Lean Manufacturing and ERP Systems: Different by Design

While no system is perfect unto itself, both enterprise resource planning and lean manufacturing have their place in today's manufacturing environment.

When Henry Ford began using continuous flow manufacturing back in 1913, Kiichiro Toyoda's term lean manufacturing had not yet been developed. Both men, with their own dreams and leading-edge ideas, were on similar paths as early pioneers in the realm of manufacturing best practices.

These days, the Internet abounds with discussions of best practices, lean manufacturing and how these concepts fit in modern manufacturing facilities. Of particular interest is the discussion of lean manufacturing and the now-mainstream enterprise resource planning (ERP) system. Consultants, industry experts and educational scholars continue to debate the pros and cons of both systems, discuss the idea of the two working in tandem, and question if such a marriage can ever succeed. As the debates continue, it becomes increasingly clear that while no system is perfect unto itself, both ERP and lean manufacturing have their place in today's manufacturing environment.

Lean Manufacturing vs. ERP Systems

Just as in any good partnership, both ERP and lean manufacturing have strengths and weaknesses that need to be offset by a solid partner. By themselves they can be a strong solution for the right company, although organizations that neatly fit either solution are hard to come by.

Both systems focus on the elimination of waste through value stream mapping; creating flow of process, goods and people; and a continuous state of improvement. Without question, these principles are the basis for any well-run manufacturing operation. Both systems require a long-term commitment that takes a significant amount of time and resources, yet offers many operational improvements and cost savings in return.

The two methodologies begin to conflict in relation to planning and the idea of pull vs. push. Lean manufacturing focuses on pulling demand directly from the customer and reacting to such requirements promptly and efficiently. An ERP system, on the other hand, is a more holistic approach that goes beyond the plant floor and focuses on the organization, efficient movement of data and forward planning. Neither methodology is in itself wrong; both certainly have their place in innovative operations.

Pros and Cons

The difference between the two concepts becomes increasingly apparent when looking at industry types, manufacturing styles and planning horizons. By nature, lean manufacturing is reaction based, highly dependent on known customer demand, and geared toward individual products. Lean manufacturing is tactical. Typically this can account for only short-term-based decisions and, at best, can look at only one month of operational activity.

For some industry segments, a 30-day planning horizon is ideal. For others, the idea of production based solely on short-term customer demand is not feasible in day-to-day operations. Lean manufacturing becomes even less advantageous for companies with long production cycles, reliance on high-demand raw materials and components, or standard lead times of 90 days or more. As an increasing number of North American-based companies purchase goods from Europe and the Asian Pacific region, solid long-term planning becomes even more critical.

These additional considerations require an extended planning horizon and force companies to move past simple tactical planning. Such considerations require a move to operational- and strategic-based methodologies. Operational-based planning is generally performed at a product group level and includes multiple departments, such as manufacturing, inventory control and purchasing. A typical time span reaches well past the tactical single month and runs as long as one year or more. This type of planning offers greater visibility and generally better management decisions. However, as with tactical-based planning, it is not for every company or industry.

Strategic planning reaches even further and gets more generalized in scope. Such planning is performed at even higher levels of product groupings and can reach out as far as five years. This type of planning is utilized by a higher level of management for the purpose of achieving long-term objectives and financial budgeting.

Both lean manufacturing and the average ERP system provide tangible benefits, but in their own way and to different types of operations. By design, both provide a separate set of obtainable results. Lean manufacturing can be a great tool for short-term, manufacturing-based planning, but it does not have the depth to move outside the plant floor or go beyond a one-month period. If manufacturing is the focus and if the production style is a discrete-based flow that molds well to lean manufacturing, the operations can achieve substantial improvements through the adoption of such principles. If, on the other hand, the production plant requires production batches, includes high demand and long lead-time raw materials, or requires what if manufacturing scenarios, then lean manufacturing will not offer a suitable solution.

An additional obstacle to lean manufacturing is multiple plant organizations with centralized purchasing. If one manufacturing plant feeds raw materials or subcomponents to another plant, the simpler approach of lean manufacturing is not going to be robust enough to help streamline material flow between the facilities. In this situation, a full ERP system is needed. Only a multi-facility ERP package is capable of reviewing all production and raw material requirements across the enterprise to provide both streamlined purchases and production. Without a solid ERP package, duplications in processing, inventory, and transportation can and will occur.

A Hybrid Approach

Regardless of the organization or criteria involved, one size generally does not fit all. Unless a company is simple in nature, lean manufacturing alone is not the answer. In addition, an ERP system typically cannot resolve all manufacturing and operational issues. A hybrid approach must be utilized to capitalize on best practices from both methodologies.

Over the last few years, many companies have begun to see these hybrid systems as the answer to their operational woes. They understand that no software supplier can fulfill all their needs or wants, just as no operational methodology can fix all their operational pains. Companies are beginning to blend the two methods, using data and processes where they fit best.

This hybrid approach does not come easy, although the benefits can be well worth the effort. No cookie-cutter implementation plan exists for a hybrid of lean manufacturing and ERP adoption. The manner in which the hybrid is implemented must be modified for each company. A hybrid approach could include the following practices:
  • Establishing ERP-based minimum/maximum levels on the plant floor to mimic kanbans
  • Utilizing actual orders in planning and scheduling for items with short lead times, and default to forecast-based scheduling for long lead time items
  • Utilizing smaller batch sizes to reduce excessive inventory
  • Allowing for partial batches to progress through the workflow to increase throughput and reduce overall production time
No simple answer exists for achieving optimized manufacturing operations, and neither lean manufacturing nor ERP will change this fact. However, savvy managers and executives recognize the advantages of the hybrid model and are venturing into this new and relatively uncharted territory. The end result offers suitable solutions for each company's unique requirements and modifies these solutions so the organization will derive the most benefit.

For more information regarding lean manufacturing and ERP systems, call Technology Group International at (800) 837-0028 or visit www.tgiltd.com.


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