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Value of Lean Principles

An Oracle White Paper


November 2003
Value of Lean Principles

Lean Principles................................................................................................... 3
Value of Lean Principles .................................................................................. 4
Value Assessment ......................................................................................... 5
Solution Modeler........................................................................................... 5
Autopilot Tool Set ........................................................................................ 5
Flow Manufacturing.......................................................................................... 6
The Five Ss .................................................................................................... 7
Six Sigma ........................................................................................................ 7
Key Tenets of Six Sigma ......................................................................... 7
Shop Floor Management ............................................................................. 8
Inventory Management................................................................................ 8
Procurement Management .......................................................................... 9
Quality Management .................................................................................... 9
Product Data Management.......................................................................... 9
Warehouse Management.............................................................................. 9
Transportation Management..................................................................... 10
Production and Distribution Planning .................................................... 10
Demand-Pull Process ..................................................................................... 11
Demand Management................................................................................ 12
Supplier Relationship Management.......................................................... 12
Customer Relationship Management....................................................... 12
Partner Relationship Management ........................................................... 12
Responsiveness to Change............................................................................. 12
Contact Center ............................................................................................ 13
Configuration Management....................................................................... 13
Sales Force Automation............................................................................. 13
Order Promising ......................................................................................... 13
Integrated Field Service Management...................................................... 14
Mobile Computing...................................................................................... 14
Pursuit of Perfection....................................................................................... 14
Content Builder........................................................................................... 15
Business Intelligence .................................................................................. 15
Advanced Cost Accounting....................................................................... 15
Take Action...................................................................................................... 15
Sources .............................................................................................................. 16

Value of Lean Principles Page 2


Value of Lean Principles

LEAN PRINCIPLES
Business professionals from all over the world have been studying lean principles
for many years and have enjoyed tremendous bottom-line improvements by
adhering to them. From the production line worker to the board of directors,
everyone in an organization can benefit.
Generally associated with manufacturing environments, lean is much more than a
manufacturing strategy. Although its roots lie in manufacturing operations, lean is a
business philosophy that can be practiced in all disciplines of an organization. This
philosophy offers powerful benefits to enterprise employees, upstream suppliers,
and downstream customers. The need for external collaboration is absolutely vital
to a lean enterprise because all activities must be viewed holistically for true success.

Figure 1: Bottom-line improvements achieved through employing lean principles.

In the past, it was suggested that we “throw out our MRP” and do everything
through a visual pull system. Many now agree that the synergies available between
the physical and operational lean strategies, combined with today’s software
technology, offer tremendous value in reducing costs, increasing revenue, and
optimizing assets—the three pillars of profit maximization.
Lean is typically associated with a myriad of other terms like just-in-time, flow
manufacturing, kanban, demand-pull, Total Quality Management, Toyota
Production System, and Six Sigma.

Value of Lean Principles Page 3


Figure 2: The five lean principles.

The combination of these lean principles and software technology holds the
promise of revolutionizing the way business is conducted. This white paper
correlates the details of lean principles with the associated software functionality
provided by us. Designed to facilitate lean principles, Oracle’s JD Edwards
EnterpriseOne offers a compelling, competitive advantage to any organization that
is committed to continuous improvement. EnterpriseOne helps organizations
eliminate waste so that all resources can be reinvested into the lean enterprise to
reach greater profitability.

Figure 3: The lean principles lifecycle.

VALUE OF LEAN PRINCIPLES


Value in a lean world can be simply defined as profitably meeting or exceeding the
customer’s requirements and expectations. Eliminating waste in every aspect of
business provides real value to the customer. A common and pervasive lean vision
and culture must come from the top and permeate through to every individual in
the organization. Equally vital is a deep understanding of who the customer is at
every level of the organization. The customer could be a fellow employee, a
business partner, an auditor, the media, a supplier, or a paying customer.
Whether a company manufactures physical products, develops software, or
provides services, total participation in the lean process by all stakeholders is
essential. Achieving significant and continuous improvement in performance
requires the creation of a team environment to facilitate the concept of total

Value of Lean Principles Page 4


employee involvement. When top management sets examples and continually
reinforces the lean vision, employees and stakeholders tend to become more
motivated and empowered.
The view of enterprise software as being too complex and rigid to facilitate lean
principles has changed. Most lean advocates now look to ERP to help enterprises
identify and reduce waste by simplifying and optimizing business processes,
ensuring rapid implementations, and providing flexible, value-added functionality.
Furthermore, the successful lean journey depends the complete measurement and
accurate recording, both areas in which enterprise software excels.
The following JD Edwards EnterpriseOne offerings from Oracle support the lean
enterprise and supply chain.

