Book Order Form | Table of Contents | Preface | Chapter 1 | Chapter 2 | Chapter 3 | Chapter 4 | | Chapter 5 | Chapter 6 | Chapter 7 | Chapter 8 | Appendix A | Appendix B | Glossary

    These days conventional wisdom says that if you are not computerized you are dead meat on the manufacturing superhighway. So it is not surprising that as their companies grow directors and upper level managers decide to make the jump from an effective, manual manufacturing and materials planning system to a sophisticated and complex computerized MRP system.

    Often the decision to buy a total software management information system is guided by the glowing marketing descriptions of the MRP capability in the system. If you believe the hype it sounds like the sole solution to all the company’s manufacturing needs and prayers. And if customer satisfaction is low, and queries on delivery commitments go unanswered, the bullet dodging plea by the manufacturing manager is usually "Only a MRP system can meet these demands!"

    However, the installation often leaves everyone disappointed. It can take months or even years to get the MRP module working effectively, if ever. Other elements of the management information system—Accounting and Order Entry—are brought on line quickly because they are needed to operate the company on a day to day basis. Meanwhile the pressure to add the potentially production enhancing MRP planning capabilities is often diluted by the difficulties any computer system first brings to the workplace—inefficiency.

    Hands-on managers often have trouble making the transition and will even effectively resist the MRP take-over in the first place because the MRP system was never a vital component of the company’s business prior to the purchase of the new system. So the company limps along and survives without it.

    I have seen many manufacturing managers effectively running their departments from a clipboard, constantly gathering data and rescheduling on a minute by minute basis. When the computerized MRP program comes on-line, this formerly efficient manager is plummeted to the bottom of the learning curve like any raw recruit. He is a computer illiterate forced to adapt to a new system which relies less on his hands-on style than on information gathered from all different directions. Reports are spewed out he does not understand, and he is pressured to realign his thinking (and success) to fit this new monster.

    The new system demands discipline in the collection of timely and accurate information. The latter alone does him in. As full integration of the MRP module, slips month by month, frustration increases, tempers sizzle, and inventory control and schedule performance get no better. On occasion, someone gets fired, but never from the senior staff who ordered the system in the first place.

    This problem is not limited only to the MRP system but is true for the entire management information system. In my round table experiences almost every President who was asked if they were happy with their Management Information System responded, "No."

    And, if asked, "Do you understand the concept of your system?" I wager the answer in most cases would also be "No."

    Software programs costing $10,000 or more do provide training for the users, but how can a manager new to an MRP system totally understand the MRP concept and complexity in a one day session full of unfamiliar terms and buzz words? Worse yet, it seems unfair to then assign him or her the responsibility for getting a system, which is founded on new concepts and disciplines, operating.

    It is not the intent of this book to provide a detailed analysis of MRP, but to cover some of the avoidable pitfalls and present some pointers to help smooth the path to understanding how to make an MRP system effective. Many books are available on MRP systems, but I must warn the reader that if you do not understand the concept you will have difficulty understanding the material in the books.

    Management falters when installing a management information system for several reasons:

    1) Most companies are not prepared. The cliché "garbage in, garbage out" is appropriate here. And an old fashioned approach is another truism: "An operation should first be made to operate effectively on a manual basis before attempting to automate it."

    2) Little or no effort is made to sell the system to the ultimate users. As a result, they resist and even fight the dramatic change to their daily operating routine.

   3) The people using the system don’t understand the concept.

    Very simply put, the Material Resource Planning System is a tool which helps a manufacturing planner determine when material and labor is needed in production to meet master schedule requirements. It provides managers with recommendations based on information such as the material available in inventory and lead times for outside purchases.

    4) The training of personnel, including management (who usually find ways to beg off), is limited.

    5) No one in management explains that data integrity, accurate and timely, is the key to making the system work, and every employee is responsible for insuring data integrity.

    All employees are told to become data entry clerks, including $6.00 an hour direct labor employees, who are stuck in front of a monitor and told, "type away."

