Lean Manufacturing Planning

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.

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 going

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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