Posts Tagged ‘MRP’

Randall Schaefer is an APICS CPIM (retired) consultant who recently published an article entitled “Cycle Counting Is Not a Guessing Game” for APICS Magazine.  In it, he describes a few scenarios that lead to common errors in cycle counts, such as only counting negative on-hand balances, counting after a production run when quantities are likely to be low, or counting only when the MRP system says to order more inventory.

Schaefer then reminds readers of “the right way to count” which we’ve reprised from his article below.

Since cycle counting is critical to effective inventory management, and hence to reliable MRP (material requirements planning), we thought it would be useful to remind readers of those key principles.  As he notes, commitment to the principles ensures accurate counts of inventory.

  • First, items must be counted at a predetermined frequency
  • Second, cycle counts should be performed more frequently for high-value or fast-moving items than low-value or slow-moving items.
  • Third, the primary purpose of cycle counting is to identify items in error in order to trigger research, identification and elimination of the causes.
  • Fourth, there are two types of cycle counts:

The first is a parts-based system, which counts every location on record to get a total. This is then compared to the stated inventory.  If a part ends up in a location not on record, it is effectively lost forever.

The second type of cycle count is location-based.  Here, every storage location is visited when its turn comes up.  The parts found are counted and compared with the inventory records.  This method eventually finds parts lost to the parts-based system.  As Schaefer points out, “the experienced supply chain management professional understands that world-class cycle counting requires both.

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pushvspullThere’s a long running debate about push versus pull planning in the manufacturing production environment, with push typically exemplified by MRP (material requirements planning) and lean exemplified by pull techniques.  A recent article in the Jul/Aug edition of APICS Magazine article (“New-Fashioned MRP”) by Dave Turbide, an APICS certified CFPIM boils it down as follows:

MRP is based on a forecast of expected demand.  A forecast is prepared… production and purchasing are scheduled to support demand, and work proceeds.  So, you’re pushing forward, to make your product.

In pull, nothing is made until there is demand.  Finished goods require a customer order.  Replacement materials and sub-assemblies are not bought until existing items have been used.  Lean emphasizes making and buying to demand, along with one-piece flow and physical replenishment triggers (kanban).

While some say that push is simply bad, and pull (lean) is good, both approaches, Turbide points out, have their advantages and disadvantages.  Push is recommended in fairly high-variety, complex manufacturing and MTO (make to order) situations.  Pull works best when demand is high for a “relatively” small range of products.  Many companies incorporate elements of both push and pull in their manufacturing environments.

Push is appropriate in conditions of long lead times and a lot of work-in-process inventory.  MRP can be difficult to use in these cases, generating multiple exception notices.  Required information can be difficult to maintain in these cases.  MRP is not demand driven, which is to say, parts and products are acquired to meet a forecast regardless of demand.  If – a big if – “the forecast is accurate and the demand actually occurs, then the company can be efficient and profitable.  But there is no guarantee…” and any differences between forecast and demand create either shortages or excesses in inventory.

Despite all this, MRP remains “the best tool for handling complexity and it has the flexibility required to deal with a wide product variety.  Smart business leaders thus are uniting lean manufacturing tools (kanban, flow production) with their MRP-driven organizations,” notes Turbide.

He goes on to note that some practitioners have taken to using Theory of Constraints to enhance throughput and reduce lead times, and using demand-driven MRP “as a way to pull material replenishment with an MRP-based system.”

As Turbide concludes… “MRP is not dead but traditional techniques are becoming irrelevant as markets shift and evolve.  MRP that incorporates the best of the old with the modern, demand-driven extensions is the tool we need today.”

You can learn lots more about APICS here.



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mrp“A rose by any other name would smell as sweet…” as the Bard noted.

A recent article in the Jan/Feb 2016 issue of APICS Magazine by Dave Turbide (pg. 20, “What’s In a Name?”), an APICS instructor and independent consultant reminds us that while ERP vendors may play games with names and nomenclature, the important thing is to cut through that clutter and keep your focus where it should be: on planning.

As Turbide points out, for several decades there have been “continuous strident voices in the marketplace declaring that material requirements planning (MRP) and enterprise resources planning (ERP) pursuits are worthless, antiquated and obsolete.”

Ironically, many of “latest and greatest” offerings are in reality information systems that are still built around an MRP core (in other words, ERP as we know it).

While MRP systems were originally created to meet the needs of manufacturers in a world considerably different from today’s “faster, better, cheaper” imperatives, it remains a fact that the software functionality first designed a half-century ago remains in widespread use and offers very real benefits.  Because the simple fact remains, as Turbide says so concisely: “Manufacturers still have to acquire materials and components, add value through the application of employee equipment and time, and sell and distribute the fruits of their labors.”

