Maximizing Return on Investment Using ERP Applications

MRP II COMES TO THE MAINSTREAM

Some years ago, while introducing MRP II principles to a manufacturing organization, I hired a consultant to train a large number of people on MRP principles. One day while walking through the plant, discussing how it was organized and managed, the consultant suddenly grabbed me by the arm and, leading me to the other side of an aisle, explained that he was afraid that I would trip over a “gold nugget” on the floor. All I could see was a work station and a pallet of WIP (work in process) stacked beside it. He asked me what the pallet was doing there, and I indicated that it was waiting for the worker to complete her current job and get started on this next job. It might sit there for a couple of days before it was needed. Looking around the shop floor, we could see piles of material in every direction that were also “waiting to be worked on.” There was nearly a million dollars’ worth of inventory just sitting, mostly because it gave comfort to the workers that their next job was there waiting for them, despite the fact that this structural million dollars of inventory was costing the company somewhere between $100K and $250K (depending on how you calculate cost of inventory) annually, with no tangible benefit. With this relationship between inventory and planning exposed, we looked at the rest of the shop floor and warehouse. We discovered $27M of inventory stranded in one place or another, providing no tangible business benefits (a cost to the organization ...