ERP and Lean Manufacturing

Your company is a long time user (i.e., since early 1990's) of a small business Enterprise Resource Planning (ERP) system. This manufacturing planning system contains an integrated accounting system as well. One of the major characteristics of these systems is that they are transaction based. This means that as transactions are processed in operations (i.e., receipts, issues, transfers, etc.) the corresponding accounting entry is processed through to the balance sheet and profit and loss statement.

Over the years, the company has brought in Just in Time (JIT) consultants and has tried several projects to make these primarily Japanese technologies work. Zero inventory, quality circles, kaizen blitzes, etc. have all been started, used for a while and then quietly forgotten about.

The company just announced a new "Lean Manufacturing" (LM) initiative. A new consultant has been hired and he is teaching the implementation teams on demand pull techniques. The consultant is a long time JIT/LM practitioner and a "lean purist." He has stated that ERP is just a planning system and does not work well on the shop floor. He is putting in kanban replenishment systems that signal when material is to be moved. Detailed transactions will not be processed on the floor. He claims that with LM, you don't need a perpetual inventory control system. ERP however, does.

The ERP people fear that after the first month of operation, the accounting system will have broken down. The way the company use to account for operations will no longer be working. For example, purchase orders will be received, but the material received will never be used. Inventory in the system will grow infinitely, or need to be adjusted out. The accounting people have taken a seminar on lean accounting, but admit that it will be a while before they can design such a system for the company.

The basic issue is: "Can the organization implement LM and discard the transactions required, at least in the short term, for the ERP and accounting system to function?"

Factors to consider:
1. Some parts can easily be converted to kanban and the system coded so that they are treated as "bulk issue" or floor stock parts. Doing so eases ERP system planning.
2. Some BOM structures can be flattened as cellular technology is implemented. Unneeded levels can be changed to phantom or pseudo levels.
3. Repetitive manufacturing can be used to make it easier for operators to transact production completions. Routing transactions can therefore be eliminated, yet production hours (at standard) earned.
4. Administrative tasks can be moved to the cell (i.e., cycle counting, point of use storage and maintenance, and most importantly, transaction processing) freeing up support staff to work on the LM initiative.
5. Shop floor data collection may be used to facilitate the flow of material. Fundamentally, it will reduce the lag time between when the transaction occurs and when the ERP system is updated. This will increase inventory accuracy.

ERP and LM can coexist until the LM system is proven and the standard cost accounting system changed to support the lean activity.

What do you think?