Why Lean under delivers (and what you can about it)
Where Lean went Wrong
In his 2017 article Where Lean has failed Jim Womack, one of the founders of Lean through his co-authorship of “The Machine that Changed the World” (1990), wrote:
“…..we need to acknowledge that our efforts to dramatically transform large, mature organizations haven’t worked and aren’t going to work, even when these organizations encounter crises. I spent several years recently with CEOs of large enterprises and got them to sanction model lines for value streams to demonstrate what was possible. The results were strikingly positive, but the organizational immune reaction was immediate and crushing. Little lasting was achieved and I’ve moved on. I no longer expect “another Toyota” to emerge in every mature industry”.
In the same article he urges the Lean Community not to give up but to:
“……acknowledge that our traditional ways of teaching lean methods through workshops and explaining our ideas through workbooks are at a point of diminishing returns"
Jim may well be right about the teaching methods but he’s missed a very important factor. Lean’s big problem has been that, in order to operate to its full potential, it has to be amenable to the ERP/APS systems that have become so prevalent since the 1990s and it simply hasn’t been - until very recently.
What is Lean Really?
In “Lean Thinking” (1996) Jim, and his co-author, Dan Jones, defined the 5 key principles of Lean as being:
Which leads to a very short summary of Lean:
“Identify Value and produce it using Pull replenishment to achieve Flow through the Value Chain and improve towards Perfection by harnessing the motivation, knowledge?and skills of employees to use the various CI tools (eg. TQM, TPM, Poke-Yoke, Standard Work, SMED, 5S, VSM etc) that minimize flow destroying variability"
Variability occurs when material movements fail to Flow (ie. move in line with demand), including when the materials don't move at all (caused by batching, work centre breakdowns/quality issues & schedule interventions). This is why Hopp & Spearman, the authors of 'Factory Physics' describe Lean as being "......fundamentally about minimizing the cost of buffering variability”, those buffers being lead-time, capacity and inventory (1).
Multiple echelon Pull (eg. re-order point / cycle) is critical for achieving material Flow because it's the only replenishment methodology that attempts to move materials in line with demand. (2)
The Problem: ERP/APS Push Replenishment instead of Pull
Unfortunately, ERP/MRP/APS systems cannot support enterprise-wide Pull. Instead they have only ever supported Push replenishment through an MRP dependent demand network which actively generates performance destroying variability and its buffers. Push replenishment operates by taking inevitably inaccurate forecasts of item level demand (3) and converting them into similarly inaccurate Master Production Schedules that lead to unbalanced inventories and continuous expediting and fire-fighting as Planners respond to an avalanche of un-prioritised exception messages to head off the threatened stock-outs and back-orders. Unfortunately every schedule intervention stops the movement of other items (and these delays propagate up the supply chain affecting all items on the shared routing) which triggers a vicious circle of more interventions to compensate for their consequent increase in lead-time and service threat. As a result, such manufacturing supply chains perform very ineffectively because of this self induced variability - they operate with lead-times that are longer, and inventories that are greater than they need be, they have difficulty providing reliable service levels and shop floor stability is frequently disrupted by schedule interruptions, all of which also has a detrimental impact upon cost of goods because the factory isn't stable and has to periodically use unplanned capacity to "clear the backorders".
Because of the ubiquity of ERP/APS, and their inability to support Pull replenishment, the all too common picture is that of under-performing Lean factories being driven by an inaccurate demand signal (ie. the forecast) through an ERP/MRP/APS system with Pull confined to small segments of the factory through the use of card systems such as kan-ban. Enterprise-wide Pull is extremely rare which is why the potential benefits of Lean are almost never achieved as they are swamped by the continuing high levels of variability caused by the use of inaccurate forecasts, master production schedules and consequent schedule interventions – no wonder Lean's financial results have been a disappointment for many in industry and Jim believes that “the original vision of its founding fathers has failed to materialise”.
The Opportunity: Enterprise-wide Pull
But there is enormous potential for companies that have invested in Lean to achieve a step change in performance by implementing Enterprise-wide Pull through ERP transaction systems using the Demand Driven?Operating Model?(DDOM) with Software as a Service (4).
