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MRPII For Planning JIT For Execution


Terry Lunn, CFPIM, CIRM
Terry Lunn, CFPIM, CIRM, Memphis, TN 38018, (901) 373-6616.

80th Annual International Conference Proceedings - 1995 - Anaheim, California

The objective of this presentation is to demonstrate how successful companies are able to merge MRPII and JIT. We shall look at several companies and how they plan and control materials and capacities using both MRPII and JIT techniques.

Many people ask if Manufacturing Resource Planning (MRPII) and Just-In-Time can be married together. We say they can by using MRPII for planning and JIT techniques for execution. Many companies try to minimize their inventory investment by implementing an MRPII system. At the same time these companies cultivate a philosophy of continuous improvement on the shop floor. We think companies should extend the philosophy of continuous improvement into the planning process also. We must make improvements to the process of planning what we are going to make, what it takes to make it and what we already have. These are the three main inputs to MRP planning: A master production schedule, bill of material and inventory status. See Figure 1.

We are familiar with the normal issues surrounding an MRPII implementation. However, when we focus on continuous improvement in the MRPII System we usually see a lot of work on the shop floor execution system. MRP Logic is used to plan the flow of materials, particularity raw materials to support the Master Production Schedule. Many companies establish a Master Schedule and then use the MRP to explode that schedule into the requirements for material. Then we use the requirements as a signal to suppliers for them to establish their Master Schedules. However, the actual release of the materials to move from supplier to user is controlled by Just-In-Time techniques. See Figure 2.

In order for an MRPII System to work effectively with a JIT Execution System it is imperative that we simplify the Bills of Material. Many companies say to KISS the bills: That is to keep it short and simple. We should attempt to flatten the bill as much as possible, with one being the ideal number of levels. We should reduce any intermediate levels out of our own manufacturing bills. We can and should use techniques such as phantoms and backflushing to remove all sub assemblies that exist inside our own plant. After all, we should question the purpose of any intermediate levels, usually designed for efficiency of supply, and focus on the flow of parts to support the end unit assemblies.

The real enemy of any successful manufacturing company is time. The more time something takes; the more complications are introduced and the more it costs. One company we know of thought efficiency of supply would come from large orders going through functionally grouped departments. One product traveled nine miles, took 90 days and had over 40,000 units of various sizes in work-in-process. Their expectation was that a good scheduling system would eventually keep track of all these orders and give them maximum customer service because "we always have something in process". In reality, the MRPII Planning System becomes much more effective as lead times get shorter. We can shorten lead time by focusing on the flow of product. Our company with nine miles rearranged their work centers to get a product orientated flow that was less than 100 yards. They also worked to reduce setups, which allowed them to lower lot sizes. The combined effect of reduced lot sizes and more direct flow allowed them to reduce work-in-progress queues down to less than 1/10 of what they were previously. All this had the effect of reducing lead time to less than 15 days (from 90). That represents continuous improvement combining the planning system with JIT execution.

The intent of our planning system is to support a Master Production Schedule. Our planning system will be most effective if we continuously improve by removing variation from the plan. We can do that by utilizing the technique of mixed model master scheduling. That is to build some of each item every day. See Figure 3. As you can see, this company plans to build some of each item every day. They were able to accomplish this by simplifying their planning systems. One item had fourteen steps in its routing. Even with bar code data entry they decided that was too many operations to track and reduced it to one. Several layers of their Bill of Material are not processed as an item in their MRPII System. Rather, the raw material is processed into components and flows directly to assemblies out on the shop floor without processing transactions through the planning system.

All of this works together to simplify the Bill of Material, shorten Lead times and reduce the variation in the Master Schedules. We then effectively use the MRPII System to inform suppliers about our planned flow of raw materials.

When we can get our Bills of Material flat enough and the production activity controls short enough, then our own execution system becomes so short that it is insignificant compared to purchased parts. One company we know makes components for computer monitors. As they say, "continuous improvement is our production activity control system". Their total shop lead time is less than five days but the monitor glass has a lead time of 10-12 weeks. It is not important to plan and control our production with detailed dispatch plans, rather, first-in-first-out works fine. We use MRPII only as a tool to communicate with our suppliers.

We have all heard of supplier certification programs tied into quality programs focusing on quality at the source. Many of these certification programs go on to discuss such things as blanket orders with frequent deliveries. I maintain that industry shall continue to use MRPII planning tools to establish the overall requirements with their suppliers. We may even work together enough to reserve capacity with the supplier. Therefore, instead of ordering large blanket orders for specific parts (with their inherent variability), let's reserve capacity based on our aggregate volume using our production plan.

