why conventional erp and mrp systems fall short

www.ultriva.com | 2013 Ultriva, Inc. , All Rights Reserved.

Whitepaper

Inside the Four Walls of the Factory Why Conventional ERP and MRP Systems Fall Short

By Karen Wilhelm, Narayan Laksham and Nandu Gopalun

Whitepaper | Inside the Four Walls of the Factory

Page 1 www.ultriva.com | 2013 Ultriva, Inc. , All Rights Reserved.

I. Introduction

E nterprise Resource Planning (ERP) and Manufacturing Resource Planning (MRP) information systems are meant to automate, integrate, and synchronize supply chains, demand planning, and

manufacturing. For decades, they have been the most widely used

tool for planning and scheduling manufacturing production.

Based on demand forecasts, the ERP/MRP system plans what

products to manufacture and when to produce them. It orders parts

and materials to arrive when required. It assumes the factory will

follow the schedule that MRP provides and make the finished

products for scheduled shipment to customers.

Supply chain, manufacturing, and IT executives might be surprised

to learn that this is not the case. Inside the factory, the story is

much more complex, especially as manufacturing becomes more

competitive and customer responsive. Schedulers, production

managers, and shop floor supervisors need more IT support than

ERP or MRP provides.

The factory needs an information system that supports three

interconnected facets of production management:

Planning: Flexible, responsive scheduling at the plant, line, and

work-cell levels.

Execution: Short lead time, fast cycle time, fast throughput,

agile in a rapidly changing environment, with high productivity.

Monitoring: Excellent visibility of planned and actual operations

in every phase of production, rapid alerts to problem conditions,

and detailed data collection to help with continuous

improvement.

The information disconnect between the plant floor and MRP systems is often

plugged with a spreadsheet fix, but plants need something better than a workaround. New factory management systems offer a powerful alternative.

Schedulers, production

managers,

and shop floor

supervisors

need more IT

support than

ERP or MRP

provides.



II. MRP as Designed

W hen MRP was designed decades ago for a make-to-stock production model, it was typical for one

assembly line to produce large batches

of one product. In MRP, which still forms

the core of ERP, production goals are

determined months in advance, then

allocated across quarters, months, and

weeks.

Lead times that were once normal are

considered long today. Order-to-ship

time is measured in weeks. It can take

one week from when an order is

received to when it gets to the master

scheduler. The scheduler is allowed a

few days to review, adjust, and release

the order to the shop floor. Then, in

planning production lead time, MRP may

allow a day for each operation, no

matter what the real cycle time is.

MRP begins with its planned production

goals, matches each product with its bill

of materials (BOM), and then explodes

the bills of materials to identify every

part and assembly required. MRP

applies its predetermined lead time

INSIDE MRP

Information Used:

Customer order ship dates and quantities.

BOM for each product.

Inventory status -- Current and planned

inventory for all items.

Lead Times -- Days needed to produce

order.

What MRP Does:

Compares forecasted order requirements

against on-hand inventory, by date.

Plans quantities to produce, by date.

Adds lead time to forecast production

initiation dates for all items.

Explodes BOM to establish the quantity of

components and subassemblies required for

final assembly.

Output From MRP for the Factory:

Monthly and weekly production plans.

In this white paper, we will discuss MRP as it was originally designed, the problems with us-

ing MRP for managing actual factory scheduling and operations, the spreadsheet fix, and the

factory management system solution.



rules to each item in order to enable the plant to produce finished

goods on time. It then generates the schedule that tells the factory

when to begin each job. MRP breaks the schedule down and

produces sequenced work orders for production.

The plants master scheduler takes the sequenced work orders and

gives them to the plant floor managers and supervisors, who

execute the required jobs. When the jobs are completed, MRP is

updated -- manually -- at the end of the day.

In the time since MRP was originally created, manufacturing has

changed. Instead of a single product, factories produce a complex

product mix. Rather than stable forecasts and long cycle times,

escalating customer expectations require increasingly rapid

response to their changing needs. Cycle time at every operation is

critical.

MRPs designers thought that it was enough to produce a schedule

of work orders for the jobs required to produce the final goods to

fulfill customer orders. What MRP lacks is help for plant personnel to

plan how production will be executed at the shop floor level.

MRPs original design is based on certain assumptions:

1) The final assembly schedule is frozen.

2) Capacity is unlimited.

3) Each operation requires one day of lead time. Real cycle times

are not used.

4) Setup and changeover times are not considered.