    The input of labor and material data into the system must be done in sequence before the next step is started. Important data must be fed into the system at the end of every day, before everyone heads out for their happy abode. The novice to an MRP system does not understand how unfriendly a computer system can be. It burps and gags whenever inaccurate or untimely data is fed into its jaws. With a system not yet in control and operating efficiently, new reports with strange results completely confuse the users. If data entry is not done on a timely basis, some inventory categories can show negative balances, and computer reports can show a product shipped before it reaches finished goods.

    6) Finally, there is no champion in the company dedicated to making the system work.

    Let’s ask the question in a different form: "Is a full-blown, computerized MRP system always necessary?

    Data input can swamp a company, unused to such minute record keeping, but I know several cases where the material planning aspect alone would make a big improvement for planning and control. The rest of the MRP system can be bypassed. This is true for smaller companies but also for many companies where the material dollars far exceed the labor dollars. When the material content outstrips labor, concentrate on computerizing material planning, but forego the automatic scheduling of labor.

    It is far easier to schedule needed labor in manufacturing if it is already in place, but production depends upon the material being available and in place on a timely basis. In a high pressure situation labor scheduling can even be done on a reactive basis because there is more flexibility with labor—by cross training personnel and utilizing overtime hours. However, if there are material shortages the system breaks down.

    Today the trend in manufacturing companies is more and more oriented toward out-sourcing several of the manufacturing steps. The companies that use turn-key vendors can reduce their planning activity significantly. Only one item, the assembly or finished product, need be ordered from the turn-key supplier, who buys all the material, assembles, tests and returns a finished product back to the company. The company saves a number of planning steps by avoiding the purchase of several hundred components, and the follow up—receiving, inspecting, storing, kitting, assembly and testing. Since the finished product or top assembly is ordered from the vendor and has no in house-labor, it can be treated as purchased material. Even if there is still a small cadre of in-house labor for final assembly, the labor can be treated as a monthly period cost, and all the planning can be done by the shop supervisor avoiding the need to load all the labor figures into the big system.

    There are many other types of companies whose mode of operating are not compatible with a full blown detailed MRP system.

    Case 1: Some manufacturing companies have normal one-day backlogs and delivery lead times with a market consisting of dealers and brokers who need immediate response once a live opportunity has been identified. When an order is received the product must be configured from sub assemblies, tested and shipped in the same day. Delivery becomes difficult, if not impossible, to plan and schedule ahead of time.

    Case 2: Companies that allow delivery commitments for the month to be changed on a daily basis during the same month will usually find MRPs incompatible.

    An MRP system hates words like rapid change and expedite. It will spit them back out. MRP systems fed rapid changes will create a mountain of paperwork that will spiral the user into oblivion while he tries to decode and implement one set of changes before another is dumped on him.

    MRP planning system failures evolve from not doing enough to doing too much. Users who do not feed accurate and timely data into the system will render it useless. Plans broken down into the Nth degree can also cripple a system. MRP users won’t be able to keep up with changes, deviations and exceptions because they will spend more time decoding the paperwork than implementing the actions. In my experience, companies that have success with an MRP system continually look to simplify it, to make it more cost effective and useful. One major technique is to flatten the bill of materials by combining and reducing detailed steps.

    Case 3: In companies where labor is limited to final assembly and testing, planners can derail a system by providing too much detail for the labor operation.

    Case 4: In a system house, the group responsible for final testing will test everything put in front of them, be it 10 or 100 systems, all within the same period. Breaking each step down to track time and cost of labor is a waste of time and resources.

   Case 5: Providing customers with a quality product on time is the entire motive for scheduling, but there is a dilemma on how frequently to run the MRP system. If you are driven by changes to the master schedule to run it too often, you cannot keep up with the analyses and implementing the actions, but if you don’t run it often enough it becomes ineffective because of the changes between runs. Running it at will is no good, because in many companies it takes hours to run and keeps other users off the central computer system.

