FIGURE 1-1 1970s linear planning process
Ollie Wight wrote a thought leadership article in 1979 about his vision to incorporate accounting into MRP to enable better information for managers.1 In 1981 he followed up the article with a book.2 This transformed MRP into manufacturing resources planning (MRP II). The APICS Dictionary defines MRP II as:
A method for the effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning in dollars, and has a simulation capability to answer what-if questions. It is made up of a variety of processes, each linked together: business planning, production planning (sales and operations planning), master production scheduling, material requirements planning, capacity requirements planning, and the execution support systems for capacity and material. Output from these systems is integrated with financial reports such as the business plan, purchase commitment report, shipping budget, and inventory projections in dollars. Manufacturing resource planning is a direct outgrowth and extension of closed-loop MRP.
The capabilities and input requirements of MRP II forced planning processes to evolve from the previous linear processes into departmentalized business planning processes. In 1984 Richard (Dick) Ling began developing a process to integrate the various functions of a business to provide a more effective process for developing the master schedule input for MRP II. In 1988, Dick and Walter Goddard wrote a groundbreaking book introducing this concept called sales and operations planning (S&OP).3 At that time S&OP was defined as:
The process with which we bring together all the plans for the business (customers, sales, marketing, development, manufacturing, sourcing and financial) into an integrated set of plans. It is done at least once a month and is reviewed by senior management at an aggregate (product family) level. The process must reconcile all supply, demand and new product planning at both the detail and aggregate level and over a horizon sufficient to develop and reconcile financially the Annual Business Plan. A typical Sales and Operations plan will therefore project at least 18 months into the future. It may be longer in order to adequately plan new product launch, long lead time material planning and manufacturing capacity planning.
Figure 1-2 describes this new integrated schema connecting sales and operations planning with the planning and scheduling of resources. By 1990, as client server architecture became available and made it possible for data to be accessible to the desktop for analysis, MRP II evolved into enterprise resources planning (ERP). ERP is defined by the APICS Dictionary as:
FIGURE 1-2 1980s MRPII planning schema with sales and operations planning
[The] framework for organizing, defining and standardizing the business processes necessary to effectively plan and control an organization so the organization can use its internal knowledge to seek external advantage. An ERP system provides extensive databanks of information including master file records, repositories of cost and sales, financial detail, analysis of product and customer hierarchies and historic and current transactional data.
The promise of ERP was the ability to promote visibility across an enterprise in order to make faster and better business decisions to leverage business assets.
Throughout 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