®

® White Paper

MRP II and the

U.S. Manufacturing
Renaissance
Contents
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
MRP-II: What’s old is new again. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
A trip to the store . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The benefits of MRP-II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The bottom line. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

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Ziff Davis | White Paper |  MRPII and the US Manufacturing Renaissance

Introduction
Maybe you’ve heard the rumors? The ones that say manufacturing in the U.S. is dead. That
we’ve ceded this once vaunted and robust capability to the Chinese. That we are now an
economy of service providers wondering if you want fries with that?

This seems to be the underlying assumption of almost every debate on jobs and the
economy today. And while you will find some industries under stress and examples of whole
product categories made in places like China, Japan, Vietnam, and South Korea, the truth is
manufacturing in the U.S. is alive and well.

In fact, according to the National Association of Manufacturers (NAM), if you broke out
manufacturing from the rest of the U.S. economy it would be the 10th largest economy in the
world. Here’s some other fun facts that you should know:

1. While China is knocking on the door at 17.6 percent, the U.S. is still the world’s
largest manufacturer -- producing over 18.2 percent of its goods

2. U.S. manufacturing produces $1.8 trillion of value each year, which represents
12.2 percent of U.S. GDP

3. Manufacturing supports an estimated 17.2 million jobs in the U.S., which equates
to about one in six private sector jobs

4. U.S. manufacturers perform two-thirds of all private sector R&D -- driving more
innovation than any other sector

5. U.S. manufacturers employ the most productive workers in the world, far
surpassing any other major manufacturing economy

So while it may not feel like it, for a lot of job seekers today the U.S. is still the world’s No.1
player in manufacturing. And, if the politicians can stop bickering long enough to actually do
something in Washington, that should be the case for a long time to come. There is a lot of
pent up demand in the world today and much of it is going unmet because of uncertainty
brought on by bickering and gridlock in D.C., not the broader world economy. Manufacturers
are ready to invest and the world is ready to buy. Manufacturers want to make more, do more
R&D, sell more goods, put more people to work, invest in new products and modernize their
plants and equipment to become even more productive than they are now.

And really being more productive is why, even after the Great Recession and the near-constant
outsourcing of work overseas to low-wage countries over the last 30 years, the U.S. is still the

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Ziff Davis | White Paper |  MRPII and the US Manufacturing Renaissance

dominant force in manufacturing today. Granted, depending on what side of the balance sheet
you find yourself on, enhancing productivity through the investment in new technology, equipment
and methods is a double-edged sword. But, the truth is, without these investments in change, Ford
world still be turning out Model-Ts, not hybrid Fusions.

In fact, for a host of reasons -- instability of supply chains due to environmental disasters like the
2011 floods in Thailand or the tsunamis in Japan and Indonesia; capricious foreign bureaucracies;
the sometimes questionable quality of overseas manufacturers; increasing transportation costs
and increasing labor rates in places like China and India -- many U.S. manufacturer’s are bringing
production back into the U.S. This is good news for many areas that are getting a big boost from
new plants and for U.S. suppliers (particularly small to medium businesses) that will once again
become sought-after vendors and partners supplying goods and services to these new facilities.

And this isn’t hyperbole. According to NAM, U.S. manufacturers have added some 522,000 jobs
to their U.S.-based payrolls since 2009. The net result, says NAM, is “everyone is talking about
manufacturing now.”

But, for these trends to continue, U.S. manufacturers will have to keep their edge by investing in
technologies that allow them to do what they do better, faster and more efficiently. (Notice we
didn’t say cheaper.) Efficiency is the name of the game and if that means a less expensive product
so much the better but, outside of low-end, commoditized consumer goods, really what people
want is good quality at a fair price delivered on-time.

This goes for the manufacturers themselves as well since they also rely on a network of providers
to deliver everything from raw materials to sub assemblies, on-time and of sufficient quality so that
the manufacturer doesn’t have to back-up its lines to deal with a supplier’s issues.

MRP-II: What’s old is new again

One of the key components of this process today is a module of many enterprise resource
planning (ERP) packages called manufacturing resource planning (MRP-II) or, as it is also known
today, sales and operations planning (SOP). Regardless of acronym or module name, the purpose
of MRP-II is to bring together sales, forecasting, shop floor activities, ordering and deliverables,
routing, job lots, bill of materials (BOM), shortage lists, inventory and most of the other activities
involved in making anything.

If MRP-II doesn’t sound familiar that because it got its start back in the 1960s as materials
requirements planning (MRP) and was developed to automate the BOM manufacturers relied on
to build their products. As time went on and computing power began obeying Moore’s Law, prices
came down, processing power went up and MRP morphed into MRP-II so that the system could
begin to deal with more factors such as scheduling, lead times, sales forecasts, inventory, shop
floor controls and the like.

