ABSTRACT
Overview Material requirements planning (MRPII) is an underutilized resource. is may be because many people believe an MRPII system simply translates the master production schedule information via the bill-of-materials (BOM) into a product’s component parts. However, if MRPII users really understand how their system functions, they can provide significant value to their organizations. As an example, I have seen three dramatic uses of an MRPII system over the past few years that resulted in a significant business impact. e first effective use of an MRPII system was placing low-volume items having stable demand patterns on a minimum/ maximum inventory system. is situation occurred within an organization that sold more than 50,000 products, not including their packaging variations. Prior to a minimum/maximum conversion, many of the products were forecast. In other words, models had to be built to predict sales throughout the year for every product. Given the very number of forecasted products, this created a situation in which the demand patterns of higher-volume products did not receive the attention they required from forecasting analysts. A solution was found in the stratification of the products by their volume and demand variation. is stratification resulted in four separate product groups, as shown in Figure 8.8. e quadrant characterized by low volume and stable demand variation could be automatically managed by an MRPII
system using a minimum/maximum method. Minimum/maximum inventory systems use their reorder points as a signal to order additional inventory. e reorder point of a component is estimated as the expected demand over the component’s lead time. is lead time is the cycle time to place and receive an order. Inventory management will be discussed in Chapter 14, and the reorder point concept is shown in Figure 14.1. A second effective use of an MRPII system occurred when a client used their MRPII system as a pull system by reassigning data fields to create an electronic Kanban that signaled the supply chain to move materials from one facility to another to meet demand requirements. is added flexibility to the supply chain dramatically reducing its inventory safety-stock levels. is is an example of a hybrid MRPII system, which will be discussed later in this chapter. In the last example, I was asked to significantly reduce inventory investment within 90 days by $10 million (10 percent of its average on-hand inventory). In this project, we worked with MRPII specialists to review investment and inventory turns ratios for every product and created a prioritized list of improvement actions, which included the elimination of excess and obsolete inventory. In addition, a more effective order management was created by the organization. ese three examples demonstrate how an MRPII system can be used to significantly improve business performance if its users understand how it really works. Table 13.1 presents several key metrics which can be used to improve MRPII effectiveness and efficiency. ese metrics and related bill-of-material topics will be discussed in the balance of this chapter.
