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Special Report

Four Vital Reasons Manufacturing

Execution Systems Are Essential to Lean Enterprise Initiatives

Introduction
Todays manufacturers operate in an increasingly demanding environment that includes global competition, increasing pressures for cost reductions and new products, quality-driven compliance, and improvements in on-time and in-full orders. Each of its core business functions is affected, ranging from product design, manufacturing, supply chain operations, sales, and customer service. It is within this context that many manufacturers are initiating corporate-wide lean cultures and programs in order to compete in the 21st century. Though the concept of lean has been around for many years, it is only recently, with the advent of modern information technologies, that an enterprise can realize the true vision of lean. With state-of-the-art manufacturing execution systems (MES)which combine technologies such as the Internet, Web services and XML, radio-frequency identification (RFID), and other real-time shop floor technologiesmanufacturers can now gain visibility into their entire supply chain, from source through consumption. Manufacturers leveraging these technologies, and driving towards a fully lean system, will see themselves rise to the top of their segments.

What is Lean? Lean is a unified, comprehensive set of philosophies, rules, guidelines, tools and techniques for eliminating muda, the Japanese word for waste. The concept and first deployments of lean manufacturing came from the Toyota Motor Car Company. The key principles of lean include: Voice of the customer Value-stream or process mapping Continuous improvement Elimination of waste every where, including: Over production Inventory Defects Waiting Motion Transportation

Most manufacturers start their lean initiatives in the plant, experimenting with manual methods such as value stream mapping, cellular plant layout, and techniques such as visual signboards and kanban cards. When these prove successful, management continues the lean journey by implementing kaizen (the Japanese word for continuous improvement), leveling build schedules, and enabling demand-pull throughout the plant. Many manufacturers, in fact, have achieved dramatic improvements in cycle times, work-in-process inventory levels, and quality simply by developing new, manual lean processes on the shop floor. Unfortunately, the results have sometimes been so successful that many lean beneficiaries have called into question the need for using information technology in their deployment. The truth is that manual lean techniques will deliver some early benefits, but a lean deployment absent of technology will not scale to achieve a lean enterprise. To demonstrate the value of technology in a lean deployment, HighJump Software has developed the Lean Solution Map. The Lean Solution Map outlines the scope of a typical lean deployment, the role of technology at each stage, and the business benefits at every level.

Four Vital Reasons Manufacturing Execution Systems Are Essential to Enterprise Lean Initiatives

Rationale for Applying Technology to Lean Initiatives


Before describing the Lean Solution Map, it is first important to understand why an MES is a necessary component for any successful lean program. The answer to this question is four-fold: 1. 2. 3. 4. Data: Real-time collection and visibility Internal Linkages: Integration with other internal business processes External Linkages: Collaboration with trading partners Agility: System flexibility to adapt to changing business needs
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1. Data
Real-time data collection and visibility are required to support effective program metrics and decision-making. An improvement program such as lean is highly dependent upon the accuracy and timeliness of the data produced and collected during production processes. Examples include machine uptime, process cycle time, or days of work-in-process inventorydata that is critical for continuously improving the process. Technology provides a robust way to collect production and process data, whether via handheld PDAs, touch screens, or through integration with machines and other equipment. In fact, the ability to capture data in real time is an important element of any MES. Generated and made visible in real time, the data enables better shop floor decision making. Additionally, standardization of technologies within the plant, or even across the entire enterprise, assures continuity among mechanized processes, humanenabled processes and management reporting.

2. Internal Linkages
Integrating information from a lean program with other internal business processes ensures consistency. Many lean programs may initially focus on improving the manufacturing process. But what about leans relevance to processes beyond manufacturing? For instance, the output of the manufacturing process (finished goods) could naturally be defined as the input (inventory receipt) of the distribution process. Considerations must support not only manufacturing, but other impacted areas of the business as well. Only the appropriate use of technology can build the cross-functional bridges to bring multiple processes together. An MES used to support one functional area should be seamlessly integrated with technology in other functional areas; or, in the best-case scenario, the MES and related technologies should use a single platform that can operate efficiently and cost-effectively in all environmentscapitalizing on a common data model, user interface, and tools that can be leveraged between teams or functional areas.

3. External Linkages
Technology provides the backbone for the ability to collaborate effectively with trading partners. Unfortunately, not all manufacturers have all of their suppliers next door to their plant, ready to supply new orders immediately. Proper production scheduling, which should consider manufacturing and transportation lead times, as well as product availability, becomes another critical element in the execution process. Fortunately, todays information technologies, particularly MES, typically provide inexpensive, Web-based capabilities to collaborate with suppliers. Whether it encompasses a series of complex transactions (such as negotiating, placing and accepting POs), or serves a minimal role such as offering visibility into available inventory levels, collaboration helps enable a true partnership between suppliers. This helps to avoid the blame game that occurs all too often.

