At the parent item level, MRP understands two types of lead times-neither of which are realistic for most environments. The first is a fixed lead time called manufacturing lead time, which according to the APICS Dictionary (Blackstone, 2008, 78) is "the total time required to manufacture an item, exclusive of lower level purchasing lead time." ( APICS 2008, used by permission, all rights reserved.) This is the most commonly used lead time definition in most MRP implementations. Believing the assumption that all parts will be available at the time of order release, however, is like sticking your head in the sand. Many MRP systems recognize another type of lead time called cumulative lead time. Cumulative lead time in the APICS Dictionary (Blackstone, 2008, 30) is "the longest planned length of time to accomplish the activity in question. It is found by reviewing the lead time for each bill of material path below the item; whichever path adds up to the greatest amount of time defines cumulative lead time." ( APICS 2008, used by permission, all rights reserved.) It is found by reviewing the lead time for each BOM path below the item; whichever path adds up to the greatest amount of time defines cumulative lead time. Most planners understand that the longer the cumulative lead time for the part, the more risk there is for disruption and volatility during that time or that the customer tolerance time will not allow for this lead time (analyzing these risks and breaking up the cumulative lead time is a key aspect of ASR's Strategic Inventory Positioning solution element). With this cursory recognition, companies often hold intermediate or subassembly stock and stock on long lead time purchased items. These stock positions protect and compress lead times for end items. Simply put, this means that the realistic lead time for a manufactured part is neither the manufacturing lead time nor the cumulative lead time. In fact, the realistic lead time is determined by and defined as the longest cumulative unprotected leg in the BOM. This is called the ASR lead time. An illustration of the ASR lead time concept is shown in Fig. 12-9. The first section of the figure represents the BOM for a part called "20Z1." Beside each unique part is a number that represents the manufacturing lead time of that part in days. As you can see, the manufacturing lead time for part 20Z1 is four days. The cumulative lead time path of 31 days is depicted in the second section of the figure as a bold line. The third section of the figure shows that when part 501P is buffered (depicted as grayed out) it shifts the longest unprotected sequence in the BOM to the bold marked path. The ASR lead time of 20Z1 is now 24 days, with the longest child contribution to lead time coming from 408P. Now, the fourth section of the figure shows that when we buffer 408P it shifts the ASR lead time to the other side of the BOM and is 21 days. The final section of the figure shows that this company chose to buffer the subcomponent 302. The ASR lead time for 20Z1 is now 11 days and the ASR lead time for part 302 is 17 days.

FIGURE 12-9 The ASR lead time concept.

TABLE 12-3 ASR Planning Visibility

Highly Visible Priority

All ASR buffered parts are managed using highly visible zone indicators including the percentage of the depletion of the buffer (frequently called buffer penetration). This is a far simpler and faster approach than to have to sift through the planning queue checking all available stock equations to determine real priority. Table 12-3 shows an example of ASR planning visibility. Again, the buffer status in ASR planning relates to the available stock position. The recommended order quantity will be the quantity to bring the available stock position to the top of the green (which is the top of the buffer).

Qualified Order Spike Protection

Most MRP systems force planners into a choice-bring in all known future demand or bring in none of it. The demand forecast consumption rules are some of the most complex areas to understand in even the most rudimentary MRP system. The big question is how to handle the overage or under consumption against the expected quantities. When MRP was planned in weekly time buckets, the choices were a bit easier, but now with MRP planning in daily quantities, the forecast error can be almost impossible to identify and respond to in a timely fashion. The demand time fence will not allow the planner to realize that a qualified order in the planning horizon is looming and will cause enormous disruption to the plan once the order matures and crosses the demand time fence. In ASR, the buffer profiles and stratifications combined with the concept of ASR lead time allow qualified order spike protection over a realistic compensation time horizon. Thus, an order spike threshold is applied out over the ASR lead time to qualify sales orders that, according to the buffer profile, are spikes and will jeopardize the integrity of the buffer. This allows Planners to compensate effectively for known upcoming spikes in demand.