Value Assessment
The Value Assessment process helps companies get the highest return on their
technology investments. By identifying processes that add value and linking those
processes to specific software applications, Value Assessment offers insight into
areas of the business that could benefit most from technology and focuses attention
on the most effective technology to drive desired improvements.

Solution Modeler
EnterpriseOne Solution Modeler accelerates and simplifies system implementation
and ongoing change management. Built with lean principles in mind, Solution
Modeler helps an organization ensure quick and efficient use of technology by
mapping every step of every process and documenting every identified business
requirement.

Autopilot Tool Set


EnterpriseOne Autopilot Tool Set automates the software quality testing process
for fast, accurate, and efficient system installation, testing, validation, and
maintenance. Autopilot helps optimize network performance through the ability to
run “what if” scenarios. And, once a repository of automated scripts is built,
Autopilot Tool Set becomes the documented system knowledgebase for ongoing
training, changes, and maintenance.
Strategic Network Optimization
Strategic Network Optimization is a world-class supply chain evaluation system
that helps the lean enterprise focus on waste elimination through strategic analysis
of the best ways to deliver true value to the customer. Easy-to-use, “what if”
models of the supply chain support such strategic decisions as when to build a new
factor, enter a new market, or add capacity to an existing plant.

Value of Lean Principles Page 5


FLOW MANUFACTURING
EnterpriseOne Flow manufacturing is a well-known lean principle for all modes of
manufacturing. From engineer to order and configure to order all the way to
repetitive and process manufacturing, tremendous bottom-line gains can be
realized. By using flow manufacturing, lean practitioners have achieved the
following benefits:
• Increased inventory turns into the triple digits.
• Lowered manufacturing time to hours and minutes.
• Decreased component defects to parts per million.
• Decreased finished good defects to parts per billion.
In its simplest terms, flow manufacturing entails arranging and defining
manufacturing resources so that products flow most efficiently through the
production process. Product is typically built sequentially, one unit at a time, at the
optimally designed rate or Takt time. This process is in stark contrast to the
movement of product through multiple functional areas or work centers that run
large batch jobs. Flow lines are more like “factories within a factory” that produce a
single item or “one-piece flow” from start to finish in one “cell.” Materials,
machines, and labor processes are designed to ensure that all transportation and
movement are reduced to an absolute minimum.

Figure 4: JD Edwards EnterpriseOne multimode manufacturing software supports the flow manufacturing
concepts used by the lean enterprise.

Value of Lean Principles Page 6


Small lot sizes, significantly reduced setup times, tight supplier conformance, and
increased discipline are all typical to flow. Flow draws from numerous strategies
that support lean principles, for example, the Five Ss and Six Sigma:
Seiri Sort (Segregate and discard.)
Selton Straighten (Arrange and identify for ease of use.)

Seiso Shine (Clean daily.)

Seiketsu Standardize (Revisit steps 1–3 frequently.)


Shitsuke Sustain (Sustain via motivation.)

Figure 5: The Five Ss.

The Five Ss
Typically attributed to the Toyota Production System, the overriding idea behind
the Five Ss is that there is “a place for everything and everything goes in its place.”
Every item that is used in a business process is clearly labeled and easily accessible.
Discipline, simplicity, pride, standardization, and repeatability as emphasized in the
Five Ss are critical to the lean enterprise in general and flow implementations
specifically.

Six Sigma
Six Sigma is a statistical term that equates to 3.4 defects per one million
opportunities. Typical manufacturers operate at around three sigma, or 67,000
defects per million. Six Sigma can achieve dramatic improvement in business
performance through a precise understanding of customer requirements and the
elimination of defects from existing processes, products, and services.