We would then set up a very responsive signal system to let our supplier know exactly what quantity of what items are needed when. We know of some companies that use the telephone to release orders for steel to be delivered from warehouses the next day. More sophisticated systems such as visual signals (kanbans) and Electronic Data Interchange (EDI) can also be used as our partnership seeks win-win solutions that are quicker and quicker.

A companion idea to supplier partnerships is the same concept applied from the other direction: customer partnerships. We are all customers of suppliers - and conversely a supplier to our customer. Why not work with our customers just like we would like our suppliers to work with us?

Our objective is to work with our customer to remove fluctuations in the rate of demand. We wish to take out variations in the demand for our products. Therefore, let's negotiate with our customer and let them reserve capacity so that we can consistently meet their demands. We can work together to define the beat at which he needs our product.

When we are armed with knowledge about our customer's requirements we can work together to remove variations from the top level of our schedules. We can then look differently at how the parts flow through our shop. We know of a company that used to make large batches of common components used in multiple end units. Inventory grew and expediting got out of hand as mismatched lots were being built to optimize efficiency. Their problems reduced significantly when they focused on building all the parts that go into an assembly. They rearranged the shop layout and paperwork system to build matched sets of components to meet assembly requirements.

When we combine very short lead time with a flow of parts by assembled product, all sorts of opportunities become visible. (Yes, the pun is intended) We know of several companies who have gotten their lead times so short and the production process so predictable that first-in-first-out is good enough production control. One company even releases orders in different colored tote pans according to the day of the week: red on Monday, gray on Tuesday, green on Wednesday etc. Therefore, everyone on the production line knows red tote orders should be worked on before gray etc. This simplified method helps set the sequence of the flow of work.

When shop lead time gets very short, it is not profitable to focus on measuring workload, backlog, efficiency, utilization and queue. Rather, we focus on what comes in must go out. The company mentioned above with the various color totes can go out on the floor and see when they are falling behind. The team can make decisions about how to get back up to the throughput rate: work over time, add more people, stay late, etc. One company in Mississippi even goes so far as to have college students they can call to come in and form a night shift crew when they need to flex capacity. Federal Express calls in temporary workers each night at the hub in Memphis to make sure that "absolutely, positively" all packages that come in today will go out today.

To change the way we look at our manufacturing output; we need to change the way we measure our performance. Instead of measuring classical efficiency and utilization, maybe we should measure customer service, schedule performance and other measures of continuous improvement.

One very successful method I see being used is to measure how well we respond to delivery of our product to the customer's request date. One company does very well. See Figure 4. "But our customers have unrealistic expectations", you say. Well, yes they do but that's the standard by which we should be judged. So let's start measuring where we are and start the process of continuous improvement.

Another company adds a nice companion measure. Remember how cycle counting looks at the process of inventory control in order to find and fix the causes of errors? Why not use the same concept on orders shipped late? We can look at reasons why orders are late, stratify the reasons and fix the cause for the reasons. See Figure 5.

Another measure I like is schedule adherence as it relates to lead time. Set a planned lead time such as 15 days as the company did in Figure 6. The company posts the goal out on the shop floor and gets everyone on the team to work towards continuous improvement. As you can see through the month of September the team was able to beat the goal. Measure the lead time it takes for the product to get through the shop; focus on it and it will improve.

There is an effective compatibility between MRPII For Planning and JIT For Execution. The common thread is to be searching for continuous improvement. As lead time shortens in our own shop, use JIT visual techniques to flex capacity and shorten cycle time. Then we must simplify the planning system. Partnering with our customer to remove variability from the process allows us to use the MRPII Planning System to work with our suppliers to commit their capacity therefore, adding dependability to our supply of raw materials.

Great strides are achieved when we focus on the process and work together towards continuous improvement.

Terry Lunn, CFPIM, CIRM, has been an independent consultant since 1983, emphasizing training and motivating people to use computer systems effectively. In more than twenty years of industry experience, Terry held positions of shop foreman, production dispatcher, industrial engineer, and MRP manager. He has successfully installed many MRP systems and has broad experience in the design, modification, and installation of manufacturing, inventory, business, and accounting systems for a wide variety of users. Terry specializes in company-specific programs to instill a culture of continuous improvement in the business enterprise.

A resident of Memphis, Terry received his BS in Economics from the Illinois Institute of Technology. He has written a book entitled, "MRP Integrating Material Requirements Planning And Modern Business" which is a primary reference for the APICS M&CRP exam. It discusses ways people can cut through the technical jargon normally associated with MRP Systems and apply easily-understood solutions to integrate business functions more effectively.

** This article is missing charts. Call the NAPM Information Center for a hard copy of the article with charts.

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