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The MRP-JIT Paradigm
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Getting to Lean and Mean

The swashbuckling layoff craze we are witnessing is just weakening our ability to compete. From Fortune, "This continuous downsizing—it's corporate anorexia. You can get thin, but it's no way to get healthy."6

Managing a corporation, especially a manufacturer, is a very complex undertaking. This means that there are no easy answers, no meat-ax available that will serve the purpose. The only way to get lean and mean is to proceed professionally and methodically.

The MRP-JIT Paradigm

Over the last two decades in our profession, we have made prodigious progress in getting our manufacturing act to­gether. First there was MRP-I, for planning. Then came MRP-II that closed the loop with execution and integration with other functions. Then JIT came along and asks us to do all these things without waste. Now we know how to manage manufacturing, which is probably the most com­plex process in any company, manufacturer or otherwise.

Process Orientation

We have been so busy working out our problems in manu­facturing, that we neglected to notice that we have built a solid, workable, new model for the entire enterprise. Our MRP-JIT paradigm is inherently cross-functional, enter­prise-wide, and process oriented. When MRP puts out a requirement for a purchased component, it doesn't care who manages the master schedule, who maintains the bills of material, nor who put in the lot sizing rule. Similarly, MRP doesn't care if the traditional inventory planner sends a requisition to the buyer who goes through the competitive bid ritual. If you want to have the buyer do the planning, and release orders by EDI, that is all the same to MRP.

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MRP doesn't pay attention to who puts out the bills of material. It could be a traditional design engineering group, or a result of concurrent engineering. MRP only requires that the process be done properly.

When MRP plans a shop order, it doesn't care if the work center is self-directed, if it is a cellular, continuous flow layout, or if it is a traditional job shop. Because of MRFs process approach, we in manufacturing can be as flexible as we choose, without upsetting our basic planning and control systems, either from the theoretical standpoint, or regarding software.

Extending the Paradigm

To really achieve lean and mean restructuring, the whole enterprise needs to learn from us how to improve all our other processes. Some people are calling this reengineering, and it is best done in two steps.

Step One—Reengineer the Processes

Every company has a finite number of processes. For example, a most important process in a manufacturing enterprise is the order fulfillment cycle. In a make-, assemble-, or configure-to-order setting, this cycle starts when the customer first identifies a need for your product, perhaps through their MRP system. The cycle proceeds through order entry, master scheduling, and production and inventory planning. The cycle continues with produc­tion, packing and shipping. The cycle is completed when the customer is using your product with satisfaction, and the invoice has been sent and paid. This process includes important contributions from the whole supply chain, including your customer, your suppliers, transportation companies, and communication.

In a make-to-stock situation, the cycle starts with a replen­ishment order from the field, or a usable sales forecast, and ends when your product is available, on the shelf, at the required distribution points. Customer order fulfillment represents a second process.

The reengineering method calls for analysis of every step in the process. A simple industrial engineering flow chart is helpful. Every step is analyzed to see if it really needs tobedone. If so, can the process be simplified? Delaysand inspections are two prime candidates for elimination. Empowered, well trained, multifunctional workers can be called on to do several tasks that traditionally are ad­dressed serially in several departments. For example, empower the order entry clerk to approve credit for the majority of current customers who are in good standing. Only send the problems to the credit department.

Another reengineering tool is to examine batching of docu­ments to be sent to the next station, where they languish in the in-basket. This is analogous to move and queue time, that we have been hammering down for years in manufac­turing. Collocation is another tool. Why not have the buyers and accounts payable located adjacent to one an­other?

This is one way to eliminate batching and in-baskets.

Some Additional Examples

Eliminating receiving inspection, making delivery directly to the line, and using bar coded labels to speed up the receiving transaction is a common example, which can eliminate the traditional dock-to-stock delay, and the paper receiving report.

Electronic Data Interchange (EDI) is eliminating the tra­ditional purchase order by sending releases directly from the buyer's MRP system to the seller's.

Another, more radical advance, is to eliminate the three-way match in accounts payable. This current, strong tradi­tion is to have the accounts payable clerk check the supplier's invoice against the purchase order for price, and against
the receiving report for quantity and perhaps quality. If all three are in agreement the clerk authorizes payment. In a Just-in-Time setting with frequent deliveries, from single sources, with no noticeable quality problems, the three way-match is being eliminated, in favor of "back flushing" vendor payments. Under this process, you pay for what you consume. Let's say you are making little red wagons. You
have only one supplier of wheels, who delivers flawless quality, frequently, directly to the line. If you make 1,000little red wagons in a week, you must have used 4,000wheels. Your MRP system back flushes this fact into the accounts payable system, where payment is completed by EDI, from your bank to your supplier's bank untouched by human hand. This actually is being done in some US factories today, and certainly will increase in popularity in the coming years.

To be Continued


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