How do we have planned materials until of PC-epoch?
Is a concept to which I’m devoted —
Instead of learning production control,
I’ve escaped and getting promoted!
So study each book and seminar,
Attend every one you can, sir!
You’ll find a thousand experts —
each with PART of the answer.
Oli Wight, “Production Control Experts”
Materials management started out as part of the production manager’s function.
It was imperative for managers to understand the location of the needed components to finish their required schedules. Without some tracking and knowledge of the supply-chain activities, there was little chance of timely success.
Henry Ford was probably one of the first managers to get a tight handle on his supply chain. He was in the lean material space and didn’t even know it.
His approach was vertical integration, which was an advantage in those early days. “The thing is to keep everything in motion and take work to the man and not man to the work. That is the real principle of our production, and conveyors are only
one of many means to an end. (Today and Tomorrow, Henry Ford, 1926, reprint Productivity Press 1988).
Ford continues, “The motor block is the heaviest casting used in the car.
It was formally manufactured at Highland Park, but it was a waste to transport these castings to Highland Park and then ship the completed motors out by rail to the branches past the very gates of Fordson.” So what did he do? He transferred the motor assembly to Fordson, putting it in a building 800 by 600 feet where there were four main assembly lines or conveyors. The process of making the motors became continuous. He knew the concepts of lean materials management in the early 1900s. Toyota Production System (TPS) experts have acknowledged the thinking of Henry Ford more than once. This early concept of the conveyor belt bringing material to the worker is precisely the concept behind lean materials management. Add to it the additional process of building only what is required for customer consumption, and waste becomes a lesser evil.
Jumping ahead to the 1980s, the Japanese influence gives rise to new thinking in the material management space with the concept of just-in-time (JIT) material.
Kanban systems were introduced as methods to allow rapid communication between suppliers and users/customers for material movement and to supply
demand fitted exactly to the need. This eliminated much of the waste created by stocking inventory on forecasted requirements. This new thinking, made famous by Toyota, migrated the Western thinking that only a few containers meant too little inventory to the Toyota view that if many containers existed, it meant too much inventory! This was truly revolutionary in the 1980s. Few North American manufacturing organizations at that point fully recognized this opportunity.
In the West there was another revolution starting—the rise of the computer. Material Requirements Planning (MRP), invented in the 1970s, was evolving and developing in the 1980s and would greatly influence the planning of material flow and materials management. Although a far cry from today’s definition of lean materials management, MRP, nonetheless, did help eliminate a tremendous amount of inventory in most production facilities. It might now be said that in those early days, MRP helped businesses go from absolutely no material control to bad control! It was a huge jump forward, however.
According to the Production and Inventory Control Handbook (James H. Greene, 1987; p. 4.2), MRP was used first by J. I. Case, Twin Disc, Black & Decker, and Perkins-Elmer. According to this text, the American Production and Inventory Control Society (APICS) and a few pioneer organizations started the MRP revolution in the early 1970s. MRP was a simple idea. Bills of material (BOMs) that defined the recipes of the products created the requirements. Inventory records were then accessed and requirement quantities netted against available balances. Using the MRP software, the delta between requirements and on-hand balances generated signals for purchase orders and shop orders.
This innovation slowly led to a greater use of centralized computers and more controls built into manufacturing and planning systems. Manufacturing Resource Planning (MRP II) methods were next in the evolution. MRP II happened as many evolutions do—from need. Humans often do not change radically unless forced to in some manner. In the 1980s, manufacturing was forced in a big way. Interest rates were sky rocketing and businesses were getting pressure from many fronts. Competition from other parts of the world was becoming more real and prices reflected it. This included some of the Japanese companies that were learning to build unheard-of quality into their processes. The need to cut costs and, therefore, become more competitive drove materials management professionals to look for better and more efficient methods to plan material deliveries. It wasn’t just for the sake of continuous improvement; it was a matter of survival. This effort led to more discipline on data inputs and files accuracy. According to the Production and Inventory Control Handbook (Greene, 1987; p. 4.8), the acronym MRP II was first documented in Modern Material Handling in 1979.
The article described activities going on in Tennant, Twin Disc, and Hewlett-Packard as integrating their financial and operational processes.
