Page 78 - Orlicky's Material Requirements Planning

CHAPTER 4 Inventory in a Manufacturing Environment 59

When MRP was introduced, revolutionary changes occurred, and new premises
were established. Orthodox practices and techniques were challenged. The existing inven-
tory control literature, indeed an entire school of thought, had to be reexamined. It became
evident that the basic tenet of old inventory control theory—that low inventory invest-
ment and high customer service were incompatible—was mistaken; successful users of
MRP programs reduced inventories and improved delivery service at the same time.
Notwithstanding the difficulties experienced by many companies at tempting to
implement MRP-based planning, MRP has been the most successful innovation in man-
ufacturing inventory management. It has demonstrated conclusively its operational
superiority over alternatives in many companies in many industries in many countries.
In addition, it has provided students of inventory management with new insights into
manufacturing planning and control. MRP shows the true interrelation ships among
activities affecting inventories and reveals the fallacies of previous concepts, pinpointing
the causes of the inadequacies of the older meth ods. The principles on which MRP sys-
tems are based are the subject of Chapter 5.

THE PARADOX OF INVENTORY MANAGEMENT
A remarkable truth about inventory management is that if you cannot match inputs to
and outputs from an inventory, you will never control it. The better you can match inputs
and outputs, the less need there is for any inventory.
Inputs to inventory are receipts of purchased materials from suppliers and com-
pleted production of parts, subassemblies, and assemblies. Out puts are deliveries to cus-
tomers, external and internal, issues of manufacturing processes, and scrap.
People concerned with inventory and its management include top-level managers
and people in sales and marketing, purchasing, materials planning and control, and pro-
duction activities and cost accountants. Until very recently, most of these people were
involved with outputs or inputs separately or thought of them individually, not recog-
nizing their interactions. They believed that they were victims of the environment.
Many believed that Murphy’s law—“What can go wrong will go wrong at the least
opportune time”—was written specifically about production. Problems abounded.
Customers changed their minds about what they wanted, how many, and when they
wanted them. Designs were faulty and changed frequently. Suppliers were late and often
delivered defective materials. Machinery and tooling broke down. People were absent
and made defective things when they worked. The consensus was that these problems
were unsolv able.
This has now been proven false. Most of these problems can be solved and elimi-
nated. Those which cannot be eliminated can be minimized. There is now little excuse for
the “surprises” blamed on manufacturing problems in the past.
A major objective of this book update is to show the important role MRP can play in
helping to achieve a better balance between demand and supply. The paradox stated ear-
lier has made it clear how we should answer the question, “How much inventory is