4. Agility
Changes in business needs and processes require flexible software. The business process designed and deployed today will inevitably require changes in the future. Perhaps a new customer obligation, marketing campaign, or regulatory requirement will drive this change. Business process changes can dramatically affect those doing the work, as well as the materials, equipment and services provided. Relying on manual indicators and tools to provide the flexibility necessary to meet these demands can introduce waste in both time and materials. On the other hand, deploying technologyparticularly an MES designed to embrace business process changeprovides a robust platform to base not only todays initiative, but also future improvements. A true solution-based infrastructure should rapidly and seamlessly adapt to new business practices, new equipment, or new product lines, without high cost or risk.
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The Lean Solution Map


Information technologies, and MES in particular, are vital to the success of any enterprise-wide lean initiative. Knowing this, how should a manufacturer chart a course for their lean rollout, and what benefits should they look to realize during the journey? Developed by HighJump Software, the Lean Solution Map provides a framework for the scope of a lean deployment, and identifies key areas for technology enablement. The x-axis of the Lean Solution Map depicts the increasing scope of a lean deployment within and beyond an enterprise. Typically, the deployment begins in the plant, moves upstream into the supplier community and, lastly, into distributors and customers. The y-axis depicts the level of business benefits a manufacturer can attain through their lean programs. As the Lean Solution Map shows, the level of benefits increases as the scope of deployment expands, but when information technologies are utilized, the level of benefits grows substantially. The following walkthrough of the different phases of a lean deployment shows how technology plays a role in each phase and the business benefits achievable through technology. Phase One: The Plant The plant is the most logical starting place for a lean initiative. The approach for implementing lean in the plant has been proven across many industries and manufacturing styles. Books, industry groups, and lean consultants provide an abundance of information related to deploying manual lean techniques within the plant. Many lean practitioners promote the use of 100 percent manual lean techniques. Plants suffering from poor quality, excess work in process, and long cycle times often see dramatic improvements based on these manual techniques. However, over time, these plants find that manual methods are labor intensive and do not scale across the factory. In order to reduce the number of manual steps, factory schedulers typically develop spreadsheet tools specific to their production lines or product families. Rarely is there any standardization among these scheduler-specific tools. The drawbacks to these tools are: limited reuse of best practices, inability to scale across the factory, and heavy reliance on tribal knowledge within the plant. Additionally, these spreadsheet tools often cannot deal with complexities such as modeling flexible work cells and smoothing complex demand patterns. Paper-based kanban systems are also pervasive in lean plant environments. These systems require the passing back and forth of paper cards, from operators to material handlers, several times per day. In many cases, these cards represent the only source of inventory information on the plant floor. Paper-based systems result in labor-intensive processes for transporting and managing cards when demand patterns change (recalculating kanban quantities, collecting old cards, creating new cards, etc.). Although benefits of improved quality, lower work-in-process (WIP) inventory, and reduced cycle times may be achieved using manual methods, deploying information technologies can increase the benefits for a manufacturer. For example, by using real-time data collection technologies such as PDAs or touch screens, a manufacturer can gain granular visibility into production, order status and machine availability. This results in an improved ability to plan production, as well as re-schedule production when unforeseen situations arise. Additionally, by providing the most upto-date work instructions, test plans, and engineering drawings to shop floor workers via computer terminals, labor efficiencies are increased and errors are reduced.

