Dec 15 2011
Lean causing an increase in backorders?
The following is lifted from the quarterly report of a public company and is attributed to the CEO:
We experienced a temporary increase in backorders at the close of the first quarter as we rebalanced inventories as part of our lean manufacturing initiatives. […] We also implemented a new ERP system during the quarter that will enhance our real-time information for inventory levels, shipments, sales information and production costs.
It seems that the leaders of their Lean Manufacturing initiatives forgot one key principle: First, do no harm! A professionally planned and executed Lean Manufacturing initiative enhances performance. It does not decrease it, even in the beginning and even for the short term.
It is essential for the long-term success of the initiative that its first pilot projects be unquestionable, rapid, obvious successes, and projects that lengthen order fulfillment lead times do not qualify. Nothing should ever take priority over delivering to customers, even Lean.
Furthermore, implementing a new ERP system before you are far enough along in Lean is a generally ineffective for two reasons:
- Lean changes your business processes, and embedding your old business processes in an ERP system is a waste of time and will make the changes more difficult.
- The implementation of ERP is a resource drain that you cannot afford while implementing Lean.
December 16, 2011 @ 5:38 am
Increase in backorders may indeed be caused by the reduction of safety stocks without first sorting out the root cause of problems such as unreliable suppliers, frequent equipment breakdowns, quality problems, etc.
This is where Six Sigma projects can help in looking for and sorting out these root causes before you implement a Lean pull system.
December 16, 2011 @ 11:08 am
I agree with Cornelio. If people would take the time to determine the real factors of the problem, then start eliminating those factors, (with 6sig, etc), and eliminate the problem, they would then be able to fine tune the process well enough, (with 5S, etc.)to not have the problem return, and have that complete system they wish to have. Instead too many want to hurry up and fix this so it can run more. This is what causes companies to fail, due to them not fixing the problem correctly the first time.
December 16, 2011 @ 3:36 pm
A small blurb does not tell the whole story. We do not know the conditions or system(s) being used to run the business prior to the undertaking of implementing Lean and an ERP system.
That being said, I do not believe any company should be undertaking 2 major implementations at the same time. As a consultant, the resources at the clients I worked, struggled to have enough time to do their normal jobs and work on one major implementation let alone two.
I believe the company discussed should look at what they are trying to solve, then rethink their strategy.
December 17, 2011 @ 6:44 am
I agree with what Bill wrote. Maybe the CEO should have said “I mistakenly directed the company to engage in two simultaneous inititives that, as I have now learned, should have been sequential”
December 17, 2011 @ 9:31 am
Chris and Bill both make excellent points. Again, it has to do with people not taking the time to review the project, before starting. If they would concentrate on the path leading them to the goal, rather than rushing to meet the goal, it would make a big difference. Goes with the old phrase, “Haste makes waste.”
December 19, 2011 @ 8:49 am
Comment from William A. Rodriguez on the LinkedIn PEX group:
January 2, 2012 @ 2:28 pm
If the CEO had wanted to blame natural disasters, he would have. Your comment, however, raises the question of whether lean makes supply chains more vulnerable, and the answer is no if you do the job right.
Lean is not just about reducing stocks but about increasing vigilance as well. In 1993, the Toyota logistics group in the US anticipated the Mississippi flood and was able to replace shipments by rail from their consolidation center in the Chicago area with trucks, avoiding shortages at NUMMI in California when the flood hit.
In general, inventory works as protection against shortages for commodities like oil but not for the thousands of items needed to assemble complex, configured products. It is the well known paradox of stock that you can have full warehouses and still experience shortages.
December 19, 2011 @ 9:05 am
Comment from Harvey Dershin on the LinkedIn PEX group:
January 2, 2012 @ 2:30 pm
I am not sure what your concept of Lean is, but mine is not the rigid deployment of a set of tools regardless of relevance to the situation at hand. At a high level, it is the pursuit of simultaneous improvement in all dimensions of performance. You don’t cut costs at the expense of quality or improve quality by extending lead time. Instead, you improve cost, delivery, quality, safety, and morale all at the same time, which the exact meaning of eliminating waste.
At a lower level, you accomplish this by focusing on making it easiest to do what you do the most often. And then there is a toolbox that, for supply chain management, contains items like supply or delivery milk runs, heijunka, just-in-sequence delivery, kanbans, crossdocks, supplier support, etc. You are neither supposed to use all the tools in every case, nor to cherry-pick some tools you like and ignore the others. Instead, you need to deploy them selectively and according to a plan in order to reach your goals.
If you make performance worse, what you have implemented is not Lean but L.A.M.E. (Lean As Mistakenly Executed).
December 23, 2011 @ 10:01 pm
What about forecast reliability? For a true lean system to function properly, the forecast (or make & ship orders) need to be spot on if you execute lean to the fullest. Perhaps the sales/marketing folks should have been closer to the customer to anticipate the demand spikes and work with the Supply Chain to proactively protect the customer orders.
Also, there could be some special cause variation happening that Lean would not typically pick up on. In my experience, lean can help you determine root causes which drive the proactive solutions. However, it can be a lagging system.
That being said I agree with the other posters in that the primary issue here seems to the simultaneous project implementations.
December 31, 2011 @ 7:08 am
Johnny Davis in Lean & Kaizen discussion group on LinkedIn, commented as follows:
January 2, 2012 @ 2:31 pm
Comment in the PEX Network & IQPC – Lean Six Sigma & Process Excellence for Continuous Improvement discussion group on LinkedIn:
January 2, 2012 @ 2:33 pm
Comment in the PEX Network & IQPC – Lean Six Sigma & Process Excellence for Continuous Improvement discussion group on LinkedIn:
January 2, 2012 @ 2:34 pm
Comment in the PEX Network & IQPC – Lean Six Sigma & Process Excellence for Continuous Improvement discussion group on LinkedIn: