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I've had visible results with lean but my corporate colleagues want to force their ERP and purchasing practices on my division. Any advice?

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Dear Gemba Coach

I’m the head of a business unit and have had visible results with lean. Yet, my corporate colleagues refuse to acknowledge this and want to force their ERP and purchasing practices on my division. This is very frustrating – any advice?

I certainly understand (and share) your frustration and, unfortunately, I don’t really have useful advice. This vexing puzzle has dogged the lean movement for decades: why aren’t results more persuasive?

The standard theory is that lean thinking runs across “mainstream” management habits, such as control-and-command, management by objectives and Taylorist execution and so on, which is hard to deny. Still, I find it hard to accept that mere habits are enough of an explanation for management teams to pass on the promise of lean. There must be some deeper reason.

Irrational Resistance

The lean model is fairly straightforward: in order to succeed in saturated markets, improve quality, flexibility and productivity by kaizen steps in your operations and thus (1) find out the leverage points you have to learn to succeed in the current state of the market and (2) develop your people so that they learn to achieve a higher level of performance (to be more complete: improve safety, quality, service, rework, inventory, productivity, capital use, energy performance).

A large difference with mainstream management is that, in lean we don’t seek to move from this steady state to a better one defined a priori. We choose to improve performance in specific dimensions and discover what the next state should be – guided by an ideal of  zero customer complaints, zero  accidents, immediate delivery, zero defects, 1x1 production in sequence, 100% value added and engagement of everybody. This ideal shines a light on where we seek performance improvement, but is not something we try to reach in one leap: 100 times 1% improvements are preferable to one time 100% improvement, because they give us 100 learning opportunities as opposed to a single one.

Sure, this shift to performance improvement from defining the vision and executing the change requires some mental adjustment, but surely not enough to explain the irrational resistance to recognition and adoption of lean results.

What is, therefore, the deeper management assumption lean thinking runs across? Why would your corporate colleagues want to force the MRP on you, or purchasing practices that, as a business unit leader, you don’t want – a common situation, but, when put on paper sounds rather extreme – I mean, why would they care this much?

My best guess is that a natural model for making money is:

Sell at a high price what you buy at low cost

It sounds like stating the obvious, but that is a sound strategy. In your particular case, it follows that:

  • Using the ERP systematically across the company is the best way to control supply chain costs and keep them at their lowest.
  • Putting systematic pressure on suppliers is the best way to buy at low cost.

A Political Choice

Sure, this ignores the fact that the ERP itself creates unnecessary costs or that pressuring suppliers on price alone generates poor quality, low delivery, and stifles innovation. These side-effects are considered as second order by people who think that they make such a profit in squeezing suppliers that it’s worth the effort.

And indeed, in equipment markets, this has had a lot of mileage. To a large extent the whole story of colonization was access to cheap resources by industrializing colonizing powers, who could then force their not-so-well-made products onto captive clients. More recently, after the simultaneous fall of the Berlin wall and the rise of Asian tigers, corporations found new places to move production to lower unit costs (disregarding in the process the overall cost of extended supply chains). As long as the market is growing, demand outpaces offer and there is space for all, this is perfectly sensible.

But in mature, saturated markets, the opportunities for radical differentiation on both price and cost are fewer and fewer. One example we know is the fight for number one between Toyota and VW. Volkswagen has bet the farm on high-range products and intense modularization to reduce component costs – rumor has it that a Porsche shares 70% same components as a VW. The result is that brands lose distinctiveness and the company has high overall cost nonetheless. A spot check of quarterly profit margins shows Toyota at 8% and VW at 4% - a significant difference when one considers the volumes.

In mature markets, Toyota’s lean approach turns out to be more effective: by improving performance steadily through involving people in improving their processes one gains both market share and profitability step by step, rather than by coming up with radical strategies to sell more expensive products and pressure purchasing and manufacturing costs down.