Key Tenets of Six Sigma

1. Define
2. Measure
3. Analyze
4. Improve
5. Control
To fully embrace Six Sigma, an organization must work intimately with all internal
disciplines in addition to external suppliers and customers. We support the lean

Value of Lean Principles Page 7


enterprise pursuing Six Sigma with JD Edwards EnterpriseOne software that
enables collaborative design and shared business processes.

Shop Floor Management


JD Edwards EnterpriseOne manufacturing software allows an organization to
define, execute, and report production activities in any manner it wishes. From
detailed transaction-based push strategies like MRP to lean kanban-driven pull
strategies like flow manufacturing, EnterpriseOne Shop Floor Management
supports the entire range of manufacturing strategies. Demand-driven production
integrated directly to sales and purchase order applications is ideal for the lean
manufacturer. Multiple scheduling options with workflow and labor reporting can
be turned on or off as desired.
Kanbans can be preflushed, backflushed at multiple pay points, or super
backflushed, depending on the material, demand, and accounting requirements.
Manual and electronic kanban signals can be used to drive production and
component replenishment both inside the plant and with the suppliers. By
managing the flow of plant materials and production, Shop Floor Management
helps execute the production plan that supports the inventory, cost, quality, and
lead-time objectives required to meet customer expectations.

Figure 6: We offer a broad and significant range of software that supports the flow manufacturing lean
principle.

Inventory Management
Excessive inventory is often one of the most common contributors to waste in a
manufacturing environment. In lean, managing on-site physical inventory is better
described as managing information about inventory anywhere in the supply chain.
Common to lean environments are lot-controlled raw materials, component parts,
subassemblies, and finished goods that are serialized over multiple locations and
require varied container types and sizes. Instant access to total inventory visibility

Value of Lean Principles Page 8


with laser accuracy of product quantities and locations within the facility and
throughout the lean supply chain is fully supported by EnterpriseOne inventory
management modules. These modules simplify administration of consignment and
vendor-managed inventories (VMI) with real-time kanban and supplier release
scheduling—important flow tactics that help provide precise alignment of supply
and demand.

Procurement Management
Collaborative relationships with key suppliers can drive tremendous cost and lead-
time advantages. In lean procurement, purchase to delivery cycles must be short,
purchase orders easy to track, and vendor performance simple to verify. With
EnterpriseOne Procurement Management, online review of material inspection
status allows for immediate resolution of quality issues. And, integrated supplier
analysis facilitates consolidation of suppliers to only those that maintain the best
price, lead-time, and quality performance over time.

Quality Management
EnterpriseOne Quality Management helps facilitate Six Sigma or Total Quality
Management initiatives. Recording quality test results in a defined, consistent, and
controlled manner. The module also monitors ongoing production and business
processes as the cornerstones of the lean tenet of “doing it right the first time.”

Product Data Management


Integral to flow manufacturing in a lean environment is the ability to clearly and
accurately communicate the material, production, and quality processes needed to
manufacture a product directly to the individuals who are responsible for making it
happen. EnterpriseOne Product Data Management enables precise definition of
what materials are needed, exactly how products are made, and what quality steps
are necessary to ensure customer satisfaction. As the pace of product development
accelerates, this closed-loop process between engineering, procurement,
manufacturing, suppliers, and customers facilitates instantaneous and accurate
visibility of all information required to operate effectively in a lean value chain.

Warehouse Management
Optimizing physical space, material handling, and employee movement are essential
flow activities that are facilitated by EnterpriseOne Warehouse Management. This
user-configured, rules-based software helps automate storage and handling
decisions in a lean environment. Optimum move path sequences can be determined
to ensure maximum efficiency. Warehouse space and material handling time can be
dramatically reduced with strategies like cross docking and wave picking.
Warehouse Management also speeds packaging and delivery of product to
individual customer specifications. As a result of customer demand for faster and
more accurate deliveries, the emphasis is on accelerating product flow to save time

Value of Lean Principles Page 9


and reduce costs. Warehouse technology is critical to profitably meeting delivery
requirements such as order assembly, packaging requirements, and compliance
labeling.

