How to Use Technology to Support the Lean Enterprise

How to Use tecHnology to sUpport tHe lean enterpriseAchieving ProfitAble growth through leAn

SAP Executive Insight

the competitive nature of business demands that organizations differentiate by increasing their value to customers. this focus drives companies to eliminate wasteful activities and increase re-sponsiveness while maintaining superior quality – all value-laden initiatives that can be translated into profit. for many ceos, this means implementing “lean” initiatives that expose and attack waste, and setting goals for continuous improvement through Six Sigma principles.

the ways in which organizations institute lean initiatives and Six Sigma programs vary. from disparate, spreadsheet-based proce-dures to integrated, automated processes, the approaches and their respective success rates vary. consensus is growing that technology is key for successful lean initiatives.

A well-implemented enterprise resource planning (erP) solution provides such a foundation. by coupling lean initiatives with core enterprise software, you can improve inventory visibility, link up-stream vendors and downstream distribution replenishment pro-cesses to manufacturing, and respond to customer order chang-es in real-time. with lean and Six Sigma processes tied to your erP software, you can evaluate performance using consistent measures for success to continuously improve operations to de-liver the highest value to the customer.

this SAP executive insight addresses the following questions:• What is the Lean enterprise? • What impact do Lean initiatives have on profitability?• What role does IT play in enabling Lean initiatives?• How is technology connected to the success of Lean

initiatives?

2 SAP Executive Insight – how to use technology to Support the lean enterprise

eXecUtiVe agenDaAt A glAnce

Defining Lean

lean and Six Sigma are two sides of the same coin. lean seeks to minimize waste and drive operational effective-ness by exposing and eliminating any activity that does not add value in the eyes of the customer. Six sigma seeks to make all processes (manufactur-ing, order management, and product design to name a few) capable of pro-ducing the desired quality or result in a statistically stable or repeatable way. Accomplishing this requires document-ed processes that are consistently fol-lowed and measured.

becoming “lean” enables your organi-zation to improve throughput capacity and quality, reduce costs, and deliv-er products to your customers reliably and with shorter lead times. if adopted and deployed well, lean and Six Sig-ma methodology can improve profitabil-ity by driving operational effectiveness and eliminating variability, defects, and waste that undermine value.

Blueprint for Success: The Road to Lean

early lean adopters relied on visu-al and manual tools to focus on pro-cess changes within the boundaries of the factory. while they were often successful at improving material flow, reducing lead times, and increasing the throughput of manufacturing pro-cesses, they often failed to have a significant impact on the financial per-formance of the enterprise. the enter-prises that achieved the greatest successes learned to manage lean improvements through the entire cash-to-cash value chain.

today, manufacturing organizations deal with more complex and longer supply chains, yet customers demand higher product variety at lower cost and ever-shorter lead times. the lean enterprise cannot afford low visibility or poor coordination across its global manufacturing network. Purely visu-al and manual tools can’t keep pace in today’s dynamic, fast-paced global manufacturing environment. choosing the right it tools is essential in effec-tively exploiting lean and Six Sigma principles.

The Role of IT

for most organizations, adopting lean practices requires a fundamental change to the existing structure of your organization. it requires breaking down silos of information and integrating them in a meaningful way to improve processes and reduce cost and waste. Your readiness to embrace this type of change is reinforced by the use of tech-nology, which supports your overall lean strategy in the following ways:

Roll out common processes. • how do you establish consistently high, predictable, repeatable, enterprise-wide levels of performance? Extend Lean processes to the sup- •ply chain. once you’ve improved enterprise performance, how can you leverage your supply chain to deliv-er value? Achieve profitable growth. • once you’ve optimized your enterprise and supply chain, how do you lever-age your lean enterprise to increase revenue?

3SAP Executive Insight – how to use technology to Support the lean enterprise

when embarking on a lean initiative, many companies start out slowly. Sev-eral key people are trained in lean principles. these champions of lean establish intricate spreadsheets that outline measures to reduce inventory or speed the manufacturing process. they lead the charge and spread the gospel according to lean, holding kai-zen workshops and soliciting input on ways to improve performance. things improve – you’re operating more effi-ciently, meeting customer expectations . . . running Lean. Then what? Good companies disseminate the success-ful lean processes throughout the local organization. world-class organizations share successful lean practices glob-ally and extend those lean principles to back-office processes to achieve a truly lean enterprise. but how do you make sense of those intricate spreadsheets if your champion is reas-signed or, far worse, leaves the com-pany? More challenging, how do you instill your successful lean practices throughout your global enterprise?

