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Hello, Old Friend

By Randall Schaefer, CPIM | N/A 2011 | 6 | 9

A recent college graduate and newly employed APICS member contacted me the other day. He claimed to have read my articles and, through them, felt he knew me well enough to ask for some advice. I always help young folks if I can because, 45 years ago, I would have treasured an older veteran offering me guidance.

This member explained that his company's shop supervisors did not trust their new enterprise resources planning (ERP) system and insisted on scheduling production "the old way," which consisted of each supervisor (based on his mood of the moment) either agreeing or refusing to give priority to orders frantically expedited by customer service. So anxious were the supervisors to preserve this authority that they searched for things that made the new tools appear to be broken.

Their ERP system was configured to allocate inventory based on shop order start dates. Our new graduate would tell a supervisor that he could not manufacture expedited assembly XYZ because there were no widgets available. The supervisor would grab a handful of widgets from the stockroom and triumphantly scatter them across the director of operations' desk, claiming this was proof that the scheduling system could not be trusted. I smiled to myself. After 45 years, I was being visited by one of my oldest challenges: the inability to explain the difference between on-hand and available inventory.

For any part, the on-hand inventory is the total quantity in house__ whether it has been allocated for an order or not. Inventory value is calculated on this quantity. Available inventory is that portion of the on-hand inventory that is not allocated for some order. This is sometimes called available-to-promise inventory. Material requirements planning systems recommend replenishment orders based on this quantity. If only I had been able to clarify it that effectively all those years ago.

"Explain it this way," I suggested. "You have money in your checking account, but, at any given time, there are checks that have not yet reached your bank and thus have not been deducted from your account balance. The bank's records may show you have $500, but your personal records show you have only $200 because you know about the outstanding checks. The bank's records are like your on-hand inventory records. Everything is included even though some of it has been reserved. Your personal account balance is like the available inventory record. It represents the portion of the on-hand balance that is not reserved."

My new friend thought for a few seconds. "It's a good analogy. Everyone understands how checking accounts work. I will be able to explain why widgets are sometimes not available even though they are on-hand. They are simply reserved for more urgent production."

From the way he said this, it seemed that he thought his problems were solved. I smiled again. I too had thought figuring out how to explain the difference between on-hand and available inventory all those years ago was the key. But it doesn't end there. Understanding will increase the credibility of his ERP system, but it does not address the underlying capacity problem. After all, expediting had become a way of life only because his company could not routinely meet production schedules.

So, our grad's larger challenge is to manage capacity so there will be no need to argue about scheduling priorities. And, when he gets that under control, he might tackle the issue of why a supervisor can get away with entering the stockroom and helping himself to a handful of widgets.

Randall Schaefer, CPIM, is an industrial philosopher, independent consultant, and editor of the "Lessons Learned" department in APICS magazine. He may be contacted at randallschaefer@att.net.

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