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My guest for Episode #518 of the Lean Blog Interviews Podcast is Jerry Wright, author of the new book The Insanity Trap: What Your MRP Consultant Won't Tell You.

Jerry M. Wright, PE, MBA, is an accomplished operations executive and teaching professional with over 39 years of experience in the manufacturing and service sectors. 

His extensive career spans various industries, including aerospace, consumer goods, healthcare, medical devices, diagnostics, and industrial sectors, where he has held leadership roles in engineering, operations, quality assurance, and operational excellence (OpEx). 

He is an expert on taking businesses from MRP “insanity” to Pull Systems (Kanban) and driving operational excellence through the implementation of Toyota Production Systems (TPS/Lean) tools and methods.

He's a Master Black Belt and only the 7th person in the world to receive the Lean Gold Certification (LGC) from the joint alliance of ASQ, AME, SME, and the Shingo Institute.

In this episode, Jerry shares his insights and hard-earned lessons about the pitfalls and inefficiencies of Material Requirements Planning (MRP). Jerry reflects on his career, starting with his early Lean experiences at Kimberly Clark, where he encountered the challenges of forecasting, production scheduling, and the recurring “insanity trap” of MRP. He discusses the implementation of Kanban systems, the impact on inventory management, and how turning off MRP systems helped teams dramatically reduce shortages and excess inventory.

Through real-life examples, Jerry illustrates how companies can shift from traditional MRP-driven processes to more effective demand-driven and Kanban-based systems, leading to operational improvements, better employee engagement, and more reliable supply chains. The episode also touches on the psychology of change management, navigating the resistance from those invested in outdated systems, and how leadership can foster a more adaptive, efficient environment by embracing simplicity over complexity.

Questions, Notes, and Highlights:

• What is your Lean origin story?
• Were your parents open to Kaizen opportunities or suggestions from you as a child?
• Was your first introduction to the “insanity trap” of MRP at Kimberly Clark?
• Can you describe the challenges of dealing with MRP at Kimberly Clark?
• What was Bill Holbrook's role when he suggested unplugging the MRP?
• How did your team transition from MRP to Kanban, and what were the results?
• Can you explain the issues with relying on forecasts and lead times in MRP systems?
• What do you think about demand-driven MRP as an alternative?
• Why do you think demand-driven MRP isn't more widely adopted?
• How do you balance the risk of excess inventory versus lost sales?
• How does Toyota manage its supply chain and production planning without relying heavily on MRP?
• Can you talk about how Toyota's system recovers quickly from supply chain disruptions?
• What was the origin of your book The Insanity Trap?
• How can leaders and companies overcome the psychological barriers to changing their supply chain systems?
• How do you help employees transition from roles like expediting to managing Kanban systems?
• What are your thoughts on the promise of AI in demand forecasting and supply chain management?
• Who is the target audience for your book?
• What are your thoughts on supply chain planning versus execution in lean environments?

The podcast is brought to you by Stiles Associates, the premier executive search firm specializing in the placement of Lean Transformation executives. With a track record of success spanning over 30 years, it's been the trusted partner for the manufacturing, private equity, and healthcare sectors. Learn more.

This podcast is part of the #LeanCommunicators network. 

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Automated Transcript (Not Guaranteed to be Defect Free)

Mark Graban:
Hi, welcome to Lean Blog Interviews. I'm your host, Mark Graban. Our guest today is Jerry Wright, author of the new book, The Insanity Trap: What Your MRP Consultant Won't Tell You. So, Jerry Wright is an accomplished operations executive and teaching professional with over 39 years of experience in the manufacturing and service sectors. His extensive career spans various industries, including aerospace, consumer goods, healthcare, medical devices, diagnostics, and industrial sectors. He's held leadership roles in engineering, operations, quality assurance, and operational excellence. He is a Master Black Belt and was the 7th person in the world, or at least 7th at the time, to receive the Lean Gold certification from the joint alliance of ASQ, AME, SME, and the Shingo Institute. So, Jerry, thank you for being here today. How are you?

Jerry Wright:
I'm so happy to be here, and it's a good day to be talking about Lean and MRP and all the other good stuff. So, I'm very happy that I could join you today, Mark.

Mark Graban:
Yeah, well, I'm glad you're here. And I encourage everybody to look in the show notes for links to Jerry's website, LeanWright (that's with his last name, W-R-I-G-H-T), LeanWright, and links to his book and more. So, you know, Jerry, before we talk about the book, I do love asking people their Lean origin story. It probably goes back a while, considering everything you've done in your career. What's your Lean origin story?

Jerry Wright:
So, interestingly enough, when I got involved with Lean, it was back with Kimberly Clark, but it wasn't called Lean. It was so long ago–it was before 1996, when they coined the Lean term. We called it world-class manufacturing. And at the time, the book everyone was reading was either The Goal by Eliyahu Goldratt on Theory of Constraints or Richard Schonberger's World-Class Manufacturing. And so we were talking about setup reduction and quick changeover, and we didn't call it 5S, we called it housekeeping, and all those kinds of things. But Kimberly Clark was one of those companies. I worked for them for about 10 years and had an amazing start on the scientific method, following Theory of Constraints and doing all that.

So, when people started talking about Lean, probably about the mid-1990s, I thought, “Wow, this sounds like stuff I already know.” Then I kind of got a better feel for the one-piece flow and Kanban and things like that from, you know, probably 1995 through 2005. So that was kind of where my Lean started–really with Kimberly Clark. But to be fair, I'm a son of two OCD, Lean-oriented parents. My dad was super organized. He labeled everything. Everything had a place, and everything was in its place. We always cleaned up. It was, you know, a penny saved is a penny earned. So, we were very Lean-minded, and I didn't think of it that way. I was just growing up as a kid, and my sister is cut from the same cloth, incidentally. She has a Green Belt, and she's more or less, you know, just an office manager at a doctor's office, but she lives and breathes it. And we kind of grew up that way. So that's kind of my Lean origin story.

Mark Graban:
Yeah, so it sounds like a household with, you know, some organization, some discipline, some standards. Do you remember, you know, were your parents open to Kaizen opportunities or suggestions from the kids?

Jerry Wright:
I think so. But, I mean, they had a pretty strong expectation of, you know, you were going to make your bed, you were going to clean your room. I mean, neither one of my parents are in the military or were in the military, but I almost felt like that sometimes because it was not only my dad's organization, but my mom was just very, very neat and clean and organized and expected us to be the same way. So, I think it was just how I grew up, and I didn't know any different. I don't know that they would ever have had an open Kaizen mindset, but they really did say, “Hey, you know, if you think you can do it, do it.” So, they had good empowerment, let's put it that way.

Mark Graban:
If not, yeah. Well, cool. So, back in the '90s at Kimberly Clark, was that your first introduction to, I don't know, the battle with MRP? Or, as the book is titled, was that the first “insanity trap” of MRP?

Jerry Wright:
Not quite from that perspective. Back then, Kimberly Clark was big into large warehouses, and they would fill them full of, whether it was paper towels or Huggies diapers or Kleenex facial tissue. And the goal at Kimberly Clark was to be very efficient with running the paper machines that were making the tissue. And so, even if we didn't need the product, we would still make it. And that was a bit of the challenge you see with MRP today–we were making stuff we had. The place I worked last for Kimberly Clark, and for the longest, was in Fullerton, California. The plant has since been closed, but it was the site where, if you've ever seen the green and white or the blue and white boxes of low-lint wipers, Kimwipes, or Adwipes, very popular in laboratories and clean environments, all of the Kimwipes in the entire world were made in that facility. And so, we had pretty high volume in demand. Just to give you a rough idea, when we were making Kimwipes, the little square boxes that are the most common ones of the low-lint wipers, we would make eight boxes a second. So, super high automation, super high push into Theory of Constraints, efficiency. We tracked efficiency and throughput and scrap and first-pass yield and all that. And we really worked to try to do quick changeovers. Our changeovers were a little bit like what Shigeo Shingo experienced–they were like eight-hour changeovers, and we worked to get them down to less than 30 minutes. So, we had a lot of that good experience there. But yeah, Kimberly Clark was not where I really picked up on it as much. It was more moving on to companies after that, in the late 1990s and through there, that I just started seeing the ills and the pitfalls of making stuff, to be fair, to a guess.