Transportation Management
EnterpriseOne Transportation Management can automate freight rates, routes,
modes, carriers, and service levels. Full visibility into demand management, order
entry, order processing, warehousing, inventory management, and financials means
that all costs associated with every aspect of every inbound and outbound shipment
can be tied directly back to the responsible activity.
Production Scheduling
EnterpriseOne Production Scheduling helps ensure that manufacturing processes
are sequenced correctly based on demand and capacity availability so that
operations are run as quickly and smoothly as possible. Inherent to the line design
function of flow manufacturing is constraint-based production scheduling to
identify and optimize potential bottlenecks. Creating feasible, optimized production
schedules for complex products can be exceptionally difficult, even with excellent
up-front line design and a flattened bill of materials. The powerful and flexible JD
Edwards EnterpriseOne finite capacity scheduling software helps eliminate
bottlenecks, increase throughput, and reduce expediting and overtime.

Figure 7: Supply Chain Management lifecycle.

Production and Distribution Planning


EnterpriseOne Production and Distribution Planning helps optimize the day-to-day
flow of goods from supplier to manufacturer, manufacturer to distributor, and
distributor to customer. For the flow manufacturer, the ability to produce plans
that respect constraints within the supply chain, and that are optimized around key
cost drivers, helps eliminate waste and improve response. Production and
Distribution Planning generates a plan for an enterprise’s operations and can also

Value of Lean Principles Page 10


include the outside activities up and down the supply chain, helping to reduce
inventories and cycle times among suppliers and customers.

DEMAND-PULL PROCESS
A demand-pull process is the heart of the lean transformation, and it requires level
loading or “balanced flow” to be successful. Level loading describes a continuous
stream of products through the manufacturing process arranged for the most
effective application of resources based on existing demand. Without level loading
and line balancing, pull systems would demand a “chase” or “hire and fire” capacity
strategy. Basically, these ideas are diametrically opposed to the lean principles. An
organization that “chases” demand by hiring employees when demand is high and
laying off the same employees when demand is low does not grasp lean concepts
and will generate waste at a prolific rate. Level loading and flow balancing are tools
that eliminate the need for this type of behavior.
A “pull” system is a production scheduling method in which materials are pulled
only when they are needed. Sometimes referred to as a “postponement” strategy, a
sales order pulls work off a shop floor, instead of a work order pushing activity
through a facility. The idea is to keep the time spent producing parts as close as
possible to the time when the parts are needed. “Need” in a lean environment is
typically associated with true demand or a real live customer sales order. In a pull
environment, finished good inventories are nonexistent or extremely limited. When
some-thing is made, it is typically shipped out quickly without spending time tying
up cash in finished goods inventory.
Supplier and customer partnerships are essential for a pull system to be effective.
Partnerships are stable, long-term relationships between companies focusing on
reducing costs for everyone through shared quality goals, shared design
responsibility, frequent deliveries, and continual reviews. For a pull system to be
effective, intimate and open communication with suppliers and customers is
mandatory.
The commonly held principle that “any waste passed to a supplier or to a customer
always returns to the originator in the form of cost” is the foundation of demand-
pull partnerships. On the customer side, timely demand requirements must be
communicated accurately for the manufacturer to be able to react accordingly. On
the supply side, capacity and resource constraints must be visible so that the
consuming manufacturer can respond to any disruptions in supply. The
proliferation of communication tools available via the internet has dramatically
elevated the level of collaboration possible among trading partners.
We offer a wide range of customer and supplier EnterpriseOne software
applications that directly support the lean principle known as pull.

Value of Lean Principles Page 11


Demand Management
Collaborative, constraint-based statistical forecast generation and collaborative
planning goes far beyond traditional forecasting and opens a world of opportunities
for a demand-pull system. Automatic demand generation is driven directly from
sales orders, while the associated bill of materials and purchase orders can also be
initiated automatically. EnterpriseOne Demand Management software brings
customers’ requirements closer, enabling higher customer satisfaction and increased
market share.

Supplier Relationship Management


By using role-based security technology, EnterpriseOne Supplier Relationship
Management offers role-based security technology. This technology allows
organizations to designate the level of access they provide to their suppliers based
on product or individual. By accessing information specific to them, suppliers can
quickly manage quotes and purchase orders, view inventory information, send
notification when shipments are in transit, view accounts payable, manage release
schedules, view performance analysis, and update their own user profiles over the
internet.