Realistic Lead Time Visibility

All orders are assigned due dates using ASR lead times. In an MTO environment, it is important to have ASR lead times visible because it can help focus any necessary expedite efforts and be used to make promises that are more realistic to customers. In make-to-stock (MTS) environments, ASR lead times are crucial because this is a more realistic parameter to help determine stocking levels as well as generate alert signals in execution.

In Table 12-4 is a point-by-point comparison of the typical MRP implementation attributes that we detailed earlier versus applicable ASR attributes.

5. Highly Visible and Collaborative Execution

Simply launching purchase orders (POs) and manufacturing orders (MOs) from an ASR system's more effective pull-based planning mechanism does not end the materials management challenge. These POs and MOs have to be managed effectively to synchronize with the changes that often occur within the "execution horizon." The execution horizon is the time from which a PO or MO is opened until it is closed in the system of record.

TABLE 12-4 MRP versus ASR Attributes ERP and MRP systems share the same "P" for planning. These are planning systems and not execution systems. Most ERP and MRP systems lack real visibility to the actual priorities associated with the entire queue of POs, transfer orders (TOs), and MOs throughout the manufacturing operation and supply chain. Without this visibility, the supply chain (Suppliers, Manufacturing, Fulfillment, and Customers) employs the usual default mechanism of priority by due date.

Priority by due date often does not convey the real day-to-day inventory and materials priorities. Priorities are not static; they change as variability and volatility occur within the active life span of POs and MOs-the time from when they are opened until they are closed. Once again, this life span is called the "execution horizon." Customers change their orders, quality challenges come up, there can be weather or customs-related obstacles, engineering changes happen, and suppliers' capacity and reliability can temporarily fluctuate. The longer the execution horizon, the more volatile the changes are to priority and the more susceptible a company is to adverse material synchronization issues.

Ask yourself the following questions: How does the manufacturing floor really know the relative priorities of stock orders?

Does your operation ever have MOs to replenish stock that have the same due date (either a discreet date or "due now")? How does the manufacturing floor decide what the priority is?

Do you ever have MOs to replenish stock orders that have different due dates? Is it conceivable that despite an MO being due later, it is actually a higher priority based on certain events that have happened during the execution horizon? Have you ever built inventory in a rush only to find it sitting there for weeks while another MO could have averted a shortage if only you knew?

How does the supplier know how to align its capacity to your priorities?

Do you ever have several open POs to a supplier all with the same due date? If yes, how do they know which is the most important to apply efforts to? If they call, can your Planner communicate the correct priority without having to research and peg or search for the source of various parts requirements up through the levels of the bills of materials. This is like searching through a spaghetti string mess.

Do you ever have several open POs to a supplier with different due dates? Is it conceivable that despite a PO being due later, it is actually a higher priority, once again, due to changes that have occurred within the execution horizon? Have you ever paid for overnight charges only to find dust on that box months later?

Any sort of visibility to or a specific answer about the real-time priority of stock orders often necessitates a manual workaround or subsystem, which requires massive daily efforts of analysis and adjustments.

ASR Alerts

ASR provides real visibility of priority using a system of various types of alerts including: Current Inventory Alerts are for parts that are currently stocked out or in trouble. Is there demand for these parts or is the part just stocked out? There is a difference in priority between parts that are stocked out with demand versus those that are stocked out without demand.

Projected Stockout Alerts are for parts where projected consumption may result in a stockout prior to receipt of incoming supply orders. This is a radar screen that alerts materials and planning personnel to anticipated projected on-hand red zone penetrations over the ASR lead time of the part based on average daily usage and open supplies. If a company manages its Projected Stockout Alerts well, it will reduce the number of Current Inventory Alerts.

Material Synchronization Alerts are for situations when any parts' demand and supply dates are out of synchronization. A part can have demand against it generated by a sales order or work order for a parent item. If the open supply promise date for this part is after the due date for the demand, then there is a potential negative available stock position. This means that demand and supply are not synchronized. This situation can occur when the demand moves in earlier than the open supply promise date or the open supply promise date moved out in time. Typically, this will drive either expediting action on the child component or the rescheduling of the parent item.