However, both these strategies make sense – both arguments are understandable. One argument trumps the other in certain circumstances, but not in others. The upshot is that the sell high, buy low strategy is a valid choice. What you have on your hands is not as simple as resistance to a new idea. It’s a bona fide political choice your executive has to make. As with all political bodies, leaders represent options to take the company, organization or country in one direction or another. This is normal.

Boardroom as Gemba

Back to lean thinking, if we frame your question in terms of: what process should I improve to convince faster my corporate colleagues? We can see that being frustrated at their lack of interest or understanding sidesteps the real issue: being better at leading corporate politics. If we frame the question thus, it becomes:

  • Whom do I really need to convince?
  • How can I be clearer in the path I propose?
  • What allies can I gather who will support my path?
  • How will these allies be rewarded individually if they chose my camp?

In that sense, the boardroom becomes a gemba as well. All human issues are both technical and political, and many lean guys I know tend to enjoy technical issues and dismiss political ones – but at corporate level we have to recognize the simple fact that political is what a corporate does. The main role for a corporate function is choosing the best path for the company and how to make the rest of the organization follow that path.

I don’t have any quick fix answer other than apply lean thinking to your problem: recognize the political nature of your challenge and kaizen your political skills. This means identifying the political performance you want to improve (is it convincing the CEO? Enrolling more allies? Getting rid of irksome enemies?) and then take a hard look at how you’re handling that process and think of the kaizen steps to do it better.

No easy answers.

 

12 Comments | Post a Comment
Dave LaHote May 11, 2015

Learning to manage up is a key element to success in large organizations.  I would suggest that a little A3 thinking may be of help here.  We must assume that the folks leading the organization are just trying to do the right thing.  In your place, I would be asking questions like "help me to understand what issues the ERP and purchasing system will address?"  In other words, you are asking what problem are you trying to solve.  Armed with a better understanding of what Corporate is trying to accomplish you may be able to better understand how to position what you are trying to accomplish with lean.  I suspect both you and Corporate what to accomplish the same thing and that the issue is about methodology.  By the way, in my old organization we used the Corporate ERP system but only for reporting purposes to Corporate (primarily the finacials package)  With some conversation, we were able to install a slimed down version that didn't include things like daily scheduling and labor reporting that we didn't need as a result of the lean methods we had in place. 

Dave

Bernard May 12, 2015

If no one is listening. If no leader is picking up on the progress and thinking about emulating it despite your efforts to communicate both results and the way they were obtained, sstart interviewing with competitors, find one impressed and open to tthe lean approach, and leave.

Sabine Gowsy May 12, 2015

Hey! I really like this question and I really like Michael's answer.

Making a problem solving to develop your political skills is probably a good starting point.

Even if your corporate colleagues succeed to implement their ERP and purchasing practices, you could turn it as a new problem solving.

All the company could learn on the gemba why cost & delay will increase and why quality, innovation & involved people will decrease. 

Some company need to make big mistakes to accept to learn & to make small steps in their Lean Journey !

Thanks Michael for this sharing :)

 

John Escorcia May 20, 2015

This is a typical example of what happens in the companies in which it applies LEAN in a specific area and not the entire company under the consensus and support of managers, this happened to me recently and the results were palpable and never before seen, but the manager of the company obtained benefits under the push model work so the pull model was harmed in income, what I recommend is that very humbly continue applying LEAN and if someone shows a sincere interest in LEAN concepts then sharing, remember that LEAN is a long-term philosophy that concerns the entire company.

Chet Frame May 21, 2015

Why not embrace their offer for the ERP and Supply Chain solution?  Implement it with your Lean processes. Set it to run with kanbans and pull signals.  They will get the "God's Eye" view of your operations, and you will get to show them in their own system how Lean can reduce waste and the cost of waste for the corporation. 

Jim O'Farrell May 21, 2015

Of course Lean espouses first empowering people to make change, streamlining processes then automate where appropriate (technology is last).  I find that if an ERP environment (in this case SAP) is implemented there are methods for analyzing transaction and processes to determine where automation could be applied to move towards a leaner ERP implementation – and recoup capacity that could be better utilized with more strategic activities.  In fact, last year we completed a value assessment project that was integrated with a Kaizen at Eli Lilly where order to cash processes were analyzed.