Phase Two: The Supplier Community After deploying a technology-enabled lean initiative in the plant, the next logical step is to apply lean to the supplier community. Extending lean to suppliers often comes with information exchange challenges, as suppliers can be located miles or continents away. Historically, lean manufacturers have encouraged their suppliers to locate or store inventory near the manufacturing facility. Though some automotive and personal computer manufacturers have been effective in ensuring their suppliers are located close by, it is not feasible for many manufacturers to receive this level of service. Often manufacturers are importing raw materials from various locations around the globe. Many manufacturers simply are not large enough to require suppliers to adhere to a near-location strategy. Because of this geographically disperse supply base, manufacturers have a difficult time extending card-based pull systems to their suppliers. Instead, many manufacturers have relied on the traditional approach of material requirements planning (MRP) coupled with purchase orders. These purchase orders are then manually mailed, faxed, or e-mailed to suppliers, who must then respond to the purchase orders using similar manual techniques. This approach is labor intensive, prone to errors, and inherently batch-based. Additionally, this approach typically leaves a black hole of expected receipts: material planners have little visibility to inbound orders that have not arrived at the manufacturing facility. The batch-based approach to dealing with suppliers results in inefficiencies and excess inventory. Rather than having to rely on an MRP, manufacturers can now deploy an emerging class of MES solutions that specifically deal with implementing lean across the supplier network. Unlike many supplier portals that focus on financial settlement, these tools focus on goods movement and valueadded activity between the supplier and consumer, allowing manufacturers and distributors to communicate demand electronically to their suppliers based on real-time inventory depletions. This, in turn, enables both the manufacturer and their supplier full visibility to transaction status and material flow throughout the procurement process. These unique software solutions remove many of the challenges associated with a batch-based procurement process. Demand signals flow freely from manufacturer to supplier, based on true demand patterns and real-time consumption. The result is cost savings for the manufacturer as well as the supplier. The manufacturer is able to reduce overall network inventory by communicating demand signals in real time. They can also more effectively manage supplyside inventory because they have full knowledge and access to all inbound receipts. The supplier also benefits, since they have visibility to actual consumption signals instead of batched demand signals, and thus, can improve their planning, production, and delivery. Phase Three: The Distribution Network and Customers Although the plant, followed by the supplier networks, are logical starting areas for lean deployment, the true power of lean comes when a manufacturer becomes closely connected to the distribution network and customers. At the heart of any lean philosophy is adding value for the customer. Only by gaining visibility to inventory and demand patterns near the consumer will a company truly achieve a lean enterprise. In the perfect lean supply chain, there is no need for inventory in the distribution channel. In this utopia, customer demand is fully understood and invariable. Because the plant has complete knowledge of the demand pattern, it builds and ships exactly what the end consumer requires. However, anyone who deals with supply chain operations knows that distribution inventory is a critical element when dealing with variable demand patterns, unpredictable new products, and seasonality. Additionally, savvy supply chain practitioners have embraced distribution as a method for postponement and value-added processing.

A Guideline to Achieving a Lean Manufacturing Enterprise Assess the current process Understand the customers true desires and future market trends Obtain buy-in by senior management Develop profound knowledge of the manufacturing process Apply lean tools and techniques at the most critical processes Spread out the lean implementation to all auxiliary areas until a fully integrated manufacturing process is obtained Implement lean with suppliers Implement lean with downstream supply chain organizations, including customers Apply lean into off-line and non- manufacturing areas (Engineering, Design, Marketing, etc.)

For many years, distribution logistics have leveraged real-time execution systems for warehouse management, warehouse control of material handling equipment, yard management, and transportation management. These systems have contributed to the effective use of labor, space, and transportation resources. However, these distribution systems have done little to connect the distribution network with the manufacturing facility or supplier community. In many cases, distribution centers receive nightly batches of sales orders and weekly batches of inbound purchase orders. These batches may make distribution easier to plan, but they are detrimental in terms of increasing inventory velocity. These batch-based systems create lumpy demand patterns and slower response to customer demands. To compensate for the poor response time, enterprises create large buffers of safety stock in their distribution network to prevent stock-outs. These buffers reduce working capital and increase product obsolescence and expiration risk. Fortunately, manufacturers can now deploy a platform of technologies that provide connections between manufacturing and the broader supply chain. These platforms enable real-time information related to customer demand patterns to flow back into distribution, production, and to the suppliers. Additionally, these platforms provide remote inventory management tools to support inventory at the customer location, using methodologies like vendor-managed inventory (VMI) and scan-based trading.

Once distribution systems are integrated with the manufacturing and supplier communities, demand signals can be communicated in real time to manufacturers and suppliers, who can replenish based on these true demand signals. Supply managers no longer need to predict future demand. Instead, manufacturers and suppliers can gain visibility to actual consumption signals and trigger their supply responses in coordination with endcustomer demand.

Conclusion
Lean thinking and execution are necessary in todays market to improve cycle times, work-in-process inventory levels, and quality. While paperbased lean processes show some early benefits, when deployed at an enterprise-wide level, they often result in labor-intensive processes for transporting and managing cards when demand patterns change. Manual methods also show limitations when working with the supplier community. Successfully implementing lean across an enterprise requires a real-time MES that helps manufacturers connect to the broader supply chain. Fortunately, technology is available to help manufacturers facilitate and streamline information and goods flow among their plants, suppliers, distribution centers and customers. Though many current systems fall short of a lean process, a true lean MES should provide manufacturers with: Real-time data collection Integration with other internal business processes Web-based capabilities to collaborate with suppliers An adaptable infrastructure that is easily configured to suit new business practices, new equipment or new product lines rapidly without high cost or risk A single technology platform, supported by common resources

Manufactures who fully leverage this new technology will be able to implement and realize the significant benefits of a true lean program.
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About HighJump Software Forward-thinking companies entrust HighJump Software to power their supply chains. HighJump Software simplifies the art and business of creating, selling and moving products across global networks. HighJump Software helps more than 1,300 clients worldwide drive growth and manage change. About Microsoft Founded in 1975, Microsoft (Nasdaq MSFT) is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.

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