The positive relationship between reducing lead times and improving efficiency and customer satisfaction isn’t news to manufacturing executives. Lead time reduction has been a primary objective of lean manufacturing principles since the origin of lean.
But as the capabilities of management technology systemshave evolved, new opportunities have arisen for tech savvy manufacturers ready to transition the goal of lead time reduction from business challenge to competitive advantage. Now more than ever, executive success in the manufacturing field depends on understanding and seizing these opportunities.
In order to keep up with competitors equally focused on lead time reduction, it’s not enough for manufacturers to achieve process excellence in production, sales forecasting, engineering, and supply chain management. To gain a true competitive advantage based on lead time, executives need to ensure exceptional cross-departmental coordination to move orders to delivery in the minimum amount of time possible.
Jeff Glaze has spent his career optimizing manufacturing operations. Jeff’s keen appreciation for the role of management technology in achieving organizational goals has its origins in decades of experience leading a manufacturing company. But today he is focused on sharing that experience with others as the President of Epicenter, an Epicor ERP technology solution integrator based in Westfield, MA.
To better understand how manufacturers can use the goal of lead time reduction as a lever to transform both operational efficiency and the strength of their core value proposition, I spoke with Jeff about the possibilities offered by the intelligent use of ERP technology.
How can manufacturers better leverage management technology to introduce efficiencies into their engineering work?
A typical scenario we see is a company develops product ‘A’ over a period of time, from some base of expertise in a given field. This becomes the basis for the company’s success. Then, a market opportunity for a different version of product A is developed to meet a different demand, and typically a new engineering team designs product B. Over time the same process if followed for products C and D. As this has happened, newer controls and materials are used that weren’t available when product A was developed, so the engineering isn’t common across products. At some point product A gets redesigned, and now we have product A1 that functions the same or better than product A but is built now for less cost etc. Here are the issues with this:
- There is usually no consciousness of common assemblies across products, which makes efficiencies of scale (and leaning out the processes) difficult.
- Seldom is there budget to go back and reengineer other product lines to do this, because the perceived cost/benefit ration isn’t significant.
- Engineers have egos, and think their design is the only and best one for their product, and don’t want to compromise on common assemblies.
So, we find ourselves as ERP implementers, dealing with a hornets nest of engineering challenges, which makes the ERP implementation that much more complicated, convoluted, and costly. Many times the company just says ‘give the engineers what they want’ and we end up providing an unnecessarily complicated system that just duplicates what they had before.
A progressive company looks at an ERP implementation as an opportunity to really ‘lean out’ their organization and examine all the sacred cows. By understanding how the ERP system can handle standard subassemblies for instance, they’re able to embark on a process of looking at their engineering processes anew, and really making some common sense decisions about developing standard subassemblies, driving out cost, and taking advantage of good ideas for all product lines. This then results in lower inventory, usually at many levels, and shorter lead times when the complexities of multiple different assemblies are replaced with more interchangeable subassemblies.
Another challenge for manufacturers is keeping up with natural changes in customer demand. What are the most important inputs to enable the use of predictive analytics to ensure that the right inventory is on-hand or available to meet changing demand?
Using the same example above, let’s say the company has 5 years of data on the usage of all purchased and manufactured parts. As the customer demand changes amongst the product lines, the static stocking quantities, order quantities and production quantities are likely wrong just about 100% of the time. The assumptions that drive decisions on these static quantities have many variables, and the product mix, product life cycle, cost breaks etc. are quite complex.
A modern ERP, such as Epicor, uses statistical models and forecasting to recalculate quantities on a continuous basis. If there are trends (product line A is decreasing demand due to price of oil decreasing, while product B increases demand for the same reason) the ERP system should calculate stocking quantities with respect to these changes in forecast, market, and demand. Years ago this kind of effort would have been onerous, but modern statistics packages, coupled with a flexible ERP system can deliver continuous improvement in stocking levels automatically, therefore yielding excellent planning and decision making with little human input.
Optimizing production and order fulfillment processes to reduce the instances when work-in-progress items hit a standstill is a key element in the drive toward lean. Are you finding new opportunities for manufacturers to utilize technology to accomplish this goal?
The lean principle here is ‘one piece flow’ where the goal is to have minimal inventory idle (in between operations), and of course reduce lot sizes to as small as ‘1’. This of course conflicts with the traditional notions of setup time being more efficient over larger quantities. The opportunity here is to figure out ‘where to start’ because the shop floor could be filled with skids of material in between operations, and the planner has no idea which ones to concentrate on first. The answer is quite simple – as long as the ERP system records the various operations start and stop times, simply report on the elapsed time in between operations, and sort in descending order. This tells the planner which items have been on the shop floor the longest.
Next is figuring out the reason why, and proceeding to attacking those reasons. It could be lot sizes are too large, quality issues, etc. The single key question to be asked is “How can we prevent this from happening again?” and then putting in place the various ‘fixes’ to gradually decrease WIP. Measuring the ‘current state’ and recording it weekly for instance, will give a nice metric to measure as the team proceeds through its lean journey. One key question we always ask controllers is “If we could cut your inventory cost in half, while maintaining the same output, would that be good?” The controller usually has a grin from ear to ear at that point. This is the power of applying lean to your operation, and using your ERP to point you in the right direction!
What about supplier managed inventory as an approach to reducing lead time? Is this a viable strategy for the MTO manufacturer? What do you consider to be the real prerequisites to making a supplier managed inventory approach work?
Supplier managed inventory is the key opportunity for large and small shops, either MTS or MTO. Instead of placing purchase orders when stock is low (or out) and waiting for delivery prior to starting production, you ask your vendors to place your common items on your floor. You draw from this inventory as needed, and when you do, your ERP sends a purchase order signal to your vendor to replenish the floor stock.
There are multiple ‘wins’ with this strategy:
- No inventory cost for raw materials
- Economization of transportation costs by grouping less emergent materials onto weekly deliveries instead of having multiple deliveries in the same period
- Improved supplier relations due to the strength of a longer term commitment
- More rapid vetting of incoming materials to ensure the quality of floor stock
- Elimination of the chance of supplier stock-outs by taking possession of inventory
The prerequisites for this kind of program include:
- Standard items with adequate shelf life
- Suppliers who understand the goals of a lean supply chain and are willing to participate
Modern ERP systems track the inventory levels of supplier managed inventory, so they are visible for planning, but at zero value. The transaction of using the material transfers it into WIP and automatically triggers a ‘demand’ notification to the vendor for replenishment.
On the other side of business, there are also ‘customer managed’ inventory opportunities where you place materials on your customer’s floor, for many of the same reasons. For instance, in the medical device business, prosthetics are placed in inventory in hospitals until the patient is on the operating table. When the doctor can measure the size of bones in the body for instance, they need to have all of the possible sizes of prosthetics on hand to immediately be available for surgery, and the inventory replenished after surgery. With ‘customer managed inventory’ the hospital doesn’t have to purchase the prosthetics in advance.