Best Practices to Align Human Behavior with Business Rules

MRP, Master Data, and Exception Management

Last week I presented the Reveal April 2017 online seminar with the same title as this blog. It followed the theme from my previous blog “Surviving Supply Chain Optimization - Intelligent Demand Segmentation is a key dynamic”. I say that because both subjects aim to drive home the point of effective supply chain integration in terms of essential efforts to manage both process performance and inventory levels. The diagram below provides insight into Reveal’s optimization methodology that has been so successful in supporting clients effectively drive value in their supply chain optimization initiatives1. Key to this success is balancing Service Levels, Inventory, and Operational Cost.

Using MRP effectively and ensuring that human behavior stays aligned with the business rules correctly and accurately set in the master data is a key to success. This is because:

• Business is always challenged to balance supply and demand across the supply chain
• Even though MRP supports the drive to achieve balance it is often poorly used.
• Data accuracy and correct master data rules as essential building blocks are often poorly managed and maintained and
• The realization that exception focused organizations succeed because they manage the determinants of integration breakdown across the end-to-end supply chain is not yet embraced by companies.

MRP Adds Value to the Business Because ... The task of MRP is to plan and arrange for (guarantee) material availability. It focuses us to procure or produce required quantities on time for internal use or customer SALES and as a result enables business value in terms of:

• Optimizing service level (getting things done on time)
• Minimizing costs and capital lockup (getting right materials in and ready at the right time

The process involves requires the monitoring of stocks, demand, and supply of that stock such that the system can effectively calculate:

• What materials must be procured/made
• When they are required and
• How many are to be procured/made

In the future, there will be enhanced MRP capabilities as part of S4Hana that will include:

MRP Run - Performance Improvement:

• Scenario dependent
• 10 x faster
• New models to support procurement and in-house production, delivery schedules, and configurable materials
• The classic model for capacity planning and discontinuation

MRP Analysis capabilities:

System analysis material flow of all materials in real time& identifies:

• Disruption in the material flow
• The impact of the issue experienced
• Solution proposals for decision support
• Insight to correction recommendations
• Role-based KPI driven entry

The accuracy of data, correct MRP rules and aligned behavior in terms of execution all become even more important for the future otherwise we will simply get into trouble faster than we do today.Dependencies to realize true MRP value …So, in looking to increase service levels, lower inventory and execute optimal processes that will align with company strategic goals attention must be given to:

1. The integrity of the data in the system
2. MRP Control Parameters being correctly set
3. The accuracy of the business rules set – i.e. the master data
4. Organizational trust in the system to do its job
5. Executing to the proposals made – not second guessing
6. Maintaining/managing business alignment across the supply chain - The Plan - The Schedule - Actual
7. Managing breakdown of integration across SC through effective exception management

Managing Data in the Integrated Supply ChainManaging data in the integrated supply chain requires a shift from Siloed functions to one that understands and embraces functional and process alignment. Towards achieving this it is essential that:

1. Everybody in supply chain recognizes they are all dependent on an accurate plan
2. There is agreement/alignment to changes in the schedule
3. Changes/adjustments are communicated in a timely manner
4. Exception Monitors are used for alerting affected functions
5. Responsible/accountable members respond / re-align immediately – PAT2
6. To ensure data is reliable or people will develop own satellite systems
7. Master data and process data is current and relevant
8. Bad/poor data be fixed as part of a housekeeping/data integrity focus as this is the root cause of costly silo functions

A lot of attention must be given to becoming an exception minded organization that lives by process alignment and integrated outcomes. The reality in our companies is that data is constantly moving from one functional hand to another and this is a movement of data is influenced by the planning, scheduling, and realization of the sellable product in the supply chain. The challenge is to always transition the data from one function to the next in an effective and timely fashion to avoid breakdown.Results from polling during the online seminarFour polling questions were asked of the 85 people that attended the online seminar. The results are as follows:

1. Do you trust the MRP results in SAP? 75% said yes and 25% said no.
2. By implication then 75% of companies tend to feel their planning and forecasting is providing the correct results to execute against and as a result, they should have the right levels of inventory in their stores
3. 25% of companies would question the requirements for inventory in the plan and therefore probably the second guess the outcome with manual overrides. They possibly carry too much inventory and suffer from process inefficiencies/breakdown across the supply chain.
4. Do you make effective use of MRP in supporting and driving balance across the supply chain? 71% said yes and 29% said no:
5. The "yes” number reduced slightly from question 1 but nonetheless, it is a positive result that suggests outcomes are executed as planned. Or are they?
6. The almost 30% “no” response would probably testify to ongoing fixes, changes, and manual workarounds to get results. Understanding of MRP and how to harness its power is probably a problem as well.
7. Are you actively changing master data to ensure the material’s business rules remain relevant? 61% said yes and 39% said no:
8. The “yes” response is still high but in the essential arena of managing the rules by which you do business an almost 40% loss is significant
9. Master data is core to effectively using the system so it would be necessary to take a long hard look at this issue in your company
10. Owning up by 40% that we do not effectively manage master data talks to the need to redress ownership and accountability, centralized versus decentralized options and understanding of what master data does to whom and under what circumstances. This is a core piece of focus in any Reveal oVo® initiative.

Are you actively using the MRP exceptions in SAP to identify process root causes? 25% said yes and 75% said no:

1. This was a big swing and surprising when considering the earlier responses
2. It seems unthinkable that we would trust the MRP results, effectively use it in driving the end-to-end supply chain, do all the hard work to manage and maintain master data and then not follow through with exception management.

Agreed the above poll is from a small sample attending an online seminar there is enough evidence to suggest improved focus in this key area of supply chain management.Watch the Webinar, You did what?! Best practices to align human behavior with business rules (dynamic MRP master data)___________________________1My colleague Jim Cameron shared a 2-part blog series entitled “Drive Value in Your Supply Chain Optimization with a Smart Use of KPIs” which adds further dimensions for change in your supply chain to meet your business goals.2PAT – Process Aligned Teams. This is a critical organizational arrangement to drive behavior change using the data as the catalyst

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