or Flow Manufacturing?
Collaboration, Not Separation.
JIT? Lean Manufacturing?
Flow Manufacturing? ERP? MRP II? Which one do I choose? Or should I even
care? Good question. The answer becomes clear and the confusion disappears
once the evolution of these terms is understood.
Ending the Confusion
First, ERP is a term that evolved from MRP II. In the late 1960's, IBM
introduced a new computer - the 1401 - and shortly afterward the 360 Series.
This hardware made it economically practical for medium-size and up companies
to have the computer horsepower to maintain the data and perform the calculations
to determine future requirement for thousands of part numbers. The software
could also signal when orders needed to be placed. However, a more significant
power of the new tool quickly emerged -- the ability to keep "released"
supplier and factory supply schedules aligned with real needs. The technique
to do this, material requirements planning (mrp), was born and became an
instant, commonly-recognized industry term. In less than 5 years, the profession
enhanced the mrp technique and a concept to integrate business processes
such as capacity planning, supplier scheduling, factory floor scheduling,
customer delivery scheduling, etc. evolved. The new concept was supported
by techniques such as sales and operations planning (SOP), master scheduling,
capacity requirements planning, available-to-promise (ATP), cycle counting,
etc. But this evolutionary new, holistic process needed a new name.
During the late 1970's, a writer for Modern Materials Handling magazine
wrote a story about this evolution and labeled the new integrated concept
Manufacturing Resource Planning (MRP II). It was a good story but a bad
label. The acronym falsely implied that MRP II was computer software and
the term implied it was a tool just for the manufacturing department. In
addition, confusion set in as people did not separate mrp, the technique,
from MRP II the concept. Additional confusion was piled on as people used
MRP II software and the MRP II concept interchangeably. Many companies
installed MRP II software, not MRP II concepts. And it was evident in the
spectrum of results.
Later in the 1990's, MRP II software packages were enhanced with more capability
to better integrate additional activities such as order entry, bill of
material configurators, accounting, distribution inventory management,
sales order management, etc. The enhanced MRP II software was repackaged
as Enterprise Resource Planning (ERP). The migration to ERP was more about
software enhancements than improving business processes. The results with
MRP II/ERP were mixed. Many companies understood they needed to change
business processes and old habits at the same time they implemented their
new MRP II/ERP software. These companies enjoyed impressive results - inventories
slashed in half, 95+% on-time deliveries and 20-30% cost reductions were
common. Other companies were not as fortunate. They implemented the new
software, sometimes even spending big bucks to modify it to emulate old
practices and mindsets. Most of these companies realized some improvement,
but were disappointed when the results fell short of their expectations.
Of course, they blamed the software and/or the ERP concept.
More Confusion - Just In Time!
During the 1970's, the Pacific Rim wakeup call was ringing loudly. Many
companies (and the business press) hopped planes to discover what they
were doing - Just-In Time. JIT became an instant hot, although often misunderstood,
new term. In fact, because of it's alleged simplicity, JIT was often promoted
as a painless panacea. JIT was supported by techniques such as Kanban,
SMED, work cells, empowered work force, etc. Again, confusion set in as
people used JIT the concept interchangeably with JIT techniques such as
Kanban. And, of course, many companies found out that JIT could be very
effective, but not painless!
During the next 10 years, Toyota Production System (TPS), Lean Manufacturing,
Flow Manufacturing and similar terms sprung up and were used interchangeably
with JIT. All of these terms focused on similar business objectives; realign
plant floor material flow into work cells, reduce lot sizes, empower the
workforce, etc. The results were substantial reductions in factory (and
sometimes supplier) lead times, dramatically slashed WIP inventories, smaller
lot sizes economically produced and lower costs by eliminating many non-value
Unfortunately, too many people began to view MRP II and JIT as opposing
methodologies. The important business objectives often got lost in the
MRP II /JIT debate.
What Is the Objective?
While the debate raged on, many frustrated people walked through the door
every day to work asking, "what do you really need, how many do you
really need and when do you really need them?" The interest was in
the elusive truth, regardless of the buzzword that delivered the answer!
