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Author's profile photo Former Member

Lean Manufacturing with SAP-ERP

Companies perform lean projects all the time… and, at least per my experiences, very rarely do they connect the principles with their ERP system. This is probably due to the fact that lean gurus, consultants and prophets very often do not care about ERP and neither do they think that ERP is necessary. Is it really true that once you implement lean, you don’t need an ERP anymore?

I think not. There must be some element to report cost back to an accounting or costing system and self-controlling systems with visual feedback on the shop floor are working in some cases but not in others. Besides, you’ll have to plan some things… if you let Kanban control itself and let it create signals to replenish, you will have to make sure the raw materials are available and you have free capacity. One-piece flow seems like a nice concept, but not everybody is like Toyota and when you make fancy faucets, you’ll have to batch the fabrication of components, because you can’t ‘flow’ rivets one piece at a time. Some setup optimization and sorting in the schedule is mandatory.

Nevertheless, you can and should make an effort to ‘lean’ your shop floor if you want to stay competitive. Avoiding the waste of overproduction, manufacture to actual demand and flow with a ‘takt’ based scheduling system, ‘pull’ from supermarkets and introduce an inventory / order interface at the right location. Those are all lean improvements that can be handled in standard SAP-ERP.

SAP has the ability to execute takt-based scheduling, perform line balancing, pull with eKanban, level demand with a heijunka sequence and even  combine a planned, level sequence to reserve capacity and purchased parts, with a Kanban withdrawal from an actual demand signal.

The key word is ‘repetitive manufacturing’! And there is a lot of confusion around it. Some people consider REM a production type and I fully agree if one would call it ‘flow manufacturing’. In that case I would argue that you may have:

– the production type: ‘discrete manufacturing’ for complex routings and large batch production of discrete items (heavy machinery, turbines, job shop)

– the production type ‘process manufacturing’ for complex processing of ‘active ingredients’ (some chemical or other reaction is going on while your processing and you can only express that with a formula). In process manufacturing things are usually liquid or flowing and you can’t go back to the raw state once your in the process. (chemicals, food)

– the production type ‘flow manufacturing’ (flow in a different sense than liquid flow) for simple routings on a production line. Flow manufacturing is defined by manufacturing lines where product flows along and moves through stations where value is added to the product. That kind of production you want to flow without too much interruption… and it really doesn’t matter whether it’s discrete or process.

Now, what I see often when people show me their factories, is production lines where raw material is introduced to a work station and value is added in a flow-like of ways until a finished good gets packaged and put into storage.

Then we’ll go into SAP and find many production orders recording that process. Semi finished product is posted into inventory and issued again, scheduling and capacity planning needs to be performed at every inventory point and each production order is confirmed and costed individually… not very effective (or should I say ‘not very lean’), lots of inventory of semi finished goods, very long cycle and lead times and very time consuming and work intensive procedures.

That’s why SAP came up with REM – maybe not the very best name for a thing that can make a positive difference in your planners and schedulers work lives. When you use REM – or lean SAP – you can setup production lines with sort buffers and reporting points where product can flow along without being put in inventory.  In order to avoid WiP buildup, you can use Line Balancing to make the products flow (which, according to Little’s Law and actual experiences also reduces cycle times). Line Balancing will also help you build a model mix and calculate a ‘takt’ by which you slow down or speed up the line so that you manufacture according to the takt aligned to actual demand and thus avoid the waste of overproduction. And based on that calculated takt you can use Sequencing to build a mixed model schedule according to the principle of equal distribution (every part every interval – EPEI or heijunka). REM also makes it easy to report actual production times and consumption (using backflushing at reporting points and run rates at the end of the day) and uses cost collectors to report cost as ‘parts per period’ (think about that for a while…. do you really want to cost every production order? don’t your accountants think in period based cost reporting anyway?)

SAP-REM provides many opportunities to build your manufacturing process into the ERP system – just the way it happens on the shop floor. And if you build that model into SAP, yu gain transparency and therefore the ability to constantly monitor, ‘lean’ and improve on the way you build.

Less inventory! Shorter cycle times! Higher throughput! Demand driven manufacturing! … to just name a few…

heijunka schedule in SAP-REM

Kanban Board in SAP: The view from the Work Center – a Kanban signal looks for an existing order on the sequencing schedule.

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      Author's profile photo Anupam Sharma
      Anupam Sharma

      Hi Uwe,


      Nice Blog!!!


      Anyway as ERP consultant, to Optimise the Five Ms and Decision making, you need a user friendly way of getting information recorded in  any ERP. and I have the same opinion as yours like REM is the one the very useful menthods in SAP to achieving the same.


      Previously REM has some disadvantages like Co Product cant be used but as a part of EHp 6, SAP provided the Business functions to incorporte the same in REM, which makes it even more useful.



      Anupam Sharma


      Author's profile photo Former Member
      Former Member

      Hi Uwe Goehring,


      Nice blog. Is it possible to model Lean using Production order?

      I mean, there is distribution key(GLEI) which will allow you to model 'Transfer Batch' to reduce total lead time across all operation within BOM/routing level.

      I guess , challange will be across the BOM level. How do you trigger start of first operation of higher level as before last operation completely ends at lower level( There would be suffcient qty to start processing once Some qty are processed)


      What are the other enablers needed in production order?

      Cost accounting set up in SAP needs to be changed as well. How activity prices are calculated in SAP ?( KP11, KP26)... Most CO consultant would follow steps

      1:Create Capacity hrs for each work center for next year in Long term planning.

      2:Calculate annual/remanining depreication for workcenter

      3:Divide 2 by 1 & that is activity price.


      Rationale is every machine's annual cost will be recovered when posting are done on production order. There is no downtime reporting, hence machine must keep working on irrelevant jobs. The root cause of 'Shop floor chaos"


      Most SAP ERP projects are driven by financial needs , PP is not even implemented in first phase , so by the time PP's turn comes, 'Play Safe' is underlying motto in Project team.




      Author's profile photo Former Member
      Former Member
      Blog Post Author

      Dear Jatin


      I agree with you on your assessment of why lean/REM is not implemented from the beginning. There are other, more important issues to cover and managers want to get live asap... meaning that they ask for the functionality that is easier to use. Production Orders are not easier to use but they are better known by the majority of consultants and therefore are the functionality of choice.


      5 years later it becomes a big issue to switch to REM, but in my personal opinion... trying to translate lean into SAP with production orders is a lost cause. I know that managers are reluctant to venture into an effort that seems very difficult, but to eat the soup with a fork is not a good idea...

      Author's profile photo Anupam Sharma
      Anupam Sharma

      Hi Uwe,


      I disagree with the fact that PP is not implemented in First phase of SAP project, when it comes to manufactruing companies, it comes to costing part as well whether it is standard cost or actual cost, PP needs to be implemented,Also companies are doing the Accounting audit that's why they are more intersted in doing the FI related functionalities  first, but when cost audit comes into picture then Stable PP is must have.


      I agree with Uwe on part that Most of the Flock know Production orders but Migrating from Production order to REM is again a tedious exercise.


      In my opnion It is always better to implement  Basic ECC  components at once(FI, CO, MM, SD ,PP).Later on you can have QM, PM, PS , CS, etc as well.



      Anupam Sharma

      Author's profile photo Aditya S
      Aditya S

      Hi Uwe,


      Thanks for the helpful blog.

      Author's profile photo Former Member
      Former Member

      Nice blog


      Thanks for sharing this.




      Author's profile photo Former Member
      Former Member

      Nice blog and thanks for the info



      Author's profile photo Former Member
      Former Member

      thanks for helpful info.