    There is no easy answer to when to run, or not to run. It is a manufacturing management call. The nature of the production cycle, the mix of product, market lead-time delivery requirements and the complexity of material needs have to go into the decision making process.

New question: When does one go to the automated system to improve the efficiency of the present system?

The answer: After you clean up the key elements in the system and get the key users involved.

    In the following definitions, material refers to raw material, parts, components or elements that use material, and finished products.

Bill of Material (BOM)

    This is without a doubt the most important element to correct before starting on any manufacturing planning system. The Bill of Material is the document that describes the product and all its components down to nuts and bolts. Complete and accurate Bills of Material must be provided by Engineering before planning and manufacturing can be effective.

    Some companies allow manufacturing to go ahead with partial or red lined BOMs or drawings (Engineering mark-ups). This may expedite the change, but it violates the system and things will fall through the cracks. Engineering, as the originator of the BOM, must be held accountable. They must realize that manufacturing is their customer and the BOM is their product. Delivering a quality product on time is a necessity of business.

Inventory

    The foundation of any planning system, whether an old fashioned manual one or a sophisticated MRP system, is the absolute need for inventory accuracy. Without a commitment to the accurate tracking of transactions in and out of inventory, scheduling of material will falter, placing customer satisfaction at risk.

Lead Times

    This is the vital part of scheduling. Management will always pressure the Manufacturing department for shorter lead times, and it behooves the entire company to have shorter lead times from both customer satisfaction and financial standpoints. But manufacturing should stand their ground on what they believe is realistic, and management should listen. At the same time, manufacturing must understand that their desired lead times must be competitive in the marketplace.

    The MRP system must be told what to expect for lead times from all the various departments and on material delivery. It is imperative that lead times be defined by purchasing personnel for all material elements needed in the manufacturing process.

    Material availability is key to lead time projections, and suppliers material lead times must be known in order to schedule the completion of an order. When done correctly an MRP system can quickly confirm the schedule date and provide such details as when material will be needed to meet the ultimate product delivery date. The MRP system will indicate if material can be supplied from inventory, made in-house or purchased.

Material Review Board (MRB)

    A Material Review Board should be formalized and develop procedures to handle material which gets set aside during the manufacturing process and requires a decision as to its disposition. This can include material rejects from an incoming inspection, material that fails testing in the production process, material returned from customers, and overages or potential scrap. It is important to make quick decisions and to get the material moving along to its resolution. Do not let the MRB become a pigeon hole, tying up potentially useful material or unused assets.

    Because of the importance of material decisions to all departments -- marketing, manufacturing, finance and engineering -- the Board should have representatives from each one. The representatives must understand the importance of timely decision making and be willing to meet as often as necessary to keep material moving along, be it to scrap, inventory, or manufacturing for rework.

Purchasing Mentality

    The mind-set of purchasing personnel is to get the lowest price possible for material that is delivered on time. Philosophically it is hard to argue with this, however, lower prices can be at the expense of over-buying quantities. Material should not be purchased in such large quantities that it sits unused until needed, rendered obsolete by an engineering change.

    If planning control is poorly disciplined, Purchasing Mentality can hurt the company from a financial and cash management view; but when Management sets clear policies on timing and quantities, purchasing discipline strengthens and planning does too.

    Purchasing must also understand that even though the purchasing requirement appears fragmented on the MRP report, complete kits can only insure total delivery—"For the want of a one dollar part, a $50,000 system can’t be shipped."

    MRP reports can be so fractured to the uninitiated that the list of material requirements seem to have no relation to each other, however, the manufacturing process always requires complete sets of material. Purchasing personnel need to be familiar with related material and what constitutes a set.

Receiving Dock

    As material is received, timely and accurate information must be fed into the system. Just as important is the disposition of material rejected before reaching inventory. Normally received material will go into inventory, but if it is rejected for any reason or received ahead of time or as an overage shipment, it needs to be accounted for and not lost in the system. The personnel on the receiving dock must be disciplined enough not to receive or accept any material not consistent with the delivery date and quantity on the purchase order given to the supplier.

