Application of Lean Tools to Eliminate Wastes in an ERP System

It is not very common to see an organization proactively analyzing its current ERP systems in the normal course of business. Sometimes it so happens that due to some error in the initial business blue print, the organization struggles later and lives with a lot of system wastes without knowing it. Later it becomes a part of everyone’s life. The symptoms of this error could be in terms of complicated workflow in the system, slow systems performance, requirements of new hardware and more visible user frustration.

There is a tremendous scope of application of Lean tools in this context. A critical analysis of the current business process and the system flow from the Lean perspective can open our eyes to the root cause of the problem.

A Lean Case Study

In a water management company the users in the manufacturing and procurement function were spending too much of their efforts completing the required transactions in the ERP system. The process was to complete the entire workflow in the ERP system through different transactions while the product was physically being manufactured on the shop floor. In an ideal situation, every transaction should be completed in the system before or immediately after (as applicable) the process is executed on the shop floor. However in actual practice the products were produced on the shop floor way before the system transactions were completed. On the other hand, the company was not allowed to ship the finished products outside the factory until they were manufactured and shipped in the system. Because of this situation, there was a huge inventory being piled up in the finished goods store, resulting in a) a delay in delivering the product to customer, b) a blocking of capital, c) damage of goods and d) an accounting mismatch in the quantities of raw materials, processed components and finished goods.

Identifying the Wastes in the System Flow Using Lean

An initiative was launched to critically analyze the value stream. A cross functional team was formed consisting of the ERP users from various functions like procurement, stores and logistics, manufacturing, vendor development, etc. Under the facilitation of a Value Stream Manager the cross functional team created a value stream map along with the system flow diagram (the transactional flow in an ERP system). The time spent on each transaction was also captured. This exercise uncovered a lot of wastes in the system flow such as:

1. Lots of handoffs, which resulted in a high number of transactions (a waste of transportation)
2. Many logically sequential transactions were not in a single workflow forcing users to keep parallel documentation so that they could use one transaction reference for the next transaction (a waste of motion)
3. The users had a practice of using a single transaction for bulk processing of materials wherever possible to avoid labor intensive multiple transactions. This was followed by a quarterly material reconciliation process to balance the stock of materials physically and in the system (a waste of over-processing)
4. Some users in the chain were handling multiple transactions single-handedly, resulting in a bottleneck that made others wait (a waste of waiting)

Coming Up with Lean Solutions

The team had several brainstorming and analysis sessions to come up with the following solutions.

An alternate system flow was designed which substantially reduced the number of transactions. Earlier practice had the raw materials issued from multiple stores and brought to the shop floor location through multiple transactions. Another set of transactions were used to convert the raw materials into processed components. Finally the processed components were consumed when the final products were assembled and credited through another set of transactions. With the modified workflow the material consumption was linked with the defined bill of material (raw materials and processed components in defined quantity as per design) of the final product. Therefore, the components and raw materials (both defined as bill of materials for the final product) were consumed while the production order got confirmed. The result was impressive, with the new process system cycle time for the product reduced considerably, and now the same cycle time could match the cycle time for the physical production. The inventory level came down drastically, parallel documentation almost eliminated and extra capacity generated as the user got rid of so many transactions. The quality of the product also improved as the shop floor users could focus more on actual production rather than on spending time on system transactions. A monthly reconciliation process was introduced for the consumables (not bill of material items) rather than having it introduced the end of quarter. The quarter end accounting mismatch was reduced to less than 1 percent.

In Conclusion to This Lean Case Study

It’s important to listen to the voice of users, capture their pain points and concerns. This might trigger a real process improvement, as it is done in the above example. In addition this will improve the system performance without investing much on the infrastructure.