Standard ERP planning tools promote waste and excess inventories
Mike Liddell, CEO of Lean Scheduling International and Author of “The Little Blue Book On Scheduling”
Many experts now understand that ERP systems do not have the functionality required to create a valid finite capacity schedule. But many of these experts have glossed over the severe limitations of the planning module that converts customer demand into the projected consumption of plant capacity.
Most ERP systems provide manufacturers with a module called MPS (Master Planning and Scheduling). A quick review of the origins of MPS will make it easier to understand the limitations of this approach.
In the late 1970´s, manufacturers started to use MRP (Material Requirements Planning) software to explode their BOM´s (Bills of Material) to help them quickly determine what materials they should be purchasing. The problem with MRP was that it didn´t have any way of determining when you needed the materials.
In the late 1970´s MRPII and then ERP systems introduced the concept Master Production Scheduling (MPS) to help them create a time phased plan. To this day most ERP systems still have MPS and MRP modules.
MPS groups the actual demand (customer orders) and the forecast demand for finished goods SKU´s or major assemblies. It then nets this against the available finished goods stock and the scheduled expected receipts from the production plan. Any shortages identified in this process are used to tell the planner when they need to create new work orders. MRP then uses these work orders to explode and group the demand for sub components and purchased parts using BOM´s and Routings.
Understanding MPS and CRP
Unfortunately, there are some major problems with MPS, and the biggest problem is it assumes there is infinite capacity, and all work orders will be completed by the planned date. Not to worry though because ERP vendors, recognizing another opportunity to sell software, quickly introduced another new module that they called the Capacity Requirements Planning (CRP) module.
The CRP module was designed to provide a reality check that would determine if there was enough available capacity to complete the plan. Unfortunately for everyone concerned, nobody was able to make the CRP module work. Then an amazing thing happened, everyone pretended that the problem had gone away… But of course, it hadn´t.
It appeared that nobody tried to understand why CRP software didn´t work or if they did, they kept it to themselves. But in truth it wasn´t a mystery. CRP uses phony techniques such as infinite capacities, backward scheduling, time buckets, average queue times, and average setup times. It also made several invalid assumptions (such as if all machines in a work center run at the same speed and can do the same work).
For years nobody seemed to grasp the significance of these limitations. Nobody came out and said, “The King has no clothes!” That is until Eli Goldratt started writing books like “The Goal and The Theory of Constraints” and even then, there were few that really understood or accepted what he was saying.
There is a great quote from Winston Churchill, which I think is very appropriate. “We occasionally stumble over the truth but most of us pick ourselves up and hurry off as if nothing had happened”.
How to survive
How do companies stay in business if they can´t plan and schedule accurately? The reality is the only way that manufacturers can survive with just basic ERP planning and scheduling capabilities, is by building massive buffers of time and inventory into every step of the process and manually expediting orders which is extremely inefficient.
Sooner or later someone on the management team reads a book on the wonders of Lean manufacturing and hires some Lean expert (usually someone just out of school) to help implement Lean techniques. Of course, the consultant reaffirms the potential lean benefits to be gained from making your plant lean and lays out a program without any idea of the damage that it will cause. As inventories are reduced and all those non-value-added buffers are removed, you start to see some positive results but guess what happens as soon as all the buffers have gone? Orders cannot be shipped on-time because parts are missing, and confusion quickly turns to panic followed shortly by chaos.
This is because ERP is unable to create a valid production plan and even if it could, it does not provide the tools required to convert that plan into a valid schedule or detailed action plan. In most cases the only way to implement Lean is to implement an Advanced Planning and Scheduling (APS) systems that can react intelligently to change!