Mark Graban:
Known as a forecast?

Jerry Wright:
Yeah, a forecast. Yeah, we say “estimate” or “forecast.” It sounds so much better than “guess” or “wild-ass guess,” but that's how it goes. But when I got into AME through my folks that I worked with at DJO Global, they were both big, long-term AME folks, and they said, “No, no, we got to do Kanban.” I'm like, “What's Kanban?” Because I didn't know what he was talking about back in 1999. And he goes, “It's this.” And oh, it seems to make sense–two-bin system and so forth. But I got more of the input into the challenges with MRP with DJO. And that was my first experience of the “insanity trap.” And the best way to put it, Mark, was, and I like to describe, and I do describe it in the book in a little more detail, but let's give a short version of it. We got to production on Monday morning. They'd run the MRP, the forecast, over the weekend, and they printed it out on that big green-bar printer–you know, the white-green impact printer comes out–and they'd start going through the orders, and they'd go through: “Okay, we don't have that. Oh, we can't make that. So, what can we make?” And they were–this green-bar printer, I'm not kidding you–for the week's schedule, was about two inches thick. And there were only maybe 12 or 13 orders per page, but you can imagine how many pages. There were literally thousands of orders there. And after they got about two hours into it and realized it wasn't going to work, they just said, “Well, let's just make what we can, and then we'll wait and rerun the MRP later.” And so, they would wait and rerun the MRP again the following weekend, and on Monday, the same thing would start over again. Tuesday, we were off. We were just trying to scramble to get parts in and figure out what to make. And this insanity trap kept running and running. And I was in the engineering and other side of it, I wasn't in operations yet, and I kept going, “Why do you guys do it that way? That seems really challenging.” “Yeah, well, we got to make sure we update the MRP and the forecast.” They had nine people, nine people, running production control, forecast, expediting, doing all this kind of stuff. And yet every week, it was the same nightmare over and over. And one of the guys, he's unfortunately since passed away, Bill Holbrook, was working for us at the time. And he

said, “We just need to unplug the MRP, and everybody would run it better.”

Mark Graban:
What?

Jerry Wright:
Yeah. I mean, people's brains were exploding. “Wait a minute, we just installed this! It was this business planning and control system software. You know, we paid for this, we got to use it!” And so, he said, “No, no, it's not working. I can tell you guys, we need to pull the plug.” And Bill was one of those guys who was one of the original people who founded the Association for Manufacturing Excellence. And some people know this; not everybody does. AME broke away from APICS at the time–APICS was the Association of Planning and Inventory Control Society or something like that. APICS was all about MRP and running MRP, and AME was like, “No, no, we need to do Kanban. Zero inventories, pull systems.” So, more like Toyota and things like that. And Bill basically went to a board meeting with the C-suite and said, “Yeah, we're going to unplug MRP.” And Bill was reporting to the COO at the time, and the COO kind of goes, “Bill, you weren't supposed to tell them; you were just going to do it, but you weren't supposed to tell them.” And then they didn't. I mean, everybody had a cow. It was just like chaos. But the good news is Bill had talked to the folks on my team, and we started setting up a three-Kanban-bin system. We were like 99.7% on track for having everything we needed. And we realized, man, that was a lot of inventory. So, we eventually, in about a year, brought it back to just two bins, because that was more than enough. And as we watched the implementation–if you think of, you know, the daily shortages went from 40 or 50 a day, to 30, to 28, and pretty much got down to one to zero after–it probably took us about six months to get to that point. And we just had this constant: “Well, turn on the MRP!” “No, we're not going to run the MRP.” “Turn on the…” And we went to the Kanban, and the shortages vanished. And after a while, they stopped fighting because they realized we had less inventory and everything was on time. That was my first real view into the insanity of MRP.

Mark Graban:
Yeah. So, Bill saying, “We just need to unplug the MRP.” What was his role in the company? Do you remember what sparked that idea?

Jerry Wright:
Well, Bill had come on initially as a consultant, and then he got hired into a director of materials role. So, he was responsible for explaining the shortages and responsible for managing the supply chain and all that. His team–you know, Bill had previous experience from other companies where he put in Kanban and turned off the MRP and had great success. So, he goes, “No, we just got to do it.” And Bill's one of those guys who was like, “Aw, you know, oh shucks, oh whatever, you know, let's just go ahead.” He didn't play the political games. He pretty much just called a spade a spade and said, “We need to do this.” And he said, “I know you guys don't like it, you think it's going to be a messed-up thing, but guess what? You just need to be patient.” And they weren't very patient. And, you know, three or four months, and they could see the backorders coming down, the noise–I say the noise, or the frustrations–from the salesforce started to ease because we were filling orders better. We were reducing inventory. And then we had to start explaining to the CFO why inventory being lower was a good thing, because they always go, “Wait a minute, my balance sheet is starting to look funky.” “Yeah, but we're turning inventory into cash.” “Well, you know, that's not…” We had these arguments and fights, and I'm glad I didn't personally have to fight it, but I got to see the benefit of the transformation. And I was actually building some of the graphs and tracking the inventory because my team were working on building the Kanbans and doing all the calculations and working with the warehouse team and setting it up. And we bought more AcroBins than I can imagine, but it was such a small investment. When you think of the benefit we got out of it.

Mark Graban:
Sure. Can you talk through a little bit–you've talked a little bit about scheduling, and we may have listeners who are not familiar with MRP. I'm kind of trying to jog my memory because it's been a long time, but one thing I recall is the idea of, well, okay, for one, this would all work perfectly if the forecasts and supplier deliveries and everything had zero variation, like if they were accurate and what have you. So, when you talk about part shortages, I remember one of the issues being, you know, you would do this long-term planning and generate orders to the suppliers. And wasn't one of the big problems that the supplier lead times were longer than the order and forecast horizons?

Jerry Wright:
Yes, absolutely. And particularly in the electronics industry, if you order any kind of circuit boards or printed circuit assemblies from Taiwan or China or other places where their costs are very effective, even going back, you know, 20-some years, PCBA lead times, or printed circuit lead times, were often six weeks to six months, and yet we were trying to plan out for three or four weeks, but we didn't know if the parts were going to be here or not until we eventually put the Kanban in place. One of the things that I think is particularly perplexing is there's a thing in MRP II which is called the MPS–the master production schedule. And to your point on the scheduling, you're scheduling out–in some cases, you're doing more like a capital forecast and a production forecast, and you're looking out six quarters, so a year and a half. The MPS tends to get very, I'd say, unreliable when you move out past just a quarter or two. And to really forecast what your business is going to be like a year and a half from now is kind of tough. But if you think of long lead times for capital equipment and things like that, you have to do some kind of forward planning, but to expect it to be right on is kind of unrealistic. And it's funny, I was working with a med device company recently, and they were talking about this master production schedule and how they were getting beat up because they were off by a percent six quarters from now. And I'm like, “What do you guys do?” They go, “We just fake it.” “What do you mean you just fake it?” “We fake it because we can't be that accurate, we don't know what's going to happen, but they yell at us if we don't have it right.”

Mark Graban:
Do they reside–does faking it mean they revise the forecast to then make it seem like…

Jerry Wright:
They were whatever it needs to be. Because it's kind of a bit of a joke. You only need to be directionally correct if you're going to buy capital equipment, you're going to lease or rent buildings and stuff, you have to have a longer planning horizon. But a lot of that is guesswork. I think that's my biggest concern–that we expect to be able to forecast the future. And in light of that, when you look at your schedule, “Wait a minute, lead times are not fixed, they do vary, and usage is not fixed, and it does vary.” And both of those calculations go into your Kanban equation. But we put a safety factor in there to buffer it for that normal variability. But that tends to work a lot better than guessing and buying to a guess, to just find out, “Oh yeah, you know that order we were expecting for 4,000 of the model A's? It didn't come through. Well, what are we going to do with all the material we bought for it?” “I don't know, we'll try to figure out how to…” It sits there, and no one wants to write off the stuff they built too much of because it's a direct hit to the bottom line. So, you're always in this battle between guessing and reality, and I just like to see people try to get away from that.

