J.H. Berk and Associates
Ps for Improved Delivery Performance…
Berk and Associates
, Upland, California
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acceptable delivery performance is the most significant manufacturing challenge
faced by many organizations. Manufacturing
Resource Planning (MRP) systems often do not provide hoped-for delivery
performance improvements when implemented without considering other delivery
organization has found that delivery performance shortfalls are most frequently
driven by problems that fall into six areas:
found that companies suffering from poor delivery performance usually have
problems in all six of the above areas.
To understand how to find and fix the problems in each area, we need to
first consider how MRP works.
is a computer simulation of the factory and its manufacturing processes.
The MRP system is a comprehensive and interactive data base that includes
information on each product’s bill of material, the manufacturing process,
inventory levels, purchased parts’ lead times, setup and run times for each
operation, and other information relevant to the manufacturing process.
most manufacturing organizations, MRP runs each week to process new orders
accepted or forecasted by the sales department and entered into the MRP data
base. When MRP runs, it assesses
how many of all required items are in inventory and in various stages of the
manufacturing build cycle. Based on
this assessment and the MRP system’s knowledge of future demand, the system
determines how many new orders should be initiated, how many purchase
requisitions should be generated, and all other actions required to meet the
demand for additional product.
issues daily dispatch reports to the manufacturing, purchasing, and stockroom
areas. These reports define the
jobs that are present in each area and when each should be completed or issued.
The dispatch reports are how the system communicates to the factory.
They define which jobs should be completed (and when they should be
completed) in order to ship manufactured goods on schedule.
As each required action defined by the MRP dispatch reports is completed,
personnel completing the action make electronic entries into the MRP system.
These entries inform the system of the status of all orders.
assesses, on a daily basis, the status of all material receipts and issuances
from stock, the status of all manufacturing operations, the status of all
purchasing activities, and the status of components that have been rejected.
MRP knows this because, as outlined above, company personnel make
electronic entries to status the build sequence.
MRP system also identifies detailed activities that are delinquent.
As MRP receives the status information outlined in the preceding
paragraphs, it compares the status of all actions to their planned status.
MRP issues an exception message report to identify all actions that have
not occurred on time. This report
defines delinquent actions. Ideally,
the exception message report should be used by the organization’s schedulers
and others to define areas of special focus.
Figure 1 shows how a typical MRP system works.
1. A Typical MRP System.
Orders are entered, the system assesses build and inventory current
status, and detailed work instructions are issued to the factory, the
procurement function, and the production schedulers.
If all dispatch report due dates are met, the product ships on time.
If they are not, the system can deteriorate rapidly.
theory, the above process is elegant, and probably represents the best way to
keep track of everything happening in a factory, especially if the factory has
multiple work centers and multiple products.
In practice, many organizations cannot keep up with the demands stated by
the MRP daily dispatch reports (for reasons to be outlined below), and when they
fall behind, delivery delinquencies occur. This paper focuses on what we have found to be the more
common delivery delinquency causes and how to correct them.
cannot overemphasize understanding and managing the lead time/capacity/load
relationship. In our experience,
organizations struggling with delivery performance often find this to be their
most significant problem.
the past several years, manufacturing organizations and their leaders have come
to understand that shorter lead times should result in lower manufacturing costs
and improved customer satisfaction. Unfortunately,
comprehension frequently stops at this point.
Managers know shorter lead times are intrinsically better and they
therefore want shorter lead times. Manufacturing
organizations have to do things, though, to achieve shorter lead times.
Simply quoting shorter lead times to customers without taking the
necessary steps will not make customers happier or reduce costs (nor will it
reduce lead times). Taking this
route (promising shorter lead times without the capability to meet them) results
in extremely dissatisfied customers, raises costs considerably, and induces
is the model that runs the factory. It
is based on purchased parts lead times, manufacturing lead times, the
manufacturing process, and inventory levels. The
MRP system knows, based on these parameters, how long it takes deliver product
from order acceptance to shipment, and that should be the lead time the
manufacturer quotes to its customers. Manufacturers frequently quote shorter
lead times, though, because they want to please customers.
Consider the following scenario:
need product in 16 weeks.”
sorry, but our lead time is 22 weeks.”
I really need it in 16 weeks.”
best we can do is 16 weeks.”