Customer Relationship Management


To implement a true demand-pull process effectively, organizations must allow
customers fast and cost-effective access to enterprise information, whenever and
wherever they need it. Providing customers with real-time, 24-hour access to
conduct business electronically can help eliminate waste by significantly decreasing
the time and cost of routine transactions and inquiries. The EnterpriseOne
customer self-service software can diagnose the nature of a customer inquiry and
provide problem resolution through integration with other enterprise applications
like accounts receivable and sales order management.

Partner Relationship Management


Synchronizing sales activity with channel partners is the goal of EnterpriseOne
Partner Relationship Management. This software provides an extranet that
integrates channel partners into sales operations. By using a standard web browser,
resellers and distributors have immediate access to the latest product, service, and
price data, regardless of location. The capability to post leads, track opportunities,
and deploy a comprehensive view of customer account history is indispensable in a
lean environment. At any time, the manufacturer or upstream company can do a
rollup of all channel partner pipelines and feed information into forecasting
algorithms that optimize inventory levels to meet those forecasts.

RESPONSIVENESS TO CHANGE
Central to the lean principle of responsiveness is delivering quality products or
services as promised, when required, and at the agreed-on price. As with all lean
principles, a customer-focused commitment to value maximization and waste

Value of Lean Principles Page 12


elimination must permeate the entire organization—from the CEO to the
production worker.
For most companies, improving overall performance and responsiveness means
unsettling changes to the ways people are used to doing business. The lean
approach dictates that change can be orderly, organized, managed, and repeated.
Rapid and relatively simple bottom-line results typically encourage employees to
improve processes continually. Empowerment programs that reward personnel for
waste-eliminating and value-adding suggestions can be extremely effective.
Fostering a change culture that is entirely focused on customer responsiveness is
indispensable for a successful lean transformation.
We provide a host of customer-facing EnterpriseOne software applications and
technology solutions that are specifically designed to make our customers more
responsive, agile, and flexible.

Contact Center
Maintaining “one face to the customer” across multiple contact channels is the
driving force behind EnterpriseOne Support and MultiChannel Integration
Manager software. Multiple access channels like phone, fax, email, or visiting a local
facility, together with the growing tendency toward automation, present a challenge
to customer intimacy. Contact Center provides customer service representatives
with instant access to all the customer information necessary for fast response.

Configuration Management
In the true spirit of the demand-pull model, EnterpriseOne Configuration
Management applications turn product or service selection and configuration into a
collaborative selling experience. The customer and sale professional can explore
options together and come to an agreement on which configuration will best meet
the customer’s needs. Tight validation rules help ensure that the product sold can
actually be manufactured and delivered at the right price, quality, and time.

Sales Force Automation


EnterpriseOne Sales Force Automation offers web-based functionality that helps
capture all prospect and customer data in one centralized repository. Everyone
operates off the same client information with access controlled by flexible, role-
based security. The solution supports the complete sales process from initial lead
generation through opportunity development to sales closure, so representatives
will have all the information they need to respond quickly to customer demands.

Order Promising
EnterpriseOne Order Promising provides the exact information needed to provide
quick, accurate, and profitable delivery commitments to customers. Order
commitments can be optimized around inventory on hand or on the way, work in
process, future capacity, profit margins, logistics, manufacturing constraints,

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customer priorities, and product substitutions. Order Promising takes into account
the capability of the entire supply chain to determine the best promise date.
Complete visibility helps ensure that operations are used effectively and efficiently
to satisfy achievable demand.

Asset Lifecycle Management


Equipment that does not fail and operates within required tolerance specifications
is an important lean principle for being responsive to internal and external
customers. EnterpriseOne Asset Lifecycle Management is specifically designed to
reduce machine downtime due to equipment failure. Preventative maintenance
encompasses the entire value chain from raw material suppliers to end customers
and includes all functions of the business, not just manufacturing. Computers, fleet
vehicles, HVAC equipment, and other nonmanufacturing items can be maintained
to meet or exceed expectations.