Mark Graban:
Right.

Jerry Wright:
Somebody was telling me the other day, they were discussing, they read the book, and they said, “You know, when I look back and I think of how much we used to write off at my company and how much all companies must have to write off for bad forecasts, as an example.” And I said, “Listen, I'm just going to look at the last 25…” He said, “I bet it's close to a trillion dollars or more.” I'm like, “You know, I probably need to do the calculations, but you're probably right. Billions in inventory–it's probably trillions because if you have a company that's a, let's say, a billion-dollar company and they write off $25 million in inventory a year, that's a fairly decent percentage. But think of the global gross domestic product and take a small percentage and then go for 30 years, and you start to get into trillions. And trillions is a lot of waste. Oh my

goodness.”

Mark Graban:
Yeah, it seems like there was that challenge to balance the risk of excess inventory against the risk of lost sales.

Jerry Wright:
Yes.

Mark Graban:
Can you talk about trying to balance that? And of course, lead time reduction, quality improvement–that is ultimately the answer to break the trade-off. But it seemed like at Kimberly Clark, I'm guessing those products were very stable, they didn't expire, there wasn't a lot of–the inventory holding cost might have been lower than it was in other businesses. Twenty-five years ago, I was starting at Dell Computer, where very fast-changing products and technologies, and they would say only half-jokingly, “Electronics, PC components, part inventory, ages like milk sitting outside on a hot day.” It's only declining in value, it's only becoming–there's less demand for it. So, Dell wasn't quote-unquote Lean, but they were certainly trying to do a lot to reduce lead times and improve flow. And they had the leverage to force suppliers to take on some of that risk, like, “We're going to make you hold it, and if we decide we want it, you can ship it down the road.” But yeah, it's just interesting to think through all these different trade-offs of, as you touched on earlier, building what the order priority would be versus what can we build. Dell was still often in that situation, but they would run material-constrained MRP every two hours instead of once a week. But still, we were trying to get out of the situation of building what we can and yet build what we need, shipping when it's needed.

Jerry Wright:
So, one of the things I think is probably the most appropriate, and the main reason I wrote the book, is I was working with a large client who had the same kind of thing. They were trying to do quick deliveries, they were providing medical stuff into operating rooms. They needed to have stuff on hand. They couldn't not have it because of patient surgeries and so forth. And I did some research, and I cover it in the book in more detail. I did some research on MRP and its foundation–where did it come from and so forth. There's a group out there called Orlicky, Orlicky's Foundation. They basically were the foremost authority on MRP and MRP II. They've written a number of books. They actually just published in January of this year, 2024, Orlicky's–and it's the fourth edition on how to actually run MRP. And when you read the book, and I found this almost–it was an epiphany, but it was almost a catastrophe at the same time–as they say, the best way to manage inventory is with a min-max system using barcode scanning. And I had to read it three times because I'm like, “Wait a minute, these are the people who invented MRP!” And I read further into the book, and of course I read the entire book, and they said, “Yeah, material requirements planning, not material requirements procurement or material requirements purchasing–planning.” It's a planning function. We plan using the material requirements so we know capacities and so forth. But in terms of managing the inventory, because of the unreliability of the forecast, they say, “No, you manage with a min-max, which min-max is essentially a Kanban.”

Mark Graban:
Right, right.

Jerry Wright:
I read that, and I kind of was just dumbfounded. And so, I read further into it in the most recent edition, and they say the same thing. They say, “We've been telling people for years: Don't buy with the forecast, because it's going to be wrong. No matter how good you are, it's going to be wrong. So, why do you keep buying with it?” I'm thinking, “Wait a minute, the authority on MRP says don't run MRP to buy stuff?” And I just found it almost dumbfounding. But I went through, and I said, “Okay, now I understand why.” I did more research and found out more information, and they said, “Yeah, you know, you're not going to get it right. The planning side of it is for planning purposes, not for buying.” And they do discuss one thing, which I think a lot of people are unaware of–and you may have heard of this or not–but there's a thing called demand-driven MRP. And you can go to the Demand Driven Institute. They're all about how to make MRP work. So, it's basically a marriage of MRP and min-max levels throughout the system. You don't buy to the forecast, you just manage all your different inventory points as little supermarkets with max. And it's very sophisticated. I think it can bolt on or be an additional thing to Oracle, SAP, all the different groups that are out there. I think there are ways to do it, but it essentially gives you a way to do min-max management of all your inventory without buying to a guess. And I ask people, “Have you heard of demand-driven MRP?” They go, “No.” I talk to people who've been in the industry you and I are in, you know, Lean, healthcare, and manufacturing–very few people have heard of it. And I'm thinking, “Why?” And then I realized why, Mark, with my research. I found out–you know how much the software industry that supports buying MRP and MRP forecasting modules and AI-influenced derivatives–you know how big that market is in a year?

Mark Graban:
Billions.

Jerry Wright:
Seventy-five billion dollars globally.

Mark Graban:
Yeah.

Jerry Wright:
That's how much they're selling in software. Now, some of it's ERP systems, but still.

Mark Graban:
Well, and then there's the whole consultant ecosystem. No offense to consultants. I'm a consultant, but I mean, there's a lot of people making money off of recommending and implementing.

Jerry Wright:
Now you get it. Now you get it. And that's the frustration for me. And I ran into it pretty seriously with a commissary company that was supplying stuff, and they said, “No, no, no, we're sticking with the MRP.” I go, “No, you guys need to go to Kanban. You're overflowing your warehouse with aisles that are so stuffed, you have to unpack the aisle to get the stuff to load a truck and then put the stuff back in the aisle.” That's how bad it is. It's like, “Yeah, but now we're going to get a new demand management module. It's going to use AI, and it's going to have this forecasting.” I'm putting my head in my hands going, “No, that's not the answer. You guys are buying to a forecast. It's inaccurate.” “Well, we'll get better at the forecasting with this new software.” And I'm like, “No.” And I just couldn't convince them.

Mark Graban:
And that's been the promise for at least the last 25 years of more sophisticated, getting better at MRP, fixing the MRP, improving the MRP. This battle between sophisticated versus simple. Simple doesn't sound impressive. Like, “Oh, these Kanban systems work.” I'm like, “Yeah, but that… Am I going to get promoted by implementing something simple?” I mean, there are all kinds of different factors and dynamics there. People love–or maybe have a bias toward–sophisticated, right? And these vendors–“Oh, we're more sophisticated. You can just push a button, and it does everything for you.”

Jerry Wright:
Yeah, I remember we were working on putting–turning off MRP and putting in Kanban in one of the facilities in South Dakota, and they were just really resistant. Like, “I don't know, this doesn't sound right. I mean, talk about we're going to bins and cards and laminated things. I mean, it sounds like we're going back in time.” And I'm like, “Yeah, but you guys are suffering.” Because they had the situation–you know, trailers in the parking lot. They couldn't even walk in and out of their aisles. And we said, “We're going to make this change. We know it works, you know, and just be patient.” And I remember the materials manager going, “Really? I mean, this just doesn't sound right.” And she was very skeptical. And then six months later, she goes, “Oh my gosh, I have my life back. I'm not here seven days a week. I'm not constantly trying to explain why we don't have what we need in place.” And they were so concerned about Kanban, they used cards that were eight and a half by eleven, pink, bright neon pink inside of a sleeve. But you know what? It worked for them. And they found something–they knew it needed to go somewhere. And after a while, they're going, “We love Kanban. Oh my gosh.” And I actually have several quotes from them that I've presented to other people. And they go, “Wow, I feel just like she did at the beginning. I don't buy into this; it doesn't make sense.” And yet they get to the other side, and, you know, they just can't believe the change in their life. But I'm relieved to some extent, Mark, in that we don't have to do Kanban per se. Like, you know, many companies have switched to Kanban directly. There is this alternative

of demand-driven MRP, which does have sophistication and capability, but it basically takes that forecast element and goes, “Nope,” and off to the side, and says, “No, we're going to manage with min-max.” And if you have something–so, are you familiar with the idea of runners, repeaters, and strangers? Have you ever heard that before?

