1. Solving the Planners Nightmare Keith Launchbury: CFPIM, CIRM, CSCP, CDDP

2. My job in 1977

3. In 1980 we implemented MRP on an IBM System 34 It had a 16 bit processor It had 64K of RAM It had one magazine of removable storage Total memory was 27 MB It ran the whole company The MRP run took 7 hours The computer cost $250,000 and needed an air conditioned room!

4. The Business World in 1980 Sellers Market Predictable Sales Stable Demand Limited Competition Limited Product Range Simple Products Long Product Life Cycles Smooth Sailing

5. Customers were prepared to wait 2 weeks to see their photos

6. It’s A Different World in 2016 Fast Paced Buyers Market Dynamic Demand Tough Competition Complex Products Extensive Product Range Shorter Product Life Cycles Global Supply Networks White Water Rafting

7. Customers expect Instant Publication of their photos

8. What is ERP? “A re-titled and re-programmed 1960’s era MRP system purporting to provide complete business system functionality for the whole organization plus it’s customers and suppliers from a single software vendor” This is NOT the APICS Definition, but it is the truth!

9. Is your ERP System Successful? Implementation was simple Everyone got on board right away All our information is perfect It works great Everyone knows how it works ERP is pretty easy It came in on time and under budget Management is very satisfied It has given us a competitive advantage

10. ERP is Not Pretty and Not Easy

11. Definition of ERP Failure “ In short, we consider an ERP implementation to be a failure if one or more of the following occurs:ERP implementation – Takes longer to implement than expected – Costs more than expected – Fails to deliver at least half of the expected business benefits In our most recent study, which is technology- agnostic and one of the most thorough studies conducted in the ERP space, we found that there is a 72% likelihood that one or more of these three things will happen. There is a 31% chance that two or more of these things will occur.” Source: Panorama Consulting 2010 ERP Report

12. ERP is Failware

13. Key Findings of the latest ERP report Companies spend on average 5.9% of Annual Sales Revenue on ERP system implementation More companies (21% up from 16% in 2014) now admit their ERP systems implementation have failed Less companies (69% down from 76% in 2014) would choose the same ERP software vendor if they could do it all again 93% of companies are customizing their ERP systems to some extent 33% of companies are now using SaaS versions of ERP (up from 4% in 2014) but only 56% realized any cost savings Source: Panorama Consulting 2015 ERP Report

14. Financial impact of the most expensive ERP Failures US Navy $1 billion Fox Myers $1 billion HP $160 million Nike $100 million Waste Management $100 million Hershey $100 million

15. Sound Familiar? “Surely, they can’t be that naïve” “They thought they could just “buy” ERP” “They said it would be easy” “Don’t bore me with the details, make it work” “What do you mean, it doesn’t have a daily shipments report?” “ Why are all the planners using Excel?” “Are you kidding me? We spent 6 zillion dollars and it doesn’t do something that simple!”

16. Implementing ERP is a monumental task “ A bit like employing an army of consultants to build a great pyramid out of paper money on a windy day”

17. Problems Today ERP systems are not responsive enough and are not integrated across different entities Supply Chains have evolved into Supply Networks Customers want products and services delivered on demand quickly, cheaply and with no mistakes Global supply lengthens lead times MRP and DRP were not designed for daily rescheduling Regulatory Agencies require complete product traceability across entire supply network Welcome to Excel Hell

19. We have laser-guided planning weapons With faulty targeting systems, so they can cause a lot of damage

20. Today’s Planners Nightmare What event(s) will mess up my plans today?

21. Inventory is out of Control

22. The Worst of Both Worlds Excess Inventory Management doesn’t understand why the inventory is so high We have lots of stuff the customers do not want Shortages Management doesn’t understand why there are shortages We seem to be out of stock of the stuff that the customers want +

23. Top Management asks Why? Because the planning system told us to, based on the following assumptions: 1.The sales forecast was accurate 2.The customers never change their mind 3.The suppliers always deliver in full and on time 4.Production always deliver in full and on time 5.There are no engineering changes 6.Everything we buy and make is perfect 7.Nothing can ever go wrong

24. It must be the Planners’ Fault After all the planner only has to balance Supply and Demand Why is that so difficult?

25. It is NOT an INVENTORY Problem! Inventory doesn’t just happen Inventory is the result of a planning decision to make something or buy something Excess Inventory and Product Shortages are the inevitable consequences of A PLANNING Problem

26. The Planner does not control Demand or Supply DemandSupply Sales Forecasts Actual Orders Production Orders Purchase Orders Source: Keith Launchbury, Principles of Planning, OMERIC, 1999

27. The Planner has to deal with Sales Forecasts that are inaccurate Customers that change their mind Producers that do not deliver on time Defective products and materials Suppliers that do not deliver on time Engineering changes Product obsolescence Supply chain disruptions Schedule changes Management interference

28. 28 Two Universal Points of Inventory Too MuchToo Little AB 0 Optimal Range Warning Note: “Optimal” is from an on-hand perspective

29. 29 The MRP “Bi-Modal” Distribution Too MuchToo LittleOptimal Range # of parts or SKU Warning 0

30. The Effects of the Bi-Modal Distribution Too MuchToo LittleOptimal Range # of parts or SKU Warning Oscillation 0 Three Simultaneous Effects: 1.Persistently High Inventories 2.Chronic and Frequent Shortages 3.High Expedite and Waste Related Expenses “How can we have so much inventory and not be able to ship orders?!” “We paid for fast freight now we don’t need it?!”

