Unfortunately, conventional planning systems are designed to position and then manage decoupling points. The very basic foundation of Material Requirements Planning was to make everything dependent and only order what was needed, when it was needed, in a mathematically precise way. Decoupling creates a position of independence. The inability to decouple is the primary culprit behind the bullwhip effect and is a major impediment to system flow.
Decoupling is the key that unlocks a decades-old struggle with conventional planning approaches utilizing MRP, a struggle that is becoming more acute in the New Normal. It allows a door to open to a place where daily planning can become obvious, intuitive, and beneficial for supply order generation and management. What is needed is a systematic approach for utilizing decoupling that fundamentally answers these key questions:
Supply Order Generation and Execution for the New Normal
At this point we are at a crossroads. We can continue to struggle with our conventional planning systems, or we can seek a break from convention, an alternative designed for the New Normal. That alternative design must promote and protect the flow of relevant information and materials. It must systematically break down the distortions to demand signals and material supply that characterize the bullwhip effect through the effective use of decoupling points. But where to go from here?
MRP Versus Lean—What Can We Learn?
The basic elements of this alternative design can be better understood by exploring a chronic conflict between two camps—the believers in Lean methodology and the believers in MRP.
Figure 5-1 illustrates a side-by-side comparison of conventional MRP and Lean approaches. On the MRP side, forecasted demand feeds a master production schedule (MPS). The MPS creates a statement of what will be built. This is then fed to MRP. MRP then explodes through the bill of material, creating synchronized supply orders (date and quantity) as dictated by the product structure. Safety stock is often used at the finished and purchased parts levels in order to absorb variability.
The Lean approach establishes kanban positions, which are independent inventory positions typically placed at each resource position. The kanbans are sized according to a required takt time rate. This rate can be established through a forecast or past consumption. The kanbans are connected with “loops” that provide easy-to-interpret signals for each position to produce or not produce. A “supermarket” can be placed at the intermediate or purchased component level that produces the same easy-to-interpret signal as the kanban. The difference between the supermarket and the kanban is simply that the supermarket is at the part (product structure) level and the kanban is placed at the resource level.
Many Lean implementations attempt to abandon the formal planning approach of MRP because it is seen as inappropriate, transaction intensive, non-value added, even antithetical, to what Lean is trying to accomplish. This causes tremendous friction between planning personnel and those pushing to eliminate these systems. Lean facilitators and advocates often see MRP as an overcomplicated and wasteful dinosaur that simply doesn’t work in a customer-centric world.
FIGURE 5-1 MRP and Lean comparison
Planning personnel, however, see it in a completely different way. They believe that without the ability to see and synchronize complex and dynamic environments, critical blind spots will exist in the planning process which will lead to shortages, expedites, and even excessive inventory positions to compensate. They see the simple pull approach for managing materials and inventory as a gross oversimplification for the complex planning and supply scenarios that are the norm in today’s more volatile environment.
What if both camps are right? What if in many environments today the traditional MRP approach is too complex and the Lean approach is too simple? Where would that leave supply chain management? It would create a situation where companies oscillate between the two options, depending on the political wind employing a constantly changing and unsatisfactory number of work-arounds and compromises. Executives get frustrated, in-fighting escalates, efforts are sabotaged, more money and time are spent, and improvements deteriorate to lip service.
Einstein once said, “Any intelligent fool can make things bigger and more complex. It takes a touch of genius—and a lot of courage—to move in the opposite direction.” He also said, “Everything should be made as simple as possible, but not simpler.” How prophetic.
Can traditional MRP be overly complex? Without a doubt. Most people in manufacturing companies don’t even fully understand what the planning system is or how it does what it does. Every day, planners are drowning in oceans of data and action messages. The hard-coded rules are rooted firmly in the old “push and promote” methodology that makes MRP ill-suited to today’s more volatile and service-oriented world. Furthermore, “fixing” or “cleaning up” the system seems to be a never-ending, transaction-intensive, and expensive journey; the end of which is to always be precisely wrong.
Can Lean be an oversimplification? When it comes to materials and inventory planning, the answer in many environments is yes. Oversimplification is defined as “To simplify to the point of causing misrepresentation, misconception, or error.”1 By failing to provide visibility to critical dependencies and relationships with regard to supply, demand, on-hand inventory, and product structure, the Lean tool set can attempt to oversimplify many environments. The larger, more complex, and variable these environments are, the more likely that Lean’s simple kanban controls and lack of material planning create an oversimplified approach.
Yet there is one thing they actually agree on: a common objective. Both camps can agree that flow is paramount. Now more than ever, a decisive competitive advantage can be achieved by companies