Mark Graban:
It's like a long time ago, but sort of like your high-volume, make-it-everyday kind of products consistently.

Jerry Wright:
Yeah.

Mark Graban:
Runners, repeaters, and strangers.

Jerry Wright:
Runners, repeaters, and strangers, yeah. And ABC is another way. So, picking, picking on docs is your high-volume stuff is in your lowest travel path, and then things that are a little bit less common are a little further away from the dock, and then stuff that's really not common is really far away because you just don't go pick it that often. It works well in either case, but when we start putting the Kanban in place with the runners, the noise level drops off right away. And then when you get to the repeaters, now you've kind of covered, in many cases, 90% to 95% of your volume. And then those strangers, the ones you only do every once in a while, in many cases, you don't even put them on Kanban. Maybe some of the raw materials, but you build them to order. You say, “Look, this is not a common item; we'll be happy to make it for you, but its lead time is three days, whereas everything else I can ship for you today. But if you really want that, it's going to be a longer lead time. I'm happy to make it for you, but we don't stock it because it's only ordered a couple times a year.” “Well, that's fine.” So, you can have the proliferation of part numbers, but I don't stock and manage everything that way. And when you kind of go to that system, which I think most people do to an extent, then you can cut your lead time, you can still have customer service, but then you're not burdening and putting this huge albatross around your neck that you're trying to carry with this massive amount of inventory. And that's part of the reason I wanted to write the book: It's like, “Hey, there's a better way out there.” Whether you go the demand-driven MRP or you go Kanban or some kind of min-max system, you've got to get away from buying with a forecast.

Mark Graban:
Yeah, yeah. So, I want to dig into the book and hear the story behind the book. But one other thought that comes to mind, I think, is the distinction between supply chain planning and supply chain execution. And there's–you hear, I don't know if people still use the terminology, MES, Manufacturing Execution Systems, as opposed to MRP or supply chain planning. I don't know what you found in research or talking to people over time. My understanding is that Toyota uses MRP for longer-term planning, but then they don't use it to drive plant plans material. So, is that kind of a good example of like, yes, you have to do some planning, but then you can execute based on more real-time information or shorter?

Jerry Wright:
Right. And we have a good example that's not far from us here in San Diego. I'm not too far from Tijuana and Tecate, which is a neighboring community to Tijuana. They have a Toyota Tacoma factory where they make the Toyota Tacoma for most of the western part of North America. And the Tacoma factory, they build basically a pickup truck. About every 55 seconds, it rolls off the end of the line. And I remind my class when I teach, I go, “What happens if you have a problem, and there's an issue with the Toyotas in about an hour? How many trucks do you have?” About 60. And where do you put 60 pickup trucks, knowing the size? They go, “Oh yeah.” They start thinking, “Wow.” Well, there's a funny thing. If you want to actually go down near the border and watch the trucks come across into the U.S., they've got these–about every 20 minutes, a truck comes across that has all the Tacomas on it. And there's a silver one, a red one, a black one, a white one–all the different mix. And those are actually headed to a dealership. They're not going to a warehouse somewhere. They actually build to order for what the dealership wants or what their inventory ask is. So, when they run this stuff at Toyota, they're building to a specific order in order. So, they actually make them run off the line in the order–they fill the truck up–which is, you know, requires quick changeover and good manufacturing execution. But that long-range planning is about, “Okay, how many people do we need in the factory? How many are we going to be building? What model will we be, what version, and so forth?” And they're looking at 20 or 30 years–“Where's the next factory need to be built?” That's where that long-term planning is important, and understanding cash flows and finances and all that. But they're not telling you the order of what to build and stuff past what's in the production control schedule, which is, you know, inside of a month or two.

Mark Graban:
Yeah.

Jerry Wright:
And we could see that back when they had the Fukushima plant, and the earthquake, and the tidal wave, and the disruption to the supply chain. Toyota was impacted because they don't have weeks and weeks of stuff on the water and weeks and weeks of stuff here. Everything is coming in, you know, just in time. And there's a reason for that, because, gosh, how do you manage when you have trailers full of tires or trailers full of seats? If you're not deploying them quickly, where do you put them?

Mark Graban:
Yeah, and I think the flip side, where people feel this comfort in having warehouses full of material, in a just-in-time supply chain or something closer to it, that supply chain can recover more quickly from some sort of catastrophe or underestimating demand. It's a more flexible supply chain. And you think, “Well, you could have a warehouse full of products, but what if there's an earthquake or a tornado or a hurricane?” I mean, inventory can be damaged. And without a flexible supply chain, you would be in more trouble for a longer period.

Jerry Wright:
I agree, I agree. And I think of the other side too–what if you have upside demand? So, this question comes up a lot when I'm teaching. “What if I normally build, let's say, 500 widgets a day, and I suddenly have demand for 6,000 widgets as an order?” It's like, “Well, I would drain everything I have and still short the customer, and then I'd short everyone else until I could recover.” And I say, “You know, the biggest challenge you run into with very high demand spikes is Kanban really can't handle it, nor can MRP. Neither one can, unless you have an infinite level of inventory.” You have to go back to the customer and say, “Hey, I understand you want this amount. Could we negotiate the terms of maybe we'll ship you this amount every week for the next eight weeks? Is that going to work?” And oftentimes, “Well, I don't want to pay for the freight.” “Okay, is that why you placed a big order?” “Yeah, I was just going to cover my yearly purchase.” “All right, how about if we split the freight, and we'll ship you XYZ?” And they have to go, “Sure, sounds good.” But if you don't go back to the customer and manage the demand, you're going to suffer in either case. And having excess inventory is just a lot of money invested that potentially has risk of obsolescence.

Mark Graban:
Yeah, and I read The Goal in college, 1994. When I was at General Motors, 1995, they put people through a class and had people read it and play with computer simulation software. But there's this one point I think was even a Goldratt point of leveling out the orders instead of doing one big, huge bulk order to maximize the freight per unit or to get a volume discount. Like, “Well, we know what you're going to buy over the year. We'll give you the discount, but let us send it to you in smaller intervals.” That can be win-win, right?

Jerry Wright:
Yeah, absolutely.

Mark Graban:
Goldratt taught…

Jerry Wright:
Yeah.

Mark Graban:
Remembering.

Jerry Wright:
Yeah, there was a specific example where someone wanted 2,000 Model 12s in two weeks, and they said, “It'll take us two months to build it.” And they said, “Could you take 500 a week for the next four weeks?” And he said, “Sounds great.” And they got the order in. That appendix basically saved the plant, is what they said. And the story is well as I have. I bought the video a number of years ago, and I show it to my students because it's about 45 minutes long, and they get all the concepts with that. But I like showing that one because a lot of times,

it sparks ideas for people. Definitely can be worthwhile. We had a similar example when I was at DJO. Cardinal Health was one of the bigger clients that we'd supply bracing and bracing products and different things to them. And they kept placing an entire truckload order, I want to say, every two months or maybe it was once a month. And we went up to Cardinal and talked to them at their facility in the Bay Area and said, “Hey, is there a reason that you keep ordering just a truckload at a time? Could we do maybe a less-than-truckload quantity every week?” They go–the purchasing person said, “No, I don't want to pay for the freight.” And yet, the warehouse person said, “That would be amazing, because I get this huge truckload, and I can't get it unloaded because I'm so busy filling orders that it takes us almost a month, and I'm paying the fee on the trailer being dropped there.” And so, it's actually costing us more to order the way it is. But the purchasing person doesn't see the inventory person's costs. So, we said, “We're just going to do a less-than-truckload shipment, and we'll reduce the freight cost to you. We'll pick up half of it, and we're going to do it, you know, every week.” And they go–the inventory guy in the warehouse goes, “That's going to be amazing, because I can always adjust my order and get just what I want.” And the purchasing guy says, “As long as I'm not paying extra freight.” And we got a win-win. But we had to talk to them about it because the left hand and the right hand weren't, you know, having a good discussion, and they realized they were wasting money unintentionally, just on the view of trying to not waste money–they were wasting money.

