Dec 17, 2017
The Problem: ERP Supplier Portal Designed Around MRP Forecast Management
The Solution: Demand Driven Enterprise-wide Supply Chain Solutions by
Over the past decade there has been a great need for better technology solutions to address
global demand-driven and enterprise-wide supply chains. While lean manufacturing initiatives
have instigated certain processes, such as Kanban, the reality for global manufacturers is
simple: ERP (enterprise resource planning) solutions (from NetSuite to Oracle to SAP and
others) have failed to deliver the promises needed. ERP is a critical and important aspect of any
manufacturing firm; it is not a panacea. Over the next few months we are going to explore some
of the reasons why ERP-based supplier portal solutions struggle to provide the tools required by
manufacturers to visualize, collaborate, execute and manage extended enterprise value chains.
The goal of this conversation is to address the realities, limitations, and efficacy of technology
solutions that work cohesively for global manufacturing firms operating in today?s intensively
competitive and constantly changing global marketplace.
Singular Reliance on S&OP and MRP Forecasts Proves a Big Mistake
One reason so many manufacturing companies are dissatisfied with ERP systems is their
singular reliance on Sales and Operations Planning (S&OP) and Material Requirements
Planning (MRP) processes as the primary inputs to their production capacity and supply chain
forecast plans. Inaccurate sales forecasts, delays in new product introductions, outdated BOMs,
changing customer demand patterns, lack of real-time visibility into supplier performance, and
production schedule adjustments are just a few of the items that can and do change S&OP and
MRP data. A simple rolled throughput yield analysis of some of the key inputs to the S&OP &
MRP process paints a very troubling picture:
Even with world-class S&OP and MRP processes, the accuracy of the output will still be in the
60% to 80% range.
The Problem with MRP Push
ERP systems were designed from the ground-up around MRP forecasting; ERP fails to provide
resource flows that are controlled and based upon true customer demand. Raw materials and
components usage at manufacturing facilities drive replenishment to the upstream supply chain.
ERP generated MRP runs are frequently wrong because finished goods inventory planning is
driven by historical sales performance and future-based sales forecasts rather than actual
customer consumption and inventory holding patterns. Faulty sales forecasts erroneously drive
raw material and component planning, creating costly errors.
With each MRP run, material planners, buyers and suppliers are tasked with reviewing every
line item to identify changes in gross requirements and planned/firm order commitments. These
changes produce an endless stream of deferred, cancelled and expedited orders. This constant
push, pull and cancellation of orders leads to a bull-whip effect on suppliers that results in short
shipments, late shipments and stock outs.
ERP embeds this inherently flawed approach despite the best efforts of users to improve
customer satisfaction levels through better forecasting, increased inventory levels and optimized
production. These best efforts are frequently disappointing and drive a management requirement to eliminate waste. More than 80 percent of global manufacturing companies carry
large amounts of inventory to meet customers? changing demands, often based on inaccurate
forecasts. Constantly fluctuating customer demand causes operational instability and increased
costs due to expediting, equipment setup and employee overtime.
Balancing MRP Push with Lean Pull
Gartner Research analysis recommends manufacturing companies engage with customers and
suppliers to establish a pull process from Finished Goods to Raw Materials. Gartner defines
End to End (E2E) Pull replenishment as a paradigm shift away from improving forecasts and
algorithms to a manufacturing pull system.
Pull-based supplier portal solutions, when integrated with ERP systems, close a critical gap by
providing 24X7 visibility into extended enterprise value chains along with near real-time
consumption signaling. This combination provides the demand sensing that organizations need
to better synchronize manufacturing and supply chain operations.
There are always inventory items with erratic consumption patterns just as there are always
inventory items with stable consumption patterns. By identifying the latter and converting them
to pull-based replenishment via the e-Kanban capabilities in pull-based supplier portal solutions,
material planners, buyers and suppliers benefit from the automated release of Kanban orders
based on actual consumption. This frees-up critical resource time to focus on the managing and
responding to the inevitable changes that will occur with MRP forecast items.
By integrating pull-based supplier portal solutions with ERP systems, manufacturers can fully
engage with customers, distribution centers, and their supply chain partners. Manufacturers
gain visibility into and control over downstream demand. Manufacturers quickly sense the
changes in demand and adjust production schedules to minimize redundant finished goods
inventory. Basing production on real demand and moving suppliers from forecast to
consumption-driven replenishment delivers multiple benefits.
Frank Kapper, General Manager Upland Ultriva is an accomplished software industry and business executive with over 30 years
of progressive experience leading successful enterprise-level Information Technology (IT) and
Operational Excellence initiatives across a diverse set of aviation and manufacturing industries
including aerospace and defense, automotive, commercial airlines, industrial and diversified,
electronics, and medical devices......
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