5) Products to be assembled are not grouped to reduce setup

time

6) A schedule divided into weekly buckets will run the plant

effectively.

7) Separate orders from customers can be consolidated into one.

In the time since MRP

was originally

created,

manufactur-

ing has

changed.



In everyday operations,

even if MRP is

run once a

day, the plant

largely

depends on

the weekly

schedules.

As we shall see, those assumptions were not true in the 1960s, and

are certainly not true now. While IT vendors have tried to adapt

MRP to todays new production model, its fundamental assumptions

and processes remain the same. And despite decades of change,

MRP still runs most manufacturing plants.

III. Todays Plant Run by MRP Alone

The Morning Meeting

I n everyday operations, even if MRP is run once a day, the plant largely depends on the weekly schedules. Several additional planning activities must take place to complete daily schedules and

production plans. It falls to factory floor managers and supervisors

to determine routings and to plan, schedule, and optimize

production across multiple lines and cells.

The problems resulting from MRPs consolidation of orders are

particularly damaging to the companys ability to satisfy customers.

When MRP consolidates orders, separate instructions are ignored.

Production cannot be traced to individual orders or differing

requirements from the customer. For example, Customer A has a

reason for requiring a lot size of 100 pieces in one order and 25

pieces in another, and does not want them combined. Factory floor

planners cant separate the orders to compensate for MRP because

essential data never reaches them.

Events of the Day

The plan for the day quickly gets out of sync with actual operations

when unplanned events such as missing or bad parts, unexpected

machine downtime, unavailable operators, or hot orders from

customers crop up. Each time such problems occur, scheduled work

is interrupted. The interruptions spread inefficiency down the line.

Too few of the right parts or too many of the wrong parts are

produced, starving cells for parts or piling up excess inventory.



After MRP has consolidated orders,

traceability and visibility of the original

orders are lost. For example, plant

personnel may not know that the

customer has ordered 100 pieces of

finished goods in one order and 25 in

another when MRP scheduled the 125

pieces together. What if customer C has

ordered 200 pieces of a common

product, and Customer D suddenly needs

100 pieces of the same product? It might

look like the solution to the problem is to

borrow from the pieces being made for

Customer C and add 100 to the next

days schedule. Then, however, only part

of the Customer Cs order will be

available on time. If Customer C had

specified No partial shipment, plant

personnel would have no way of knowing

that. Such information was never

available in MRP production schedules.

No one will know about Customer Cs

short shipment until it reaches the

shipping dock. Then the customers

entire order will wait until the missing

100 pieces are made.

During the hectic day, monitoring up to

10 work-cells around the factory is not

easy for the supervisor responsible for all

of them. Discovering and responding to

problems is rushed. Waiting for

resolution causes delays. The supervisor

has no direct connection to the operator.

After MRP has consolidated

orders, traceability and

visibility of the original

orders are lost.



To keep track of the rapidly

changing

schedules

without

running MRP,

many

schedulers

have come to

rely on the

spreadsheet.

The operator with a problem waits for the supervisor to find out

about it and decide what to do next. If the operator is given a

different job, the interrupted one goes on hold. At the end of the

shift, if the interrupted job has not been restarted, the next shift

might not be aware of it. There is no automatic way for such status

changes to be communicated to everyone affected by them at

downstream or upstream operations.

Plant personnel fight fires and reschedule on the fly, the production

optimization from the morning meeting is lost. Efficiency goes down

and cost goes up. Supervisors make rapid decisions, with no

automatic way to distribute the new schedule to every point in the

plant, and shuffling the planned job sequence causes confusion.

When the scheduler does the manual updating of MRP, all the

changes that occurred during the day have to be accounted for. If

no one recorded a change, it will not be reflected in the upcoming

schedule.

IV. The Spreadsheet Fix

I t may appear that rerunning MRP whenever the plan has to change would be the obvious solution to updating the plants entire schedule. Unfortunately, a full run of MRP is so complex that

it takes several hours to run -- not fast enough to keep up with the

pace of change in the plant. Some plants try to do an incremental

run every day, primarily to support material replenishment orders

and not to regenerate production schedules.

To keep track of the rapidly changing schedules without running

MRP, many schedulers have come to rely on a handy, fast, and

flexible tool -- the spreadsheet -- easy to modify and recalculate.

They can produce a very fine-grained schedule. The spreadsheet

brings some order to the chaos that creeps into normal

manufacturing operations. It speeds up the detailed planning (and



Spreadsheets are merely

workarounds,

however, not

solutions to

MRP

scheduling

deficiencies.

re-planning) of routings and workflow. It also makes it easier for

the scheduler to organize the information needed to update MRP

and re-align it with real conditions. Some of the largest and most

admired manufacturing firms have plants running on spreadsheet

schedules.