Mark Graban:
Yeah, well, that's a great story about the opportunity that comes from breaking down silos and understanding.

Jerry Wright:
Yeah, yeah. We went there, and the guy said, “Guys, will you please stop shipping me a truckload at a time?” He said, “That's what you guys keep ordering.” And it's funny–you get into these things, and you think, “That doesn't happen. That's like from a TV show or a movie. It's not real, is it?” Like, “No, it's real.”

Mark Graban:
Yeah, yeah. One other thing that came to mind from what you're talking about is, well, this question of, you know, the people that were trying to do more and more with software and algorithms, you know, the thought of, like, are there certain Lean principles that are just missing? Because again, I'm kind of reminiscing to systems that we implemented 24 years ago. It was very driven off of, “What do we need to build?” And they were trying to hit on-time delivery, and they were wanting to ship orders as quickly as possible. There was generally a five-day commitment they were trying to hit, and it was material-constrained, and it was really just based on what needed to be built with the flavor of what could be built. I recently went and had a chance to visit Toyota Material Handling factory in Indiana, where they were talking about their production sequence and kind of tightening up and locking in the schedule. But then that production sequence had an input variable that I think Dell paid zero mind to, which is mixed-model level load.

Jerry Wright:
Yeah, Heijunka systems. Exactly.

Mark Graban:
Heijunka system, and leveling the flow of parts back to suppliers and the benefits that that had of not stressing or, you know, bullwhip-affecting the different suppliers. So, I mean, you know, does MRP software ever take Heijunka into account? Is that a quote-unquote new feature and sophistication?

Jerry Wright:
I would say, to be fair, I don't–I haven't seen it much. When I see Heijunka, or Heijunka, depending on how you want to pronounce it, I usually see that with people who are in a Kanban and pull system. I don't typically see Heijunka as much in people running MRP because they expect the MRP to forecast the future perfectly, give them everything they need, and that's what they put out in their master production schedule each week. But I guess that the best way for people to determine if they're doing the right thing from a software perspective, whether running MRP or not, is like if you have excessive inventory on hand–like you're in outside warehouses, you're bloated, you're expediting regularly to bring stuff in, and potentially de-expediting to push stuff out–you probably have, and you have material shortages still, even with all that extra inventory, you have material shortages. You're not doing something right, whether it's the MRP you're running, if you're actually buying to guessing, or if you just have thrown up your hands and you're winging it. Those are the symptoms of something that's not right. And it reminds me of a famous quote from Taiichi Ohno, who was one of the co-founders of the Toyota Production System. He says, “The more inventory a company has, the less likely it is they have what they need.” And you're like, “Wait a minute, that's paradoxical. That doesn't make sense.” But that's the case–that when you have so much inventory, you're swimming in it, you often don't have what you need to process. And honestly, I think, Mark, the direction I would recommend for companies who can't let go of technology is start thinking–go to the Demand Driven Institute website. And I think it's just demanddriveninstitute.org or something like that. Go there and just check it out and see if that's an opportunity, because at least you'd turn off the ridiculous ordering to forecast. I mean, think about the weather. The weather–they call themselves the weather forecaster, and they call themselves forecasters. Actually, they call themselves meteorologists, which I still have to figure that part out. They have Cray supercomputers being run somewhere that are predicting weather patterns with, you know, billions of amounts of data. There's a European model that models hurricanes, there's a U.S. NASA model. I think it's NOAA or something. They have these amazing computers, and yet the forecast is still only directionally correct, depending on where you live. Yeah, we don't have nearly that computing power, and we're trying to do that with a thousand, ten thousand SKUs. How is that even possible?

Mark Graban:
Yeah, is it an easier job for the meteorologists in San Diego?

Jerry Wright:
It is. It is.

Mark Graban:
Just go, “Today, it'll be sunny and mild,” and that could be pretty much any…

Jerry Wright:
Rain in the winter, but not much.

Mark Graban:
Yeah, when I was up the road in L.A., it seemed like the main challenge was trying to rush through five different sub-region forecasts within the Los Angeles area.

Jerry Wright:
Yeah, we have an interesting gradient. Most of California and the big cities are like that. You have the ocean, the coast, slightly inland, and often you have the mountains. And if you get, like, here, we have a desert on the other side of the mountain, so we have five regions, and the desert will be 110, and at the coast, it'll be 75. So, yeah, it's a big variation.

Mark Graban:
Yeah. So, let's talk about the book. I'm going to hold it up again. We're talking to Jerry Wright, The Insanity Trap. What your MRP consultant won't tell you. What was the origin story for the book? I mean, it's a big undertaking–it's your first book. Is this something you've been thinking about? You've been thinking about the topic for a long time? Were you thinking about the book, or how did that come to be?

Jerry Wright:
It's funny, you know, Karen Martin, Mike Osterling, Katie Anderson, a bunch of people–Tracy O'Rourke–all other authors that you and I both know and have been friends with for a long time, they kept saying, “You know, you should probably write a book.” Like, “Write it about, you know…” I didn't know if I wanted to write about my experience at DJO, which was one of the recommendations. But I had a little bit of a taste of doing some writing. I actually helped Tony Manos and Chad Vincent with The Lean Handbook years and years ago–I think it was 2010. I did a couple of contributions for that, and I've written a lot. I've written articles and so forth. So, writing for me wasn't the issue. It was just doing something I really felt passionate about that I wanted to do because, as you know, it's an undertaking, and it's not trivial. It takes a lot of time, and you want it to be as close as you can to as perfect as possible. But I kind of felt from an altruistic standpoint that if I didn't really push hard in the year 2024 to get people to realize there's a better way, I was missing the opportunity to at least get that heard. Even if just a few people and a few companies can improve their supply chains and reduce their headaches, I wanted to solve that problem for some people. Hopefully, there'd be

a voice of reason, and they could say, “Hey, boss, we need to read this book, please, because we need to change our lives.” And part of it came from my time. I worked at a company on a part-time basis because I was a close friend of the owner and the CEO. And he said, “Jerry, I need you to come out. We need to turn this business around.” And I saw these poor people–fantastic, wonderful people in Athens, Georgia–who were literally working from 7:00 AM to 7:00 PM, taking work home, taking work home on the weekends. And we were still having shortages, and we had warehouses full of stuff that we didn't need. And I said, “You know, well, you know, I'd like to go to Kanban.” And the CEO goes, “Yeah, that sounds good. Let's go.” Because he'd been through many, many times before. And I said, “Okay, guys, we're going to start going to Kanban.” And I did a full Kanban training and went through it, and they go, “I don't know if that's going to work.” I'm like, “Well, we're just going to start in a couple areas where we're hurting.” And we did. We did a couple pilots and a few models, and they go, “Wow, that works great.” Okay, I got them on board with those pilots, and they said, “This is working great.” And it took almost a year, Mark, so it wasn't a trivial consideration, but it took a year to get changed over to Kanban. But once they did, they kind of go, “Wow, I go home at 4:30. I come in at work at 7:30. I'm working a nine-hour day. I'm not on the phone constantly yelling at suppliers. Everything's here when I need it. And I can go play soccer with my son, or I can go bake brownies with my girls' Brownie troop, or I can go hang out with my husband or my spouse and do something fun after work as opposed to working.” I mean, literally, they were working close to 70 hours a week, and it was everybody, because they were just pulling their hair out. And when I saw that transformation, because I got a chance to live the entire thing from beginning to end with the company and see the benefits, I had one guy come up to me, and he was a senior guy. He was close to 70, and he was still working. He goes, “I've been at this plant since 1953, and we've never had a day without a shortage–like some outage or shortage.” This is all pretty much make-to-order stuff. Hardly anything was made to stock. And he goes, “This week, we've had no shortages all week, and last week, we only had one.” And it's like, “I never thought I'd see the day.” And he didn't work in supply chain. He worked in quality assurance, but he had been there since he was like 19 years old. And he goes, “This…” And it used to be a Westinghouse transformer factory. And he goes, “I've been here since 1953, when I was 19 years old. There was always a problem, and now we don't have problems. I don't talk about shortages all the time, or a deviation, or whatever, because it's amazing.” And I go, “Well, we made a commitment to get away from MRP and from guessing and so forth and make this change.” And I just saw the transformation for the people's lives, and they went, “This has got to be something we've got to get everybody to start thinking differently, because it's not that hard.” But the people selling you software don't really want you to go down that path. It's not sophisticated, but it works.

