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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.
Whitepaper | Inside the Four Walls of the Factory
Page 2 www.ultriva.com | 2013 Ultriva, Inc. , All Rights Reserved.
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.
Whitepaper | Inside the Four Walls of the Factory
Page 3 www.ultriva.com | 2013 Ultriva, Inc. , All Rights Reserved.
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.
Whitepaper | Inside the Four Walls of the Factory
Page 4 www.ultriva.com | 2013 Ultriva, Inc. , All Rights Reserved.
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.
Whitepaper | Inside the Four Walls of the Factory
Page 5 www.ultriva.com | 2013 Ultriva, Inc. , All Rights Reserved.
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.
Whitepaper | Inside the Four Walls of the Factory
Page 6 www.ultriva.com | 2013 Ultriva, Inc. , All Rights Reserved.
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
Whitepaper | Inside the Four Walls of the Factory
Page 7 www.ultriva.com | 2013 Ultriva, Inc. , All Rights Reserved.
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
Whitepaper | Inside the Four Walls of the Factory
Page 8 www.ultriva.com | 2013 Ultriva, Inc. , All Rights Reserved.
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
Whitepaper | Inside the Four Walls of the Factory
Page 9 www.ultriva.com | 2013 Ultriva, Inc. , All Rights Reserved.
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.
Whitepaper | Inside the Four Walls of the Factory
Page 10 www.ultriva.com | 2013 Ultriva, Inc. , All Rights Reserved.
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
No No Electronically
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
No No Electronically
Maintain visibility and traceability of indi-vidual customer orders
No No Electronically
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
Whitepaper | Inside the Four Walls of the Factory
Page 11 www.ultriva.com | 2013 Ultriva, Inc. , All Rights Reserved.
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.
Whitepaper | Inside the Four Walls of the Factory
Page 12 www.ultriva.com | 2013 Ultriva, Inc. , All Rights Reserved.
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
Whitepaper | Inside the Four Walls of the Factory
Page 13 www.ultriva.com | 2013 Ultriva, Inc. , All Rights Reserved.
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.
Whitepaper | Inside the Four Walls of the Factory
Page 14 www.ultriva.com | 2013 Ultriva, Inc. , All Rights Reserved.
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.