A, respectively.
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 provided the blueprint and codification of MRP that is still the standard today. Consider that when this book was written, only 700 companies or plants in the world had implemented MRP, almost all located in the United States:
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, along with others at the time, recognized the opportunity presented by changing manufacturing circumstances and the invention of the computer that enabled a planning approach never before possible:
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)
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 in the present. Today we know that nearly 80 percent 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 precomputer 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:
In the authors’ 60+ years of combined manufacturing experience across a wide array of industries, the answer is a resounding yes to all these points. By the end of this book, the reader will also be able to understand why the answer is yes to all these points. Indeed if the answer is yes to these points, there should be evidence to support the assertion that MRP systems are not living up to their billing—that they are in fact guilty as charged in the previous three bullet points.
Before we review the evidence, let’s start with two basic observations about rules:
There are three areas that point to major issues with the rules and tools of conventional planning featuring MRP.
Return on Asset Performance Degradation
As described above, the United States led the adoption of manufacturing information systems starting with MRP in the 1960s. These systems are expensive to purchase, to implement, and to maintain. The value of these formal planning systems has always been based on the ability to better leverage the assets of a business. Did the widespread adoption of MRP and subsequent information systems enable the U.S. economy to better manage assets?
In late 2013 Deloitte University Press released a report by John Hagel III, John Seely Brown, Tamara Samoylova, and Michael Lui that is quite eye-opening when considered against the progression and adoption rates of information systems.2 Figure 1-1 is a chart from the report that depicts the return on asset performance of the United States economy since 1965.
There is a steady decrease in return on assets for the U.S. economy from 1965 to 2012. Furthermore, during this time period the same report shows that labor productivity (as measured by Tornqvist aggregation) more than doubled! What is most interesting about this graphic in relation to information systems is that by 1965 we had the modern acronym MRP, but massive proliferation of information systems did not occur until after 1975 and, in particular, after 1980 with MRPII.
Obviously there are many factors at play with this decrease in return on assets, but this report would certainly lead one to realize that the impact of the widespread adoption of MRP, MRP II, and ERP systems (at least in the United States) has not significantly helped companies manage themselves to better returns on asset performance. Indeed, when this decline is taken in combination with the increase in labor productivity, it actually suggests that companies are accelerating their mistakes.
But this is just one point of data, a high-level view with many unrelated factors contributing to these effects. What additional evidence indicts the efficacy of the conventional planning approach?
FIGURE 1-1 Return on asset peformance