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Ziff Davis | White Paper |  MRPII and the US Manufacturing Renaissance

Sometime in the 1990s (no one’s really quite sure when), MRP-II was absorbed by the ERP
packages coming into favor at the time. Today, even though MRP-II is just part of those
larger management suites, it importance to manufacturing is not diminished. In fact, with the
reintroduction of manufacturing to U.S. shores, manufacturers of all sizes but particularly
small and medium shops will once again be looking to such technologies to better manage
everything from inventories to setting delivery dates and crossing a few things off of their
shortage lists, which used to be the primary way that shop managers kept track of what to
order and when.

A trip to the store

The problem with the shortage list approach is just ordering materials based on what you
don’t have verses what you need doesn’t account for time. To put in manufacturing parlance,
shortage lists are not “time-phased.” In make-to-order or job-shops, this is a real problem.
Make-to-stock (i.e., the products go into inventory somewhere) are not as susceptible to this
problem but they still face the same basic challenges of keeping enough inventory on hand so
they can deliver their widgets on time.

An easy way to think of the shortage list is by comparing it to a grocery list -- you create a list
of things you need because you have run out them: eggs, milk, cereal … whatever. But what if
you have three dinner parties to plan and buy for? If you want to maximize efficiency, not only
do you need to buy what you don’t have today, you will also start buying the supplies you need
to begin prepping for the three dinner parties you have coming up.

So what do you need to know to get this done? Each dinner party has a date (the scheduled
delivery date) and certain number of people that are expected to attend (the “lot size” in
manufacturing speak). As we all know, some of the invitees won’t show and you will need to
make adjustments so you don’t spend too much on provisions (i.e., inventory) that will go to
waste. You also have to make sure that you take into account any spoilage dates of the foods
you are buying. So, if the last party is 10 days away, do you really want to buy all the milk,
cream and cheese you will need today? If you do, do you have pantry and refrig large enough
to keep the items fresh for the day of the party?

These and about 100 other variables run through your head as you mull over your plans:
budgets, cash flow, on-hand inventory, deliveries from your party supply house, your choice of
vendors (the butcher, baker and candle-stick maker), negotiating volume discounts (it is three
parties after all), the timing of the meals and other aspects of the party like hors d’oeuvres.
(You can think of hor d’oeuvres as the sub-assembles.)

So with all of this swimming around in your head, you head for the store. What if you had an
iPhone app that did all of this for you? That would be a help right? Well, in a broad sense, you
can think of MRP-II as big party planning app for your shop floor.

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Ziff Davis | White Paper |  MRPII and the US Manufacturing Renaissance

The benefits of MRP-II

Okay, so MRP-II makes sense from a big picture point of view but what benefits can you
realistically expect to get from your investment you are probably asking?

Here are a few:

• The ability of the entire organization to work from a “master schedule” and one set
of numbers that accurately represent costs, delivery dates, inventory, shortages, and
delays
• Less on-hand inventory and better management of the inventory you do have
• Increased on-time delivery of orders
• More efficient use of resources, capital, and staff
• Less forced overtime
• Fewer expedited orders
• Less management by exception and more management by objective, a la Peter
Drucker
• Fewer fires to fight
• More accountability among the different stakeholders
• Increased productivity

You may think this a little too much to ask from a software platform that got its start as a way
to improve BOM management but, because MRP-II brings together sales, marketing, shop
floor, forecasting, and management around a single set of numbers that most accurately
represent the “truth” about what’s really going on from the board room to the shipping dock, it
allows the entire organization to coalesce into a team focused on the same goals while using
the same numbers to get there.

According to Oliver Wright, an early MRP-II guru “ … that’s what MRP-II is all about: making
valid plans so that all of the functions of a manufacturing business can work together more
efficiently.”

The bottom line

Since there are so many variables that go into the making of even a single product, listing all
of areas that MRP-II touches on would be pointless here but, because manufacturing is really
an exercise in herding cats, the No.1 takeaway about MRP-II is it helps you manage change.
And since change is the only variable that is constant, it presents a continuous conundrum for
managers to sort out. The ultimate Catch-22, to quote the late Joseph Heller.

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Ziff Davis | White Paper |  MRPII and the US Manufacturing Renaissance

Of course, we all know that no single tool, can fix all the problems manufacturers face. But, the
right tool used correctly can go a long way in making things a lot more manageable.

It will keep you from running out of critical parts in the middle of a job so you don’t have
to have them over-nighted. It will allow you to repurpose pieces from a job that’s been
unexpectedly delayed to work on another so you don’t just work on the oldest order first. It will
keep people from standing around waiting for a another aspect of the job to finish up so they
can do their job.

What it can’t do, however, is fix the human side of the equation. But that’s okay. The human
element that is crucial to dealing with the unexpected. No machine or piece of software can
replace our ability to adapt and create on-the-fly but, with MRP-II, the decisions you make to
deal with these events should ripple smoothly through the organization like a pebble dropping
into a pond instead of tsunami crashing against the bottom line.

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