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CHAPTER 3 The Four Critical Questions Answered 27

In order to get smarter and more agile supply chains, we must take a fundamental-
ly different approach were demand is at the center of planning and not inventory. This is
not just about speeding up what we already have.

QUESTION 2: MRP—FLAWED
APPROACH OR POORLY APPLIED?

Is MRP failing in today’s environment because it is inherently flawed or because it is
poorly implemented?
The case can be made that MRP is both a flawed approach and an approach that has
been poorly applied. MRP has many well-known shortcomings, and it is commonly
implemented and/or supported in an inadequate fashion. Frequently, there are finger-
pointing matches within companies about which is the real problem. The truth is that
both are reality. MRP has critical shortcomings and often is implemented and supported
poorly. Fixing only one issue will not improve the situation dramatically. Thus companies
that “reimplement” MRP do not get the fix they were expecting or leave a lot of possible
benefit on the table without realizing it.
The result of MRP’s shortcomings and/or poor implementation is that companies
have chronic and frequent shortages at various stages of the production, procurement, and
fulfillment cycles. These chronic and frequent shortages tend to lead to three main effects:

1. Unacceptable inventory performance. This is identified as having too much of the
wrong material, too little of the right material, high obsolescence, and/or low
inventory turns. Companies frequently can identify many of these problems at
the same time.
2. Unacceptable service-level performance. Customers continue to put pressure on the
company, which quickly exposes poor on-time delivery, low fill rates, and poor
customer satisfaction. In addition, customers consistently attempt to drive
prices down.
3. High expedite-related expenses and waste. In an attempt to fix the preceding two
unacceptable business results, managers will commit to payment premiums and
additional freight charges or increase overtime to fulfill promises. Typically, this
effect is undermeasured and underappreciated in most companies.
As research for writing this book, we surveyed over 150 companies about their
materials planning systems. While a minority of companies reported all three of these
effects simultaneously to a severe degree, 83 percent of companies reported at least one
of these effects to a severe degree over a period of multiple years. Figure 3-1 presents the
results of the survey.
To address these undesirable effects, the shortcomings inherent in conventional
MRP must be fixed, and the MRP system must be implemented and supported properly.
Only one part of the solution is not sufficient.
MRP is defined as: