Why do customers buy a manufacturer's product?
There are several reasons, such as delivery, price, quality,
service and technology. In today's world many companies offer
technically advanced products, produce these products to rigorous
quality standards, sell them at fair prices, and provide better
than acceptable service after the sale. However, many times what
sets successful companies apart from its competition is the
ability to produce product in short lead times without carrying a
lot of inventory. To gain a competitive advantage, most companies
realize that they must be better than competition in at least one
of these areas. If competition is more competitive in delivery,
price, quality, technology, and service, it becomes fairly clear
that the company will not be around very long.
Using proper scheduling techniques, it is
possible for a company to meet its customers at a pre-finished
stage, yet still provide the requested product and product
configuration within an acceptable delivery time. If this can be
done, the product can be delivered for a lower cost since less
inventory is required and operating costs are lower. Delivering on
time for a lower cost permits the sales force to use pricing as a
strategy. Putting all these elements together provides a company
with the opportunity to increase sales, gain market share,
increase margins, and increase profit.
MRP Logic Reviewed
Many companies over the last thirty years have
used a process known as material requirements planning (MRP) to
aid in the planning of materials as well as inventory control. In
order to understand the significance of using planning bills, a
short review of the MRP logic should be helpful. The process
starts by taking a demand for product and exploding it thru
bills-of-material to determine the gross requirements to satisfy
that demand. These requirements are then compared to the inventory
and on order positions during what's called the netting process.
If the company has enough material on hand to satisfy the
requirements, no immediate action is necessary other than
follow-up. If the company does not have enough materials on hand
to satisfy the demand, the on order position is evaluated to see
if enough material is scheduled to arrive to cover the expected
demand and if it is scheduled to arrive in time. If both of these
inquiries turn out to be negative (not enough material on hand or
on order), then action messages are generated by the MRP system
and sent to the material planners and schedulers suggesting what
needs to be done in order to meet the demand.
Let's look where problems may surface using
this MRP logic in some more complex environments. In order to use
MRP, we must have bills-of-material. To illustrate a few points,
let's assume we have a product where the customer can choose from
a series of items in the company's product catalog. For example,
the product we are addressing is made from one of ten A's, eight
B's, two C's, ten D's, fifteen E's, five F's, and four G's. How
many bills-of-material are we talking about? Would you believe
480,000 possible configurations if all the options work with one
another? That's right, 480,000 unique bills! How is a company ever
to do data base maintenance in this
environment? There's more! Take an engineering change that wants
to add an additional G to the data base. What's the impact—would
you bel ieve an additional 120,000 bills-of-material or a total
data base of 600,000? This is only to add one engineering change.
Do you think there might be more?
Now consider the second problem. Let's assume
we have the data base built for 600,000 possible configurations.
The next thing we need is demand since MRP is a demand driven
process. Picture this scenario. The master scheduler heads off to
marketing in order to secure the forecasted demand. The scheduler
asks, "marketing (or sales), could you tell us how many
product X's we plan to sell in January that will have the Al, Bl,
Cl, Dl, El, Fl, and Gl configuration? Marketing, could you tell us
how many product Xs we plan to sell in January that will have the
A2, Bl, Cl, Dl, El, Fl, and Gl configuration?" And so on for
600,000 possible configurations! Of course, when we're done
forecasting January's demand, it's time to talk about February's,
March's, etc. You see the problem?
To be Continued
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