The Core of the Spiral:
The manufacturing industry is trapped in a downward rule spiral. What does that mean? Rules determine how our MRP and ERP systems operate, and we’re in a never-ending cycle of holding onto old rules while simultaneously adding new and conflicting ones. When downward spirals exist, there is usually a core issue that is causing the spiral. So, what is it for the Manufacturing Rule Spiral?
Rules that were developed at the inception of MRP in the late 1950s have survived and remain the core rules of MRP and ERP systems today, from planning and materials management to costing systems.
Not only have we kept these outdated rules, but we have tried to add additional rules with every new decade and industry change without removing or changing the existing rules. This has unfortunately resulted in confusing and conflicting ideas and many clunky and inefficient software programs.
Culprits & Symptoms of the Manufacturing Rule Spiral:
GAAP
As we’ve mentioned in previous blogs, and as Debra Smith and Chad Smith mention in their book Demand Driven Performance, one culprit of maintaining outdated rules is GAAP (Generally Accepted Accounting Principles) – specifically, the use of GAAP as a predictor for future costs, and therefore a definitive factor for a variety of decisions. As we all know, though, past unit costs cannot accurately predict future costs in the current complex business climate. Utilizing GAAP as an internal decision-maker when it was intended to be a method for external information sharing has led to continued disappointment and missed opportunities for organizations.
Cost-Minimizing Myth
Related to the GAAP issue is manufacturers’ cost-minimizing myth, which is the belief that minimizing unit cost is the key to maximizing ROI. This "rule” pervades the industry and informs countless decisions and additional rules for reporting and measuring performance. As we covered in our blog on the topic, this rule is outdated and actually leads to lower performance and stagnation for organizations that abide by it (which includes most manufacturing organizations). As long as rules like the cost-minimizing myth lives and informs other rules and decisions, the rule spiral continues.
Excel Hell
Where can you see the symptoms of the rule spiral? One clear symptom is Excel Hell, which is employees’ overreliance on spreadsheets as a supplement to their ERP systems. When ERP systems fail to adjust their rules and processes to the modern business environment, they fail to offer individuals the capabilities that they truly need to succeed in their roles. This oftentimes drives them to perform their tasks separately using their own “tools” (e.g. large, complex spreadsheets), which results in a variety of risks and issues (link blog again?). The outdated and conflicting nature of rules in ERP systems unfortunately renders them not only difficult to learn and use, but leaves their results lacking completeness, causing employees to supplement with other methods, as inefficient and error-prone as they often are.
The Leaky Pipe:
The manufacturing industry and most of its software providers have not done the work to update rules for the modern business environment, and instead have focused their energy on encouraging, accelerating, and optimizing the existing outdated rules in hopes it will lead to greater success. The reality, though, is that attention has been focused on the wrong issue for too long.
Imagine you have a leaky pipe underneath your sink. Manufacturers keep trying to continually clean up the mess rather than fix the pipe.
There is an epidemic of “sticking to the status quo” and refusing to look at new ways of accomplishing goals that is pervading the industry and leading to overwhelming frustration, inefficiency, stagnation, and eventually failure of organizations. Just like the leaking will continue until the pipe is fixed, manufacturers will continue to experience dissatisfactory performance until they take a hard look at and fix the rules they and their programs are operating by.
Although the task of auditing and updating the rules by which your organization and software operate seems like a daunting task, there are a couple ways to make the growth easier. One way is to work with software providers that understand the spiral: providers that build and continue to update their programs to fit with the complex modern manufacturing environment and have already done work to discard obsolete rules and implement updated, forward-thinking ones.