world-class organizations are migrat-ing from people-based approaches to processes supported by a technolo-gy that outlives and outperforms the individual. implementing an integrated business software platform to institu-tionalize lean processes creates a par-adigm shift. instead of silos of lean expertise, you establish a lean culture. You don’t have to rely on one person preaching the gospel of lean initiatives; it becomes engrained in everyday ways of doing things.

by establishing common business pro-cesses that are continuously evaluated and optimized and by using consol-idated enterprise data to perform business-cycle analytics, you can prop-agate continuous improvement across the enterprise and measure the impact of actions on margins more reliably and accurately. You are able to estab-lish common work processes, real-time data sharing, application integration and data integrity to meet demands for inventory visibility, real-time order man-agement, proactive exception man-agement, business intelligence and analytics, and many other capabilities that are key to the success of any lean and Six Sigma initiative. employing the right technology foundation significant-ly impacts your ability to extend lean principles to achieve the following per-formance improvements:

improve business insight and pro- •ductivity by delivering real-time, per-sonalized measurements and metrics that are tied directly to corporate objectives Provide access to information such •as business statistics and key perfor-mance measurements presented in the context of business tasksensure compliance and predictability •of business performanceenable deeper financial insight across •the enterprise and tighten control of financesAutomate financial and managerial •accounting and financial supply chain managementProvide rigorous support for financial •reporting and corporate-governance mandates such as the Sarbanes-oxley Act of 2002

roll oUt common processesScAlAble leAn PrActiceS

Sauder Woodworking Company

Industry: consumer goods – mill products

SummarySauder woodworking company is north America’s leading provider of ready-to-assemble furniture and the nation’s fifth-largest residential furniture manufacturer. the company sought to increase visibility on execution pro-cesses and improve manufacturing flow and efficiency by following a strategic direction for lean manufacturing. Sau-der wanted to find manufacturing shop-floor systems that are lean enablers.

Results with SAP® Software• greatly simplified work-order report-

ing process• Achieved fast adoption and improved

ease of use of new manufacturing dashboards

• reduced operator interaction (non-value-added activities) by 85% at the drawer focus factory

4 SAP Executive Insight – how to use technology to Support the lean enterprise

Wilson Tool International Inc.

Industry: industrial machinery and components

Summarywilson tool international inc., the world’s leading independent manu-facturer of tooling systems based in White Bear Lake, Minnesota, focuses on product innovation, reliability, and quality. with hundreds of highly special-ized products, wilson implemented the SAP® erP application and the SAP Extended Manufacturing Planning and Execution for Mill Products package to streamline order management and sales management systems in order to track inventory and process orders worldwide automatically.

Results with SAP® Software• increased productivity by 27.4% and

quality by 21.7%• reduced inventory by 20% and en-

abled faster inventory turns of spare parts and end equipment, resulting in a return on investment in 18 months – within 1.5 years of implementation

• reduced lead time by 24.9%, setup time by 53.6%, and travel distance by 57.7%

• reduced inventory storage space by 43.1% due to improved inventory visibility and control, leading to fewer physical inventory counts and approximately uS$250,000 in productivity-loss savings

• reduced order errors and returns

eXtenD lean processesBEyond ManufacTurInG

now that you’ve established a cul-ture of lean throughout your enter-prise and implemented common, successful practices with fast and pre-dictable responses, it’s time to broad-en your perspective. After all, if you don’t address downstream distribution as part of your lean initiative, you can improve factory response times and reduce work in progress, but still be holding excess inventory in the distri-bution process. So, let’s ask the ques-tion: how can you leverage your supply chain to increase value for your cus-tomers? Top-performing companies are delivering greater value by using tech-nology to accomplish the following pro-cess improvements:

Automate and integrate manufactur- •ing processes with other core busi-ness processes to reduce waste and reduce cycle timesShare common data and information •across the company to enable a sin-gle version of the truth and to analyze impact of actions on profit marginsDramatically reduce finished goods •inventory by extending lean replen-ishment principles to the distribution networkincrease demand visibility by estab- •lishing point-of-sales communication directly with customersimprove days sales outstanding •by introducing innovative, vendor-managed inventory programs with customersincrease customer satisfaction by •significantly improving the respon-siveness of the entire value chain

organizations can magnify these ben-efits by extending lean and Six Sig-ma practices to the enterprise as part of a common technology platform. by blending a lean philosophy and new technology, you will be able to quick-ly design new streamlined opera-tions, both within and beyond the shop floor to achieve a high degree of flex-ibility and customer responsiveness. extending lean principles through-out the enterprise and the supply chain ensures that you optimize the value chain and establish business-cycle ana-lytics to continually improve processes.

technology solutions enable world-class organizations to outperform competitors by enabling collabora-tive business processes designed to quickly sense and respond to changes in customer demand. to complement this, specialized software solutions pro-vide the necessary leverage to improve productivity, prepare for new prod-uct launches, and drive cultural change throughout the enterprise and supply chain.

