Season Two, Episode Two
BRIDGE THE GAP
One of the most well-known awareness campaigns in the world is London’s “Mind the Gap” campaign designed to raise awareness of the potential danger of getting too close to the train. And raising awareness of an issue is the important first step.
Material Requirements Planning (MRP) has been the solution that has allowed manufacturing companies to manage their inventories and their production schedules for around 50 years. I can’t imagine where we would be without it. For all its preciseness, warning signals, robustness and comprehensiveness, I give thanks. Yet, like any complex and rigid system, for its lack of agility, its unforgiving nature, its calculations and its dependence on human intervention, I curse it like a sailor.
The MRP that worked for years has found that the world around it has become more complex, more ambiguous, more volatile and more uncertain than it is able to handle. Complexity combined with customers who demand product immediately has resulted in rising blood pressure, frustration, lost business and a few scapegoats.
Just because it used to work well doesn’t mean that is always will. Though it is not large, a “Gap” now exists between the MRP we have trusted for years and the MRP we need today. We don’t need to “Mind the Gap”. We need to BRIDGE THE GAP.
Let’s at least partially define the gap.
MRP uses Due Date as the target for replenishment timelines. Now, we run suppliers ragged, not to mention our own shop floor, changing due dates attempting to keep up with the changing customer requirements. What we need is a method to maintain an inventory level for strategic parts or locations and to create relative priorities of those inventory levels so anyone can clearly see the current urgency.
MRP uses Lead Time to determine the action messages it provides. As our priorities keep changing, our lead time can become meaningless and irrelevant. MRP only recognizes two different lead times, manufacturing or purchased lead time, and cumulative lead time. Neither of these provides an accurate lead time for our finished product. As a fun exercise, express in your own words the ridiculousness of setting a due date prior to now. You cannot realistically expect that parts arrive before the order is placed?
Dependencies. MRP needs to synchronize a complex and dynamic environment, so it makes everything dependent. As our products have increased in complexity, a monster is created. Any change in the end item requirements, creates a change in everything below it in the bill of materials.
Static Precision. MRP assumes you have enough time and that everything will go exactly as planned. Our increasing variability in our demand and in our supply means that the plan is constantly changing and our time required to react is getting shorter and shorter.
I begin to wonder if we’re in a fantasy pinball story, where we are the ball instead of the player in charge of the flippers. As a Supply Chain professional, it may not be your fault, but it is your problem.
What if the corrective actions we are taking, the ones that worked before, are not having the expected impact? What if they are making it worse? Or simply aren’t real anymore.
Let’s review our most common corrective actions.
Safety Stock. In terms of MRP action messages, there is no difference between inventory reaching zero and inventory reaching safety stock. So, by increasing safety stock, there is an immediate increase in the chaotic messages from MRP and that increases the bullwhip effect. Not what we are trying to achieve.
Safety stock was created to allow adherence to the frozen schedule period. We have tried to reshape it into a way to manage an inventory position. But it does not do that. Like a paddleball game (ball and paddle attached by elastic), it simply bounces our inventory level off the lower limit causing turbulence in our supply chain.
Improved Forecasts. Companies without forecasts (only sales orders) have the same problems as those with forecasts. In other words, increasing forecast accuracy is not the solution. Fixing irrelevant information isn’t the answer. Forecasts have great value in the right relevant range but can be devastating when directly running our day to day planning.
Change suppliers, fire colleagues, demand improvements. We are asking for the impossible or at best, expecting people to choose between two equally bad alternatives. The failure is not their inability to do the impossible, it’s our inability to help them find the right choices.
Increase the Planning Time Fence (Frozen zone). Even if this is attempted, adherence is not the norm. We break into the schedule all the time. By making the time fence longer, we make the chaos worse instead of making it better.
A word about blame. The world has changed, and our systems need to adapt. Sometimes it takes a while to see what is the right corrective action and sometimes the solution is not clear. That does not mean we should keep doing things that have started to seem nonsensical. Being open to new ideas is the best path to the solution.
If you take the same road to work for ten years, when they build an expressway do you keep taking the same slow road? No, you use common sense. And when it makes sense to use the new road, you use it. When the new road is congested, you choose your former route as an alternative. But denying the existence of the new road is not really one of the choices.
Demand Driven Material Requirements Planning (DDMRP) is the new road. But the old roads are still there and still valid. Inside of the Demand Driven Operating Model, there are many times when MRP is used, times when Kanban may show itself. You are not betraying MRP, merely using appropriate tools that fit the situation. Raising awareness of the potential results of each methodology is the key.
DDMRP is much more than inventory management. There are books written on the subject. The point of this article is not to explain everything in two pages, but to point you towards the solution.
We need to educate ourselves on new methodologies and build an understanding of the value of continuously building competence. If we continue to focus on using the old tools, without asking the question, “Are we just doing the wrong things faster”? we will not make the progress we so desperately seek to make.
Bridge the Gap.
John Melbye, DDPP, DDLP, CSCP