May 05, 2008 

Hi MBBP Subscribers, 

First, let me assure you that I do not recommend that companies abandon their MRP/ERP systems altogether. I accept that MRP/ERP are good systems for calculating time phased requirements and providing long range inputs for purchasing parts procurement, capacity planning, and inventory turnover calculations.

However, when it comes to detail scheduling, marginal data input integrity causes MRP/ERP systems to create far too many rescheduling actions that can cause a shop floor to lose control of day-to-day activities. This schedule instability is human driven and not a system design problem. 

The MRP Evolution

The MRP evolution took us down the road of computer sophistication. It was to be the panacea for solving all manufacturing problems. Little did we know that when we finally arrived at the final phase---ERP---we would still be facing daily parts shortages, shop floor chaos and end-of-the-month scrambling. What happened to all those "salesmen" promises?

MRP/ERP at first look, are not complicated systems. We input a master schedule that uses bills of material and parts procurement lead times to calculate gross requirements. These requirements are then balanced against the aggregate of on-hand inventory, work-in-process and open purchase orders to determine the net, time phased requirements. The resultant is subjected to lot size algorithms and planned orders are created. (The final output is notification to planners in the form of action messages to either reschedule, reorder, or cancel shop and/or purchase orders.) 

If we go deeper into what is happening in the gross to net requirement process, we find that many calculations are made based on the data and systems parameters supplied and maintained by planners. While a computer is flawless in its ability to calculate the answers, the data supplied by the planner is not. Consequently, the answers are subject to late changes and human error.

In our "ShowTime!" manufacturing simulation game... check it out at:

http://bbasicsllc.com/manufacturing-simulations.com

presentations we do an exercise in statistical probability. Each participant writes down what he/she knows (or guesses) to be the percentage accuracy of their company's master schedule ""input data." To arrive at the aggregate input accuracy of the master schedule, they convert the input data percentages to decimal equivalents and multiply each to the other. (Statistic probability is not the averaging of the decimals, as many people think). 

Using the same statistical probability approach, the resultant decimal is used as the master schedule accuracy input into the requirements planning step to calculate a shop order launch accuracy. Here we take into account the accuracy of the inventory, shop order status and purchase order status. A resultant accuracy level of 0.70 or 70 percent (70%) is quite common and indicates that their order launching and rescheduling efforts are BASED ON A SYSTEM ERROR OF 30 PERCENT. Is there any wonder why MRP and ERP are not the panacea we once thought them to be!

How Accurate is Your Data Inputs

An effective method for evaluating how well a company is doing in managing their MRP input data is to ask questions as to how accurate are their bills of materials, how accurate is their purchase order and shop order status, how accurate are their inventory records, etc. If the answers you get are vague, like...good, OK, not too bad... with no historical percentage data, then you know that this is a company that needs help in stepping up to the problems of poor information integrity.

If a company is neither measuring their system's data integrity, nor in constant pursuit of continuous improvement, then their results will always be poor and their production environment will surely produce shop floor chaos, an end-of-the-month crunch, late deliveries to internal schedules and poor customer satisfaction.

The End-of-the-Month Crunch

For a measure of MRP/ERP shortcomings, one needs only to spend some time in a manufacturing facility... especially during the last weeks of the final financial quarter. In a typical company, you'll find that converting the quarterly financial forecast into reality still requires internal/external expediting, last minute on-the-run product changes and even a little smoke and mirrors  Results are overtime, scrap, rework and warranty claims (all non-value-added costs) that negatively impact a company's bottom line performance. 

In addition, marginal quality and late shipments deliver less than acceptable customer satisfaction. Companies that have spent thousands of dollars in pursuing MRP/ERP are devastated when they experience a business decline due noncompetitive pricing caused by uncontrolled operating costs. Is there a solution? Certainly, I call it Kaizen Based Lean Manufacturing™.

Kaizen Based Lean Manufacturing™

Kaizen Based Lean Manufacturing™ (KBLM) is a proven methodology that employs practical tools and techniques that help manufacturers gain control of their operations, optimizes performance, eliminates non-value-added cost and consistently exceed all expectations.

KBLM involves arranging and defining manufacturing resources so that products flow most efficiently through the manufacturing process. Today, most manufacturing companies are still organized for functional manufacturing... mechanical assemblies, electronic boards, cables,  machined components and purchased parts are produced or purchased in lot sizes and received, inspected and moved to stockrooms.

This “old school” process includes the "picking-of-parts" to fill shop orders and the movement of shop orders to the production machining and assembly build areas. When the parts are completed, they are returned to the stockroom to be "picked" for the next higher assembly shop order.

Finally the end product is "picked", assembled, tested and accepted. KBLM eliminates all the non-value-added tasks in this "order launch and expedite" system... the result: A significant increase in speed, quality, and profits.

No matter how much computer sophistication is added to shop floor control systems, if we fail to master the 8-Basics of Kaizen Based Lean Manufacturing, we will never optimize our lean efforts and never reach our full growth and earning potentials!

Have a nice day, and stay connected.

  

Bill Gaw

Business Basics, LLC
6003 Dassia Way
Oceanside, CA 92056
bg@bbasicsllc.com 
760-945-5596

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