Lead Time Alerts are used to prompt personnel to check up on the status of critical non-stocked parts before these parts become an issue (see the section titled "Lead Time Managed Components").

Visible Buffer Status

ASR allows actual order priorities (POs, TOs, or MOs) to be conveyed effectively without additional efforts, disconnected subsystems, or other workarounds. Color-coding gives an easy to understand general reference. The percentage of buffer remaining gives a specific discrete reference. These references convey the actual priority regardless of due date. Figure 12-10 shows examples of buffer displays for geographically distributed (by location), manufactured, and purchased items. Note how the due date may not correspond with actual priority (WO 819-87). Additionally, observe on the Purchased Items display how easy it is to identify priority when things are due on the same date.

Lead Time Managed Components

Many critical components simply do not make sense to stock due to their relatively low volume. Ask most seasoned materials managers in major manufacturers and they can immediately recite a list of these types of components. These long lead time components can be very difficult to manage especially if they are sourced from a remote supplier. Without an effective way to manage these parts, we risk major synchronization problems, costly expediting, and poor service level performance. In ERP/MRP systems there is very little done about the management of these parts. They are managed by due date with no formal system of visibility and proactive management to reflect real priorities. The assumption remains as it did when MRP was first developed that all the parts will be available at the time of the order that needs them being released. Only when those parts are missing do personnel become aware of it and then expediting begins. The problem is only identified when the part is late. Orders using that part are released short those parts, causing possible rework on the shop floor and increasing work in process. Alternatively, some companies will begin to pull parts ahead of time to identify this kind of shortage. This process results in a storehouse of partially filled kits and a manual system to track the missing parts.

FIGURE 12-10 ASR buffer displays for geographically distributed items.

ASR gives special status and visibility to these parts. These lead time managed components are tracked and at a defined point in the part's lead time, buyers are prompted for follow-up. If satisfactory resolution is not achieved, the visible warning or alert continues to rise in priority. Resolution could be either the assignment of a follow-up date (temporary resolution) or the assignment of a final confirmed date and decision (could be sooner, on time, or later). Regardless of what the resolution is, at least it is known and understood ahead of time. Then the other parts affected can be reprioritized. Additionally, these types of proactive efforts often nip potential problems in the bud, resulting in better due date performance for these types of components.

The purpose of the ASR execution concepts is to increase the amount of accurate and timely information available to the entire chain. This highly visible and collaborative execution capability creates a remarkably effective supply chain that can respond to real market demand without manual workarounds and other disconnected subsystems. Purchasing, Manufacturing, and Fulfillment personnel thus are able to see and communicate a bigger picture that is clear, concise, prioritized for action, and shows the ramifications of decisions and actions based on the dependencies in the aggregate material supply and fulfillment system.

The five ASR components (strategic inventory positioning, dynamic buffer level profiling and maintenance, dynamic buffers, pull-based demand generation, and highly visible and collaborative execution) work together to dampen the nervousness of MRP systems and the bullwhip effect on MRP systems in complex and challenging environments. Utilizing this ASR approach, the planners no longer must try to respond to every single message for every single part that is off by even one day. The ASR approach provides real information about those parts that are truly at risk of negatively affecting the planned availability of inventory. ASR sorts the significant few items that require attention from the magnificent many parts that are being managed. Under the ASR approach, fewer planners can make better decisions more quickly.

ASR Implementation Considerations

1. What happens to inventory levels in an ASR implementation? Similar to the focus on Lean manufacturing, while significant inventory reductions are an effect of implementing the ASR approach, this concept is not intended to focus on inventory reduction. Inventory is a result rather than a focus. ASR should never be implemented with the sole purpose of inventory reduction. Dramatic reductions in inventory, however, are a result of the overall approach rather than the primary objective. The system drains the inventory that is not needed for real protection of due date performance. Now the inventory that is in the system is really working and generating a positive return on investment (ROI).

In early adoptions of the ASR approach, the impact on inventory is consistently somewhere between a 20 to 50 percent reduction in the first year. However, at the earliest stages of the implementation there is typically a temporary increase in overall inventory levels because parts may need to be buffered that were not previously inventoried. This additional inventory is combined with substantial inventory dollars that exist over the top of the required ASR buffers. As that excess inventory (items now residing in the blue zone) drains down to within the buffer parameters, then companies begin to see significant inventory reduction and a highly improved level of turns.