Mark Graban:
That employee, I'm sure, would have said, “It's not possible to have a day without shortages.”

Jerry Wright:
For him, it wasn't, right.

Mark Graban:
Yeah, I mean, fair enough. We'll do things a different way instead of trying to do the old way better. But I know in the book you talk about the psychology of all of this. There might be psychology behind executives being afraid of change–the devil you know versus the devil you don't. But I'm thinking specifically of, let's say, the people whose job it is to be chasing down parts and being expediters. And like at Dell, before we implemented some of the software, there was a lot of that. There's a lot of people whose job it was to chase down orders. And, you know, people take pride in that because it was very necessary in the old system. They're working hard. They care. It's better to–in that case, it was better to have these hardworking, diligent expediters than to not. But then when either job responsibilities change, or some of these job titles literally go away, you know, there's this question of, I would hope, you know, from Lean principles, that you retrain people to do work that might be less stressful or more interesting anyway. But people still feel a sense of loss, like, “I'm an expediter.” Can you share about kind of helping people through that?

Jerry Wright:
Yeah, and we had the circumstances–I call it the “heroism.” It's the hero–you ride in on the white horse and save the day. But it should be unnecessary. We had an electrical engineer at one of the Kimberly Clark plants I worked at, and he would come in in his pajamas in the middle of the night and fix the program or whatever and go back home. And everybody called him the hero. And I'm like, “No, that's not what we want to do. You want to have everybody know how to fix it–have the electrician know how to fix it–not have to call the engineer in, because he's holding information close to the vest and creating this heroism of, ‘he's invaluable.'” But the reality is, that's not the way to manage a business. The cases where we had expeditors–we actually had expediter titles at DJO Global. And we said, “Okay, expeditors now become Kanban specialists.” And they actually manage the inventory. And it's a lot more rewarding to manage inventory and have no shortage and be able to brag about how good your system is. We'd have people come in from other companies during AME tours and look at our Kanbans, and they'd go, “Can we copy this? Can we take photos?” “Sure, you can have whatever you want.” And then the people who were heroes as expediters are now heroes as Kanban owners, showing, “Here's how I do it. Here's how I manage it.” And these are folks who are, you know, typically hourly employees–warehouse-level staff. And here they are showing other, you know, executives, managers, VPs, how they manage a system with the simple cards, and they have no shortages. And they start to feel this sense of pride and ownership that I think is probably greater than the hero-of-the-day expediting function.

Mark Graban:
Yeah, and, you know, that's a tough mindset to get away from. I'm reminded of a book Beyond Heroes. It's a healthcare book written by Kim Barnas. She was my guest talking about that a decade ago in episode 197. There's still a lot of, unfortunately, necessary heroics in a hospital that are required every day until you can improve the system.

Jerry Wright:
Yeah, and if you, you know, you think of Toyota and what they do, they do not want heroism. They want consistency. And I think Philip Crosby, who did the Quality Without Tears and Quality Is Free, made the comment, “If you want your production operation to be more like a theater production or a ballet, where everything has a cue and there's a stand…” Too many companies play hockey. You know, they drop the puck, and you're not sure what the outcome is going to be. It's entertaining, yeah. But it's not the way I want to run my business. I want a theater production or a ballet for my business. And hockey should be a thing I go see, not how I play business. Because hockey–the outcome is uncertain, right?

Mark Graban:
Yeah.

Jerry Wright:
And in a theater production, it's pretty much certain, or at least you're planning for it to be that way.

Mark Graban:
Right. The hockey game, unlike, say, professional wrestling, is not scripted, correct?

Jerry Wright:
Correct, for sure.

Mark Graban:
Not only is the outcome determined, but how we get there. And that's part of the beauty of sports. So, with your book, Jerry–again, we're joined by Jerry Wright, author of The Insanity Trap. Who would you say are the target readers for this book? Or who have you talked to? Like, what types of readers are getting the most out of it?

Jerry Wright:
I think the folks who are in supply chain and having to manage the daily challenges are the target audience I would like to see read it. But honestly, it's also business owners and GMs and presidents and C-suite folks who are responsible for their business. Because if they don't enable their team to be successful, there's going to be that risk of write-offs, excess inventory, all those challenges. So,

I'd say, you know, GMs, CEOs, CFOs in particular, COOs, and then people in supply chain and inventory management–those are the ones that need to be looking at this.

Mark Graban:
Yeah, and then maybe one other thing to dig into before we wrap up is, what are you hearing about the promise? And sometimes marketing might be ahead of the curve of reality. The promise of AI in terms of fixing forecasts–I just did a Google search here. I'm not going to name names, but a big three-letter famous computer company–here we go: AI-infused demand forecasts. There's another company with examples of AI in ERP–better predict costs, better forecast demand, AI and machine learning. There's a lot being talked about, written about, maybe even they're trying to sell it. What's the landscape here in 2024?

Jerry Wright:
The word AI shows up in a lot of things, making it sound like it's got more learning and capability. But to the best of my understanding, no algorithms are able to predict the future. So, it's essentially electronic or futuristic snake oil still, and I would still recommend that trying to forecast the future is a guessing game. And no matter how good your technology is, it's still going to give you empty promises and cause problems until you disconnect the two. Forecast away–that's no problem for planning purposes. But don't buy with the forecast.

Mark Graban:
Well, great advice. That's a great way to wrap up. So again, the book by Jerry Wright is The Insanity Trap: What Your MRP Consultant Won't Tell You. And I recognize, as an author and publisher–the barcode–I'm like, okay, this was printed, it looks like, by Amazon in Columbia, South Carolina. In a world of print on demand, you no longer have to forecast how many books you're going to sell. Amazon can respond very quickly, and sometimes they hold a little inventory. But a book printed through Amazon will never show out of stock.

Jerry Wright:
No, it just may be a longer lead time. I'll make a quick note too: I've been reading your book, The Mistakes That Make Us, Mark, and it's wonderful. Really like your writing style, and it's very insightful to think about how we can better accept and learn from our mistakes. I really am enjoying it. I'm about halfway through at this point, so I hope to finish it over the next week.

Mark Graban:
Oh, well, thank you. Maybe we can–let's do a combined book giveaway!

Jerry Wright:
Yeah, sounds good.

Mark Graban:
We'll figure out, and I'll promote–we'll do a contest: a copy of The Insanity Trap and a copy of The Mistakes That Make Us. Because maybe someone's got an MRP story that they'd want to…

Jerry Wright:
Target-rich environment.

Mark Graban:
You should host a podcast, Jerry.

Jerry Wright:
Exactly.

Mark Graban:
Thanks so much for having me, Mark. I do appreciate it. It's wonderful talking with you, and I look forward to seeing you at AME.

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Episode Summary

Exploring the Insanity Trap: Insights into MRP and Lean Manufacturing

In the world of manufacturing and operational efficiency, the concepts of MRP (Material Requirements Planning) and Lean Manufacturing have been at the forefront of debate and implementation for decades. Jerry Wright, a veteran in operations management and Lean methodologies, offers a profound look into these practices in his book The Insanity Trap: What Your MRP Consultant Won't Tell You. With over 39 years of experience in diverse sectors, Wright's journey provides valuable insights into the effectiveness and pitfalls of these systems.

The Origins and Evolution of Lean

Early Foundations

Jerry Wright's career kick-started during a transformative period at Kimberly Clark, long before the term “Lean” was coined. Initially referred to as “World Class Manufacturing,” the principles focused on setup reduction, quick changeover, and housekeeping–elements which later aligned with the Lean philosophy. Wright's early exposure included seminal texts like The Goal by Elihu Goldratt and Richard Schoenberger's World Class Manufacturing, both of which stressed efficiency and the Theory of Constraints.

Family Influence

Wright's Lean mindset was also molded by his upbringing. Raised by two meticulously organized parents, Wright grew up in an environment that emphasized cleanliness, organization, and resourcefulness. This disciplined household naturally ingrained principles akin to Lean, such as efficiency and waste minimization.

