White Paper Cloud Strategy for Improving Legacy MRP & Supply Chain Processes
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1 White Paper Cloud Strategy for Improving Legacy MRP & Supply Chain Processes
2 Abstract: A fundamental change is taking place in the nature and application of supply chain technologies, a change with profound and far-reaching implications for manufacturing companies and their supply chain partners....new web-based planning, collaboration and execution tools can drive dramatic and rapid changes in decades old MRP and ERP forecast execution processes... This white paper describes how cloud-based Supply Chain Execution (SCE) solutions are creating a paradigm-shift in supply chain thinking. It shows how new web-based planning, collaboration and execution tools can drive dramatic and rapid changes in decades old MRP and ERP forecast execution processes and systems, while simultaneously enabling pull across extended enterprise value chains. Challenges with MRP Forecast Improvement Initiatives S upply chain improvement projects rank among the top initiatives for corporations year-after-year. A well-managed supply chain will make measureable contributions to the bottom-line performance of a business. Conversely, a poorly managed supply chain can, and often does, result in a negative impact through higher costs and poorer delivery performance. So why do so many supply chain improvement initiatives fail to deliver real value? One reason is many initiatives are focused on the panacea improving MRP forecast accuracy. Solving MRP forecast accuracy is one of the most complex improvement initiatives a supply chain organization can undertake. To begin with, the MRP forecast planning process is highly cross-functional. Page 2
3 In addition, associated MRP and ERP IT systems are data intensive, and require a high level of data integrity and end-user discipline. And finally, for an MRP forecast to be an accurate, it requires a timely and stable sales forecast; a deliverable that is nearly impossible to achieve in today s uncertain economic environment. To understand the complexities of the MRP forecast planning process one must have a basic understanding of the primary inputs to the development of an MRP plan: Primary Inputs to an MRP Plan Like any cross-functional process with multiple inputs and expansive data requirements, (with MRP) the likelihood of errors occurring from missing or incorrect data increases exponentially. Master Production Schedule (MPS) merges forecasts and production capacity Bill Of Material (BOM) must be accurate and up-todate as the BOM defines components needed to produce one finished product in terms of part numbers Inventory Records - must be accurate, as MRP uses this information as the basis of its calculations Order Status must have visibility to firm orders and scheduled receipts to distinguish those orders that have actually been released to suppliers Planned Lead Times must be accurate, as MRP uses this information to calculate when released orders will be received Each of the aforementioned inputs is the by-product of series of complex business processes; processes that must be properly coordinated and executed to produce an accurate plan. Like any cross-functional process with multiple inputs and expansive data requirements, the likelihood of errors occurring from missing or incorrect data increases exponentially. As data flows through Demand Planning and Supply Planning processes down to the MRP plan, missing or incorrect data negatively impacts the overall accuracy of the plan. Page 3
4 A simple Rolled Throughput Yield analysis (see Figure 1) best depicts the impact of data loss on MRP plan accuracy. With all of the complex inputs and data Most organizations rely on Excel to massage MRP plans and , phone and fax to communicate and manage MRP orders. Figure 1 requirements, it should come as no surprise that the final deliverable is, more often than not, an inaccurate MRP plan. But the problems do not end there. Challenges with MRP Plan Execution Once an MRP plan is finalized, supply chain organizations must communicate material demands to their supply chain partners. In most organizations, this is achieved by exporting the plan to Microsoft Excel where further massaging is performed by planners to account for unscheduled production down-time, supply chain and supplier disruptions, hot orders, etc. Planners then attach the Excel-based plan to messages and send it to supply chain partners. More sophisticated organizations post the plan to a supplier portal and send notifications to their supply chain partners that the plan is available. Page 4
5 Suppliers are then faced with the difficult and time consuming task of reviewing and interpreting the plan, identifying changes from the previous plan, reviewing their production capabilities and then acknowledging back to their customer acceptance or rejection of the plan. What follows is a series of telephone conversations, s and faxes addressing supplier questions, concerns, reschedule requests and confirmations. SCE solutions add an entirely new set of capabilities to supply chain organizations; capabilities that transform the way planners, buyers and suppliers collaborate, execute and measure supply chain performance. This open-loop process and the reliance on , phone and fax as the primary means of communication invariably leads to multiple process breakdowns, miscommunications and poor performance. It also adds unnecessary time, cost and aggravation to the process due to its high non-value add component. So where should supply chain and IT decision makers turn when tasked by corporate executives to improve supply chain performance? The answer can be found in today s cloud-based Supply Chain Execution (SCE) solutions. Cloud Strategy for Improving Legacy MRP & Supply Chain Processes Cloud-based Supply Chain Execution (SCE) solutions can dramatically improve MRP forecast execution by addressing well known functionality gaps in MRP and ERP systems. SCE solutions also add an entirely new set of capabilities to supply chain organizations; capabilities that transform the way planners, buyers and suppliers collaborate, execute and measure supply chain processes. The following provides an overview of six transformational, high-value supply chain improvements that are enabled by cloud-based SCE solutions. Page 5
6 These improvements can be deployed in a few as 90 days and routinely produce a 4 10X Return-On- Investment (ROI) within the first year of operation. Six Transformational Capabilities Delivered by Cloud-based Supply Chain Execution Solutions 1. SCE solutions can be tightly integrated with MRP and ERP systems and then rapidly deployed across extended enterprise value chains. Benefits include: Leveraging investments made in MRP and ERP systems, thereby extending their useful life. Reduced labor costs through the automation and streamlining of manual MRP and ERP Improved supply chain execution through the application of workflow, business rules and alerting to materials management processes. Higher up-time and reduced reliance on IT for support through the use of MRP/ERP and SCE Integration Panel that alert business users and provide self-help tools to correct problems when interface points are in a pending or fail status. Page 6
