Executive Briefings

MRP: Still Relevant but Needs New Rules

Material requirements planning is more relevant today than at any time in its decades-long history, says Chad Smith of the Demand Driven Institute. But the rules governing MRP programs are out of date and need to be changed to meet the demands of today's volatile markets, he says.

"Instead of trying to optimize the old rules, we need to step back and reexamine the rules, which are rooted in the old world of push and pull," says Smith. "We need to strip those old rules out and create new rules that connect supply chain planning to actual consumption."

Under the old MRP rules, supply and demand have become more and more out of sync, Smith says, and MRP's antiquated rules for setting stock levels are no longer adequate. "We need to take new learnings from areas like lean management and the theory of constraints and develop new rules to run MRP," Smith says.

MRP users then need to push software vendors to develop better solutions, says Smith. "There is a reason why Microsoft Excel is the number one demand management system out there," he says. Smith notes that more than 70 percent of companies use Excel or some other form of spreadsheet to do demand management, despite the fact that 80 percent of ERP buyers purchase and implement MRP functionality. "Supply chain personnel distrust the signals they are getting from their enterprise systems so they are doing workarounds." This is "a dangerous and tenuous position," says Smith, because these workaround solutions "are highly individualized and are not scalable, which is why we have a big mess today."

The order of hierarchy should be vision, rules and then tools, Smith says. "Before spending a lot of time and money on tools, companies need to back up and test the vision and rules. The MRP vision is still appropriate, but we need to change the rules, then get the right tools."

To view video in its entirety, click here

Material requirements planning is more relevant today than at any time in its decades-long history, says Chad Smith of the Demand Driven Institute. But the rules governing MRP programs are out of date and need to be changed to meet the demands of today's volatile markets, he says.

"Instead of trying to optimize the old rules, we need to step back and reexamine the rules, which are rooted in the old world of push and pull," says Smith. "We need to strip those old rules out and create new rules that connect supply chain planning to actual consumption."

Under the old MRP rules, supply and demand have become more and more out of sync, Smith says, and MRP's antiquated rules for setting stock levels are no longer adequate. "We need to take new learnings from areas like lean management and the theory of constraints and develop new rules to run MRP," Smith says.

MRP users then need to push software vendors to develop better solutions, says Smith. "There is a reason why Microsoft Excel is the number one demand management system out there," he says. Smith notes that more than 70 percent of companies use Excel or some other form of spreadsheet to do demand management, despite the fact that 80 percent of ERP buyers purchase and implement MRP functionality. "Supply chain personnel distrust the signals they are getting from their enterprise systems so they are doing workarounds." This is "a dangerous and tenuous position," says Smith, because these workaround solutions "are highly individualized and are not scalable, which is why we have a big mess today."

The order of hierarchy should be vision, rules and then tools, Smith says. "Before spending a lot of time and money on tools, companies need to back up and test the vision and rules. The MRP vision is still appropriate, but we need to change the rules, then get the right tools."

To view video in its entirety, click here