Every evil in our supply chains…
Someone said many years ago: “Every evil in a manufacturing environment eventually manifests itself in the form of additional inventory.”
Of course, precisely the same thing is true of supply chains. Every fault, every failing, every strongly-held yet misguided belief about how supply chains should function will eventually manifest itself in our supply chains as excess inventory.
And, interestingly enough, excess inventory manifests itself—as clearly articulated in Little’s law—in longer lead times. And, the consequences of longer lead times are what? The consequences are almost inevitably inventory shortages and out-of-stocks. I have seldom met a supply chain manager or executive that was not simultaneously struggling with out-of-stocks and excess inventories. Our supply chains seem constantly plagued with “too much of the wrong stuff and too little of the right stuff.”
Computers to save the day!
Throughout the 1980s, 1990s, and on into the 21st century, I was helping enterprises and supply chains select, implement and build upon the latest computer technologies. Computer systems were being used to computer statistical reorder points (ROP), economic order quantities (EOQ), and much more.
The failure of MRP
Every time I get one of those requests, I cringe a little.
Because, MRP has never, ever lived up to all of the promises made by MRP crusaders of the 1970 to 1990 MRP expansion period. And, contrary to the general thought that we should learn from our experience, experience apparently has not taught us well enough regarding the inherent weaknesses in MRP, MRP II and its ERP evolutions.
Why aren’t we listening?
As far back as 1984, George Plossl and Raymond Lankford were already warning us that MRP systems had been oversold to U.S. industry. They said it was “a classic case of fad psychology” with companies avidly embracing MRP as the solution to their problems. Plossl and Lankford, after studying many, many implementations of MRP and MRP II systems, said—even then—that “MRP II is among the most overemphasized and underachieved goals of U.S. Industry.”*
Even firms where I have successfully assisted them with implementation and training in the use of MRP almost inevitably come to recognize that it doesn’t really solve the problems they were hoping to solve. They readily see that something is still missing.
Despite attempts to follow the recommendations of their MRP / ERP system, they continue to experience
- Late orders
- High expediting costs and expenses
- Wandering bottlenecks
- Excess work-in-process inventories
- Unworkable schedules
Why this failure?
In part, this failure stems from management oscillation.
Before moving to traditional MRP, they likely had been managing a just-in-case inventory. They had hoped that having lots of inventory everywhere would help prevent stock-outs, delays, expediting and more. It hadn’t worked. Despite huge inventory investments, they still found themselves struggling with shortages, stock-outs, delays and high expediting costs.
So, they thought, MRP will help us.
MRP is designed to provide time-phased purchasing and production guidance so that our stocks of inventory will be more synchronized with our production and shipping demands. Traditional MRP’s algorithms are based on computer-guided “just-in-time” inventories.
As a result, for some period of time following the MRP implementation, things actually got worse in terms of excess stocks accompanied by simultaneous stock-outs and shortages.
So, work-arounds were implemented. MRP data was further manipulated on whiteboards, in Microsoft® Excel™, or in homegrown applications built in Microsoft® Access™ or with other tools. This helped some. At least the enterprise was surviving, but only at the high cost of increased salaries and expenses related to maintaining all the new islands of information now scattered across offices and desktops. And, of course, scheduling of purchases and production now works the same way it did two decades ago—run most by “gut feel” and the latest or loudest demands from sales and customer service managers.
There is a solution that works
I’m not really sure why we are such slow learners.
There is a solution that really works. It’s called DDMRP (Demand-Driven Material Requirements Planning). You can read about here at the Demand Driven Institute website. Or, you can read a couple of outstanding books that ought to be on the desk—not the bookshelf—of every supply chain leader, strategic CFO, and supply chain planner. Here they are:
- Demand-Driven Supply Chain Management by Simon Eagle
- DDMRP – Demand Driven Material Requirements Planning by Carol Ptak and Chad Smith
We can help, too. Leave your comments below, or feel free to reach out to us directly, if you prefer.
Stop letting your traditional MRP system and old-think stand in the way of your supply chain success.
* Plossl, George W., and Raymond L. Lankford. "The Redirection of U.S. Manufacturing: Part 2--The Pivotal Period." Production and Inventory Management Review (November 1984), 50-51.