Dealing with Emperor’s new clothes

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From MRP1 II to Advanced production schedulers

“The Emperor’s New Clothes” is a short tale by Hans Christian Andersen about two weavers who promise an Emperor a new suit of clothes that are invisible to those unfit for their positions, stupid, or incompetent. The Emperor cannot see the cloth himself, but pretends that he can for fear of appearing unfit for his position or stupid; his ministers do the same. When the Emperor parades before his subjects in his new clothes, the subjects also play along till a child cries out, “But he isn’t wearing anything at all!”. The Emperor cringes, suspecting the assertion is true, but holds himself up proudly and continues the procession2.

@Wikipedia, 2011

History of Manufacturing Management: A case of emperor’s new clothes?

If we look into the history of manufacturing management, it is rather perplexing how the entire industry has learnt to live with seemingly contradictory facts without confronting it for decades. The market of MRP II or its extended version, the ERP solutions, grew up to more than a few billion US dollars across the globe. But at the same time, there were overwhelming numbers of stories of companies not getting the desired results from the initiative and in many cases, experienced a deterioration of performance.

The solution, when invented, offered a compelling logic of how it can help organizations reduce inventory, improve delivery performance and reduce product costs. With a feasible master production schedule, along with a clean bill of material, routing and inventory data, one can easily compute using available processing power and determine the time phased schedules for every work centre using lead time data. If every work centre follows exactly the planned schedule, not only can one control the inventory but also ensure on–time delivery performance.

How is that a solution, so simple and seemingly powerful not delivered the promised results? There are many cases where organizations bought the software but never really used it to manage their shop floor. If this is the widespread case, how did the market grow up to such a huge size? Is it a case of emperor’s new clothes?

To unravel this mystery, we need to understand how a solution becomes popular. A solution becomes very popular when opinion leaders, industry associations and consultants promote it in a big way in the industry. MRPII and ERP were widely promoted by the thought leaders and industry associations in the 80s and the early 90s. If we have to analyze how some solutions retain the popularity despite the wide spread “failure” stories, we have to check how opinion leaders have analyzed and explained the “failures”. The analysis of the various articles trying to explain the MRP II fiasco shows two types of explanations. One dominant school of thought tries to put the blame on the obstacles to the implementation like lack of top management commitment, difficulty in maintaining data integrity, lack of trained manpower etc. When obstacles are widely presented as a reason of failure, it always makes sense for another organization to give it a try, particularly when the solution looks like the lone saviour. Throughout the 90s, the obstacles were presented as the reason for failure and new organizations kept on trying. The market expanded year on year across the world.

Towards the late 90s, the dominant opinion against MRPII challenged the basic validity of the solution. Articles started appearing which questioned the very essence of the solution. The foremost argument against MRPII system is that it assumes infinite capacity. The so called “closed loop” check of capacity for a given master production schedule, actually never provided an answer which was optimal on either capacity utilization or due date commitment. Some experts dismissed the solution as heuristics which depends heavily on the intelligence of the scheduler. Now the problem looked like a puzzle of mathematics which can be solved by having the right algorithm – this gave rise to a new solution: Advanced production scheduling and optimization. These solutions are supposed to provide the optimal solution given the seemingly conflicting needs of meeting due dates and ensuring capacity utilization without overloads. The problem which was categorized as a “visibility” issue now became a mathematical problem. These complex solutions allow us to commit dates after considerations of finite capacity of many constraining resources. At the same time these solutions claim to have “combined” planning and execution, a gap in MRPII solutions. While it is almost practically impossible to frequently reschedule in an MRPII system, most advanced planning and scheduling software have an ability to generate reschedules without much hassle. The new solution was more “flexible” than the “rigid” MRP II solutions. The planning and execution is “combined” as the uncertainties experienced in execution can be incorporated to create a fresh plan. Since the market for ERP is almost maturing and new license sales nearly stagnating, the new solution is being widely promoted by the IT and management consulting industry. However, due to the high cost of the solution, the adoption is not as widespread as was seen in the case of MRPII and ERP waves. However many companies, particularly the large ones are evaluating the options. It is important to evaluate if this is also a case of another set of “emperor’s new clothes”.

Deciphering the latest emperor’s clothes: The advanced planning and optimization solutions

Configuring the current mess: Fire fighting is almost a norm for most shop floors. In an environment of frequent fire fighting, the constraints keep on shifting across work centres. The intuition of most managers about the “constraint” work centre is usually flawed as they end up assuming that they have an environment of multiple constraints. The same intuition is used for configuration of products and consultants involved proudly do so as the software claim to fame is handling multiple constraints. Once the software is trying to “optimize” multiple resource constraints, there is no way one can reduce inventory of the shop. On the contrary the inventory is bound to go up, if every reschedule focuses on optimizing multiple constraints.

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