5SAP Executive Insight – how to use technology to Support the lean enterprise

acHieVe profitable growtHBEcoME a LEadEr In LEan

lean is not really about cost savings. ultimately, the benefit of lean after removing waste, streamlining process-es, and increasing customer satisfac-tion is in establishing a foundation to support profitable growth. every com-pany that embarks on a lean initiative should have a plan for how it will use its freed-up capacity and working capital. instead of using that capacity to build products that will sit in inventory, hop-ing for an order, world-class companies leverage their agility as a catalyst for growth. by exploiting their new-found capacity, they can introduce new prod-ucts and enter new markets with min-imal investment in capital equipment and floor space. And by leveraging their experience with process improve-ments, their new product lines can be introduced with efficient, profitable, lean practices right from the begin-ning. innovative lean leaders also find ways to deliver new high-margin, value-added services to their custom-ers, such as quick delivery programs that can command a premium price.

having the right technology foundation will enable you to keep a step ahead of changing market conditions, competi-tors, and swings in customer demand. today’s dynamic markets require enter-prises to adapt and innovate at an ever- faster pace. the technology platforms that support innovation and adaptability deliver a competitive advantage.

the right technology platform – one that facilitates rapid deployment of innovative business processes – drives value for your enterprise in the follow-ing ways:

Simplifies, automates, and integrates •complex business processesfacilitates and ensures interoperabili- •ty between applications and systems Provides actionable intelligence •and supports rapid response to unplanned events Supports the complexity of your •global businessincreases the productivity of the •organization by documenting and enforcing standardized work and pro-cedures across the enterprise Supports collaborative processes •while providing the highest level of data security for sensitive information

Greenheck

Industry: Manufacturing

Summarygreenheck is the worldwide leader in the manufacture of quality air move-ment and control equipment. the company maintains 14 manufacturing facilities across the united States, as well as one in china, and a dozen distribution centers in the united States, dubai, Shanghai, and Mexico. greenheck’s inflexible and inefficient it infrastructures were unable to support future growth.

Results with SAP® Software• improved visibility into the business

with better and more timely access to information

• Support for significant business growth with quick and easy integra-tion of acquired companies

• growth without additional headcount due to increased efficiency

6 SAP Executive Insight – how to use technology to Support the lean enterprise

captUre tHe benefits of leanStArt Your leAn JourneY now

by using technology to establish a foundation for common business pro-cesses, you are putting an integrat-ed lean Six Sigma environment that delivers sustainable, repeatable perfor-mance and profitability within reach. An erP foundation provides powerful func-tionality for manufacturing planning, execution, and quality maintenance while an open integration platform con-nects the enterprise to your supply chain to achieve the greatest efficien-cies in time and cost to deliver the fol-lowing benefits:

Increased responsiveness: • react quickly to market changes and take advantage of emerging opportunities – without needing to carry excess inventoryGreater efficiency: • improve your order fill rates, increase on-time ship-ments, and boost manufacturing vol-umes with shorter lead times – all while increasing the value added per product, per employee, and per resourceReduced operating costs: • Minimize the costs associated with exception resolution, inventory management, data management, and more – while ensuring the highest levels of quality and customer service

About the Author

David Strothmann is an SAP industry principal for the SaP Industrial Machin-ery and components industry group. Prior to joining the software industry, Strothmann spent over 15 years in manufacturing management and has extensive experience working with companies that practice lean manufac-turing techniques.

Further Reading

to learn more, please visit www.sap.com/usa or contact your SAP representative about the following:

• adaptive Manufacturing: Enabling the lean Six Sigma enterprise

• Strategies for Profitable growth for Industrial Manufacturers

• greenheck business transformation Study – Manufacturing

• Sauder woodworking business transformation Study – Manufacturing

• wilson tool international business transformation Study – Manufacturing

“The selection process was very rigorous. We used a formal approach of weighting and scoring the requirements for each of the potential solutions, added things up, and SAP was the leader.”Don Brekke vice President of information technology greenheck

7SAP Executive Insight – how to use technology to Support the lean enterprise

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