IT needs to get lean on manufacturing

It's time for MRP to turn down its reliance on forecasting and get real

IT a roadblock to progress? Never, you say. How can that be when IT lives and breathes innovation? Who else but IT dared to usher open source, XML, SOA, and cloud computing out of the high-tech labs and into production systems?

Nevertheless, there is one aspect of technology where all of that daring doesn't seem to be in play.

Lean manufacturing systems, which turn traditional planning and forecasting -- as found in the MRP (manufacturing resource planning) components of SAP and Oracle ERP systems -- on its ear, is not something most IT people want to deal with, says Narayan Laksham, CEO, president, and founder of Ultriva. Ultriva, if you haven't guessed, offers a software solution, Lean Execution System, that enables lean.

Lean manufacturing's break from tradition
Manufacturing has traditionally been a push system. Up until lean, business analysts would forecast demand, and manufacturers would ship products to market based on those forecasts. Unsold goods would sit in the warehouse or distribution center either waiting to get into the pipeline or never to be sold due to a missed forecast.

"Unfortunately, there is a gap between planned orders versus actual demands from customers," Laksham says. "As the shop floor adjusts to real demand, the MRP schedules are no longer in synch. On every MRP run, these schedules are readjusted, and supplier orders are changed, causing whiplashes across the supply chain."

More than a decade ago, Toyota created Kanban, a system that builds to demand rather than forecast. It is a pull system based on what the market currently needs. Demand doesn't have to be just from a downstream customer; that is not the only "market" recognized by Kanban. If a product ships from a distribution center, the system recognizes that the center needs more of that product, as Kanban is continually sending pull signals to an upstream work center.

When done right, inventory can go from being held for a month down to a day, or it might never even see the inside of a warehouse, going instead from the manufacturing plant straight to the customer.

ERP's MRP components are outdated
Whereas traditional ERP MRP uses a min-max system, Kanban uses "consumption-driven replacement." Rather than trigger a maximum-replenishing order when the available inventory has slipped below a predetermined minimum, Kanban systems push out alerts when things like bins inside the factory or pallets coming from a supplier needs to be replenished (move one out, move one in). Traditional MRP systems are not built to work that way.