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:
- Resolve conflict between manufacturing efficiency and customer service.
- Extend systems to suppliers.
- Run parallel manufacturing resources planning processes.
- Master the demand-forecasting process.
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.
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.
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.
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.