Page 36 - Orlicky's Material Requirements Planning

CHAPTER 2 MRP in the Modern World 17

Demand Variability

Demand variability is characterized by fluctuations and deviations experienced in
demand patterns and plans. In many supply chains, demand variability is driven by
MRP system nervousness of major players near the top of the chains (e.g., original
equipment manufacturer [OEM]) because those systems are attempting to make adjust-
ments in materials requirements within the demand time fence. Consequently, suppliers
receive a constantly changing picture of their major customers’ requirements, usually in
weekly buckets.
demand uncertainty: The uncertainty or variability in demand as measured by the
standard deviation, mean absolute deviation (MAD), or variance of forecast errors
[APICS Dictionary (New York: Blackstone, 2008)].

Supply Variability

Supply variability is measured by disruptions in the supply network or deviation from
requested dates and/or promised dates for supply order receipts. It is the reliability (or
lack thereof) of the supply network. Remember, only one part missing can block the
delivery of an end item. A company can have 99.9 percent supply reliability and still have
unacceptable service levels to their customers with huge implications for cash flow. In the
extreme, a 5 cent fastener can block the delivery of a multimillion-dollar assembly.

Normal/Random Operational Variability—“Murphy”
The old adage is that what can go wrong will go wrong. This has become known as
Murphy’s law. A corollary to that law is that Murphy was an optimist. Still another corol-
lary is that the probability that Murphy will strike is directly proportionate to the penal-
ty. W. Edwards Deming called this common-cause variation. This is the normal and random
variation exhibited by a system in steady state. Perfection at every point of the process is
impossible. Even companies embracing the lean approach or using six sigma will
acknowledge that the desired goal of perfection is impossible. Normal or random opera-
tional variability results in a process that may be within calculated control limits statisti-
cally but still varying between those limits.

Self-Imposed Variability

Self-imposed variability is the human element. It is a direct result of decisions made with-
in the company. This form of variability would be considered by Deming to be a type of
special- or assignable-cause variability. Self-imposed variability frequently will take a process
out of statistical control. According to Deming, special-cause variability is the first target
for improvement. Only when the special cause of variation is addressed can the normal
variation of the process be identified. This provides a steady state that is far easier to man-