I can’t get it in 16 weeks, I’ll have to go elsewhere.”
we’ll deliver in 16 weeks.”
the above sound familiar? The
problem with the scenario outlined above is that if the order is entered for
delivery in 16 weeks and nothing is changed in the MRP model (and the
factory/supplier network it represents), in 16 weeks the manufacturer will have
accomplished little more than disappointing the customer to whom it made the
16-week delivery promise. Things
will get even worse. The
customer to whom the promise was made will not be the only disappointed
customer. So will all the other
customers whose orders go delinquent because of the 16-week commitment our
manufacturer made to just one customer. How
can that happen? If we only
committed to an under-lead-time delivery to one manufacturer, should we not only
go late to just that one customer, and not affect the others whose deliveries we
booked at the correct lead time? The
answer is a resounding no. The
likelihood is that if a manufacturer books just one order under lead time, the
company is probably going to induce delinquencies for several other customers.
To understand why, we need to turn to our next topic:
is a measure of how much a factory and its suppliers can produce in a specified
period. To understand it, we must
think about the manufacturing process and the constraints associated with each
step in the process. These
constraints can best be defined through the use of capacity assessments that
show how many standard hours of work can pass through the work center in a given
period. To identify capacity, a
manufacturer needs to know how many machines and people are available to perform
identifying capacity is only half of the problem, though.
Manufacturers also have to consider the load going through each of the
work centers in the manufacturing process.
This is where the MRP system helps.
As outlined earlier, the MRP system defines how many jobs have to move
through each work center. If the amount of time required for each job is identified
through the use of standards (a standard is an estimate of the period of time it
should take to perform an operation), then a capacity analysis can be performed
to compare the amount of work each work center can perform to the amount of work
it will have to perform in order to meet the dispatch report requirements.
a manufacturer knows the standards for performing the operations that have to
move through each work center and the capacity of each work center, the
manufacturer can compare each work center’s capacity to its load.
If the capacity is greater than the load, the manufacturer should not
have a problem (the work center can support the load, and the work should be
accomplished on time). If the load exceeds the capacity, then the manufacturer has a
constraint. The work center has
more work than it can perform, and it will not complete the jobs it is supposed
to in time to meet the dates specified in the MRP-generated dispatch report.
At least a few of the jobs moving through the work center will fall
behind. Unless the downstream work
centers have excess capacity, it is not likely these jobs will recover to their
downstream dispatch report due dates, and that means the delivery to the
customer will be late.
have found a number of ways in which the capacity versus load challenge can be
inadequately considered by manufacturing organizations:
organization has inaccurate or no standards.
If such is the case, capacity versus load considerations cannot be
performed with any accuracy.
organization does not perform capacity analysis or performs capacity
organization has accurate standards and performs periodic capacity versus
load assessments, but the findings are not considered in production
of the above can be deadly to delivery performance, and we suspect that several
readers will recognize that their companies suffer from one or more of the above
problems. One might ask the
question: How can a company operate
at all if it does not accurately address capacity versus load?
Many companies do, and they do so because they have excess capacity in
other areas of the operation. This
will allow such companies to fall behind in one area of the operation, but make
up the lost time in subsequent downstream operations with excess capacity.
Such situations frequently exist in poorly-managed companies, and during
and after economic downturns (at least for a while after the downturn).
excess capacity exists, it usually exists because the company has not tailored
capacity to meet market conditions. In
these situations, companies can be lulled into believing that capacity versus
load assessments are not necessary to assure delivery performance.
Such a belief is dangerous for two reasons:
a cost containment perspective, the company should be concerned about excess
capacity (the company is paying for capacity it does not need, but that is
an issue outside this paper’s scope).
company may make delivery commitments on future orders, especially during an
economic upturn, and find out too late that it does not have the required
capacity to deliver in accordance with its commitments.
consider the lead time versus capacity issue.
What we need to consider is that lead time is directly influenced by
capacity and load, and in reality, lead times are not fixed.
They vary as the capacity and the load change.
We will approach the discussion by recognizing two situations:
One in which the plant and its work centers are operating below capacity,
and the other in which at least one of the plant’s work centers are operating
at or above capacity.
the organization is operating below capacity (i.e., it has excess capacity),
product lead times are determined strictly by how long it takes to setup and run
each job and to move jobs from one work center to the next.
The idea here is that as a job moves into a work center, there is a
machine available to set up and run it immediately. Lead time, in this situation, becomes the simple sum of the
times required for the purchased parts, the setup and run operations, and moving
the product between operations (with appropriate consideration given to
operations that occur in parallel and those that occur in series, as indicated
in Figure 2).
