Challenging economic times mean that manufacturing executives must do more with less. Heading into 2015, the world’s top multinational manufacturers are trying to find a safe route through an economy known more for the promise of volatility than the prospect of surefire growth. Their leaner operations may be set for a test, though, as Europe’s sovereign debt crisis threatens to throw the continent into recession, and concerns over a slowdown in emerging market growth persist—a shift that could leave big U.S. manufacturers far more dependent on the strength of their home markets.¹

To remain competitive in the global economy, manufacturers must become more productive, efficient and responsive. According to “Business 2010: Manufacturing,” by The Economist, manufacturers can stay competitive by accelerating the pace of innovation and adapting to change swiftly.² Despite the recent pressure to reduce costs, a KRC Research survey of more than 300 senior manufacturing executives indicated that they have been investing in their companies, especially in the areas of quality improvement systems and research and development (R&D).³

Manufacturing executives must continue to invest in innovation. Optimizing manufacturing and supply chain network operations is not about improving operations—it’s about coming up with realistic solutions that contribute to the bottom line. Shortening cycle times, meeting customer deadlines, reducing inventory and shipping more products translate to meeting profitability objectives.

Taking a Lesson from High Volume

Since its induction in the 1950s, Toyota’s Production System (TPS) has transformed an upstart automobile company into the world’s largest car manufacturer to date. By implementing lean and stressing innovative principles such as waste elimination, cycle time reduction, and pull scheduling based on customer demand (rather than relying on traditional demand forecasts to push a product to market), Toyota achieved a lasting competitive advantage; today, the company has an earned profit greater than all other automobile manufacturers.

Due to the consistency of product mix, inventory levels and demand, lean is readily implemented within high-volume environments. TPS was tailor-made for the continuous flow of manufacturing used in Toyota’s automobile production. However, few modern manufacturers are still exclusively high volume. In a recent research study, Invistics found that the majority of manufacturing professionals surveyed said their plants were very complex, with a mix of several manufacturing modes (see Figure 1).

Highly complex environments such as job shops, batch processing, discrete line flow, or project-based environments are common in both process and discrete industries, and typically use make-to-stock, make-to-order, configure-to-order, or a combination of such manufacturing operations. The “complexity” within these environments stems from the fact that such industries have much higher demand variability, a rapidly changing product mix, and relatively short product lifecycles.

Given such unpredictable constraints, it becomes increasingly difficult to manually balance cycle time and inventory reduction with delivery performance and throughput. Advanced analytic information solutions and accompanying software are often required for companies to be able to implement lean in high-mix environments and optimize manufacturing performance (see Figure 2).

Extending ERP to Improve Performance

Enterprise resource planning (ERP) and its predecessor, material resource planning (MRP), are ideal for manufacturing companies as corporate business information systems, particularly for day-to-day transactions and maintaining a single data repository. However, when it comes to real-time management of manufacturing performance, such systems contain crucial gaps in utility and can’t drive performance alone. A recent Invistics survey found that two-thirds of manufacturing managers said their ERP system does not adequately support lean initiatives, citing lack of visibility, lack of support for lean principles, and no awareness of variability as some of the key issues (see Figure 3).

Variability Needs Accountability

Plants with a variety of manufacturing processes and a broad mix of finished products in a wide assortment of configurations face fluctuations in customer demand, supplier lead times, and machine reliability. ERP systems do not take those variables into account when planning inventory and capacity levels, leading to erroneous results.

ERP Needs Help Getting Lean

ERP systems are not designed to be consistent with lean manufacturing philosophies. Lean stresses waste elimination, cycle time reduction and demand-driven pull scheduling to improve performance. ERP is limited in its ability to manage waste and cycle time, and tends to push products to market regardless of inventory levels. Left to its own devices, ERP will keep releasing work into a factory even if the factory has more inventory than it needs.

Operating Parameters are Static

ERP systems require the user to enter certain critical parameters. Examples include inventory reorder points, inventory reorder quantities and batch sizes. For most ERP users, determining the correct numbers comes down to simple rules of thumb, and these rules are hastily applied to a variety of SKUs without any real moderation. A factory might order “a month’s worth” of a product every time inventory drops to “two weeks’ worth.”

Once set, the parameters are often not updated. It’s common to find facilities that have failed to update these inputs even once since the systems were first installed. Dynamic value calculations and consistent updates are required to optimize inventory.

Visibility is Lacking

ERP systems do not provide tools to track manufacturing metrics easily. In particular, the concept of cycle time has been essentially ignored by these systems. Often, the best you can do is dig through a data warehouse and get the cycle time for one particular batch—hardly a user-friendly solution. Lacking are execution tools that provide day-to-day, hour-to-hour factory health measurements to promote decisions that improve performance improvement—from shop floor to the top floor.

Improvement is Impeded

ERP systems are used to plan and execute, but not to highlight opportunities for improvement. Today’s plants and supply chains are dynamic environments. The only way to evaluate the impact of a particular improvement is to understand the complex interactions of the key drivers, including the variability among them.

The Role of Performance Optimization Solutions

Out of the need for a more complete solution has risen a class of software to support lean initiatives within complex environments. Performance optimization software extends ERP and gives manufacturers the ability to capture and communicate real-time diagnostics and performance metrics. This information provides visibility into key performance indicators (KPIs), which in turn expedites decision-making and the ability to implement improvements.

Practitioners of traditional lean manufacturing might dispute the need for lean manufacturing software altogether and, in the case of highly repetitive environments, they’d be right. In fact, one of the basic tenets of lean is simplicity of techniques that can be adopted without the benefit of technological solutions. However, in the case of complex manufacturing environments, practitioners won’t fully realize the benefits of implementing lean techniques without the help of lean manufacturing software to account for the high degrees of variability.

Empowered by performance optimization software, complex manufacturers are able to achieve business goals and attack waste in material, labor and capacity. They can witness the impact of their changes as they occur in real time, and get immediate responses to their corrective actions. Extending ERP with performance optimization software enables a holistic approach toward continuous improvement.

Finding the Right Mix

Despite the competitive pressures of a global economic landscape, manufacturing executives can employ the right mix of people, processes, and technology to sustain short- and long-term profitability. Manufacturing complexity is no longer an excuse for poor performance. Recognizing the shortfalls of ERP—static operating parameters, no accountability for variability, lack of visibility in the supply chain—high-mix manufacturers are supercharging ERP with powerful performance optimization solutions. 

References

1. Malone, Scott and Zieminksi, Nick, “Manufacturers bracing for a slower-growth 2012,” Reuters, December 9, 2011, www.reuters.com/article/2011/12/09/us-manufacturingsummitidUSTRE7B81FN20111209.

2. The Economist Intelligence Unit, Business 2010: Manufacturing, Embracing the Challenge of Change, April 2005.

3. Baker Tilly, Thoughts on the Economy and Global Business: Survey of U.S. Manufacturing Executives, July 2009.

4. AMR Research, ERP Item Master: Insufficient for Demand- Driven Supply Networks Process Fusion, December 14, 2004.

 5. AMR Research, Improving Pharmaceutical New Product Launch, November 25, 2004.