Demand Driven MRP: the Business Case
The benefits of DDMRP naturally depend on the starting environment.
- In an environment where ERP/MRP is the dominant planning & execution support tool, the Demand Driven MRP (DDMRP) business case revolves around improved competitive edge performance (lead times, on time delivery, order fill rates) allied with increased productivity, reduced expenses, reduced inventories, reduced parts shortages, improved plant stability, and highly visible and collaborative execution support.
- In an environment where a Lean manufacturing implementation is being crippled by chronic shortages, the DDMRP business case still revolves around the effects of improved materials synchronization but the leverage can be even greater than just in an ERP/MRP environment – Demand Driven MRP can be the difference between success and failure of the Lean effort.
The time, energy and expense being directed into a Lean implementation where chronic shortages of materials, purchased parts and manufactured components are blocking the Pull system on a regular basis could almost be considered a form of muda … waste … unless you have a solution.
And most companies in this situation do NOT have a workable plan for getting out of it.
- In an environment where a complex, multi-level Bill of Materials makes chronic shortages, constant expediting, and constant rescheduling a fact of daily life, DDMRP’s primary leverage is in providing stability, reducing system nervousness and the ongoing flood of MRP reschedules, providing high parts and material availability and reducing the chronic shortages.
- In an environment where product and manufacturing complexities are blocking a Drum-Buffer-Rope implementation, Demand Driven MRP is entirely on-message with the TOC philosophy and the performance leverage comes from reduced shortages and therefore higher parts and component availability, allied to a priority management system which is entirely in-sync with TOC’s Buffer Management approach within DBR.
When management have their policies and measurements correctly aligned, shortages are one of the few problems that can prevent a DBR implementation from recording spectacular results. Even a weak DBR implementation is a major upgrade over not using DBR, but the level of frustration from chronic shortages can still be very high and the steps to immunize the schedule against these problems can increase lead times beyond what should really be possible.
DDMRP helps a TOC company better Exploit its constraints, and subordinate non-constraints, in complete alignment with the Goal(s) of the company.
Typical results of Demand Driven MRP (DDMRP) in a conventional ERP environment include:
- Order fill rates boosted from (sometimes) less than 70% to (commonly) 98% or 99%
- High material and component availability for Lean Manufacturing and TOC initiatives
- Days or weeks stripped out of lead times
- Inventories reduced … often greatly reduced. Although total inventory reduction often isn’t the prime motivator for DDMRP, in many environments the impact is substantial.
- Inventories dynamically right-sized … increasing to maintain protection when demand increases, if necessary; and shrinking when demand reduces.
- Whole-plant Productivity boosted … literally, more products can be made and shipped with the same resources.
- Reduced expediting expenses, incoming and outgoing.
- Increased stability, reduced “nervousness,” improved absorption of variability, improved agility in the face of volatility.
- Less reliance on forecasts. While more companies are trying to get more accurate forecasts, DDMRP provides a basis for excellent performance with lousy forecasts (or no forecasts).
DDMRP’s results provide benefits on all ends of the economic spectrum.
They help a company capitalize on the good times – for example, when they’re riding a hot market – much more effectively than their competitors can. Take a look at the Letourneau case study to see a comparison between two sister plant experiencing similar explosive growth, and see the impact on inventories when one plant operates under MRP and the other under Demand Driven MRP.
And with reduced lead times, lower inventories and superior product availability they position a company to eat their competitors’ lunch when the economy weakens, potentially dampening or even eliminating the effects of a market downturn.
The Range of DDMRP outcomes
- The flow of work through the plant is protected against supply and demand variability. So, the flow improves substantially.
- So – there are fewer expedites, fewer rushes and panics, fewer resource-sapping recoveries from the fact that reality wasn’t quite as predicted. Better use of capacity. Better use of materials.
- Consequently, whole-plant productivity soars. In effect, costs per unit (in conventional terms) are substantially reduced.
- On-time performance is similarly protected against supply and demand variability; high performance levels are routine, even given the reality of Murphy.
- Inventory is “Right Sized.” Inventories are aligned with real consumption, not forecasts that are often extremely unreliable. You no longer have “too much of what we don’t need, not enough of what we do.”
- Execution is greatly improved. You’ll see early warning of supplier problems, delayed work orders etc – in time to act and preempt the problems from becoming a schedule disruption.
- Shorter lead times give you the opportunity to bid for and win business you might not have stood a chance of winning before DDMRP. Or to charge a premium price where faster-than-standard delivery carries a real value to the customer.
- With pin-point precision you can see the impact of holding or not holding inventories of materials, purchased parts, manufactured components, and finished products at the plant warehouse and down the supply chain.