - Just-In Time. JIT became an instant hot, although often misunderstood, new term. In fact, because of it's alleged simplicity, JIT was often promoted as a painless panacea. JIT was supported by techniques such as Kanban, SMED, work cells, empowered work force, etc. Again, confusion set in as people used JIT the concept interchangeably with JIT techniques such as Kanban. And, of course, many companies found out that JIT could be very effective, but not painless!

During the next 10 years, Toyota Production System (TPS), Lean Manufacturing, Flow Manufacturing and similar terms sprung up and were used interchangeably with JIT. All of these terms focused on similar business objectives; realign plant floor material flow into work cells, reduce lot sizes, empower the workforce, etc. The results were substantial reductions in factory (and sometimes supplier) lead times, dramatically slashed WIP inventories, smaller lot sizes economically produced and lower costs by eliminating many non-value added activities.
Unfortunately, too many people began to view MRP II and JIT as opposing methodologies. The important business objectives often got lost in the MRP II /JIT debate.

What Is the Objective?
While the debate raged on, many frustrated people walked through the door every day to work asking, "what do you really need, how many do you really need and when do you really need them?" The interest was in the elusive truth, regardless of the buzzword that delivered the answer! If they could get good answers, the result would be better customer service and lower inventories since the factory (and suppliers) would be making the right things more often in the right quantity at the right time, not piling up excess inventory of the wrong material. Many obstacles were in the path to get the truth. None of them were created by MRP II/ERP or JIT/Lean/Flow. However, if you listened to the Buzzword Zealots you might think they were!

Here were (and unfortunately still are in many companies) a few of the obstacles:

1. Overstated, unrealistic plans to produce products.
2. Overly optimistic capacity expectations, if capacity requirements were determined at all.
3. Factory floor layout by functional department causing costly delays (read: long lead times) as material travels, and then waits, at the next step.
4. Inaccurate inventory records used to make scheduling decisions.
5. Excessive bill of material levels that caused excessive costs and delays.
6. Costly expediting systems to override schedules (a form of rework) because the formal schedule can't be trusted.
7. A "bigger is cheaper" EOQ mindset which resulted in large lot sizes that were moved, stored and eventually used weeks later -- hopefully.
8. A damaging focus on performance measurements such as equipment utilization and purchase price variance (PPV) that drove behavior to produce or procure large lot sizes or keep equipment busy whether material was needed or not.
9. Complex scheduling systems to manage convoluted material flows.
And the list goes on and on ....

Neither ERP nor Flow Manufacturing created these costly obstacles! These obstacles were there before ERP, Flow, Lean, MRP II or whatever were created. ERP and Flow Manufacturing each focus on overcoming some of these obstacles. The degree of success is dependent on how effective the tools are used. People have proven over and over that any good idea can be misused and made ineffective! When not used effectively, the concept was often declared inept or too difficult.

Effectiveness of these concepts depends on following a few non-negotiable principles. A few companies follow these principles very well. And they get impressive results. Other companies do not. For example, some companies drive the calculated part requirements and/or Kanban levels with overstated, usually front-end loaded, master schedules. Others keep poor inventory records. Some keep producing parts in order to keep people busy and/or cause favorable variances to create the illusion of profit even though there is no requirement or Kanban signal. Overstructured bills of material, excessive lead times, excessive lot sizes, piles of work orders and other parameters fit this same mold.
These bad processes are caused by bad or negligent management practices, not by ERP/MRP II or Flow Manufacturing. They were present when either concept was deployed and unfortunately not always changed while implementing Flow or ERP/MRP II. The result in either case is poor operating results and unfortunately people want to blame something or someone. Flow and ERP/MRP II often take the arrows!

Collaboration is the Answer!
Overcoming these obstacles is critical to profitable growth. Meeting this growth objective is not a matter of choosing between ERP, MRP II, Flow, Lean or JIT. In fact, we need to replace the dialogue about how to find a peaceful way to let them coexist with a more collaborative approach. The progressive companies are avoiding the buzzword war and not aligning with either "camp." They are seeking a collaborative path. They are collaborating with ERP and Flow solutions, extracting and applying the Best Practices from each concept in concert to streamline their supply chain.

For example, Pelion Systems (www.pelionsystems.com) has developed a suite of products to bolt on, not replace, existing ERP software that helps a company overcome some of the excessive lead time and lot size obstacles. They have a software tool that helps to easily create a flow line from the traditional departmental-oriented factory floor layout. This dramatically reduces lead times and chops several levels from the bill of material. These new shorter lead times and flat bills are then fed back into the ERP software. The result is a much more effective ERP process.
Kanban is an effective tool when applied in the right environment. One of the traditional problems with Kanban is keeping the Kanbans resized as demand changes. Pelion has developed software tools to seamlessly extract updated requirements from the ERP calculations and frequently send out new Kanban levels to the plant floor. In both cases, the best of ERP and Flow Manufacturing are working together to streamline the business processes, resulting in less working capital and better customer deliveries.

Industry answered the 1970's Pacific Rim wake up call and made huge improvements. The opportunities to take your performance to the next level will depend on your ability to avoid the Buzzword mania and focus on streamlining the business process. Collaborative efforts with suppliers, customers and supply chain management tools are essential. Collaborate, don't separate!

All Contents Copyright � 2002 R. D. Garwood, Inc. All Rights Reserved.