Demand Driven MRP and Theory of Constraints

Demand Driven MRP provides an advanced application of the TOC Replenishment solution for Distribution and Supply Chain management … but it is unique in also resolving material, parts and component shortages that can frustrate a Theory of Constraints Drum-Buffer-Rope implementation.

While Theory of Constraints is best known through the popularity of the book “The Goal,” by Eli Goldratt, the book contains only a fraction of the TOC body of knowledge; probably less than 5%.

Without question the most popular application of Theory of Constraints is the Production solution illustrated in The Goal, known as Drum-Buffer-Rope or DBR.  DBR is a pull-based approach to scheduling a shop floor and managing the flow of work through the resources, and it typically provides lower inventories, shorter cycle times, higher productivity and more consistent on-time delivery than the just-in-time techniques of Lean.

However, for many companies the Replenishment-based approach that TOC calls the “Distribution and Supply Chain” solution is a vital application, offering the potential for  extremely high service levels and fill rates of finished goods while providing a basis for substantially reduced inventories throughout the system.

Demand Driven MRP (DDMRP)  has direct applicability to both of these.

• DDMRP includes an advanced implementation of the TOC Replenishment solution, although going further with a much more comprehensive solution.
• But DDMRP is entirely unique in providing support to resolve a problem that can be a major obstacle to Drum-Buffer-Rope implementations in environments where complex multi-level Bills of Material combine with high levels of volatility and variability in demand and supply. In these environments companies can experience chronic shortages at the material, purchased part and manufactured component level, and these shortages can become the single greatest obstacle to implementing the pull-based Drum-Buffer-Rope scheduling and shop floor control technique.

Combining the Replenishment solution for Finished Goods with the internal aspects of the DDMRP solution, this technology offers comprehensive coverage to the whole Supply Chain – covering the supply side, in house production and the fulfillment aspects of the Operations.

Applying Demand Driven MRP (DDMRP) in Production in support of Drum-Buffer-Rope adds some dimensions to the DDMRP implementation that are unique to the TOC circumstances. For example, the first step in implementing DDMRP inside an operation is to identify exactly where in the Bill of Material and Routings appropriately sized inventory buffers will offer the most leverage in terms of compressing lead times, eliminating shortages, and supporting high service levels.

This is exactly the same as in support of a Lean implementation.

However, the implementation in support of Drum-Buffer-Rope also offers the opportunity to use the stock buffers to protect the performance of CCR’s, capacity constraint resources, in terms of ensuring that they maintain the Drum-beat of the plant as planned; and to protect the performance of any non-constraints where intermittent problems of limited protective capacity due to variability in demand or supply can often be overcome with a judicious stock buffer.