Season Two, Episode One
Does managing your supply chain today feel like a game of Whack-a-Mole? Wait for the problem to surface and then work as quickly as possible to resolve it? How long can one keep playing that game? How long before you search for a real solution, a lasting solution, a complete solution? How long will you keep saying “oh, that’s just the way it is?” How far behind will you get before you search for a solution? How many other companies will solve this problem before you believe that it really is solvable?
Today, companies of all sizes and industries are solving their inventory firefighting chaos by using Demand Driven Material Requirements Planning, a method to model, plan and manage supply chains while protecting and promoting flow. DDMRP uses stock buffers to release supply orders and then separately, to manage the expediting and scheduling of those released orders.
Most companies today don’t realize that the tools we’ve been using for years struggle to work correctly in the Volatile, Uncertain, Complex and Ambiguous world in which we now find ourselves. They were designed when everything was simpler.
So, what elements of Traditional MRP are creating difficulties?
1. Due Date. Often, the due date that we set when we place an order is not the date that we eventually really need the parts. But our measure of success is that original date.
2. Lead Time. Many times, when we place an order for components, we are expediting from the beginning. So, we don’t give the lead-time that the supplier has set. Or if we do, the next day we are asking that they do better and deliver earlier.
3. Degree of Precision. Traditional MRP uses the data in the system to make recommendations for things like start date or order date. If Customer Service enters the order in the system earlier, Traditional MRP still waits until the precise moment that it is required to act. And then variability does its thing.
4. Dependencies. A Bill of Material is based on dependencies throughout the Traditional MRP system. A change to the number of final assemblies required “explodes” through the product structure and propagates the changes all the way through. If anything changes, everything changes. Even in a relatively simple bill of materials made up of 30 components, the reaction is troublesome. The impact of one changed sales order results in changes to all 30 component requirements. You can imagine as complexity increases, so does the resulting chaos.
You can imagine the conversations already, can’t you? With your supplier, you are asking for a different performance than that for which you originally contracted. Sales says the order has been in the system for weeks, why didn’t you react sooner? Company leadership cannot understand why changing the order quantity from 10 to 11 is such a big deal.
And those of us in planning, pull data out of the Traditional MRP system and we try to guess what the right decisions are based on years of experience. No one is using the recommendations exactly as presented by the MRP system on which the company spent hundreds of thousands of dollars.
But the solution is not an entirely new system. Four innovations allow us to calm the chaos of supply chain planning and scheduling. And what we see is that the calming effect extends through the supply chain, to our customers and to our suppliers.
What we are really doing, is reducing the transference and amplification of variability. In fact, we are protecting our customer from the variability that occurs on our shop floor. And we are protecting our factory floor from the variability coming from the supplier. And, vice versa.
By protecting and improving this systemic flow, we are shortening the cash to cash cycle time. We are minimizing quality issues. We are keeping our investment in inventory to a low level. And, we are decreasing the lead time for producing and delivering to our customers.
It makes Uncommon Sense.
John Melbye, DDPP, DDLP, CSCP