Ahhhhh the joys of going Lean. It’s like betting your supply chain performance that benefits will accrue if you just have faith, lower inventory and hope for the best. Didn’t Toyota do this? Some of the Lean philosophies are a bit daffy, however, this article describes how there is a kernel of truth to Lean. 

What This Article Covers

• Why Lean was applied to supply planning from production planning.
• What settings are adjusted in SCM to enable Lean?
• What are some of the maintenance issues with Lean in SAP SCM?

What Drives Lean?

Lean is driven in part by a dissatisfaction in the output from supply planning systems. This dissatisfaction can stem anywhere from MRP’s logic being overly simplistic see this article on one professors’s view that MRP is not a planning system.  (http://www.scmfocus.com/supplyplanning/2012/03/04/is-mrp-a-planning-system/) Another reason is that executives are often looking for a magic bullet to reduce inventories and Lean in a way promises this.

The Big Lean Trend

Currently there is a great focus on the topic of Lean. However, if we consider Lean a form of repackaged JIT, this infatuation with inventory reduction based upon a philosophy goes back to the mid 1980s. I am disappointed that so little is discussed of JIT’s failures because this is a historical fact. In fact, there is quite a media blackout on this, if one looks up the term JIT and failure or anything close to it, there are very few results in Google. The book Factory Physics has the following comment on JIT:

…MRP II was roundly criticized in the 1980s, while Japanese firms were strikingly successful by going back to methods resembling the old reorder point approaches. JIT advocates were quick to sound the death knell of MRP. But MRP did not die, largely because MRP II handled important non-production data maintenance and transaction processing functions, jobs that were not replaced by JIT.

Lean today is similarly anti-planning method. For those unfamiliar with the topic, Wikipedia has a very nice history of Lean. Interestingly, while “Lean manufacturing” has a listing on Wikipedia, any other type of lean related to supply chain does not. This is surprising given how many lean supply chain planning projects are currently underway.

Applying Lean to the Supply Chain

Lean, as applied to supply planning, really boils down to two general thrusts.

1. The ability to collaborate with suppliers, thus increasing pipeline visibility in order to reduce the disintegration of order sequence that continues to mar supply chain.
2. The ability to either apply reorder point planning or to adjust parameters in the supply planning system so that orders are more frequently made and less inventory is carried (even though total costs increase). More on reorder points planning is covered here (http://www.scmfocus.com/supplyplanning/2012/03/04/reorder-point-planning/)

SNP has the ability to incorporate information from suppliers (as does pretty much any supply network software) so there is no gap with the first requirement. However, the second requirement (the ability to apply reorder point methods) is what we will get into now.

Many of the actual proposals from Lean are old candy in a new shell. My research and consulting experience tell me that some products should be put on reorder point planning, however, I would not say that this is some new concept. 

The Product Location Master

The reorder point controls sit primarily on the Product Location Master in SAP SCM/APO. I have placed a screen shot of the Lot Size Tab below.

As can be seen, there are not a lot of alternatives provided here. Just the basics. The reason for this is rather easy to explain, these reorder points are not designed to actually control the planning (that is supposed to be performed by heuristics, an optimizer or CTM), but rather these order points are used to moderate the order creation. On most SCM implementations, the products which are not considered critical are pushed to SAP ERP, where the reorder point methods are actually more comprehensive. SAP seems to be saying that reorder point planning will be performed less frequently in SAP APO/SCM than SAP ERP, which makes sense.

The controls above allow you to set the reorder point as a days supply, or as a quantity. When one moves to reorder point planning, the heavy lifting for determination of the quantities or duration is calculated outside of SAP.

Conclusion

The use of Lean in supply chain planning should not be accepted uncritically and simply because it is trendy. However, while Lean contains a lot of hyperbole, there is a kernel of truth to the ineffectiveness of supply planning methods (Lean advocates often criticize MRP, however without a reliable forecast, no supply planning methods — DRP, Allocation, Cost Optimization, MEIO, works very well), under some circumstances. Lean advocates much less frequently use the issue of planning effort versus reward, however the argument can be made from that perspective as well.

When and Why Should Items Be Placed on Reorder Point Planning? 

Items placed on a reorder point methodology should be placed there for the right reason. This includes the following:

• They are not critical.
• They are difficult or impossible to forecast…or they have a level forecast.
• Their supply is unconstrained.

Any product in these categories are essentially either not worth the effort to plan with more advanced methods, or advanced methods do not add value to their planning over the simpler method of reorder point planning.

References 

http://en.wikipedia.org/wiki/Lean_manufacturing

Factory Physics, Wallace J. Hopp and Mark J Spearman, Waveland Press, 2008

Questions or Comments? 

How do you perceive the connections between Lean and reorder point planning? Do you a have a similar or different viewpoint from the article? If you have experiences to share please comment below.