Return Material Authorization (RMA)

    This could become a pigeon hole if allowed. Customers do encounter failures with products, and the return and disposition of their products needs to be an important part of the manufacturing planning and scheduling system.

    Many companies treat returns like unwanted relatives, not realizing they are useful assets which, if not acted upon, can create unhappy customers and lost revenue. In order to minimize customer unhappiness, some companies send replacements out before receiving the original back, which means an idle asset is sitting in the field until returned. The manufacturing system planner can only badger sales personnel to get it back. He can only guess at the actual return date and potential usefulness, so its availability remains unknown. Returns lose their importance when manufacturing companies see them without revenue value. This is a waste. When material is returned it should be sent to the Material Review Board for quick disposition.

Schedules/Forecasts

    A company must decide its policy on schedules according to the nature of its business.

    Case 1: Start-up companies and small companies may have a policy to buy material only after a sales order is received from the customer. This policy reduces financial risks, but it can also lead to inefficiency and create a non-competitive situation if all schedule commitments are based on the longest lead time material to be received.

    Case 2: Companies selling commodities or catalog items might create accurate schedules by building for inventory on the come (without advanced sales orders). The risk is higher, but the level of business may be easy to predict in a mature company with a reliable history. Unfortunately large mandated inventories cost money when they sit unsold.

    Case 3: Companies in a competitive marketplace may overcome long lead times by maintaining a safety stock for the long-lead-items and ordering the bulk of the material only after an order is received. This creates a volatile environment and additional expenses by forcing inefficiencies in labor and by adding expediting costs for material. When peaks occur the resources in place become overwhelmed and important actions fall through the cracks, playing havoc with missed delivery promises and making customers unhappy.

   Case 4: Companies can best serve their markets by planning inventory build-up based on an optimal mix of committed and forecasted products. This can allow companies to significantly increase efficiency, increase through-put rates, obtain better prices and delivery for material, shorten lead times for customers and actually increase profitability performance. To accomplish this, a good understanding of the market and product structure is required. This mix requires a meaningful and highly feasible forecast from Sales and Marketing.

    In all cases, a master schedule derived from the forecast, drives the manufacturing planning cycle. The planner then creates a build plan (manually or with the help of an MRP) which analyzes what is available in inventory in bits, pieces or finished goods. The plan then schedules what is needed from the various manufacturing related activities and departments.

    Sound simple?

    Not so, because a forecast is not a simple item to get from sales and marketing. Many companies that lack a committed revenue forecast operate under Case 2.

    The situation can be improved if Manufacturing takes the initiative. I have advised many manufacturing managers to develop a forecast based on history. I assure them that when they present this to the sales and marketing personnel, they can expect screaming and hollering and several selected four letter words attacking the presenter and his forecast. But I have also predicted, and been right most of the time, that when they ask what numbers should be changed they would be met with silence.

    The historical profile method functions best when Sales and Marketing work with Manufacturing to set realistic goals. These two departments are the first to know if there are any products listed which have or might soon become obsolete and should be removed from the schedule, or if there are any products not yet known to manufacturing, that should be added.

    One last comment on forecasts, Sales and Marketing like to give three month projections and only change them every three months. This is an awful practice because when the first month is badly missed, the system will still be ordering material for months two and three. In most operations, customer scheduling needs are moving target and a fixed, three month forecast is not sufficient to optimize the manufacturing performance. Normally revenue forecasts and master schedules should be redone on a monthly basis.

    An MRP System can be a powerful tool for planning manufacturing, however, emphasis must be on making the material planning aspect of the system work first. This is particularly true if the material component of sales dollars far exceeds the labor content dollars. It should be second nature to go where the big dollars are, and cleaning up the material system comes first.

    Before installing a MRP System and automating the planning process, users must first understand the concept of material resource planning and make the key elements work correctly. If the system is already in place but is not working to expectations, take a step back and clean up the key elements rather than embarking on the frustration of continually tinkering with an automated system.