If they could get good answers, the result would be better customer service
and lower inventories since the factory (and suppliers) would be making
the right things more often in the right quantity at the right time, not
piling up excess inventory of the wrong material. Many obstacles were in
the path to get the truth. None of them were created by MRP II/ERP or JIT/Lean/Flow.
However, if you listened to the Buzzword Zealots you might think they were!
Here were (and unfortunately still are in many companies) a few of the
1. Overstated, unrealistic plans to produce products.
2. Overly optimistic capacity expectations, if capacity requirements were
determined at all.
3. Factory floor layout by functional department causing costly delays
(read: long lead times) as material travels, and then waits, at the next
4. Inaccurate inventory records used to make scheduling decisions.
5. Excessive bill of material levels that caused excessive costs and delays.
6. Costly expediting systems to override schedules (a form of rework) because
the formal schedule can't be trusted.
7. A "bigger is cheaper" EOQ mindset which resulted in large
lot sizes that were moved, stored and eventually used weeks later -- hopefully.
8. A damaging focus on performance measurements such as equipment utilization
and purchase price variance (PPV) that drove behavior to produce or procure
large lot sizes or keep equipment busy whether material was needed or not.
9. Complex scheduling systems to manage convoluted material flows.
And the list goes on and on ....
Neither ERP nor Flow Manufacturing created these costly obstacles! These
obstacles were there before ERP, Flow, Lean, MRP II or whatever were created.
ERP and Flow Manufacturing each focus on overcoming some of these obstacles.
The degree of success is dependent on how effective the tools are used.
People have proven over and over that any good idea can be misused and
made ineffective! When not used effectively, the concept was often declared
inept or too difficult.
Effectiveness of these concepts depends on following a few non-negotiable
principles. A few companies follow these principles very well. And they
get impressive results. Other companies do not. For example, some companies
drive the calculated part requirements and/or Kanban levels with overstated,
usually front-end loaded, master schedules. Others keep poor inventory
records. Some keep producing parts in order to keep people busy and/or
cause favorable variances to create the illusion of profit even though
there is no requirement or Kanban signal. Overstructured bills of material,
excessive lead times, excessive lot sizes, piles of work orders and other
parameters fit this same mold.
These bad processes are caused by bad or negligent management practices,
not by ERP/MRP II or Flow Manufacturing. They were present when either
concept was deployed and unfortunately not always changed while implementing
Flow or ERP/MRP II. The result in either case is poor operating results
and unfortunately people want to blame something or someone. Flow and ERP/MRP
II often take the arrows!
Collaboration is the Answer!
Overcoming these obstacles is critical to profitable growth. Meeting this
growth objective is not a matter of choosing between ERP, MRP II, Flow,
Lean or JIT. In fact, we need to replace the dialogue about how to find
a peaceful way to let them coexist with a more collaborative approach.
The progressive companies are avoiding the buzzword war and not aligning
with either "camp." They are seeking a collaborative path. They
are collaborating with ERP and Flow solutions, extracting and applying
the Best Practices from each concept in concert to streamline their supply
For example, Pelion Systems
(www.pelionsystems.com) has developed a suite of products to
bolt on, not replace, existing ERP software that helps a company overcome
some of the excessive lead time and lot size obstacles. They have a software
tool that helps to easily create a flow line from the traditional departmental-oriented
factory floor layout. This dramatically reduces lead times and chops several
levels from the bill of material. These new shorter lead times and flat
bills are then fed back into the ERP software. The result is a much more
effective ERP process.
Kanban is an effective tool when applied in the right environment. One
of the traditional problems with Kanban is keeping the Kanbans resized
as demand changes. Pelion has developed software tools to seamlessly extract
updated requirements from the ERP calculations and frequently send out
new Kanban levels to the plant floor. In both cases, the best of ERP and
Flow Manufacturing are working together to streamline the business processes,
resulting in less working capital and better customer deliveries.
Industry answered the 1970's Pacific Rim wake up call and made huge improvements.
The opportunities to take your performance to the next level will depend
on your ability to avoid the Buzzword mania and focus on streamlining the
business process. Collaborative efforts with suppliers, customers and supply
chain management tools are essential. Collaborate, don't separate!