When a manufacturer is involved in a Supply Chain - and of course, that's "always" if you extend a Supply Chain all the way from origin to consumer - there's an immediate potential for a problem.
If that manufacturer is using the popular ERP software, there's a probability they are also using a module of the software known as MRP, or Material Requirements Planning.
And that's where the problem lies; the MRP software, which was originally formulated in the 1950's and turned into detailed logic in the 1960's has barely changed since then - that's 50 years!. Unfortunately, our world has changed substantially in that time. And the MRP logic that was so promising that it triggered a revolution in the 1970's and 1980's as computers became common, no longer matches current realities.
Product life cycles have been compressed dramatically. After decades of attempting to reduce purchasing lead times, the strong and continuing trend to outsource from offshore has led to lead times that are longer than they have ever been. Nevertheless, customers now habitually order products with shorter lead times than ever before. And, they feel free to change their minds. Forecasts are the least accurate they've ever been and and of course forecasts of this kind have never been accurate. And in addition after decades of attempting to reduce variability in processes, the increased lead times, reduced product cycles and expanded volatility in demand has created more variability than ever before.
Which poses a real dilemma with regard to MRP.
On one side of the dilemma, the MRP logic - which starts with a forecast or actual demand and uses the Bill of Material and a database of inventory and order data to work out what they need, how many are needed, and when - has never been more necessary. The ability to re-work the numbers is vital when so many things are changing.
On the other side of the dilemma, the volatility combined with MRP's recalculations means our MRP systems are swamping planners with exception messages, and planners can't keep up; and priorities change so frequently that it's impossible to respond effectively.
One result of this is, manufacturing businesses in many environments (for example, those with any complexity in their Bills of Material) are compelled to live with constant, chronic shortages of materials and purchased and manufactured parts, and finished goods that is leading to entirely unsatisfactory performance in terms of inventory levels, customer service levels and whole plant productivity.
And since the manufacturing business is part of a Supply Chain, and is attempting to deal with demand signals and generate their own ..., the impact of this badly broken engine at the heart of a manufacturing business has repercussions for the entire Supply Chain.
Is there a way out? An innovative new approach , a fusion of the best of MRP with concepts drawn from DRP (Distribution Requirements Planning), Lean manufacturing, Theory of Constraints and some pure innovative thinking. It's called Demand Driven MRP, shortened to DDMRP, and its success rate with users so far has been nothing short of spectacular.
The DDMRP technology has been extensively documented in the new, 3rd Edition of Orlicky's Material Requirements Planning an update of the book, Orlicky's MRP, that first documented the classic MRP approach in the early 1970's.
Common results include substantial reductions in inventory (as much as 60% for some users), along with major improvements in Customer Service, commonly to the 98% order-fill-rate and better. When this is combined with reductions in the expenses from expediting activities (freight in, freight out, and overtime) the combination is matchless in terms of the potential for performance improvement.
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