Can ERP bring down inventory?

CSense SME Lean Case Study

Can ERP bring down inventory?

The Company

When we visited the company first time, we were surprised to see an SME version of advanced ERP in that company. When we had our Gemba walk, we understood the pain and the trigger point for the decision to invest such a huge amount for ERP. Can ERP alone bring down the inventory levels? Let us discuss in this SME Lean Case Study.

They are one of the third party manufacturers pumps of 0.5 hp to 5 hp for a reputed brand. Both the partners are of second-generation entrepreneurs – took over the reins of the business a few years back then.

The Pressure to grow

The good part of the company was that they had more than 20 years of reputation in the market with required expertise in the technology, sourcing and manufacturing. But the things were becoming too pressing as the costs kept increasing while the customer kept on insisting price reductions.

Unable to move further?

They kept the volumes almost constant as they reached their believed maximum capacity several years back. Another reason for stagnation was that there was no space in the company to produce more or even to store more components. They were also operating with too much of working capital.

Diagnosis study

Our diagnosis study indicated that their cash to cash cycle time was too long – to the tune of 4 months and in some cases, it was up to 6 months. This validated the observation during the Gemba Walk.

The Pain Areas

Traditional layout

A huge rectangular assembly line was covering the periphery of the assembly hall. The rectangular frame was made with micro mobile pallets at the top with the intention of creating a moving assembly line. But such a movement of parts was impossible under the given conditions and we saw the wheels of many of mobile pallets were tag-welded with the table frame.

Huge inventories

We saw larger and larger bins containing material were occupying nearly 50% of the space on the shop floor. Wound coils, stators, painted and to be painted casings, assembled motors, to be tested pumps, finished pumps for packaging – simply pumps of all stages of manufacturing were found in bins and pallets.

Material handling

People used to carry components in the bins to the assembly hall and then carry the components across and stack on pallets inside the assembly frame. Every time the operator has to bend to the pallet to pick a component – that weigh up to 12 kg. The material kept moving all over the shop floor from one operation to the other and people kept walking and lifting the components constantly. Every operation/machine station had at least two pallets of components waiting before and one or two completed pallets.

Value Stream Mapping (VSM)

The Value stream mapping and study showed that there was a significant imbalance in the cycle times among operations. The process cycle efficiency was in fractions – far less than 1% as expected – indicating a higher production lead time. We identified few bottleneck operations and had a detailed plan and discussion with the management and their shop floor teams on the future state VSM.

The Transformation Workshop

Create Flow

We planned for a 3 day focused improvement workshop, which is also known as Kaizen Event. With a detailed plan of action, we started the lean transformation in their assembly line. Production and engineering teams along external support for fabrication, welding and crane operations were ready.

We found that the assembly frame itself was a major hindrance to the smooth flow of material. Hence, we decided to cut down the assembly frame and made way for the flow. Then we moved on with our plan of lean layout, line balancing and workstation design.

The result

In the beginning of the second half of the third day, we started the assembly line with a new setup. People were excited with the changes and were equally doubtful about the outcome. The half a day throughput of the assembly line had surpassed their ‘highest one-day production’ yet.

Towards improved cash-flow

We brought the operations and the machines closer so that there was no space to store more than few components in between. We eliminated the pallets from the assembly line; cut down the bins into half of their height and later reduced the size and number of bins.

The company enjoyed a one-time windfall of cash flow from the inventories. Started operating with lower working capital. With further journey towards lean, they became competitive and now they are one of the most economical sources of manufacturing for their customers.

The success journey continues

Their journey continues and they are showing multifold growth in these years. The future is bright!