this entire evolution the core MRP calculation kernel stayed the same. MRP fundamentally is a very big calculator utilizing the data about what is needed, what is available in order to calculate what needs to be ordered—and when. This has grown from the computer’s first use to track inventory. At its very core even the most sophisticated ERP system utilizes these basic calculations. Typically, these calculations are implemented as a backward schedule based on a forecast or master schedule with the assumption that all the input data are accurate and that there is sufficient time to accomplish the plan. What comes out of MRP is a plan that includes date and quantity requirements for all components to support the “high-level” or end-item demand.
Perhaps the most recognized leader of the MRP charge was Joe Orlicky. His 1975 seminal work, Material Requirements Planning: The New Way of Life in Production and Inventory Management,4 provided the blueprint and codification of MRP that is still the standard today. Consider that when the book was written, only 700 companies or plants in the world had implemented MRP, almost all located in the United States. As Orlicky wrote:
As this book goes into print, there are some 700 manufacturing companies or plants that have implemented, or are committed to implementing, MRP systems. Material requirements planning has become a new way of life in production and inventory management, displacing older methods in general and statistical inventory control in particular. I, for one, have no doubt whatever that it will be the way of life in the future. (p. ix)
MRP did become the way of life in manufacturing. The codification and subsequent commercialization of MRP fundamentally changed the industrial world, and it did so relatively quickly. Orlicky with others at the time recognized the opportunity presented by changes in manufacturing circumstances and the invention of the computer that enabled a planning approach never before possible. Before the advent of the computer, planning was relatively simple but error prone, and replanning was arduous as changes occurred.
Traditional inventory management approaches, in pre-computer days, could obviously not go beyond the limits imposed by the information processing tools available at the time. Because of this almost all of those approaches and techniques suffered from imperfection. They simply represented the best that could be done under the circumstances. They acted as a crutch and incorporated summary, shortcut and approximation methods, often based on tenuous or quite unrealistic assumptions, sometimes force-fitting concepts to reality so as to permit the use of a technique.
The breakthrough, in this area, lies in the simple fact that once a computer becomes available, the use of such methods and systems is no longer obligatory. It becomes feasible to sort out, revise, or discard previously used techniques and to institute new ones that heretofore it would have been impractical or impossible to implement. It is now a matter of record that among manufacturing companies that pioneered inventory management computer applications in the 1960s, the most significant results were achieved not by those who chose to improve, refine, and speed up existing procedures, but by those who undertook a fundamental overhaul of their systems. (p. 4, emphasis added)
In his book, Orlicky made the case for a fundamental reexamination of how companies planned and managed inventory and resources. This case was so compelling that the concepts that he brought to the table proliferated throughout the industrial world within two decades. That proliferation remains largely unchanged to the present. Today we know that nearly 80% of manufacturing companies that buy an ERP system also buy and implement the MRP module associated with that system.
Perhaps the most interesting and compelling part of the passage from the original Orlicky book is the sentence that is italicized. This was simply common sense that was easily demonstrable with the results of pre-computer inventory management systems. Yet could this same description be applied to the widespread use of MRP today? Could it be that conventional planning approaches and tools are:
• Acting as a crutch?
• Incorporating summary, shortcut, and approximation methods based on tenuous assumptions?
• Force-fitting concepts to reality so as to permit the use of a technique?
In the authors’ 60+ years of combined manufacturing experience across a wide array of industries, the answer is a resounding yes to these three points. By the end of this book, the reader will also be able to understand why the answer is yes to these three points. Indeed, if the answer is yes, then there should be evidence to support the assertion that MRP systems are not living up to their expectations, that MRP systems are in fact guilty as charged in the previous three bullet points, and that they are fundamentally incapable of really supporting the true purpose of planning—to orchestrate, coordinate, and synchronize an organization’s assets to a purpose.
The Need for Flow—The True Purpose of Planning
Are we missing something fundamentally important about planning? The required orchestration, coordination, and synchronization are simply a means to an end. That much is quite easy to grasp. What is more difficult for many organizations to grasp is what fundamental principle should underlie orchestration, coordination, and synchronization.
Manufacturing and supply chain management comprise a bewildering and distracting variety of products, materials, technology, machines, and people skills obscuring the underlying elegance and simplicity of both as an integrated process. The essence of manufacturing (and supply chain in general) is (1) the flow of materials from suppliers, through plants, through distribution channels to customers and (2) the flow of information to all parties about what is planned and required, what is happening, what has happened, and what should happen—and of course (3) cash flow from the market to the supplier.
Plossl’s Law
An appreciation of this elegance and simplicity brings us to what George Plossl (another founding father of MRP and author of the second edition of Orlicky’s Material Requirements Planning) articulated as the first law of manufacturing:
All benefits will be directly related to the speed of flow of information and materials.5
“All benefits” is quite an encompassing term. It can be broken down into components that most companies measure and emphasize. These benefits encompass:
• Service. A system that has good informational and material flow produces consistent and reliable results. This has implications for meeting customer expectations, not only for delivery performance but also for quality. This is especially true for industries that have shelf-life issues.
• Revenue. When service is consistently high, market share tends to grow, or at a minimum it doesn’t erode.
• Quality. When things are flowing well, fewer mistakes are made due to confusion and expediting.
• Inventories. Purchased, work-in-process (WIP), and finished goods inventories will be minimized and directly proportional to the amount of time it takes products to flow between stages and through the total system. The less time it takes products to move through the system, the less the total inventory investment. The simple equation is
Throughput * lead time = WIP
where:
Throughput is the rate at which material is exiting the system. Lead time is the time it takes to move through the system. WIP is the amount of inventory contained between entry and exit.
A key assumption is that the material entering the system is proportionate to the amount exiting the system. The basis for this equation is the queuing theory known as Little’s law. More is available on the relationship between queuing
