Missing Link Keeps Priorities in Line

Sometimes buying software can be a courageous decision — especially when it's not a well-known and proven application choice like ERP, CRM or warehouse management; when the supplier is not a household name; and when the whole idea behind the software is new and not familiar to the others within your organization. But the so-called early adopters who take that leap of faith can often be rewarded beyond their greatest hopes and expectations.

Geoff Bartenhagen, production and inventory control manager at Link-Belt Construction Equipment Company in Lexington, KY, was in just that position when he decided to take the plunge with Reality-Based Priority Management (RPM) as engendered in a product called On-Time Orders (OTTO.) “I was nervous when we first made the purchase,” Bartenhagen admits, “I could see the value of OTTO but I was afraid nobody else would.” So he turned it over to Gary Hawk for implementation. “Gary is what I call the company curmudgeon,” Bartenhagen reports with a smile. “If he liked it, everyone would.” Bartenhagen knew that his people were not afraid to tell them what they thought, especially Gary Hawk. But he had to get them to give the software a fair chance to prove its worth. “That was the hard part.”

Unfortunately, just as the OTTO implementation project was getting underway, the market for construction equipment went South. “OTTO really turned out to be a blessing,” Bartenhagen reports. “It allowed us to track everything to the machine it would end up on. That was a great help. Now we had priority lists that told us exactly what we had to do based on the latest and greatest information.”

OTTO is quite benign as enhancement software goes. It does not modify the company's existing MRP/ERP system or interfere with its normal operation, so in that aspect the risk was minimal. It also helped that the vendor offered a 30-day free trial to allow the company to see OTTO in action with their own data. Using an unknown tool in the actual management of the business however is certainly a leap of faith.

It turned out that OTTO proved itself almost right away. After only a few days of orientation — getting used to the reports and getting comfortable with using the inquiries — Link-Belt began to see a difference. “The shortages and problems we were having went away,” says Bartenhagen.

The developers of OTTO recognized a common problem with MRP and ERP: these systems are all 'item' oriented. They do a fine job of laying out a plan to assure availability of all the materials and components needed to meet the schedule, but they provide very little information that would help the shop supervisors and the procurement specialists deal with short-term, day-to-day challenges – the execution side of the equation.

OTTO extracts data from the MRP/ERP files into a separate workspace (data warehouse) so the source system doesn't even need to include MRP planning, in fact; OTTO can work from customer order, inventory, purchasing and work order information. OTTO essentially duplicates the planning process but with a significant twist — the source of demand stays with each requirement. In that way, there's a direct link from each and every material and component requirement to the customer order or specific product where it will end up.

OTTO reports and inquiries are customer order and end-item focused providing direct visibility of the need for each item. Perhaps MRP has recommended you make 500 of a given component (let's call it A) today. There are also planned orders for 1000 of another component (B) and 300 of a third (C.) How will you know which one to do first? In standard MRP, you can 'peg' through the bill of materials, matching dates and quantities until you reach the end item and then match the date and quantities to customer orders. Lot sizing greatly complicates this process.

OTTO will tell you immediately that 200 of item A are needed to complete a customer order scheduled to ship in two days, 150 are needed for an order going out next week, and 150 are the result of lot sizing and will go into stock. You can compare these demands to the need for items B and C and quickly sequence them to meet short-term shipping requirements. You might also decide, if you have a capacity problem, to reduce the production quantity to 200 or 350 since there is no immediate need for the extra 150 of item A.

OTTO eliminates the need to 'peg', gives clear visibility to what is needed when, and lets plant and purchasing people manage day-to-day activity to improve on-time shipment performance and reduce expediting and disruption. It also works the other way around. When a customer calls and asks when his order will ship, OTTO will show the status of all purchase orders, work orders, and inventories needed to complete the order — whether it is a complex machine with thousands of parts and hundreds of work orders, or a complex order for many different items. OTTO reports and inquiries go from bottom to top — or top to bottom — through all levels of bills-of-material.

Link-Belt's products are complex. A typical construction crane might have thousands of parts within an 8-level bill. They're also highly configured so each machine is probably unlike any other being produced. Link-Belt currently produces about 300 machines per year, but in better times pumped out two to three times that many. Now, with fewer people, it is particularly important to be able to manage priorities and apply resources where they are needed to meet customer ship dates.

“In this market we build to stock then modify the machine when we get the customer's actual requirements,” Bartenhagen says. “Priorities change daily so it's important to manage the priorities instead of having someone here in the office constantly expediting.”

“We don't want to run MRP every day,” he adds, “that would just introduce nervousness.” With frequent MRP generations, all plans and priorities are likely to change and the flood of recommendations would be unmanageable. Link-Belt runs MRP once per week and relies on OTTO to track the constantly shifting priorities day-to-day.