31. The Problem is that ERP is based on outdated planning tools MRP was developed in 1964 DRP was developed in 1975 The Business World is completely different today MRP and DRP are still the basis for all ERP systems So planners resort to using Excel spreadsheets to make the system work The planning tools need to be upgraded to meet the realities of today’s business world

32. Sources of Variability Management Variability Supply Variability Demand Variability Operational Variability Organizational Output

33. Say Hello to the Bull-Whip Effect Bull-Whip Effect: “An extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in the supply chain. Inventory can quickly move from being backordered to being excess.” (APICS Dictionary, 12 th Edition) OEM Foundry Component Sub-Assembler

34. A Bullwhip Example

35. Now There is a Change “It is better to be roughly right than precisely wron g”

36. A Change from PredictPosition PushProtect PromotePull

37. Comparison of Planning Methods Traditional Sales and Operations Planning Drives Master Production Scheduling Based on Sales Forecasts Exploded through bills of materials to create material requirements and recommend planned purchase and production orders When orders are placed they become scheduled receipts Subject to rescheduling on a daily basis Hinders flow and creates a high level of wasted inventory Demand Driven Demand is driven from actual customer orders Smart Buffers are established at critical control points in the process These decouple demand and act like firewalls to absorb variability Planners monitor buffer levels on a daily basis using visual colored zones to indicate when actions need to be taken Buffer management improves and promotes product flow and reduces the amount of wasted inventory

38. Putting it All Together Demand Driven Product Flow Management Demand Driven MRP Standard Work (Taylor) Return on Investment (Brown) Lean Theory of Constraints (Goldratt) Six Sigma (Smith) Mass Production (Ford)

39. The First Law of Supply Chain All benefits will be directly related to the speed of FLOW of materials and information. Materials & Information Information Corollary: Materials and Information must be RELEVANT!!!

40. "All Benefits" Encompass: Service is consistent and reliable when a system flows well. Revenue is maximized and protected. Inventories are minimized. Expenses ancillary and/or unnecessary are minimized. Cash flow follows the rate of product flow to market demand. Protect and Promote Flow = ROI Maximization © Demand Driven Institute LLC

41. A Blue Print for Change – Mitigating the Effect of Variability on Flow FLOW 1. Use only ACTUAL DEMAND 2. Establish DECOUPLING POINTS 3.Establish CONTROL POINTS 4. Buffer Both DECOUPLING and CONTROL POINTS 5. Manage with SMART METRICS (c) Demand Driven Institute LLC - all right reserved

42. Demand Driven Material Requirements Planning Strategic Inventory Positioning Buffer Profiles and Levels Dynamic Adjustments Demand Driven Planning Visible and Collaborative Execution 12345 A New Way of Planning & Control

43. Strategic Inventory Positioning Strategically places decoupling points within the product structure and supply chain to absorb variability and compress lead times Where, BEFORE How Much and When!

44. Intermediate product Purchased product Finished product Time Quantity Forecast Intermediate product Purchased product Finished product Kanban Orders are created based on MRP Kanban loop Intermediate product Takt Time or Consumption LeanMRP supermarket Purchased product MPS MRP Safety Stock Intermediate product Purchased product Finished product Intermediate product DDMRP Sales Orders Buffer Production Order Purchased product

45. SMART Buffers Strategic Managed Adaptable Robust Tolerant

46. Summary FLOW Sales Orders Decoupling Points Lead Time Order Minimums Lower Inventory High Service Fundamental Principle Fundamental Planning Changes New Operational Equation Elements and Emphasis Bottom Line Benefits Without Tradeoffs DDMRP Fewer Expedites Buffer Status ROCE ▲

47. Right Sizing the Inventory The Strategic Buffers are designed to Decouple demand Compress Lead Times Reduce the impact of system nervousness Tame the bull whip effect Absorb normal variability – From both sides, supply and demand Enable Product Flow

48. Actual Benefits of DDMRP Achieved 99.7% customer service Reduced raw and pack materials by 18% Compressed lead time by 82% Reduced Finished Goods inventory by 45% Raw materials Reduce the Inventory level 20 % Reduce the load of order management 30% Component Packaging materials Service level (purchasing response rate 60% -> 90%) Imported packing materials : Service level 99% Mountain House Division: Sales increased 20% Fill Rate from 79% to 99.6% 60% reduction in inventory Industrial Ingredient Division: 60% reduction in make to order lead time 100% On-Time-Delivery 20% reduction in inventory Raw Material No out of stock Reduced inventory $2.5M+ Personal Care World Class FMCG Packaged Foods and Industrial Ingredients

49. Actual Results are Impressive

50. Where to Find out More? Books: Online: – www.demanddrivenmrp.com (free downloads and podcasts) www.demanddrivenmrp.com – www.demanddrivenworld.com (free downloads of company presentations from the Demand Driven World Conference) www.demanddrivenworld.com – Official DDMRP LinkedIn group: Earn Your Certified Demand Driven Planner (CDDP) certificate in March in Orlando 50 All material and © copyright Demand Driven Institute 2014, all rights reserved

51. Contact me www.keithlaunchbury.com Email: keithlaunchbury@gmail.comkeithlaunchbury@gmail.com Phone: (954) 303 1022 Find me on LinkedIn