Replenishment Models vs. MRP Systems

The Challenges with MRP:

MRP Systems have been used for decades to help with material planning. The promise has been an MRP system can tell the user what, when, and how many items are required. 

It is a promise that has been unfulfilled.  The time, energy, effort, and staff needed to just provide the inputs to the MRP system is daunting.

To succeed, an MRP system typically needs the following:

• Accurate Forecast (by part number and by location)

• Customer Orders

• Independent Demand

• Safety stock

• Allocations (if applicable)

• Costs

• Inventory

• Bill-of-Material

• Routers

• Capacity Constraints

• Tooling Available

• Work Order Amounts

• Purchase Order Amounts

• Yields

• Scrap Rates

• Lead Times for the Factory

• Set-Up or Change-Over Times for Machines

• Lead Times for of all the Suppliers

Now MRP can begin to calculate the results showing only one snapshot in time. Data integrity alone ensures most MRP system are doomed to fail to deliver on the promise.

W. Edwards Deming once said, “A bad system will beat a good person every time.” So true. The issue is not your employees. The issue is the system.

There is a Better Way – The Replenishment Model:

Replenishment methods have found a renewed life. Unlike MRP systems the planning method is simple - set a re-order point (ROP) based on new, patented sizing algorithms. Purchasing is even easier; when the inventory in the supply chain is too low, go get more.

The data requirements are much simpler the MRP systems:

• Usage

• Lead Times

• Fill Rates or Targeted Service Levels

Over time, levels of complexity such as: forecasts, customer orders, and other attributes can be brought in to fine tune the system and continuously improve.

Today, replenishment systems can be tied to Inventory Optimizations. Companies all around the world are finding they can simultaneously reduce inventory, simplify planning and increase customer service KPI’s. Optimization software can predict future inventory levels and show the costs associated with different fill rates by location.

Historically replenishment models have failed for three reason:

• ROP’s were set and forgotten

• Values were based on simple algebraic demand

• Paper (or kanban cards) was used to signal replenishment

Software Enables Next Generation Replenishment Model:

New software allows for replenishment systems to be used not only within a company’s four walls, but also all the way up and down the supply chain.

Today:

• ROP’s are set dynamically and are consistently updated to reflect changing customer demand (management by exception ensures an efficient review of the inventory needed within the supply chain)

• ROP values are established statistically to ensure smart levels of buffer inventories are in the right locations

• Signals to replenish are electronic, eliminating the need for paper

The best replenishment systems will work alongside a company’s MRP system, not replace it. However, planning and purchasing will be greatly simplified while inventory levels will be optimized to a client’s every changing customer demand