If interested in learning more about this - check out this 40 minute webcast w. Eli Lilly how they describe how they went about "Leaning up ERP..."

http://www.winshuttle.com/assets/webinar-accelerating-sap-process-innovation-with-winshuttle/

This is a really great discussion by the way.  And I will admit that I work for an ERP data automation software vendor so please take my comments with a grain of salt :).

Sean Kiilehua May 21, 2015

Thank you. We technical types do avoid politics...to our own frustration.  Accepting the reality of politics (preferences aside) brings purpose, and therefore, a means of approach. Simple; not easy; better. 

Irene Johansen May 21, 2015

Brilliant summary of what goes on behind the scenes in decision making, and spot on in your advice, I think. I face the same issues (on a much smaller scale) and have had to look myself in the mirror many times to see where the pain point really is. I suspect that will have to continue. Bravo.

Fred Stahl May 21, 2015

Maybe some facts about the waste built into MRP will help.

"Denis Towill developed the algorithms for automatic landing systems in the UK and saw the possibility of using similar algorithms that damped rather than amplified noise in supply chains," says Dan Jones, Chairman of the Lean Enterprise Academy in the UK. "It was not what the MRP industry wanted to hear so it is now time to broadcast the message more widely. The theoretical basis for MRP was always fundamentally flawed."

Dan added his comment to my Lean Post of February 5, 2014 Which Will Prevail: Batch Thinking or Worker Leadership?. In it I summarize Towill's reseach and what it means for the organization and management of production. He explains why just-in-time inventory systems are lean and why more top-down control of the movement of work-in-process and inventory only creates exponentially more chaos in production. 

For more insights into the problems ERP thinking presents for Lean, take a look at Ian Glenday's excellent Lean Post "The Problem With Batch Logic." 

Ed Metzger May 22, 2015

There is a LOT of wisdom in Dave's response.  Not defensive, seeking to understand, respectful . . .

Aileen Green May 22, 2015

I agree with Jim. 

I come from an operations and lean background but ended up managing a worldwide ERP implementation. I've now spent 15 years on the ERP side with a few different companies. 

We just looked at what we could do to automate kanban signals, JIT triggers, flow production or job releases depending on the product and set everything up with data collection.  ERP provides a lot of power for managing the forecast, financials, customer orders and vendor and exception management.  Even if your PO's are automatically created, sent to the vendor and received the same day it does help finance with their automation.  Also, if you are involved with any offshore or long distance supply chain and have more complex CTO or ETO products in your mix the advanced planning in most ERP systems can help provide a better promise for those non-standard products.

 

Michael Balle May 23, 2015

Hi Guys,

Thanks for all your comments. I've been dealing with MRP issues for the past 20 years and I do believe lean and MRP scheduling can't be reconciled - they don't have the same intent. MRP's goal is to keep stocks at a target level (so that you can pick the part you want whenever you want). Lean's goal is to establish set cricuits of components so that the part you need arrives exactly just-in-time when you need it.

The goal of any feed-back-driven system radically affects its behaviour. In particular, just-in-time loops create a tension need for constant kaizen, whereas stock-optimizing loops create constant rescheduling and confusion, which makes kaizen pointless.

MRP and lean are as different solutions to the same problems as trains (batch and centrally controled) and roads (one-by-one and diffused)

I'm not arguing against IT in any way - one the main problems I encounter on the gemba is designing IT systems to track lead-times in just-in-time loops. None the less, I do believe that MRP THINKING is one of the biggest mental blocks to adopting real lean. Furthermore, those advocating compromises between MRP batch and inventory thinking and lean thinking are adding to the general confusion. Sometimes we just have to accept that different tools (eg hammer or screw-driver) have different purposes and intents, and that's that, no fuss.