7 2. SCE solutions enable the rapid and systematic transition from reactive to proactive materials management practices through the application of advanced decision support tools. Benefits include: Reduction in stock-outs through the use of a predictive Inventory Health Dashboard that constantly monitors inventory status and automatically alerts buyers when items are at risk of stocking-out. Improved buyer and supplier collaboration and execution through a web-based Order Tracking dashboard that provides real-time updates on the status of orders waiting for buyer approval, not yet acknowledged by suppliers, past due for shipping and past due for receipt. Improved planner and supplier collaboration and execution through an MRP Forecasts & Planned Orders dashboard that provides real-time updates on the status of past due MRP orders, orders due in the next 7 days and future orders. Improved planner and supplier collaboration and execution through an MRP Recommendations dashboard that provides recommendations on deferred orders, expedited orders and cancelled orders. Improved supplier visibility to forecast demand with supporting trend analysis and filters to change forecast planning horizon Increased responsiveness and improved reaction times by planners, buyers and suppliers enabled by automated alerts (both web and -based) based on predefined business rules. Configurable My Routines dashboard supports the creation of Standard Operating Procedures (SOP) for daily processes and monthly performance reporting. Page 7
8 Improved buyer decision making through the use of a Buyer Status dashboard showing the real-time status of on-hand inventory, orders released, orders in-process, orders at ship hub, orders in-transit, VMI inventory, items at receiving dock and items awaiting put-away. 3. SCE solutions provide inventory modeling and analysis tools that help identify candidate items for transition from MRP forecast to Lean pull-based replenishment. Benefits include: Lead Time, Safety Stock, Lot Size, and Standard Deviation algorithms can be changed to perform what if analysis. On-demand inventory performance modeling and analysis tools that analyze historical consumption and replenishment patterns by item number and then graphically display analysis results. Improved decisions by materials managers on proposed inventory changes through the application of analytical tools that assess and report on the operational and financial impact of transitioning the items from push to pull. Page 8
9 4. SCE solutions include ekanban sizing and execution tools that help material managers manage the transition of items from MRP forecast push to pull-based replenishment. Benefits include: Automated calculation of ekanban loop size, initial set up through distribution of on-hand and on-order ekanban cards and right sizing the overall inventory. Improved buyer and supplier visibility and management of ekanban items through the use of an ekanban Status dashboard depicting the current status of every ekanban order. 5. SCE solutions provide fully integrated barcode support. Benefits include: Reduced labor and improved process execution and data accuracy through the use of barcode technologies deployed in support of standard material replenishment process. Item and supplier standardization through the application of standard barcode labels enabled by built-in barcode label creation tool and integrated barcode print drivers for 1D, 2D, RFID labels. Rapid deployment through the support of multiple barcode scanner technologies. Page 9
10 6. SCE solutions provide a wide range of Continuous Improvement metrics and reports. Examples include: Lead & Transit Time Validation report comparing planned values vs. actual performance with recommendations. Supplier Scorecard report depicting supplier accept, ship, receive, ship quantity and receive quantity performance. Supplier On-time Shipment report showing supplier performance month-by-month. Inventory Savings Analysis by Time report comparing beginning inventory value and turns to current-state value and turns with percent improvement and cost savings. Supplier Consolidated Spend report showing the total spend with a specific supplier over multiple sites regardless or MRP or ERP system. Page 10
11 Each of the aforementioned supply chain improvements has one thing in common; they re all enabled through the application of cloud-based Supply Chain Execution (SCE) solutions. This is achieved by leveraging the inherent strengths of closed-loop material replenishment processes that are transacted through a web-based portal residing in a private cloud environment. Conclusion Supply Chain Execution (SCE) solutions add an entirely new dimension to supply chain organizations by dramatically improving decision making, collaboration and execution of industry standard supply chain processes. The ability of planners, buyers and suppliers to access real-time information on the status of all orders regardless of replenishment methodology coupled with web-based collaboration and execution tools enables the rapid transition from reactionary to proactive management processes and improved decision making. SCE solutions also have a dramatic impact on productivity by eliminating the non-value-added activities found in traditional MRP and ERP-based material replenishment processes. The reliance on , phone and fax as the primary means for communicating with supply chain partners is completely eliminated. Finally, a complete SCE software solution will include modeling and analysis tools that help identify and transition candidate items from MRP forecast (push) to Lean Manufacturing (pull) material replenishment. Page 11
12 White Paper Cloud Strategy for Improving Legacy MRP and Supply Chain Processes The end result is greatly improved collaboration with your supply chain partners and measureable improvements in the performance of your supply chain. Ultriva s cloud-based SCE solutions support all of the capabilities outlined in this white paper. In addition, Ultriva has a demonstrated track-record of success at implementing these high-value improvements in as few as days. And with a sub one-year 4 10X ROI common, Ultriva cloud-based SCE solutions represent one of the best investments a corporation can make in their supply chain. About Ultriva Learn more at Founded in 1999, Ultriva provides lean Supply Chain applications to help companies control demand and supply. Ultriva s Collaborative Supply Portal, Lean Factory Management and Collaborative Demand Portal are deployed in over 150 plants in manufacturing companies around the world including Trane, Emerson, Brunswick, Ingersoll Rand, Dresser, Magellan Aerospace, ATK, AGCO, A.O. Smith and Regal Beloit. ULTRIVA, INC S. De Anza Blvd. Suite 260 Cupertino, CA Phone: ultrivasales@ultriva.com Page 12
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