Integrated Field Service Management


EnterpriseOne Integrated Field Service Management provides the ability to manage
all service contracts from the same system, including warranties, maintenance
agreements, and professional services. A centralized knowledge base with
descriptions of faults, failures, and fixes that most closely correspond to the
customer’s description of a problem can deliver an immediate resolution. Integrated
Field Service Management also automates the documentation process, so a
knowledgebase about how customers define value and how products perform to
that value can be built quickly.

Mobile Computing
EnterpriseOne Mobile Computing enables a wireless connection with a single point
of entry into an enterprise system from virtually anywhere in the world, at any time.
Employees who are working off-site at customer or supplier locations can continue
to use their time productively to complete such routine tasks as entering sales
orders, checking inventory, completing expense reports, and answering customer
questions.

PURSUIT OF PERFECTION
The endless pursuit of perfection is the last and, many consider, most important
lean principle. Striving for perfection is truly a process and not a specified point in
time. The lean enterprise has a cultural awareness of maximizing value and
minimizing waste in every single activity.
Cultural change does not occur overnight. The new philosophy and values must be
formally announced, explained, reinforced, and maintained day in and day out.
Education and training is a key component of the endless pursuit of perfection.
Lean production workers are given the ability not only to perform their own jobs

Value of Lean Principles Page 14


with excellence, but also to facilitate numerous upstream and downstream tasks as
well.
We provide an impressive array of solutions to support organizations in their
endless pursuit of perfection.

Content Builder
EnterpriseOne Content Builder provides organizations with an easy way to update,
manage, and deliver standard documentation, exercises, and help files in multiple
languages. Built on the concept of a single data repository, Content Builder allows
employees to locate con-tent quickly and accurately to develop customized
documentation. Consistency in presentation and branding through standardization
supports the endless pursuit of perfection. Built-in revision control, check-
in/check-out capability, and workflow services help ensure that content changes are
tracked and that the latest, most accurate content is disseminated.

Business Intelligence
EnterpriseOne financial and supply chain analytics applications enable the
extraction of meaningful information from the organization’s systems via key
performance indicators (KPIs), scorecards, and other reporting methods. Data
shared with customers, partners, and suppliers is also captured in a centralized
database so that all information is available in terms that are easily understood and
simple to use. Perfection is a moving target, so we provide thousands of prebuilt
KPIs and numerous process-specific data marts to help ensure that the required
data is available to the decision makers who need it, when they need it.

Advanced Cost Accounting


For the lean enterprise, a precise costing strategy is necessary to ensure that flow
processes with reduced transactional detail capture the data necessary to profitably
run the business and adhere to regulatory requirements. EnterpriseOne Advanced
Cost Accounting enables profitability to be analyzed through managerial
accounting, activity-based costing (ABC), or a combination of both. The level of
cost detail tracked is determined by the lean objectives. The software helps identify
which customers, products, activities, and processes add value and which do not, as
profit margins vary widely due to shipment size, custom packaging, special
requirements, and product mix.

TAKE ACTION
We firmly believe that lean is a holistic philosophy that continues to expand far
beyond manufacturing into each and every aspect of business. This belief is based
on more than 25 years of listening to our customers and helping them maximize
profitability through increased revenues, decreased costs, and optimized assets.
Regardless of the past “anti-software” sentiment in the lean community and the
myriad of competing terms in the current marketplace that apply to business

Value of Lean Principles Page 15


process improvement, the lean enterprise is clearly the ultimate goal, encompassing
strategies and tactics like flow manufacturing, Six Sigma, and the Five Ss, in the
endless pursuit of waste elimination and value maximization.

SOURCES
“Characteristics of Lean: The Lean Toolbox,” by John Bicheno, PICSIE Books,
Buckingham 2000.
“The Fundamentals of Flow Manufacturing,” BPCG & J.D. Edwards, Denver
2000.
“Industry Directions,” by Carol Ptak, Oracle PeopleSoft, Pleasanton 2003.
“Seven Steps to Lean Manufacturing,” Buker Inc, Gurnee 2000.

Value of Lean Principles Page 16


Value of Lean Principles
November 2003

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