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Leveraging ERP for a Lean Supply Chain

Recently, a large manufacturer in Asia deployed SAP to improve its business processes and implement lean practices in its supply chain. Participants on the deployment team observed four simple ways the deployment contributed to lean manufacturing.

“Lean,” in the supply chain context, requires a holistic view of procurement, manufacturing, distribution, and sales-order processing. This, in turn, means that an enterprise system such as SAP is necessary to view the organization in an integrated context. Once such a system is in place, it can be used to the corporation's benefit. The following steps will help to obtain lean supply chain goals:

  1. Resolve conflict between manufacturing efficiency and customer service.
  2. What became evident early in the deployment phase was that the company faced conflicts between production efficiencies and customer service. Manufacturing scheduled large batches for production in order to achieve maximum efficiency and low cost per unit. This conflicted with goals set by the sales department, as large batches made it difficult to tie production to fluctuating demands in the consumer market and to respond to those demands immediately.

    In order to overcome the problem, companies need to increase the coordination between the sales and manufacturing departments. In this case, manufacturing was making unilateral decisions about batch sizes and production schedules. Instead, manufacturing should function based on sales projections. Both departments can utilize the MRP (manufacturing resource planning) system to obtain the information necessary to better plan both demand and supply.

  3. Extend systems to suppliers.
  4. Since the raw materials required for the production and packaging of the end-product need to be available on time, it is important that an MRP or ERP (enterprise resource planning) system extend to suppliers. Setting up a supplier portal — in this case, for packaging suppliers and other vendors — enables vendors to look into production plans and prepare their own schedules accordingly. This eliminates a lot of manual administrative work, which causes delays.

  5. Run parallel manufacturing resources planning processes.
  6. Parallel MRP ensures that the commitment to manufacturing is delayed to a point where the demand is visible or certain. For instance, many companies operate with one single MRP process. This might work for companies that work in a make-to-stock mode with a relatively flat demand. However, manufacturers in markets with highly variable demands will benefit from parallel MRP runs. Most ERPs, including SAP, provide the functionality to run parallel MRPs and continuously analyze demand patterns and inventory turns. The point of postponement can be changed over time to achieve the optimal balance between efficiency and responsiveness.

  7. Master the demand-forecasting process.
  8. Demand forecasting is a very critical process, and often companies fail to give it the attention it deserves. By improving demand-forecast accuracy, companies can decrease inventory and increase the level of customer service at the same time. The more accurate the demand forecast, the better position businesses are in to supply product to the market. Building on an inaccurate demand forecast is like building a castle on sand.

Thus, lean supply chain technology has much more to it than purchasing, distribution, global sourcing, and other activities that relate directly to supply chain management. It is important to understand processes and find means to improve them continuously. Please feel free to comment and share your experiences with us.

6 comments on “Leveraging ERP for a Lean Supply Chain

  1. FLYINGSCOT
    July 6, 2012

    You make some good points.  I have seen great improvements by linking one's own system to the systems of one's suppliers.  This can result in less inventory held and shorter manf cycles.

  2. stochastic excursion
    July 6, 2012

    Sohaib, this is a great piece on a business strategy that has many advantages.  An ERP with business-to-business access is put to great use.

    Implementing such a system sometimes requires a cross-organizational team.  Some corporate cultures mesh spontaneously and some don't, so carrying out such a project means thinking through carefully the various milestones.  On the other hand, a one-size-fits-all web portal is also appealing if enough transactions can be handled in this way.

  3. smasood
    July 9, 2012

    Hi FlyingScot,

    Thank you for your comment. 

    Linking systems with suppliers has numerous advantages and results in great improvements like you have said. Collaboration is an essential factor in supply chain and firms can gain a lot if they exchange information in real time not only with their suppliers but also with their distributors. 

  4. smasood
    July 9, 2012

    Hi stochastic excursion,

    Thank you for your comment. 

    ERP systems are indeed very useful for organizations in todays global world. Since, most ERP's are developed using industry standards their deployment helps firms to come to a standard platform instead of a customized one. 

    Deployment of such a system usually requires a cross organizational team because there are numerous business processes that are being automated with an ERP. The structure of the team depends upon a lot of factors including the scope of the project (which is determined by the client's requirement) and the overall timeline of the project. 

    In order to ease the adaptation process for the client. We usually from change management and integration management teams. These teams are respsonsible for communicating with the client and identifying potential pain points and then finding their solution. 

    In a nutshell, the deployment phase is a tough one but with adaquate resources and planning it can be completed on time with the desired outcomes. 

  5. prabhakar_deosthali
    July 10, 2012

    On paper all these things look good. But as you say that the manufacturing plan has to depend upon the sales forecast along with the production lead time. IN a company normally the sales people tend to forecast very aggressive sales forecast to push manufacturing. But when the finished goods are out in the stock room the sales people normally change their words and say the market is looking for not this but a different product. So too much relying on sales forecast is the biggest mistake a company can make while planning its production schedules.

     

    Secondly when we want to have the suppliers to join in seamlessly in your systems through the ERP, one has to carefully decide who calss the shots.  Some big suppliers will put their own constraints onto how much they can supply . So the manufacturer's ERP systems have to be agile enough to work out alternate strategies to meet the production schedules.

  6. smasood
    July 10, 2012

    Hi prabhakar_deosthali, 

    Thanks for giving us your feedback. 

    I would agree with you on to a certain extent on the sales forecast issue that you have highlighted. Sometimes, the sales department tends to get carried away but I am certain that doesn't happen always. With an integrated system you have tools that will help you in analyzing trends keeping in mind the previous sales and with CRM tools you tend to be more certain about the sales orders. 

    Managing supplier relations can be a difficult proposition for companies but over the years I have seen that portal based functionality tends to improve relations rather than complicate things. The production schedules can be revised based on the inventoy at hand and expected inventory level. Usually, a safety stock is also kept for all materials so that any unforeseen circumstances in supply may not cause a halt to the production. 

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