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The Operational Excellence Transformation

Material Requirements Planning (MRP) 

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/MRP---we would still be facing daily parts shortages, shop floor chaos and end-of-the-month scrambling. What happened to all those "salesmen" promises?"

When it comes to detail scheduling, marginal data input integrity and inside-of-lead-time orders cause MRP systems to create far too many rescheduling actions that causes purchasing and production to lose control of day-to-day activities. This schedule instability is human driven and not a system design problem. (So stop listening to salesmen, while bank clerks may perform their duties flawlessly, stressed-out purchasing and production planners, processing inside-of-lead-time orders, will never achieve perfection.)


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Material Requirements Planning (MRP) 

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/MRP---we would still be facing daily parts shortages, shop floor chaos and end-of-the-month scrambling. What happened to all those "salesmen" promises?"

When it comes to detail scheduling, marginal data input integrity and inside-of-lead-time orders cause MRP systems to create far too many rescheduling actions that causes purchasing and production to lose control of day-to-day activities. This schedule instability is human driven and not a system design problem. (So stop listening to salesmen, while bank clerks may perform their duties flawlessly, stressed-out purchasing and production planners, processing inside-of-lead-time orders, will never achieve perfection.)

The MRP Explosion Process

MRP at first look, is not a 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, lead times, 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 buyers and 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 most master schedules that are driving MRP contain inside-of-lead-time sales orders that exceed production capacity and ignore procurement lead times. In addition, the gross to net process is based on data and parameters supplied and maintained by planners. While a computer is flawless in its ability to calculate the answers, the data supplied by stressed-out buyers and planners is not. Consequently, MRP reschedules are so many that buyers and planners can't effectively process the take action volume.

Accuracy of MRP Input Data

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 percent-age 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 tracks MRP input data and does a simple calculation of statistical probability of MRP accuracy: Master schedule  99%, BOM = 98%. Shop Order Status = 90%, P.O. Status = 92%, Inventory = 92%  it will find that its MRP scheduling accuracy is 74%. In this case, if buyers and planners followed the MRP scheduling take actions, the order launch error would be 26%. How does your calculation compare?

The End-of-the-Month Syndrome

For a measure of MRP shortcomings, one needs only to spend some time in a manufactur-ing 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 to  noncompetitive pricing caused by uncontrolled non-value-added costs. Is there a solution? Certainly, I call it Kaizen Based Operational Excellence.

Operational Excellence Transformation

Operational Excellence is a proven methodology that employs practical tools and techniques that help manufacturers gain control of their operations, optimize their performance, eliminate non-value-added cost and consistently exceed goals/expectations.

Lean manufacturing 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" MRP 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.

Operational Excellence eliminates all the non-value-added tasks in the MRP "order launch and expedite" system... the result: A significant increase in speed, quality, and profits. And, work becomes fun again!

No matter how much computer sophistication is added to your purchasing and production systems, if you fail to master the basics of a operational excellence transformation, you will never optimize your lean efforts and never reach our full growth and earning potentials!

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Operational Excellence Management Articles

Operational Excellence Articles Series 01  Operational Excellence Articles Series 02
Operational Excellence Articles Series 03  Operational Excellence Articles Series 04
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Operational Excellence Articles Series 11  Operational Excellence Articles Series 12
Operational Excellence Articles Series 13  Operational Excellence Articles Series 14
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