Manufacturing Superstars Use Demand Driven MRP
Manufacturing efficiency is the ability to reduce time to shipment with lean inventory. The only way to significantly boost manufacturing efficiency is through better planning.
ERP systems fall into two camps
When it comes to planning, ERP systems fall into two camps.
With job-based ERP systems, everything is always made to order and jobs are hard-linked to sales orders. Job-based planning is inflexible, overly simplistic, and is not suited for repetitive, multi-level products.
The majority of ERP systems are designed for traditional MRP. In this article I will explain why old-style MRP is inherently flawed and is not a viable solution for small business.
What is traditional MRP?
Traditional MRP is a planning system developed in the mid 1960’s that still works the same way today. Planning is based on BOM structures applied to fixed future time buckets that are populated with a blend of forecast and actual demand from sales orders and a master production schedule. Work order and purchase order dates are backward scheduled from demand dates by fixed lead times. Orders are firmed as future demand transforms into current demand.
Why is traditional MRP software unusable for small business?
Traditional MRP can be made to work with a great deal of effort and expertise, but it is not a viable solution for most small businesses because it is over-complicated and inherently flawed due to its forecast-driven architecture.
Forecasting was somewhat easier in the 1960’s when products were highly standardized and relatively simple. Today, forecasting is far more challenging because products have many variations and are often customized with unpredictable specifications. The fundamental problem with forecasting in any era is that forecast demand always differs from actual demand. Forecast errors increase the farther out projections are made, and errors at top levels amplify with greater magnitude at each lower level in the BOM structures, a phenomenon known as the “bullwhip” effect.
The master production schedule is generated from error-prone forecasts and is therefore tentative by nature and must be constantly adjusted and firmed as forecast demand stabilizes and becomes current. Because backward scheduling is used, work orders and purchase orders are often scheduled in the past and must be moved forward, which delays work orders for higher-level items. Lower-level work order delays accumulate and magnify against higher-level work orders.
Traditional MRP takes a great deal of time to maintain item settings, forecasts, sales order dates, and production schedules and to coordinate purchase order adjustments with suppliers. Planners often run MRP once a week to confine all the effort involved into one big planning session instead of repeating the process every day.
The bottom line is – most small manufacturers either try traditional MRP and then abandon it out of frustration or never give it a chance because they are intimidated by its complexity.
Legacy planning is a dead end
It’s a shame when legacy planning methods are applied to an ERP system, because they cannot boost manufacturing efficiency, no matter how beneficial the other aspects of the ERP software may be.
Manual planning from static shortage reports is counter-productive because it lacks time-phasing and uses ad hoc instead of strategic stocking. BOM explosions are counter-productive because it is inefficient to isolate jobs and POs to one product structure at a time and customers will not tolerate long lead times when everything is made to order. Future jobs and blanket purchase orders are forecasts by another name and have all the same problems with shortages and over-stocking from forecast errors.
Manufacturing superstars use demand driven MRP
Manufacturing superstars have discovered an alternative to traditional MRP. It is called demand driven MRP (DDMRP) because all demand is actual demand originating from customer orders, without any forecasts or long-term production schedules. Instead of forecasts, strategic stocking is used to maintain stock for key items that reduce lead time. Demand driven MRP is fully compatible with just in time and lean manufacturing.
The demand driven MRP methodology was introduced in 2011 and is being adopted at a rapid pace by larger enterprises using add-on packages to existing ERP systems.
DBA is the ERP alternative for small business
DBA Manufacturing provides small businesses with an alternative to traditional and job-based ERP systems. Time to Shipment MRP is a pure, demand driven planning system optimized for smaller companies. So instead of struggling with a forecast driven MRP system or self-devised planning methods, you can use DBA to plan like a manufacturing superstar with faster time to shipment and efficient utilization of inventory.
The following video gives you an overview of how demand driven MRP and just in time manufacturing can boost your efficiency:
