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This New Way Of Thinking And Working Fixes Broken Planning Systems And Boosts The Performance Of Manufacturers And Even Supply Chains.
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 manufacturing plant is using the popular ERP software, there's a good probability they are also using a central but little regarded module of the software called MRP, or Material Requirements Planning.
And that's where the problem lies; the MRP software, which was first conceived in the 1950 era and turned into detailed logic in the 1960's has remained almost unchanged since then - that's 50 years!. Unfortunately, our industrial environment has changed. And the material requirements planning logic that was so promising that it led a revolution in the 1970's and 1980's as computers became common, no longer matches current realities.
The life cycles of many products have been compressed dramatically. After decades of trying to reduce lead times, the strong and continuing trend to outsource from offshore has created purchased parts and materials lead times that are longer than ever before. Nevertheless, customers now habitually place orders for products with shorter lead times than ever before. And, they feel free to change their minds. With the variability, volatility and short lead times, forecasts are the least accurate they've even been and and of course forecasts of this kind have never been accurate. And to add salt to the wounds after decades of seeking to reduce process variability, the longer lead times, reduced product cycles and exploding volatility in demand has created more variability than ever before.
Which gives us a real dilemma when it comes to MRP.
On one side of the dilemma, the MRP logic - which starts with either a forecast or real demand and uses the Bill of Material and a database of inventory and order data to work out what's needed, how many are needed, and when - has never been more important. The ability to re-work the numbers is essential when so much is changing so quickly.
On the other hand, the volatility combined with MRP's recalculations means our MRP systems are overwhelming planners with exception messages, and planners can't keep up; and priorities shift so frequently that it's impossible to respond effectively.
One outcome of this is, manufacturers in many environments (for example, those with any complexity in their BOMs) are compelled to live with constant, chronic shortages of purchased materials and parts and manufactured parts, and finished goods that is leading to entirely unsatisfactory performance in terms of inventory levels, customer service levels and whole-business productivity.
Given the reality that the manufacturing business is in a Supply Chain, and is attempting to deal with demand signals and generate their own ..., the impact of this damaged engine at the heart of a manufacturing business has repercussions for the whole Supply Chain.
Is there a way out? A new and innovative approach , in many ways a fusion of the best of MRP with concepts from DRP (Distribution Requirements Planning), Lean manufacturing, Theory of Constraints and some pure innovative thinking. It's called Demand Driven MRP, abbreviated to DDMRP, and its success rate with users so far has been nothing short of spectacular.
The Demand Driven MRP 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 almost 40 years ago.
Typical results include substantial reductions in inventory (as much as 60% for some users), along with serious improvements in Customer Service, commonly to the 98% order-fill-rate and better. When this is combined with reduced expenses from expediting activities (freight in, freight out, and overtime) the combination is unparalleled in terms of the potential for improved performance.
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