Integration of Lean Principles

Wright's exposure to Lean concepts expanded significantly from the mid-1990s onward. This period saw the incorporation of techniques like one-piece flow and Kanban systems, which further refined his approach to operational excellence. Through hands-on application and leadership roles, Wright cultivated a comprehensive understanding of Lean's potential in driving efficiency and reducing waste.

Unraveling the Insanity Trap of MRP

Initial Challenges with MRP

Wright's initial interactions with MRP systems at Kimberly Clark revealed fundamental issues. Despite the company's proficiency in manufacturing consumer goods like paper towels and diapers, the reliance on large warehouses and overproduction echoed a common MRP pitfall–efficiency in machinery overshadowing actual demand. This led to accumulative stockpiles and the challenge of balancing inventory with real-time needs.

A Broader Perspective

As Wright transitioned to other companies, the inefficacies of MRP systems became more pronounced. The concept of “forecasting” or “estimating” demands often resulted in extensive paperwork and frequent reconfigurations of production plans. The system's inability to manage variability in supply chain lead times and demand forecasts created a cycle of inefficiency and frustration, described aptly as the “insanity trap.”

The Kanban Solution

Wright's tenure with DJO Global provided a turning point. Encouraged by a seasoned consultant, his team adopted a Kanban system, a stark departure from traditional MRP. Initial setups involved a three-bin system, which was promptly optimized to a two-bin system, significantly improving efficiency and reducing inventory shortages. This gradual but impactful shift underscored the practicality of Lean methodologies over complex MRP systems.

The Battle with Forecasting and Scheduling

Master Production Schedules

One of the primary critiques of MRP systems lies in their reliance on Master Production Schedules (MPS). These schedules, often planned out for six quarters ahead, tend to be unreliable beyond a couple of quarters. Companies frequently find themselves grappling with inaccuracies in long-term forecasts, which translate to either excess inventory or unmet demand.

The Fudge Factor

Organizations often resort to “fudging” their numbers to align with unpredictable forecasts. This practice, while not ideal, highlights the inherent flaw in attempting to precisely predict future market needs. The rigidity of MPS and the variability in real-world conditions expose a significant weakness in MRP-based production planning.

Lean Success Stories

DJO Global's Lean Transformation

DJO Global's success with Kanban implementation vividly illustrates the advantages of Lean over MRP. Within months, the company saw a dramatic reduction in daily shortages, moving from 40-50 shortages per day to virtually zero. Inventory levels became more manageable, backorder issues dissipated, and overall efficiency improved, validating the Lean approach.

From Resistance to Acceptance

Initial resistance among executives, particularly concerning the transition away from MRP, gradually waned as tangible benefits emerged. The improved order fulfillment rates and reduced inventory holding costs demonstrated the superiority of Lean principles in real-world applications. This transformation was not only a strategic victory but also a morale booster for the workforce, who could witness the positive changes firsthand.

Long-term Impacts and Industry Reflections

Operational Excellence

The successful application of Lean methodologies reaffirmed the importance of operational excellence beyond theoretical models. Wright's experiences underscore the practicality and adaptability of Lean, making it a more resilient option in the face of supply chain uncertainties and market dynamics.

Industry-wide Implications

Reflecting on a broader scale, the inefficiencies associated with MRP systems potentially result in trillions of dollars in wasted inventory and missed opportunities globally. Lean offers a promising alternative, pivoting towards a more sustainable, waste-free future. The shift from MRP to Lean is not just a change in tools but a profound transformation in organizational mindset and culture.

In essence, Jerry Wright's journey and insights emphasize the critical need for industries to reassess their reliance on traditional MRP systems. Embracing Lean offers a pathway to not only operational efficiency but also long-term sustainability and profitability, aligning with the evolving demands of the global market.

Quality Improvement as the Ultimate Answer

In pursuit of breaking traditional trade-offs in inventory management, quality improvement emerges as a strategic lever. Kimberly Clark's stable, non-expiring products meant they had lower inventory holding costs, starkly contrasting with industries like electronics, where inventory can depreciate rapidly. For instance, at Dell Computer, fast-changing technologies meant that inventory aged like milk, quickly losing value and demand. This situation prompted attempts to reduce lead times and improve flow, highlighting the dynamic interplay between production capability and order priority.

The Electronics and PC Components Challenge

Dell, while not explicitly Lean, focused on reducing lead times to tackle the rapid obsolescence of PC components. Through material-constrained MRP runs every two hours, Dell aimed to align production more closely with real-time needs, balancing production agility with component availability. This method underscores the constant battle between building what can be produced versus what should be produced, making real-time adjustments crucial.

The Importance of Demand-Driven MRP

Wright's research delves into the historical underpinnings of MRP, specifically pointing to the Orlicky Foundation, which quintessentially redefined the implementation of MRP. The contemporary understanding shifts away from using MRP strictly for purchasing, instead leveraging it for planning alongside min-max systems–a methodology bearing close resemblance to Kanban.

This paradigm, known as demand-driven MRP, integrates MRP's planning strengths with min-max inventory management principles, thus avoiding reliance on potentially inaccurate forecasts. With sophisticated implementation options compatible with major ERP systems like Oracle and SAP, demand-driven MRP enables efficient inventory management without succumbing to the pitfalls of traditional forecasting.

Balancing Inventory and Customer Needs with Demand-Driven Systems

Using the concept of runners, repeaters, and strangers, organizations can prioritize inventory management based on demand frequency and volume. High-volume “runners” benefit most from Kanban or min-max systems, enabling seamless inventory control and significant noise reduction in operations. Moving to “repeaters,” these methodologies can cover up to 95% of volume with minimal complexity. For less common “strangers,” a made-to-order approach ensures customer needs are met without burdening inventory levels. This segmented management approach fosters agility and responsiveness, achieving a balance between operational efficiency and customer satisfaction.

Real-World Application: Toyota's Lean and MRP Integration

Toyota's approach in its Tacoma factory exemplifies the coexistence of long-term MRP planning with Lean execution. While MRP aids in planning workforce and production capacity, Lean ensures trucks roll off the assembly line to meet specific dealer orders, reducing the need for warehousing finished products. This system, remarkably adaptive, proved its resilience during crises like the Fukushima disaster, underlining the agility of Toyota's supply chain in reacting to disruptions.

Adapting to Volatile Demand

The challenge of handling sudden spikes in demand is evident in both Kanban and MRP systems. Companies often need to negotiate with customers, converting bulk orders into manageable, periodic shipments. This practice not only spreads out the production load but also maintains a manageable inventory level, enhancing both service and responsiveness.

Long-Term Planning and Execution

Even during unforeseen disruptions, a well-orchestrated Lean system like Toyota's can pivot effectively, highlighting the merits of just-in-time (JIT) principles. Conversely, relying on warehouses full of products can pose risks and prove less flexible in catastrophic events. Examining both strategies, Lean's adaptability and JIT's efficiency present compelling arguments for modern supply chain management.

As highlighted through explosive demand scenarios and strategic inventory planning, Lean and demand-driven MRP provide robust frameworks for navigating complexities in global supply chains. Integrating these methodologies offers a sustainable path forward, balancing efficiency with adaptability for long-term operational excellence.

The Real Cost of Silos in Inventory Management

One fascinating example involves a company addressing the inefficiencies caused by departmental silos. It was discovered that by catering to the purchasing team's demands to save on freight costs, they were inadvertently creating higher inventory costs. The solution? Less than truckload shipments, which eased the inventory costs and garnered approval from both the purchasing and inventory sides. The key takeaway here is the essential role of communication between departments to avoid suboptimal decisions that may inadvertently lead to higher overall costs. Breaking down these silos often reveals hidden savings and efficiencies.

The Hidden Costs of “Heroic” Inventory Management

Imagine an electrical engineer, frequently called a hero for fixing issues during off-hours. While their quick fixes may solve immediate problems, this “heroic” approach is far from ideal for long-term operational stability. Similarly, expediters who once prided themselves on chasing down supply issues found more rewarding roles as Kanban specialists. This shift from a firefighting mentality to a preventive, systematic approach in inventory management reduced stress, improved work-life balance, and enhanced job satisfaction. The psychological switch from heroics to sustainable practices defines a significant transformation in modern supply chain management.

