Cindy Jutras: Lean principles: integrated business processes, or “random acts of Lean?”
Cindy Jutras -- Manufacturing Business Technology, 6/1/2007
The key business driver to optimizing the order-to-cash cycle is the corporate mandate to improve operational performance so as to reduce costs and increase profitability. Whether these mandates result from global competition or expectations from the investment community, manufacturers, distributors, and service providers alike turn to Lean Manufacturing principles, yet often fall short of bridging the gap between the internal operating model and the business. Many commit “random acts of Lean,” but still struggle with cash.A recent Aberdeen study, The Order-to-Cash Cycle: Integrating Business Processes to Improve Operational Performance, found these to be the top four strategic actions of Aberdeen’s Best-in-Class:
c Streamlining of operations to eliminate waste (77 percent);
c Implementation of continuous-improvement cultures and methodology (72 percent);
c Identification and elimination of bottlenecks to optimize throughput (66 percent); and
c Build-to-order, pull-based methodologies (43 percent)
All of these strategic actions are hallmarks of lean principles, yet each can be implemented in pockets, or out of context with the business. This is evidenced by contrasting these strategic actions with the approach to enterprise resources planning (ERP).
As a transaction-based system of record, ERP is an essential component in managing the order-to-cash cycle for any company. It provides a basis from which to streamline and standardize processes ranging from the conversion of a quote to an order to the release of orders, and from the completion of work to invoicing and cash collection.
While Aberdeen’s August 2006 ERP in Manufacturing Benchmark study found 85 percent of the 1,200-plus survey respondents had implemented ERP, our current findings from the aforementioned Order-to-Cash Benchmark study indicate only 52 percent use integrated ERP for order entry, procurement, production, and financial management—although Best in Class are 40 percent more likely to have done so.
For manufacturing companies in particular, properly implemented lean features such as integrated planning, scheduling, and sequencing; electronic kanban; and supplier collaboration can reduce manufacturing lead times and improve on-time delivery. While build-to-order, pull-based schedules also are associated with lean, note that these are not strategic to all organizations.
Lean specialty vendors also offer associated functionality, and are actually more likely to support other functions such as value-stream mapping to eliminate nonvalue-added activities and costs in order to remove waste. Some of these specialty vendors include Factory Physics, nMetric, Orlando Software, Pelion Systems, Synchrono, and Ultriva.
This market has not been immune to consolidation. Factory Logic was acquired by SAP. More recently, Pelion Systems—which has gone to market as a solution provider of Lean Manufacturing Operating Systems—and JCIT International, author of Demand Flow Technology (DFT), announced an agreement to merge organizations. The result of this merger is a new organization—DemandPoint.
To obtain a copy of Aberdeen’s reports on midmarket ERP or the order-to-cash cycle, visit Aberdeen.com, or search by title at Google.
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