Standards of excellence within the planning processes were also developed in this period. The term Class A MRP II had become a desired recognition, and consultants like the Oliver Wight group were building businesses on Class A MRP II process with its corresponding certification. The early certifications only required that a handful of operational metrics be at 90% performance or higher.
Crude, and not close to today’s required competitive standards, it was one of the first definitions of high performance in the materials management space.
Materials management had changed course forever by this point. There was no going back to the days of unrecognized waste. The new emphasis had begun— make only what is needed and clearly define those needs. Those businesses were still a long way from lean, but they were getting closer. In the 1980s, because of cost constraints and competitive pressure, businesses placed more emphasis in the areas of capacity planning and increased scheduling disciplines. It was getting more and more important to build and to stock the right inventory.
With the success of Toyota penetrating Western markets in the 1980s, the world took notice of the techniques that had been evolving in Asia.
The late Dr. Shigeo Shingo was one of the more important figures to revolutionize the management of production and materials. With the introduction of Single Minute Exchange of Die (SMED), many methods of lot sizing, specifically Economic Order Quantity (EOQ), became obsolete. Although some companies recognized this in the 1980s, realistically it was well into the 1990s before Western manufacturing fully understood this fact. Again, it was only through being forced into change. Competition forced major changes in thinking.
The word “can’t” was being tested continuously.
In the twenty-first century it is fully recognized that not only is lean materials control necessary but so is change. Without continuous improvement, companies cannot stay ahead of their competitors or, in some cases, even stay with them! Without keeping material moving into the process, and at the same time limiting the unnecessary movement, maximum efficiency is unrealistic. It sounds like manufacturing has come full circle with Henry Ford—same ideas, just at a higher level of performance expectation.
ENTERPRISE RESOURCE PLANNING
Through normal process evolution and help from software providers and their marketing efforts, MRP II became Enterprise Resource Planning (ERP) in the 1990s. It was acknowledged that times were changing and, therefore, acronyms needed to change also. Normal ratcheting of requirements and expectations led to the upgrading of MRP II methodology.
This transformation in name did not take long once started. High-performance standards followed quickly on the heels of Class A MRP II.
Naturally, the scope of the Class A performance standard grew with the competitive pressures, and because the market was asking for ERP rather than MRP II, Class A MRP II upgraded its moniker to Class A ERP in the late 1990s.
The ERP model encompassed the entire business model, including linkage to the supply chain through to the customer (figure 1.1). Materials management, especially lean material management, was a critical part of the ERP business
model. Although developing throughout the 1990s, it was late in that decade when lean materials management started defining the new role of MRP and the Toyota principles of lean manufacturing.
Figure 1.1. ERP Business System Model
ERP today is often confused with software. APICS defines ERP as both process and software. Some argue with the software part of the definition, stating that software is only the planning enabler and that good ERP process starts and ends with robust process design, dependable management systems and disciplines, and repeatable execution. Lean materials management cannot be divorced from any of those keys.
It is part and parcel of good ERP performance. Starting with top management planning and following through to customer satisfaction, materials management is in the middle of the fray.
When organizations do a good job with ERP execution, the materials management is at the center of the planning and success.
Robust ERP execution encourages top management to have well-mapped strategies, including markets, products, and inventory strategy
(e.g., make to stock, make to order), and have capacity and capital plans in place as well.
Materials professionals within the business facilitate the inventory decisions by providing models and proposals.
Following closely, the handshake between the demand side and the supply side of the business must risk-manage the commitment of supply-chain resource.
Again, the materials management is involved because proposals to position inventory are usually suggested for scrutinization during these planning sessions.
In some organizations the master scheduler organizationally reports to the materials group and, in those organizations, materials management owns the show from proposal to execution. Only approval and associated adjustments are outside their roles.
In ERP environments this comes as no surprise. After all, the “P” in ERP does stand for planning and materials management is the planning center for manufacturing organizations.