2. A Typical Manufacturing Process.
The process can be thought of as a chain, with overloaded work centers
being the weak links that constrain and therefore define the factory’s output.
an organization is at or over capacity, though, determining lead time becomes
more complicated. There are two
concepts we must consider:
the organization is at or over capacity, load and lead time are directly
proportional. As the load in a
work center increases, the lead time for each incoming job increases.
Instead of being able to set up and run the job immediately, it must
wait as other jobs are set up and run.
The higher the load, the longer the lead time.
the organization is at or over capacity, capacity and lead time are
inversely proportional. As the
capacity in a work center increases, the lead time for work to move through
that work center decreases. The
higher the capacity, the shorter the lead time.
organizations operating at or above capacity address the above relationships
(and their inherent limitations) by adding capacity internally or by offloading
work, or through the use of buffers or queue times for each work center.
Offloading work or adding capacity internally are self-explanatory
solutions to this dilemma. Buffers or queue times are a bit trickier.
They are a measure of the predicted amount of time a job will have to
wait in a work center before it can begin the setup and run process.
In effect, queue times are buffers that represent an implied
understanding that jobs will not get on machines immediately.
Queue times are the organization’s estimate of how long jobs will have
to wait. In this situation,
capacity is reached when the load in the work center exceeds the sum of the
setup, run, and queue times.
who have worked in manufacturing will probably feel that most of the above is
obvious, and to an extent, intuitive. Readers
who have never worked in manufacturing (as is often the case for people in sales
or marketing positions who make delivery commitments for the company), the
relationship between lead time and capacity is neither intuitive nor obvious. We
believe that manufacturing managers making delivery commitments have to
understand the lead time/capacity/load issue. We further believe that manufacturing managers have to
recognize that others outside manufacturing will not intuitively understand the
lead time/capacity/load relationship, and that the desire to quote reduced lead
times has to be carefully managed.
the above considerations, what are the things responsible managers can do to
intelligently commit to delivery schedules?
Here are our recommendations:
the organization’s existing lead times, publish them, and do not allow the
sales department to commit to earlier deliveries without the manufacturing
assess capacity versus load in all work centers.
We recommend performing this analysis on a weekly basis.
Where loads exceed capacity, increase capacity (internally or through
off loads) or lengthen the quoted delivery time.
cases where orders are booked under lead time (for marketing or other
considerations), replan and micro-manage the progress of the work through
the factory to assure the end item delivery is met.
Control is the discipline that determines what needs to be built and when it
needs to be built in order to ship product on time. Doing so requires real planning skills (the ability to work
backwards from a future point in time to determine what has to happen and when
it has to happen). Our observation
is that with the advent of MRP systems over the last decade and a half, planning
skills have deteriorated in many companies.
This is perhaps a logical fallout of large scale MRP systems
us think about why this might be. In
our earlier discussion in this chapter, we reviewed how MRP systems work and
what they do. We explained that the
MRP system, with its data base of component assembly times, manufacturing
routers, and other information, identified when items had to be built and in
what quantities to support required delivery times. Unfortunately, in many
organizations, this MRP capability has resulted in production control and
planning personnel who are, in essence, data entry clerks.
The ability to truly plan, which has always been a rare attribute, has
been made more rare by over-reliance on MRP systems.
above situation might be acceptable if MRP systems had the capability of a human
mind, but they do not. When work is
not completed in a work center when scheduled, the MRP simply shows that it is
past due and must be completed now. If
more than one work order is late, it shows these work orders as late and directs
that all delinquent work orders must be completed now.
In short, MRP cannot account and plan around bottlenecks, rejections,
items in MRB, or any of the other real-world situations manufacturers must
contend with on an hourly basis. Doing
so takes someone with the ability to plan.
address this MRP shortfall, a company needs production control professionals who
recognize when the data provided by MRP is no longer valid, and who can develop
work-around plans to bring the company back on schedule.
manufacturing organization can have the best production control people in the
world and adequate capacity, but if the plant’s productivity is poor, work
will not ship on time and ultimately, the plant will not be competitive.
are numerous productivity measures. The
productivity measure we have found best for integration with capacity and lead
time issues is a measure of the actual time versus the standard time to perform
a task. This is frequently referred
to as efficiency, and is defined as:
Efficiency = actual time/standard time
use this productivity measure, a plant has to have work standards for all tasks
(or at least for most of the tasks performed during the manufacturing process).
There simply is no way to get around this.