2. Does my ERP system offer ASR functionality? At the time of this writing, no ERP system has the total functionality identified in this chapter. Most systems do support both min/max as well as MRP with an input of a forecast or master production schedule (MPS) for inventory planning. None of this push-based approach really enables the five components of ASR. Min/max levels are static and usually are not reviewed after the initial system setup. There is no adaptive mechanism to update levels based on the experienced volatility and actual demand on the system. Remember that forecasting and MPS are inherently to drive a push system. ASR is inherently a demand-pull and replenishment system-sensing and adapting to actual market demand and volatility. The BOM decoupling analysis is not supported by any ERP system today. This decoupling is a key ASR component for positioning the break walls to absorb cumulative variability arising from both supply and demand. The concept of ASR lead time is totally foreign to any ERP system. ASR lead time is crucial in understanding where to compress and manage lead times within a BOM through the use of decoupling and to determine the proper stocking/buffer levels of a part.

3. What are the specific business benefits expected from implementing ASR? In addition to resolving the MRP compromises and the effects associated with them, there are additional business benefits when the ASR approach is implemented.

a. Protect and increase flow by significantly reducing the negative impact of variability in dependent and interdependent systems. This can include both demand variability from the marketplace and supply variability starting with external sources and then continuing internally through operations.

b. Create a decisive competitive advantage by developing and exploiting ways to significantly compress product and materials lead times to the marketplace. This ensures that lead time offers are significantly better than what the market is expecting. In most cases, a highly competitive lead time can be achieved with no investment in equipment or traditional lead time reduction initiatives.

c. Highly improved on-time delivery performance to the marketplace. If lead times are dramatically reduced and flow is improved, then significant improvements in service performance can and will follow. This provides another opportunity for a competitive advantage in the marketplace.

d. "Right size" inventory through the strategic inventory positioning process. This ensures that the right amount of protection is carried in the right places based on the rate of demand pull from the market and potential disruptions in supply and demand. The critical difference with ASR is that these are dynamic buffers that constantly reflect the changing market and supply conditions.

e. Enable better execution. The ongoing management process in ASR becomes relatively simple once the analysis is complete and buffers are established in the correct places. The execution side ensures early identification of potential problem areas such as a supplier that is going to be late or a delayed work order that could potentially impact buffers. This allows action to be taken before these small disruptions become big problems.

4. What kind of manufacturing environments should consider ASR? Characteristics of environments where ASR delivers the significant business benefits listed are as follows. The more of these characteristics that an environment has, the more significant the benefits will be.

Environments with sets of highly repetitive builds (either product or process).

Environments that will reward you for shorter lead times through either premiums or increased sales.

Environments that frequently use the same purchased component or raw items.

Environments that utilize the same components across multiple parent parts.

Environments with deep and complex BOMs.

Environments with longer or more complicated routings that create significant scheduling or lead time difficulties.

Environments that are considering or currently using pull-based scheduling and execution.

Case Studies

In early implementations of this approach, a very powerful insight was realized-the business benefits are complementary and happen collectively. Unlike the typical expectation of inventory versus customer service tradeoffs, in the early implementations of ASR there have been no tradeoffs. Not only does inventory significantly go down, customer service dramatically improves.

Case Study 1: Oregon Freeze Dry

Oregon Freeze Dry is the world's largest custom freeze dryer. Prior to implementing ASR, they used traditional MRP with standard minimum batch practices. By implementing ASR only (no DBR or S-DBR) with no additional capital expenditure, overhead, or other improvement initiatives, Oregon Freeze Dry reported the following gains: Mountain House Division: Sales increased 20 percent Customer fill rate improved from 79 to 99.6 percent This was accomplished with a 60 percent reduction in inventory Industrial Ingredient Division: 60 percent reduction in MTO lead time 100 percent on-time delivery This was accomplished with a 20 percent reduction in inventory