The DDOM?helps to deliver flow (ie. eliminates the service saving, schedule shuffling, stop?/?start variability?caused by?using inaccurate short term forecasts for driving replenishment execution) by, and this is counter-intuitive, deliberately positioning a small number of decoupled, or independent, inventory locations within the supply chain (eg. raw materials, perhaps some sub-assemblies, in front of an 'assemble to order' operation,?finished goods and through the distribution network if ex-stock service is required)?that are sized using the forecast of average demand over the local lead-time and (if using ROC) the replenishment cycle, plus a quantity calculated for demand variability. Each position is replenished, following?its own?stable and optimal sequence & cycle, in line with demand (or downstream consumption) using, effectively, a re-order point or re-order cycle mechanism that incorporates?stock-on-order?as well as on-hand. In this way the entire supply chain responds autonomously?to demand, and the multiple independent inventory positions allow:
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a) each de-coupled section of the supply chain to be protected from up/down-stream activities thereby preventing the?propagation of?natural process variability across the, otherwise, dependent demand planning network, and
b) the various value-add activities between the?de-coupled inventory positions to be independently scheduled and to operate with different lead-times, cycles and order quantities as necessary.
As a consequence the inventories are right sized, re-scheduling is eliminated and SC variability minimised so lead-times and use of unplanned capacity diminish considerably.
The DDOM uses a robust process for managing significant and exceptional demand / supply events and requires a periodic calibration process. The latter involves a number of Master Settings being periodically updated in line with future average demand and variability, lead-time, desired service level and others, see Forget the Master Production Schedule.
The Benefits of Enterprise-wide Pull
The effectiveness of this process, and its contribution towards Flow, is demonstrated by the results (when replacing forecast-push ERP/MRP/APS) which are typically (5):
???Achievement of planned service levels, from
???40% less average inventory, with
???Lead-time reductions of up to 50%, and
???Improvements in OEE and reductions in use of unplanned capacity, both of which lead to significant cost reductions
????Without expediting, fire-fighting or the need for highly accurate short term item level forecasts. Which isn’t to say that forecasting is no longer required!?Forecasts are still needed for S&OP, inventory target sizing and, by exception, for events such as capacity constrained seasonality, extreme promotions such as TV campaigns & significant tender wins that require planned advance stock builds.
The Demand Driven?Operating Model?doesn’t replace Lean. It merely enables its key component (Pull) to be implemented across the enterprise-wide supply chain to help deliver Flow using ERP transactions systems. As such it significantly reduces performance destroying variability and allows all the benefits from past kaizens and CI to, at last, drop through to the bottom line and ensure that future initiatives do the same.
Lean pragmatists will welcome Demand Driven MRP??for what it is: Lean finds a friend in DDMRP
Notes?
1. The following describes exactly what variability is and how it destroys flow and SC performance - SC Variability: what it is, why its bad and how it can be minimised ??
2.?To understand better how important Pull is see The SC Replenishment Problem (and how to solve it) and Factory flow is non-linear so don't use Master Production Schedules
3. World class forecast mix accuracy across a portfolio is 80%, which is achieved through a small number of high volume / low variability items achieving accuracies of 90% plus. In such a portfolio, the forecast accuracy achieved by the majority of sku's (those with lower volumes, higher variabilities) will be found to be less than 60%
4.??Information on certified Demand Driven MRP / S&OP software providers can be found at: DDI approved software
5.??See Demand Driven Institute case-studies . These case studies are for single company implementations of DDMRP but there is no reason why the benefits should not be further increased by extending the process up and down the supply chain with suppliers and customers: Demand Driven Collaboration
Director, Corporate Supply Planning at B. Braun Medical Inc.
7 个月“Self induced variability”, “Organizational immune reactions”, and “avalanche of un-prioritised exception messages” are all too prevalent. @Simon Eagle, I always enjoy reading your articles… as they provide a roadmap (and hope) to a better replenishment framework.
Supply Chain Solution Architect | SAP | Project Manager
7 个月Thanks for sharing Simon. Interesting read
This is an excellent and very interesting article offering an indication as to why those implementing lean practices often struggle. The argument around ERP and MRP systems not supporting what lean is trying to do is very plausible. I also noted the assumption around demand forecasts being almost worthless due to the level of inaccuracy often experienced. As a company who prides itself on attaining high accuracy levels of demand forecasts, we would suggest that the other option to this challenge is to improve the accuracy of the demand projections to a level of 85% and higher. Where there is confidence in the accuracy of forecasts lean practices can be extremely effective. I have heard the argument around achieving an accurate demand projection is almost impossible. However, when a qualified and experienced team derive, manage and measure the demand projection to achieve the financial goals of the organization the accuracy levels can be extremely impressive.