The top management planning process during which the demand and supply sides of the business meet once a month for risk assessment and analysis is called the Sales and Operations Planning (S&OP) or Sales, Inventory and Operations Planning (SIOP) or even Production, Sales and Inventory (PSI) process by most companies. The master scheduler, or sometimes the materials manager, normally prepares the S&OP formats and data for the meeting. Metrics are reviewed to determine the accuracy of previous plans so that adjustments can be made to improve the predictability of the process and to minimize risks. The results of this planning process are 12-month rolling requirements that drive supply-chain signals for the next 30 days until the team gets together for a follow-up review. It is an age-old proven process in all high-performance organizations and the materials management is in the middle of it. Chapter 7 details the S&OP process and the mechanics behind it.
Once the S&OP process has authorized the supply-chain risk, the master schedule in an ERP process is released, sending the new 12-month rolling updates to the connected world through the materials plans and supply-chain links.
Today this is often executed through secure and confidential web pages designed to give access and information to key suppliers and partners several times a day.
Information includes forecasts of shipments, configurations of model breakdown and, often, existing stock for materials provided by that particular supplier.
In less sophisticated web links, only the unit build forecast is shown (figure 1.2).
This web information is the result of materials management activities.
Depending on the level of detail, it is either an output of the master schedule or an output of MRP.
The format can be in weeks (figure 1.2), days, or even hours in some supply chains, depending on the quantities and tightness of inventory control. The detailed schedule information in SKU format would be a separate feed.
In some arrangements there is only one communication, the detailed version.
Figure 1.2. Weekly web-based communication example.
There is no generic right or wrong way to communicate direction to the supply chain in an ERP environment,
but it must be in the correct level of detail for the market and environment.
In the automotive supply chain, the details could be communicated in hours; in other supply chains, days could be enough;
still others forecast in weeks and months; however, the detailed schedule is generated in days and communicated separately.
In one appliance manufacturing environment, the drumbeat is communicated each day on a web tool with requirements stated in hours.
In this same environment, the 12-month rolling (long term) plans change once a month but the detailed (short term) plans are updated hourly.
Several of the ERP linkages that must happen in high-performance companies have now been described (figure 1.3).
Figure 1.3. Linkages in ERP process.
Once the link is made to the supplier, the process flow has only begun.
There are still numerous communications and controls required in a high-performance ERP process.
The next link is to the shop floor, both internal and to the supplier’s shop.
Lean is a more recognizable element in this section of the ERP model. Here, we might not use web-based tools.
Simpler tools, including visible factory boards, kanban cards, lines painted on the floors, or limited rack size can be utilized.
Now, lean materials management gets exciting and fun! More detailed information is found in the next chapter,
but right now the objective is to continue to map the ERP process. Think for a minute about where we are in the process discussion.
If looking at this from the perspective of the customer, we would be communicating the signal to the supply chain.
What about when we are the supplier in the
transaction? The perspective now becomes a customer signal through the demand side of the process map and the ERP business model starts from the top again.
It doesn’t stop until the supply chain comes to the consumer product.
Everything starts with dirt and ends up a consumer product!
Some would argue that the consumer product often ends up back to dirt.
At least the biodegradable ones do! Think of it. All supply chains start with raw materials which usually involve chemicals (dirt related) or elements (found in dirt) or plants (plants get nutrition from dirt) or animals (animals connect down the food chain eventually to plant eaters or plants and, of course, dirt). ERP encompasses all of that activity through the entire food chain from dirt to dirt!
Understanding lean methodology allows that massive energy expenditure to be as efficient as possible.
ERP is the model that all businesses follow throughout the supply chain.
Some do it better than others, of course. Some do it and wouldn’t admit it because they are not all that versed in the formalities. Lean is often substituted for a business model. Lean and ERP are not of the same genus and species. One (ERP) is a process model; the other (lean) is a tool and/or focus. Lean ERP is the high-performance organizations’ focus. In these organizations, lean materials
management is making improvements to the process and increasing performance through the supply chain.
It is from this perspective that the discussion on lean materials management is built.
Good manufacturing process requires the elements of ERP—top management planning, demand and operations planning,
master scheduling, material planning and execution. Done in the most competitive format, a lean process focus is evident in each step of the ERP process model.
Sounds easy but it is not as easy as it sounds.
© Lean Materials Planning and Execution: A Guide to Internal and External Supply Management Excellence
Donald H. Sheldon
J. Ross Publishing, 15 Nov, 2007