Theory of Constraints Handbook - James Cox Iii [225]
The MRP Compromises
In most cases, there are five types of compromises that frequently occur (either separately or in combination).
1. Manual Work Around Proliferation—As has been discussed already, companies frequently try to work around their MRP system by relying on stand-alone, disconnected, and highly customized data manipulation tools like Excel spreadsheets and Access programs. These tools have serious limitations and their proliferation makes the IT landscape more complicated and maintenance more intensive. Their use ultimately defeats the purpose behind the major investment in an integrated ERP package.
2. Flatten the BOM—Sometimes companies try to simplify the synchronization issue by flattening the BOM. Flattening the BOM removes levels that were originally identified to define the product and the process. The key to better synchronization is not to ignore dependencies within the product structure and across product structures. Better synchronization is possible when you know on which dependencies to focus. When the BOM is flattened, it is imperative that only those BOMs are flattened that cannot provide a leverage point. Flattening BOMs across the board can eliminate key leverage points that can provide a great deal of value. These dependencies provide an excellent way to stop variability from gaining momentum and disrupting the entire supply chain like a tsunami wave. The key to better synchronization is to understand those dependencies and control them. By flattening the BOM, companies can actually lose visibility at both the planning and the execution levels. In some cases, companies can benefit themselves by inserting an additional level in the BOM!
3. Make-to-Order Everything—Still other companies choose to place all of their cash in raw material and purchased components and embrace a completely make-to-order (MTO) strategy. In most environments, this comes with a significant price. A company either has to carry additional capacity to meet service level requirements or risk service level satisfaction with extended lead times. In some highly seasonal or short customer tolerance environments, this is simply impossible. The company just cannot supply the product in sufficient time with sufficient volume.
4. More Efficient Forecasting—Other companies implement advanced forecasting algorithms or hire more planners in hopes of guessing better. Recall that the assumption under MRP is that there is a plan or forecast that is the demand in the system to drive the MRP calculation. Even with dramatic improvements in forecasting accuracy, the results do not translate to the bottom line. Experience has shown that at best these solutions result in a 20 to 40 percent improvement in demand signal accuracy—still leaving significant room for error. Even if a company succeeds in increasing signal accuracy, it does not necessarily translate well to overall effectiveness in terms of availability and fill rates. Remember, the increase of variability and volatility (especially on the supply side) can easily offset any appreciable gain in signal accuracy. Also, remember that many manufacturers can have multiple assembly and subassembly operations that are integral parts of their overall flow. In any type of assembly operation, it takes the lack of only one part to block a complete shipment. The more assemblies there are, the more complex the synchronization and execution challenge is. Finally, even the biggest supporters of forecasting cannot argue the fact that forecasting in any form is still a push-based tactic. Yes, it can be a more educated push but it is still a push nonetheless. For companies implementing