Transforming Roles Through Lean Practices

Organizations transitioning to Lean practices often rediscover the true essence of employee roles. In cases where expediters become Kanban specialists, the shift not only optimizes inventory levels but also elevates organizational efficiency. These specialists now manage inventory proactively and take pride in presenting their systems to visiting executives, showcasing their contributions to a no-shortages environment. This role transformation is vital for maintaining morale while implementing new methodologies like Kanban, a departure from the unpredictability of traditional forecasting and expediting.

Addressing Psychological Barriers to Change

The psychological hurdles executives face when initiating change are profound. The adage “the devil you know versus the devil you don't” aptly describes the hesitancy many feel. However, guiding teams through these changes involves clear communication about roles, support for retraining, and fostering a collective vision of a more efficient, less stressful work environment. Having an all-encompassing approach that emphasizes reducing manual workload through improved processes helps in gaining buy-in from all organizational levels.

Enabling Consistency Over Heroics

Companies like Toyota exemplify the transition from heroics to consistency. Achieving a seamless operation that resembles a theatre production rather than the unpredictability of a hockey game is ideal. This shift isn't just operational; it's cultural. By valuing systematic consistency over reactive heroics, Toyota–and companies following similar principles–ensure higher reliability and smoother operational flows, which are less reliant on individual interventions.

Embracing AI and Machine Learning in Forecasting

The buzz around AI in forecasting has reached new heights, with promises of AI-driven demand forecasts and machine learning-powered ERP systems. While these technologies offer intriguing possibilities, the reality is that no algorithm can predict the future flawlessly. AI's role can be beneficial for planning purposes but expecting it to solve fundamental issues in demand variability can be unrealistic. Instead, integrating AI to assist with demand sensing and trend analysis, rather than relying on it completely, forms a more balanced approach.

The Promise and Perils of AI in Modern Supply Chains

In 2024, while AI infusions in ERP systems carry potential for improving demand forecasts, the efficacy of such technology remains under scrutiny. Companies must recognize that AI, despite its capabilities, cannot replace robust, well-implemented Lean systems. AI should complement traditional inventory management techniques, not replace them. For example, AI can help in identifying trends and providing predictive insights, but core inventory decisions still benefit from human oversight and expertise. This balance ensures that technology enhances rather than hinders supply chain efficiency.

Transitioning to a Demand-Driven Approach

Shifting to a demand-driven approach from traditional MRP involves understanding that excessive inventory doesn't equate to operational readiness. The paradox highlighted by Taiichi Ohno rings true–more inventory often means not having what you need. Instead of continuing to bolster forecasting efforts, businesses should look towards demand-driven strategies. By focusing on real-time data, integrating advanced planning systems, and reducing reliance on forecasts, companies can achieve more responsive and adaptive supply chains.

The Role of Continuous Improvement in Inventory Management

Continuous improvement through methodologies like Kanban and Lean is crucial for long-term success. As illustrated by the experiences in various industries, including automotive and electronics, shifting focus from merely responding to shortages to preemptively managing inventory results in significant operational improvements. Implementing these changes isn't merely about adopting new tools but about fostering a culture of efficiency and adaptability.

Conclusively, combining Lean principles with modern technologies like AI, while maintaining a focus on reducing operational silos, can drive substantial enhancements in supply chain management. Organizations that embrace these methods stand to gain not only in efficiencies and cost savings but also in creating a more adaptable and resilient operational framework.

Transforming Inventory Management with Print-on-Demand Approaches

One shining example of modern inventory optimization involves the world of self-publishing and print-on-demand services. Take Amazon's approach to book printing. In the traditional model, publishers had to forecast demand, often resulting in overproduction or missed sales opportunities due to stockouts. However, print-on-demand has revolutionized this process. By printing books only when orders are placed, Amazon minimizes inventory costs and eliminates the risk of unsold stock. This approach offers a valuable lesson for other industries: aligning production closely with real-time demand rather than speculative forecasting can lead to higher efficiency and adaptability.

Learning from Mistakes in Inventory Management

In the quest for inventory management excellence, embracing mistakes as learning opportunities is crucial. As articulated in insightful readings, like Mark Graban's “The Mistakes That Make Us”, understanding and accepting errors can dramatically improve processes. Inventory managers should analyze system failures and compile these lessons to fine-tune their inventory strategies. This iterative approach, akin to continuous improvement in Lean methodologies, ensures that each mistake becomes a stepping stone towards a more robust supply chain.

Engaging Your Team in Process Refinement

Employee engagement in refining inventory processes is instrumental. Often, the individuals closest to day-to-day operations have the most profound insights. Encouraging a culture where employees can openly discuss challenges without fear of retribution drives innovation. Facilitating workshops and feedback sessions enables teams to collaboratively identify bottlenecks and devise practical solutions. This inclusive approach not only improves inventory practices but also boosts morale and fosters a sense of ownership among employees.

Achieving Agility with Dynamic Supply Chain Strategies

Agility in inventory management necessitates flexibility and a willingness to adapt quickly. Companies must be prepared to pivot their strategies in response to market changes, whether these are shifts in consumer demand or disruptions in supply chains. Dynamic supply chain strategies, such as employing multiple suppliers or maintaining a diverse product portfolio, help mitigate risks. Moreover, leveraging real-time data analytics to monitor and respond to these changes can significantly enhance a company's ability to maintain optimal inventory levels and service efficiency.

Harnessing Collaborative Forecasting to Reduce Uncertainty

While reliance on traditional forecasts can be fraught with inaccuracies, collaborative forecasting offers a strategic alternative. Integrating input from various departments, including sales, marketing, and finance, provides a more comprehensive picture of future demand. This multifaceted approach helps in refining forecasts and reducing the inherent uncertainty in inventory planning. Collaborative forecasting tools and regular cross-departmental meetings can synchronize efforts and align inventory management objectives.

The Role of Advanced Analytics in Inventory Management

Advanced analytics plays a pivotal role in modernizing inventory management practices. By utilizing machine learning algorithms and predictive analytics tools, companies can derive actionable insights from vast datasets. These technologies facilitate demand sensing, identifying shifts in consumer behavior more accurately, and adjusting inventory levels proactively. However, the key lies in balancing these advancements with human expertise. Combining data-driven insights with the nuanced understanding of seasoned inventory managers can lead to a more responsive and effective inventory system.

Cultivating a Culture of Sustainability in Inventory Practices

Sustainability is becoming increasingly vital in inventory management. Companies are examining ways to make their supply chains more environmentally friendly. Strategies such as minimizing overproduction, reducing waste, and optimizing transportation routes not only benefit the planet but also cut costs. By adopting sustainable inventory practices, organizations can appeal to eco-conscious consumers and build a more resilient supply chain. Additionally, initiatives like using biodegradable packaging and energy-efficient warehousing can further support sustainability goals.

Encouraging Innovation Through Cross-Industry Learning

Innovative inventory management solutions can often be found by examining practices in other industries. Cross-industry learning allows companies to adopt new techniques and technologies that have proven successful elsewhere. For instance, the automotive industry's use of just-in-time inventory management has been effectively adapted by various sectors. By continuously exploring and integrating best practices from diverse industries, companies can enhance their inventory strategies to stay competitive and efficient.

Empowering Inventory Teams with Training and Development

Investing in training and development for inventory teams is fundamental for process optimization. Providing continuous education on the latest inventory management tools, techniques, and technologies ensures that the staff remains well-equipped to handle evolving challenges. Training sessions, certification programs, and workshops not only improve skill sets but also motivate employees by showing a commitment to their career growth. Empowered and knowledgeable teams are more likely to innovate and contribute to a streamlined inventory management system.

Embracing these contemporary approaches and continuously refining inventory practices can set the foundation for a leaner, more adaptive supply chain. By fostering a culture of continuous improvement, leveraging advanced technologies, and prioritizing sustainability, companies will navigate the complexities of inventory management with greater ease and efficiency.

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