Whenever a Supply Chain involves a manufacturing business as a link in the chain - which means "always," of course - then there's the probability of a particular type of problem emerging that has repercussions for the entire Supply Chain.
If that manufacturing business is using an ERP system, there's a very good chance they are also using a key module of the software called MRP, or Material Requirements Planning.
And that's where the problem lies; the MRP software, which was originally formulated in the 1950's and codified in the 60's has hardly been changed since then - that's 50 years!. Unfortunately, the world has. And the material requirements planning logic that was so promising that it led a revolution in the 1970's and 1980's as computers became common, no longer matches current realities.
Product life cycles have shrunk dramatically. After many years of trying to reduce lead times, the strong and continuing trend to outsource from offshore has generated purchased parts and materials lead times that are longer than ever before. Nevertheless, customers now habitually order products with less lead time than ever before. And, customers feel entirely free to change their minds. Forecasts are the least accurate they've ever been and and of course forecasts of this kind have never been accurate. And after decades of seeking to reduce process variability, the longer lead times, reduced product cycles and expanded demand volatility has created more variability than at any time in history.
Which gives us a real dilemma when it comes to MRP.
On one side of the dilemma, the MRP logic - which takes either a forecast or real demand and uses the Bill of Material and a database of inventory and order data to work out what they need, how many, and when they are needed - has never been more necessary. The ability to re-work the numbers is crucial when so much is changing so quickly.
On the other hand, the volatility combined with MRP's recalculations means our MRP systems are swamping planners with reschedule messages, and planners can't keep pace; and priorities are changing so frequently that no-one can respond effectively.
One outcome of this is, manufacturers in many environments (for example, those with any complexity in their Bills of Material) are living with permanent, chronic shortages of purchased materials and parts and manufactured parts, and finished goods that is leading to entirely unsatisfactory performance in terms of inventory levels, customer service levels and plant productivity.
Given the reality that the manufacturing business is in a Supply Chain, and is attempting to deal with demand signals and generate their own ..., the impact of this badly broken engine at the heart of a manufacturing enterprise has implications for the entire Supply Chain.
Is there a solution? A new approach , in many ways a fusion of the best of MRP with concepts from DRP (Distribution Requirements Planning), Lean manufacturing, Theory of Constraints and some pure innovative thinking. It's called Demand Driven MRP, shortened to DDMRP, and its impact on the users to date has been spectacular.
The DDMRP technology has been extensively documented in the new, 3rd Edition of Orlicky's Material Requirements Planning an updated version of the book, Orlicky's MRP, that first documented the classic MRP approach almost 40 years ago.
Typical results include substantial reductions in inventory (as much as 60% for some users), along with major improvements in Customer Service, typically to the 98% order-fill-rate and better. When combined with reductions in the expenses from expediting activities (freight in, freight out, and overtime) the combination is without equal in terms of the potential for improved performance.
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