Demand Planning, Forecasting and Inventory Management's Role in Lean Manufacturing

Years (or is it decades) have passed after the introduction of Lean Manufacturing and the Lean Pandits still differ in their thoughts on what exactly is Lean and how it should be performed to get maximum benefits. A new school of thought that is emerging these days is that we need to identify first that 'how much lean' is lean enough and the role of technology (read ERP and SCM Software) plays a major role in maximizing the Lean Manufacturing benefits. The typical gains that a manufacturing organizations aim to attain through Lean is reduced inventory but still better fill rates, lower cost of manufacturing and distribution (Lean Distribution) , shortened cycle times and hence low inventory carrying costs are always on the wishlist. These objectives though, can be hit substantially with the limited knowledge the organizations have on their current performance but often they are caught trying to make out how can they measure where they were before the exercise and where they have reached. How much exactly they improved in terms of key performance indicators? Without additional software modules (such as forecasting, demand planning or Inventory optimization), a basic materials resource planning (MRP) or enterprise resource planning (ERP) system, it will not be easy for them to drive lean benefits completely.
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Lean focuses on execution, but you cannot get the most out of execution unless you do a better job of planning. You can perfect your shop floor execution according to lean principles, but if you're not making the right item at the right time, you are not going to win in the market. Execution alone is not enough. Demand planning, forecasting and Inventory optimization are areas of focus when applying technology to aid your lean initiative. Other than this, the major technology input is in the field of automation of manufacturing and distribution processes.
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While Demand Planning and Forecasting engines will help in right sizing your inventory, automation of manufacturing processes will help reduce the MFG lead times, increase MFG schedule compliance and will contribute in improving inventory turnover. The latest research report by Aberdeen "Lean Manufacturing: Five tips for reducing waste in the supply chain", also suggests that the one of the top actions for becoming best in class organization is that we need to leverage automated Lean Manufacturing and Supply Chain Tools.
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But the facts suggest that Manufacturers are understandably reluctant, especially now, to buy a lot of software modules they may not end up using right away. This is true more for the SMBs as they can not afford to have the same budgets as their larger enterprise counterparts and hence less utilization of technology in maximizing Lean Benefits. Moreover, they don't want their managers staring at the terminals as opposed to walking around the shop floor. But that is beginning to change now with at least some SMBs taking lead to incorporate technology inputs as part of the whole exercise as they have understood that have an equal need for supply chain visibility and better forecasting as their larger enterprise counterparts.
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The mantra, in my view, should be to Think Big, Start Small and Scale Fast when the organizations, specially the SMBs start to use the technology in this endeavor.

6 comments:

  1. Could you please expand on your link between lean principles and forecasting (especially MRP)? Building only what is required when required (based on confirmed orders) appears at a glance completely different to building what we speculate we may need when we guess we might need it.

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  2. Sure Duncan. To me, Lean manufacturing can not be achieved without correct forecasting and planning (MRP). When I say build the right item at right time - it is not always driven by the confirmed orders. Infact, it is driven by factors like the confirmed demand as you mentioned, potential demand (based on our rolling plan), anticipated demand (based on historical data and past as well as future events data), market trends, competition moves and pricing shifts, to say the least. The true forecast will incorporate all above factors and with the help of technology, fine tune it feed the MRP for buying the raw material and other resources for manufacturing. It also will drive the inventory carrying days as well as our MFG patterns (whether they should be large batches of same product variant or smaller batches of multiple variants) and hence whole lean manufacturing process will be impacted.

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