Business to Business Material Requirements Planning
(B2B-MRP™)

We are on the verge of revolutionary changes in business commerce that are far more significant than the industry trading marketplaces which are today's 'hot' e-Commerce concept.


Back to the Future

Let's recall what a revolutionary force MRP was 30 years ago. Computer technology had just emerged that enabled high-speed calculations. The key concept in MRP is that of dependent demand - that you can drive calculations of both material and time requirements backward from an independent demand provided you had accurate bills of material and manufacturing routings.

Tremendous savings resulted in production material inventories because planners knew with much greater precision how much of what was needed, where and when. Anyone who hung onto the old order point methodology was at a severe competitive disadvantage.

But MRP suffered from two key limitations - it was a regenerative and single company application. First, due to a combination of software design and hardware speed, MRP and Master Production Scheduling (MPS) had to be generated overnight. As the diagram below shows, it can take two days for traditional ERP planning systems to deliver material requirements information to a planner.

Second, MRP was a single company planning system. In spite of complex demand forecasting algorithms, planners built safety stocks of finished goods due to the difficulty of predicting customer demand. Companies struggled to be more agile. They decreased changeover times and standard run sizes.

But the ERP planning systems did little to increase the speed of planning information, and became constraints on quick response manufacturing. And in spite of just-in-time initiatives, many planners found that safety stocks of raw materials were still necessary to prevent production down time due to stock outs.

Why B2B MarketPlaces Aren't the Answer

Marketplaces for office supplies and MRO's are the first Internet business to business applications to hit the big time. Why? Because they address a relatively simple problem - point to point procurement - and provide some immediate return.

But for production materials the key is managing the flow of materials. Marketplaces can reduce order lead time and cost, but the procurement process, online or otherwise, is just a small step of the overall process.

And where production materials are concerned, trade can't take the form of constant auctions. The majority of trade in manufactured goods supply chains really takes place - between trading partners. Companies have partners that they work with every day, that they trust based on proven quality and reliability over years of experience, that are bound up in relationships built between people.

Of course, companies use alternate suppliers as supply insurance and for leverage in price negotiations, but even these relationships are contractual, persistent and require pre-qualification.

The killer B2B Internet application for companies that deal with manufactured goods will not be on-line purchasing or marketplaces. No. The killer B2B Internet application will be the one that frees MRP from its history as a regenerative, single-company application.


The Emergence of B2B-MRP™

The concept of supply chain planning is not new. But for the first time in history, we have at our fingertips a multi-company communications network. The emergence of the Internet enables business to business real time MRP, or what we simply refer to as B2B-MRP.

How do we think about B2B-MRP™ in both conceptual and practical terms?

First, visualize a supply chain as a stream of events that crosses multiple enterprises, usually involving small parts of each enterprise along its banks.

Now, imagine a network of planners from different companies who share responsibility for a product family's supply chain working together over the Internet.

Internet technology enables us to construct a real-time planning environment that resides on a central server or series of connected servers. Authorized planners can access and update the planning database from anywhere, regardless of whom they work for. All a planner would need is a PC, Internet access and a browser. This 'thin client' Internet architecture is rapidly replacing earlier client-server architectures upon which many ERP and pre-Internet supply chain products were built.

The foundation of a multi-company planning process has to be a multi-company business model - one that encompasses the entire process. The manufacturing bills of material that supported single company MRP are broadened to work for any stage of the supply chain - distribution as well as manufacturing. And manufacturing routings are extended into supply chain routings that define the movement of goods across company boundaries.

Think about the graphical plant applications that track the flow of material within a plant at every stage of the production process. The Internet enables us to do the same thing on a much broader scale - to track the flow of material at each stage of the supply chain process - from raw materials to manufacturing to distribution and retail. Every significant stage defined, every movement of goods (including notorious black holes like in-transit and work-in-process) visible.

That's the material flow side. Does a customer want to know the status of their order? Does the distribution warehouse want to know when product will arrive that needs to ship? Does assembly want to know the status of the components they are waiting for? Does production have an interest in raw materials? You bet they do - and a multi-company business model provides the architectural foundation for all these answers.

But there's something even more powerful here, and that's the planning or demand side of the process.

Everything that MRP achieved within a single company, and more, is now within our reach among trading partners that span the entire supply chain.

As soon as independent demands enter the planning environment, the impact of that demand can be exploded throughout the supply chain automatically and immediately. Examples of independent demands are customer orders or retail point of sale transactions that trigger replenishments. We are talking here about real-time, cross-company planning - a radical compression of time from days down to minutes.

Think of it - a real-time MRP that works across company boundaries - across the whole supply chain. One that can track material as it moves forward through the supply chain while simultaneously exploding dependent demand backward. One that can balance the two and simply inform each planner of what they want to know - where are they in trouble.

We know from our MRP experience that planners need tools that allow them to manage by exception. As planners access the shared Internet planning environment, the planning application should present action items to them, and these action items should be actionable at the click of a button. Better yet, just like email, the planner's pc could alert them ('You have a new demand') when an incoming action item has arrived.

Planners dynamically viewing and acting on demands across the supply chain - affecting each other in real time, honing and refining the balance between supply and demand on a minute by minute basis. Behavior like a neural net - fast, fluid, adapting to events on the fly. But not artificial intelligence - just intelligent human planners enabled by collaborative B2B-MRP™ technology.


XML and the development of B2B eCommerce standards:

At least for a transitional period of time, a server based B2B-MRP™ solution will require integration adaptors to react to events taking place within the individual company systems. There is a great deal of attention paid in the industry press to XML as the solution to the problem of electronic integration among trading partners.

And XML will play a key role. But XML is essentially a technical protocol that will act as a translator to enable disparate systems to communicate over the Internet. Great idea - but there is one huge difficulty that is gumming up the works: trading partners, in fact entire industries, must develop and agree upon eCommerce standards which can then be expressed in XML format.

Not a simple proposition. Several industries have cross-company efforts aimed at creating industry specific standards. But,

'there are a lot of vertical industries out there like finance and insurance and health care that are related. But they're having XML initiatives driven out of separate verticals, and there's no horizontal standards effort to pull all those together.'
Kevin Schipani, group manager at the ACORD (Association for Cooperative Operations Research and Development), the insurance industry standards body

Until now. Several major industries have backed the UN sponsored international standards body known as ebXML (electronic business XML). Of particular importance to B2B-MRP™ is the emerging ebXML framework for business process models.

I would make a prediction that B2B-MRP™ software will emerge based on the ebXML business process framework - but events have already overtaken such a prediction. B2B-MRP™ software that is ebXML compliant is already in progress from vendors participating in ebXML. And if the history of MRP is any indicator, it will be a force to be reckoned with.