Not to say that MRP/ERP systems haven’t evolved.  Many of today’s systems offer extensive item drilldowns to quickly identify problems, as well inventory control and planning tools, even kanban replenishment or planning algorithms.  It’s software that’s evolved, to be sure.

But at the core of it remains… planning.  While software vendors have marketing initiatives that cause them to tout something new and different – and who can blame them? – these are not replacements for the tried and true.  And it’s confusing, as Turbide points out, to promote something as a replacement for an existing solution when it is inherently the same technology, evolved.

As we tell skeptical clients all the time: it’s not the software that matters most, it’s the advice and counsel and planning assistance that you and your provider or consultant(s) work on together that ultimately delivers the most bang for the buck.  There’s plenty of good software out there (we should know).

But the software has been around in its base form for decades.  The trick is: who can best help you implement it?

As Turbide concludes, the important message here is not to be distracted by labels and acronyms.  The planning tools manufacturers need are evolving and advancing, but the basics remain the same.



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forecastingOur friends at APICS recently pointed out some thoughtful considerations for those companies who find that their forecasting performance for inventory, sales or production are not as accurate or stable as they would like.  In the Mar/Apr 2014 issue of APICS Magazine, research director Jonathan Thatcher writes about the key issues companies must consider.  We’ll reprise a few of his key suggestions today.

First, notes Thatcher, “Don’t schedule production based on the greater of the forecast or sales orders.  Instead, make sure orders consume the forecast as they come in.  Ideally, your ERP system should display figures for forecast, customer orders and requirements summary.”

So for example, when the forecast calls for 100 units and customer orders equal 25 for a given period, this leaves a remainder of 75 forecast units.  Production does not care whether the units are ordered or forecast – they’re just “units” to them.  Through Sales & Operation Planning then, your team can consider the ideal forecast to project, based on sales trends as well as how well production is meeting demand while avoiding adding unnecessary inventory.

A second issue Thatcher notes is what’s called the MRP demand time fence (DTF).  Set the DTF equal to production lead time, and make sure your MRP system shows forecasts to zero within the demand time fence.  If it takes one week to manufacture a unit, then the DTF would be one week.  As the article posits: “Forecasts made inside the DTF should be ignored as it is too late to produce them, and those forecasts will overstate demand.”

And of course, don’t forget to flag extraordinary or non-repeating (“odd”) orders.  Don’t make these outliers part of history on which regular forecasting is based.

Finally, make sure that your weekly forecasting period matches the periods used by sales.  Sales rarely occur evenly week over week.  Aggregate numbers, Thatcher points out, “are your friends” insofar as “data based on long histories is easier to forecast than daily or weekly data” with less variability.

By definition, APICS notes, “no forecast is completely correct.  But we can get a little closer to perfectin with a stronger forecasting practice.”

For more information on this topic, try starting at the APICS Magazine site here.  (Note: there is generally a lag-time between the appearance of an article in print form and its appearance at their site.  The article excerpted above came from the “Ask APICS” section of the Mar/Apr issue.)

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replenishmentA recent blog post by Bob Bergman points up the important differences between how manufacturers and distributors typically reorder product.  Since many of our readers are users of Microsoft Dynamics NAV, we felt it worthwhile to pass along the gist of it.  The original post can be found here.

When planning for item replenishment, there are two fundamental methods:

  • Reorder point (also known as Min/Max and in practical usage sometimes as Kanban)
  • MRP (Materials Requirement Planning)

The first is the common method used in distribution, and the second in manufacturing.

The “reorder point” method is most commonly used in the distribution environment.  It’s a ‘reactive’ approach: when your inventory gets to a (pre-determined) low point, it recommends a replenishment order.  You give the system a reorder point and a reorder quantity, and it alerts you when it’s time to reorder.  If the point is 10 and the quantity is 100, then when your inventory gets down to 10 units in stock, it suggests a reorder.  Actually, you can tell it to order a fixed quantity, or a quantity sufficient to get you back up to the maximum desired inventory.

Of course, as trends dictate, a user can change the contents of these fields as necessary, often based on some external, periodic calculations.

In a manufacturing environment, on the other hand, MRP employs multiple levels in the production bill (BOM) and replenishment times might be fairly long.  MRP is thus ‘proactive’ in that it attempts to predict when you’ll run low, and recommends a replenishment (based on a variety of factors from production times to vendor lead times), so that inventory will arrive at approximately the time you are predicted to run out.