The Morning Meeting

Just as in the factory run by MRP alone, the scheduler starts the day

or shift with MRPs scheduled and sequenced work orders. The

difference is that the schedules are downloaded to the spreadsheet.

Those spreadsheets may become very sophisticated as they are

tweaked over time, even including routing data and optimizing

routines. With the order data and calculations in the spreadsheet,

the scheduler, supervisors, and managers come up with the days

plant floor production plan faster and its distributed to respective

production lines sooner.

Events of the Day

As the day goes on, the same unplanned events cause ad hoc plant

floor scheduling and rescheduling. However, with the spreadsheet,

the scheduler has a way to update the plan. As needed throughout

the day, the most current version of the master spreadsheet can be

printed and redistributed it to the factory floor.

Problems With Spreadsheets

Spreadsheets are merely workarounds, however, not solutions to

MRP scheduling deficiencies. They have their own shortcomings. As

schedules change rapidly, the scheduler tries to keep up with them,

but may be only partially successful. Without an automated

feedback loop from production back to scheduling, keeping the

spreadsheet schedule aligned with reality requires either excellent

communication among all the players or a lot of running around,

which consumes large amounts of resources that would be better



used for management, coaching, and

improvement. In addition, when revised

schedules must be carried to lines and cells,

there is a lag time in information availability

around the plant.

The spreadsheet is not much better at

providing visibility and traceability than MRP

by itself was. Likewise, at the end of the

day, data still must be manually transferred

to MRP, with all the accompanying negative

results.

V. Replacing Spreadsheets:

Factory Management Systems

M RP scheduling is at the plant level, disconnected from the more detailed line and cell scheduling planned by

managers and supervisors. To bridge this

gap, a number of factory management

systems (FMSs) are becoming available.

They are replacing spreadsheet and pencil-

and-paper plant scheduling with varying

sets of features and solutions.

The FMS is much more sophisticated and

reliable than home-grown tools. It is

designed to connect with MRP and

seamlessly pull all the current scheduling

data needed at the plant at the beginning of

the day. It automatically optimizes weekly

and daily planning, continuously updates it,

When optimizing the operational

schedule, a good FMS will monitor and

take into account:

Capacity planning, down to the

subassembly level

Component availability

Operator availability

Machine availability

Bottlenecks in the process

Space availability

Technology availability



The FMS gives supervisors and managers a dashboard view of current production, any problems, and the status of each order, line, and cell.

informs and alerts plant personnel, and seamlessly transmits

information back to MRP at the end of the day. Production status

and scheduling changes are automatically updated and continuously

flow to and from wherever the information is needed, including the

workstation level.

The Morning Meeting

Each day, the FMS receives scheduling data from MRP. Because the

FMS has already made all the routing and optimizing decisions, the

focus of the morning meeting is on higher-level goals and improving

factory capabilities.

Events of the Day

The FMS gives supervisors and managers a dashboard view of

current production, any problems, and the status of each order,

line, and cell. That visibility increases accuracy in completing

customer orders, reduces uncertainty about scheduled production,

and directs attention to abnormal conditions. Having the ability to

continuously monitor all cells allows the supervisor to recognize

some developing situations before they become problems. The

supervisor has tools to become more proactive, balance and

reassign upcoming jobs, and improve execution in the plant. The

supervisors rounds are not about schedule changes and firefighting,

but about more important matters.

At the cell level, the FMS loads the operators assigned jobs into a

continuously updated electronic schedule. Operators see tasks in

sequence, so they can stay focused on the current job and then see

what to work on next, even if the upcoming schedule is in flux. If a

job is interrupted, the FMS alerts the operator when it can be

completed, or carries it over to the next shift.



VI. Planning and Scheduling Systems Compared

I n the following table, lets summarize the ways in which ERP/MRP, MRP plus a spreadsheet, and factory managements systems support plant operations: Plant scheduling in ERP/MRP environ-ment

ERP/MRP MRP + spread-sheet

Ultriva Lean Factory Management System (LFMS)

Daily planned schedule at plant level Yes MRP MRP/Kanban

Final assembly scheduling MRP MRP MRP/Kanban

Subassembly/component scheduling MRP MRP MRP/Kanban

Receive data from MRP Yes (Paper output)

Download to spreadsheet

Seamless electronic transfer of MRP data

Plan/optimize schedule at line, and cell level

No Manually record management decisions

Automated

Communicate schedule and work orders to plant floor and workstations

Usually printed out on paper

Usually printed out on paper

Electronically on workstation displays

Respond to rapid change in demand/ ac-tual customer orders

No Some lag time Electronically

Problems stop workflow No Record Yes

Determine what job sequence the opera-tor must follow if current job is interrupted.