Some might view developing and having standards as a burden, but in our
experience, without such standards a manufacturing organization is simply
guessing at its costs, schedules, and lead times.
is the above so important? In
addition to what should be a normal management concern (i.e., to assure all
employees are working efficiently), we need to recognize that most MRP systems
inherently assume that operations are occurring at 100% efficiency.
If the plant is averaging less than 100% efficiency, it will run behind
the MRP schedule, and delinquencies will result.
Delivering manufactured goods on time will not occur without measuring
efficiency and taking the necessary steps to assure that any inefficient areas
are brought up to standard.
Manufacturing, one of our suppliers, delivered late, and that’s why our
product is shipping late.”
you ever heard the above? One of
our more frequently-encountered explanations for delinquent deliveries is late
purchased parts delivery. Most
manufacturing organizations buy as much as 75% or more of their products from
suppliers, so the potential for supplier failures certainly exists. Our experience indicates, however, that supplier failures
frequently are not the reason materials are missing when needed.
Usually, the failures are induced by the buying organization.
We need to turn to a focused assessment of a typical procurement process
(as Figure 3 shows) to understand this phenomenon better.
A Typical MRP-Driven Procurement Process.
Logical performance metric points include requisition release, purchase
order placement, and purchased materials receipt.
the material planning and procurement organizations’ perspectives, when MRP
runs it checks the due dates of orders that have been entered, the requirements
based on the bill of materials, and inventory status. Based on these assessments, the system defines additional
materials to be purchased and when they should be ordered based on supplier lead
times (as previously input to the system). MRP provides a dispatch report of recommended requisitions.
The planners or buyers should review this list and release the
requisitions recommended by the system and their knowledge of ordering
practices, likely future orders, and other factors. Once the requisitions are
released, the buyers should place the orders with the delivery times the MRP
system indicates it needs.
above material planning and purchasing steps have “run” times just as
manufacturing operations do. Many
times, managers fail to monitor material planner and buyer performance in
meeting these run times. Most MRP
systems have inputs that tell the system how long it should allow for buyers and
planners to review and release requisitions, convert them to purchase orders,
and place the purchase orders.
have frequently found that these internal procurement action “setup and run”
times (i.e., the time to convert the requisition to a placed purchase order) are
violated. If the buyers and
planners take too long to accomplish these actions, they may do the same thing
the Marketing people frequently want to do, and that is to violate lead times.
When this occurs, the supplier lead time is violated, and the supplier is
likely to deliver late.
problem we frequently encounter is purchase orders with due dates that do not
support the MRP need date. This means the supplier may deliver on time (i.e.,
meet the purchase order due date), but the material will still not arrive on
time to allow an on-schedule end-item delivery.
The reasons for this can include internal excesses as outlined above
(taking too long to place the purchase order) or changing market conditions that
increase supplier lead times (as is currently occurring for titanium, forgings,
extrusions, etc., due to the aerospace industry upturn).
Organizations with poor delivery performance that track supplier delivery
performance and show a high percentage of on-time supplier deliveries often have
this problem. The suppliers are on
time, but their deliveries do not support the procuring organization’s MRP
yet other instances, purchase orders are simply not placed.
Buyers and material planners make mistakes.
Our recommendations to address the procurement issues outlined above
and publish internal lead times for planned requisition review, requisition
release, and purchase order placement.
a report that shows all instances in which the above lead times are being
violated, and identify and correct the causes of the violations.
We recommend developing these reports and tracking the data from both
company and individual buyer and planner perspectives.
a report that shows all instances in which purchase orders have due dates
that do not support the MRP need date, and identify and correct the issues
inducing such non-supporting purchase orders.
We recommend developing this report and tracking the data from both
company and individual buyer perspectives.
a report that shows all unplaced purchase orders. We recommend developing
this report and tracking the data from both company and individual buyer
track supplier lead times and immediately modify the MRP data base to show
changes as they occur.
the above actions may seem intuitive, we are often surprised at how many
non-supporting supplier deliveries are induced by procurement (and not supplier)
failures. We strongly recommend
taking a hard look at the procurement function; it is an area of low-hanging
fruit for improving delivery performance.
mentioned above, MRP systems generally assume all processes are robust; i.e.,
rejections will not occur. MRP systems do not make allowances for rejections in
their planning. When a component is
rejected, the time it takes to rework, repair, or replace the component is not
included in the MRP routers and their associated lead times.
That means that each rejection carries with it a requirement for
significantly increased work-order-specific planning, and a much higher risk the
item will ship late.
non-robust processes from inducing delinquencies requires an aggressive failure
analysis and corrective action approach, as well as superior planning to develop rapid recovery plans.