Decisions to purchase, produce, or both, can be made with time sensitivity.  On the MRP side, you can set a reorder policy to “Lot-for-Lot” in Dynamics NAV, for example, and then control results based on what you enter into fields for Lot Accumulation Period, Rescheduling Period, and Order Modifiers like Min, Max, and Order Multiples. 

The demand for MRP will then come from the combination of your sales orders, production orders and a production forecast.  You can then use the NAV Planning Worksheet to calculate and recommend quantities and Delivery Due Dates.  The system will also consider demand for the lower level BOM components that MRP will also subsequently plan for.

The devil of course is in the details (and the decisions you make behind them), but that’s the gist of it.


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When it comes to inventory and material planning, the goal of most manufacturing enterprises revolves around maximizing flow from production to customer, while minimizing the costs of doing so.  Easier said than done.

Lean proponents often opt for the “less is more” approach.  It sometimes gets accused of being anti-technology in its pursuit of waste reduction and the elimination of useless steps.  Lean proponents often view MRP and formal planning tools as inappropriate, transaction-intensive, and non-value added.

MRP proponents, being planning types, see it differently.  They believe that without the ability to see the full picture, companies leave themselves open to critical blind spots in planning that can lead to shortages, excesses, or ‘expedite’ situations, none of which are beneficial either to customer satisfaction or to improving a firm’s cash flow.

Is there a middle position that can reconcile the two? 

Our friends at APICS (The Association for Operations Management) recently sponsored an evening of information about “Demand Driven Planning,” courtesy of The Demand Driven Institute, chaired by Carol Ptak and Chad Smith, co-authors of Orlicky’s Materials Requirement Planning, 3rd Revised Edition.

With its primary objective to “protect and improve flow” the authors endeavor to bring harmony between Lean, with its emphasis on aligning efforts and resources as closely as possible with actual demand, and MRP, with its emphasis on providing visibility to the total requirements and planning across the enterprise.

Their hybrid approach yields an integration of Lean with MRP that in their view will help best determine:

  1. Where to place inventory to promote flow but minimize working capital;
  2. How to size and dynamically adjust strategic stock positions;
  3. How and when to replenish them;
  4. How to effectively see priority across the enterprise with respect to inventory and materials demand and supply signals.

Their solution, detailed in their book, migrates MRP (Material Requirements Planning) and DRP (Distribution Requirements Planning) from a style of “push and promote” to that of “position and pull.” 

The end result: a way to fuse relevant MRP/DRP tactics combined with the pull approaches of Lean and TOC along with innovations for better lead time compression and execution visibility.  As the authors note in a brief white paper (available from this blog free for the asking), “It takes Lean’s waste reduction focus and visibility for execution and combines it with a new set of demand driven planning tactics that provides unprecedented planning visibility across an enterprise and supply chain.”

You can download a free sample of the book at www.demanddrivenmrp.com  And you can a preview of the premise from their white paper, simply by commenting to this blog today.


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A recent article in APICS Magazine reminds us of the complexity of accurately and efficiently planning production in the manufacturing environment, whether you’re in a continuous or a batch environment.

As David Turbide, an independent consultant points out, traditional enterprise planning involves scheduling materials via Material Requirements Planning (traditional MRP) but seldom takes into account whether there is sufficient capacity to carry out the ultimate plan.

This “plan materials first, then check capacity” logic has been around since MRP was first automated in the 60’s.  Too often, conflicts between supply/production and capacity are detected, and changes are made on the fly, often made during or just before setup, and usually involving trade-offs of inventory vs. schedule disruptions or overtime.

The math to resolve this, if even available, is complex.  Rules that drive the process must often be broken, and blindly following rules seldom leaves every production need satisfied.  Besides, humans can still make better ‘special judgments’ than software when exceptions become the rule.

One effective solution comes courtesy from our old friend Donn Novotny, President of The Goal Institute.  Donn’s drum-buffer-rope (DBR) logic and the long heralded Theory of Constraints provide practical, real-world solutions to thorny production scheduling problems.  We’ll cover more of the basics in our next article, but you can find decent overviews here and here.

Donn, by the way — and many don’t know this — was actually the role-model for Alex Rogo, lead character in the seminal manufacturing ‘novel’ of the 1980’s entitled The Goal, which became one of the world’s best-selling business books ever.  We at PSSI have been friends with Donn (who lives nearby) for years, and have sponsored him frequently at customer events and seminars.  Donn and I are even members of a local consultants’ roundtable called the Business Improvement Group, and we’ve referred Donn to clients who faced the very kind of constraints that Donn is an expert at solving.

For those not familiar with these topics, we’ll highlight DBR and TOC approaches a bit this week.  One thing’s for sure: For every problem in business these days there is no shortage of people with proposed solutions.

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