No No Electronically

Rapidly inform operator of new job se-quence


Communicate revised schedule to plant floor and workstations

No Usually printed out on paper

Electronically

Supervisor can see what job to substitute for interrupted job while optimizing new schedule


Maintain visibility and traceability of indi-vidual customer orders


Scheduler can run new master schedule and work orders

No Some lag time Electronically

Update MRP with actual-vs-plan data Manual Manual Electronically

Supply chain IT integration

Depends on accuracy of manual up-dates

Depends on accuracy of manual updates

Electronically



Current ERP/MRP systems fall short when it comes to providing effective factory management support.

VII. Conclusion

C urrent ERP/MRP systems fall short when it comes to providing effective factory management support because of the inherent mismatch between the ideal scenario assumed by MRP and normal

events in the plant.

As we stated at the beginning of this white paper, the factorys IT

system should support three interconnected and interacting facets

of production management:

Planning

Execution

Monitoring

To effectively plan, execute, and monitor production, plant

personnel need more fine-grained IT systems. FMS provides a

powerful tool for improving operations without affecting ERP/MRP

supply chain connections. Solutions such as the Lean Factory

Management System (LFMS) from Ultriva are designed to close the

last-mile gap between the enterprise supply chain and what goes on

inside the factorys four walls.

In todays competitive markets, customers want production to

respond to actual demand faster. To meet these challenges,

manufacturing and IT managers would do well to investigate new

factory management systems. With experience implementing LFMS

in hundreds of plants, Ultriva can help you find the best planning

and scheduling solution for your company.



Notes:

To learn about MRPs origins, read Patricia Moodys article, Unsung Heroes and Other Manufacturing Pioneers, Target magazine,

Association for Manufacturing Excellence, 1997. http://www.ame.org/sites/default/files/documents/97Q1A1.pdf

Derek Singleton, History of MRP Software, ERP Analyst, Software

Advice blog, January 08, 2013 http://blog.softwareadvice.com/articles/manufacturing/mrp-software-history-0112/

Hopp & Spearman, Factory Physics, Georgia Tech presentation. http://www2.isye.gatech.edu/~jswann/

teaching/6201/6201MRP_6.pdf



About the Authors

Karen WilhelmFreelance Business Writer

Karen Wilhelm is freelance writer and author of one of the top 10 lean blogs, Lean Reflections (leanreflect.com) where she regularly shares her ideas about manufacturing, business management, lean kaizen, and continuous improvement with thousands of readers in every part of the world. She also manages the Association for Manufacturing Excellence (AME) LinkedIn group with more than 7,000 members.

Narayan LakshamCEO and Founder of Ultriva, Inc.

Narayan Laksham founded Ultriva in 1999 with a vision of building a company that develops customer driven solutions which guarantee high value, quick deployment and measurable return on investment. Mr. Laksham has written articles on several lean topics including When Push comes to Pull Kanban wins. He is also a co-inventor of the patent pending Inventory Optimization Tool.

Nandu Gopalun Project Manager of Ultriva, Inc.

Nandu Gopalun has been associated with Ultriva since 2000 and has implemented Ultriva software in more than 60 plants. Mr. Gopalun is actively involved in Ultrivas Lean Factory Management and Collaborative Supplier Portal system design, development and deployment. He has written articles on several topics including lean manufacturing.



1601 S. De Anza Blvd.

Suite 260

Cupertino, CA 95014

ULTRIVA, INC.

Phone: 408-248-9803

E-mail: [email protected]

About Ultriva, Inc.

Ultriva solutions are helping manage the supply chains and improve the inventory velocity of leading industrial manufacturing, healthcare, aerospace and logistics firms including ATK, CareFusion, Emer-son, McKesson, Ingersoll Rand, Regal Beloit and Thermo Fisher. Ultrivas 98% customer retention rate over the last decade and year-over-year growth has propelled it into 175 manufacturing plants in over 20 countries worldwide. Ultrivas cloud-based supply chain solutions are being used to trans-act over $2.5 billion of material spend on an annual basis and have contributed to over $500 million in inventory savings for its customers.

why conventional erp and mrp systems fall short

Documents