We recommend the problem solving and systems failure analysis approach
outlined earlier in this book. The
problem solving and systems failure analysis approach outlined in preceding
chapters has worked well for manufacturers that have adopted it.
The approach supports D1-9000 (Revision A), ISO 9000, MIL-Q-9858,
MIL-STD-1520, and other quality management requirements.
the most important considerations regarding process robustness are that
processes should have high yields, but when rejections occur, they should be
worked aggressively to prevent the rejection from influencing required delivery
MRP has significant capabilities and it has helped organizations improve, the
MRP concept has a few disadvantages. One
disadvantage is that the MRP system’s data-processing-nature and
dispatch-report “to-do-list” outputs tend to drive companies to organize
along manufacturing-process-based lines.
single-product companies, this may not be a problem. As product variety increases, however, process-based.
work-center dispatch reports tend to grow in terms of quantity of work orders
and types of part numbers. The
result is that how the product comes together becomes opaque to the human beings
in the system. There are so many
parts in the system (and so many different assemblies they go into) that no
single person can sense how the schedule and the parts integrate to allow
finished assemblies to ship on time.
MRP system knows how the product is supposed to come together, but it does not
know what has to be done when anomalies occur.
That takes a human being. When
this problem is compounded with the other problem we mentioned earlier
(production control personnel who are data entry clerks), what happens is not
good. Products don’t ship on
result of the above is that the MRP system, in a very real sense and in many
companies, takes over all or nearly all of the thinking required to ship a
product on schedule. If the
organization and all of its suppliers are on schedule to their dispatch reports,
and if the organization has not exceeded its capacity in any areas, a company
can live with this situation. The
word “if” as used here is a powerful qualifier, though.
Organizations and their suppliers are usually not 100% compliant to the
dispatch reports, and that is when another problem emerges:
Unfocused delivery responsibilities.
this common situation: Supplier
deliveries are late, Marketing is making commitments to ship products below
standard lead times, several of the work centers are not keeping up with their
dispatch reports, some of the parts are rejected during manufacture, and one or
more of the work centers is overloaded.
a company organized along process (rather than product) lines, other than the
Vice President of Manufacturing, who is responsible for shipping product on
time? Which of the jobs in the work
centers that are past due should be worked first? Which parts of the many that are in work are needed to finish
a product so that it can be shipped on time?
Which of the delinquent supplier parts need urgent attention? Who is
working the rejected parts, and in what order, so that they can be reworked or
remade and the products that need them can be shipped?
With all of the above occurring, who can predict when the products will
above situation defines the essence of what occurs in many manufacturing
operations that run on MRP systems. The
experience indicates than when companies are organized along process (and not
product) lines, delivery performance failures are likely because the problem
becomes too complex for a single person to solve.
recommendation is to organize the factory along product (rather than process)
lines to the maximum extent possible. We
recommend having all of the work centers unique to specific product lines report
to individual operations managers responsible for the product lines.
We recommend having other factory areas that provide generalized support
(such as a machine shop, process lines, stock rooms, and other generalized
functions) report to a single factory manager.
We further recommend having the product-unique functions for each product
area (e.g., manufacturing engineering, scheduling, final assembly, and any other
product-unique manufacturing areas) report to the product-line-specific
operations managers. Figure 4 shows
a recommended organizational approach for a company with four product lines.
This approach incorporates product-line-specific operations managers to
champion on-time delivery for their product lines.
above approach provides for single individuals to champion product delivery
performance, to act as a magnet to draw required parts into and through the
plant, and to resolve issues related to their assigned products.
experience indicates that in MRP-based manufacturing organizations, delivery
delinquencies are systemically driven by failures to understand and abide by
lead times, failures to address capacity constraints, ignoring manufacturing
productivity, diffused organizational responsibilities for on-time delivery
performance, internal procurement failures, and non-robust processes.
Our recommendations for delivery performance improvement include
understanding the nature of the capacity/load/lead time relationship, developing
meaningful lead times, and only departing from lead times with supporting
reschedules and focused management.
recommend that manufacturers optimize the robustness of their processes using a
systems failure analysis process focused on rapid cause identification and
corrective action implementation.
believe manufacturers have to understand their productivity and act on areas not
should understand the procurement process and its associated internal
lead times, and monitor the procurement organization’s performance to assure
supplier commitments and deliveries that support MRP need dates.
we recommend organizing operations along product (rather than process) lines to
assure appropriate focus on delivery performance.
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