How can you implement Lean in an ERP implementation

The concept of 'Lean' is the adaptation of Toyota Production System into western manufacturing processes. The lean involves elimination of any non-value adding activities to ensure that the customer pays for only value adding features in the product. The five principles identified in Lean are:

1. Specify what creates value from Customer's perspective


2. Identify all the steps along the process chain


3. Make those processes flow


4. Customer Pull rather than stock push


5. Continuous removal of wastes.


The principle of Lean identifies 7 wastes. These are:


1. Over Production


2. Over stocking of inventory


3. Waste of transportation


4. Processing wastes


5. Waste of idle time


6. Waste of operator time


7. Waste due to bad quality


While these identify the wastes associated with Manufacturing process, there are other wastes that can be identified in other processes. For example,

1. Waste related to Obsolete data: Most of the time, an ERP implementation leads to identification of a number of obsolete data. For example, in one of my implementations, we identified over 80000 cost components for an item which was adding only 0.5% of the total item costs. Once we removed these components, the costing program which used to take more than 36 hours to complete, finished in just 30 minutes !!!. Other similar examples include, obsolete stock, suppliers, Purchase Orders, Customer data etc. If we can ensure that we have a well designed system of alerts and reports and processes in place, the waste and time associated with tracking and searching the data can be significantly reduced.

2. Waste related to bad naming conventions: If we can design naming conventions properly, searching of data becomes easier and faster. For example, it is faster for the system to index and retrieve numerical data rather than alphabetical data.

3. Use of EDI: This can help reduce various data entry and remove the wastage of time associated with entry of invoices / credit notes etc.

4. Proper Scheduling of Batch Processes: By identifying dependencies and correctly and efficiently scheduling the batch processes, most of the tedious, regular activities can be moved to the time when system load is lesser.

5. Netting of invoices against credit memos before making supplier payments: Many a time we see that there are pending credit memos which can be netted off against the invoices. But the organization is not aware of their presence. Just by a simple alert, we could ensure that the credit memos are netted of thereby conserving valuable cash...

Note that I have not mentioned a single activity relating to the 7 wastes mentioned above which are all related to manufacturing process. The points that I have mentioned relate to the activities of a financial consultant.

When we talk of 'Lean' we think of manufacturing processes and tasks relating to manufacturing and inventory. However, any process improvement which can make the organization lean and agile will lead to process efficiencies and lowering of costs to the customer. And in this endeavour there are many a tasks that a financial consultant can implement.

I am identifying some of the points that can be implemented in each module to ensure 'Lean' in an ERP implementation. Many of the points being discussed are generic while the terminology being used is related to Oracle Apps.

1. Organizational Structure: All the ERP packages allows the configuration of the organizational structure. I have seen a few implementations where the Org. structure is either over configured (Too many Operating Units and Warehouses) or under configured. While too many Organizations will make data entry, configuration and Knowledge transfer a nightmare, too few of the organizations can lead to non-availability of effective analytical information.

2. General Ledger: The following configuration considerations in GL will help in bringing 'Lean'

a, The philosophy of 'Thin GL': In the pre-ERP days, the organizations are accustomed to collecting all the analytical information from the Books of accounts (GL). This includes mostly Customer Balances, Supplier Balances and Assets Details. However ERPs bring in a powerful tool in the form of Subledgers from where Organizations can get almost all the detailed informations from the corresponding Subledgers. This means that only a summary information need to flow to GL. This reduces the duplication of information (both in subledger and GL) leading to a 'Thin GL' and more lean accounts operations.

b. Too many or Too few Accouting Dimennsions: Associated to the above point is the design of Chart of Accounts. Since most of the ERPs offer wide flexibility in design of flexfields / dimensions, many organizations are prone to design more dimensions than necessary. Too many dimensions lead to the following wastes. 1. Duplication of information between subledger and GL, 2. Waste of the users time in data entry 3. Waste of users time in error identification and rectification 4. Waste of precious hardware space and 5. Complexity in GL reporting.

c. Too many GL Journal Entries: In the philosophy of 'Thin GL', almost all the operational accounting entries in GL should flow from the subledgers. Only the period end reversible adjustment journals should be entered in GL. However many organizations use ERP as a huge accounting package and enter far too many accounting transactions directly in GL. This leads to the following wastes. 1. Waste of Users time in entering GL transactions. 2. Waste of users time in manually identifying the linkage between these transactions and subledgers 3. Waste of ERP capability in the subledger modules 4. Waste associated with generating new reports and 5. Waste associated with manual reconciliation.

d. Too many customized reports: In GL , the report generating tool is very flexible in generating financial reports like P&L, Balance Sheet and CFS. However, many organizations prefer to use custom reports for reporting purposes. This leads to the following wastes 1. Waste of energy and time in designing and developing custom reports 2.Waste of energy and time in redesigning custom reports in case of application / database upgrades 3. Possibility of erroneous data in custom reports.

e. Non-utilization of ERP features: Primarily this includes non-utilization of all the useful features available in the ERP package. Traditionally an ERP implementation starts of with bare minimum features available in the ERP package. However, the full benefit of ERP package can be attanined only if the organization starts using more and more features available in ERP. The most basic and easy to adopt benefit is to use some of the standard reports available in each application. However, once the ERP operations stabilizes, the organization do not show the curiosity to review the available standard reports and incorporate more and more standard reports as a part of the decision making. A few simple examples are the 'Top 10 Customer report' or the 'Top 10 Supplier List', 'ABC Analysis reports' etc. Since most of these reports are parameterized, it will take some experimentation for the organization to identify the correct parameters set to be used to obtain the information relevant and appropriate to the organization.

f. Other wastes: One of the wastes relate to improper design. In this waste the key aspect relate to not incorporating realistic future considerations in the application design. For example, what is the expected life of this ERP application before business is expected to change leading to reconfiguration of this application. A practical example of this was in one of my implementations where the organization told me that they plan to use this ERP application for 15 (!) years and hence we increased the lengths of all the account dimentions to incorporate scalability. The result was a sub-optimal COA design. Another waste is related to non-consideration or minimal consideration of naming conventions in an ERP implementation. Very few consultants understand the importance of naming conventions. An inefficiently designed naming convention can lead to significant waste of time and costs and non-availability of valuable analytical information to the organization.

These are a few

What are the process improvements that an ERP consultant can implement to reduce waste and bring in 'Lean' in an organization? What have you implemented in your implementations? I am keen to know.

Share your experiences and let the other implementers benefit from your experience and expertise..

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