How to create a Lean Enterprise with ERP?
Before we get into the details of how to create a Lean Enterprise with ERP, let us briefly understand the origin of Lean, principles of Lean, and how it expanded its focus to a Lean Enterprise.
What is Lean?
Lean is a way of thinking. It is a persistent effort towards minimizing waste for achieving continuous improvement. The Lean philosophy originated with Toyota putting into practice the Lean Production System to minimize waste without sacrificing productivity. They were able to achieve significant improvement in productivity, efficiency & profitability.
Although Lean started with Manufacturing, companies soon realized that the application of the Lean methodology and practices need not be restricted to manufacturing alone. They can be implemented across all functions, processes of an organization. That is how the concept of Lean Enterprise came into being.
What is Lean Enterprise?
A Lean enterprise is an organization that focuses on identifying and eliminating waste from all business areas and business processes to provide maximum value to its customers.
The foundation of Lean is studying current processes of an organization, identifying the problem areas, blockages, wastes and continuously improving them to implement optimal processes across all functions such as manufacturing, production planning, inventory management, procurement, supply chain, logistics to ensure more efficient and profitable business.
What are the Principles for a Lean Enterprise?
A Lean Enterprise is governed by the following principles which provide a detailed outline and help organizations to identify problem areas and overcome them to create an efficient company.
Value: This principle focuses on providing the maximum value to the customer in every possible way. For e.g. Optimal price, perfect time, right product, etc.
Value Stream: This principle defines the entire workflow of a product or service. It starts from acquiring raw materials required for production and covers everything from inventory, production, logistics, supply chain, delivery to the customer.
Flow: This principle emphasizes the smooth functioning of a process or workflow. Whenever there is an issue that causes a delay, blockage or breakdown it is considered as a waste. For e.g. semi-finished goods lying in the shop floor, delay in production due to stock unavailability, delays caused due to lack of information.
Pull: This principle specifies that companies should only manufacture products in the quantities required by customers and delivered just in time when customers need it.
Perfection: This principle directs companies to aim for perfection in every process, by identifying and eliminating the root causes of poor quality, delays, from processes.
How to create a Lean Enterprise with ERP?
Implementing an ERP software integrates all important processes of an organization. It automates functions, efficiently connects business verticals, provides real-time data insights across departments to make informed decisions. Thus, you can manage all resources such as manpower, machines, materials, energy, time efficiently
Let us see how ERP helps companies to put into practice the principles of Lean Enterprise
Standard Processes & Well defined Workflows with ERP: With ERP a company can implement standard business processes, reduce manual work, eliminate redundant processes and implement business discipline to ensure well-defined workflows, define exceptions and so on. This adheres to the Lean principle of “Value Stream” which defines that processes should be streamlined to meet customer requirements in the best possible way.
ERP Production Planning module: With the production planning module of ERP companies can accurately forecast the demand based on orders or historical data and plan production accordingly. This helps achieve just in time production, based on demands. This adheres to the Lean principle of “Pull” which states that companies should produce only in quantities required by the customer and just in time.
ERP Inventory Management module: Maintaining some amount of Inventory is inevitable for smooth production. However, stocking more than the required quantity, and/or for a longer period, than required, constitutes a waste. With the inventory module of ERP, companies can get insights into inventory trends and effectively manage usage of inventory based on just in time production plans. Thus companies can maintain a lean inventory to ensure smooth production. This adheres to the Lean principle of “Pull, Flow, Perfection, Value” which mention we should focus on providing the right quantities of inventory, just-in-time, to ensure smooth flow of processes and ultimately add value to the customer by eliminating any wastes in Inventory.
ERP Business Intelligence module: ERP provides companies single view dashboards for real-time data as well as detailed reports for all processes. ERP thus provides insights into data and historical trends of critical business processes. ERP facilitates defining process KPIs and measures performance against metrics. This ensures early identification of problems, bottlenecks and implementing measures for improvement. This adheres to the Lean principle of “Perfection” which involves identifying the root cause of problems and overcoming them.
ERP Quality module: With the Quality module of ERP companies can define raw material quality parameters, define a permissible quality range, record the actual quality of raw material received. ERP also provides quality reports and necessary features to ensure quality in the purchase, procurement, production process. This ensures that a company adheres to its quality policies by rejecting inferior quality materials. This ensures that a company can maintain and improve the quality of the end product. This adheres to the Lean principle of “Perfection” which involves aiming for perfection.
ERP Supply Chain module: The objective of Supply Chain is to get the right product, to the right place, in the right quantity with the right quality, at the right price. The supply chain comprises of manufacturers, suppliers, distributors, retailers, and customers. The supply chain module of ERP helps companies to establish long term supply contracts at negotiated prices, maintain just enough inventory, reduce storage space required, lower costs of transportation by selecting the best possible modes. This makes the supply chain more efficient and effective and ensures the best value to the customer. This adheres to the Lean Principle of “Value” which focuses on providing maximum customer value.
What are Tangible Benefits and Measurable Results of becoming a Lean Enterprise?
Companies that have implemented ERP and Lean principles are able to measure the before and after impact on their Key Metrics. They have seen significant improvements in areas such as:
- Business Process Cycle Time
- Manufacturing Time
- Inventory Holding
- Operating Costs
- Manufacturing Costs
Why should you aim to become a Lean Enterprise?
When you implement ERP & Lean principles, you are able to implement business discipline by defining standard business processes, automate processes, eliminate redundant activities. All this makes processes more efficient, reduces costs, brings speed in business, and gain a competitive advantage with faster time to market. This eventually results in
- Higher Liquidity
- Improved Cash Flow
- Better Profitability
What are you waiting for? Go ahead and create a Lean Enterprise with ERP to achieve the above-mentioned objectives.
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