Demand Driven MRP – Benefits

DDMRP Fundamental Benefits

As with any solution that works at the level of a deep-rooted core problem, there are a wide range of potential benefits from Demand Driven MRP (DDMRP) – of course, the value of these to any manufacturer depends on the specific circumstances of the company. The major benefit, though, is the improved availability … almost everything else stems from this.

  • Greatly improve the availability of materials, purchased parts, of fabricated, manufactured and assembled components,  of Finished Goods on site and even downstream in the supply chain.
    • Even in (in fact, especially in) challenging and complex manufacturing environments with deep or broad Bills of Materials structure, thousands or hundreds of thousands of component records, complex Routings that translate into long manufacturing lead times, and offshore sources of materials with long purchasing lead times and high variability in the reliability of the lead time.
  • Improve fill rates and service levels
  • Greatly reduce shortages and stock-outs throughout the supply chain
  • Improve whole-plant productivity
  • Bring stability to challenging production environments characterized by shortages and resulting expediting
  • Have Execution support far beyond traditional ERP/MRP, Lean and TOC … highly visual and extremely practical execution support system
  • Greatly improve work flow through the plant .. DDMRP is a prerequisite if chronic shortages of materials or of components are crippling your Lean or TOC “Pull” implementation
  • Right-size your inventories … abandon the syndrome of “too much of what we don’t need, never enough of what we do need.” (This typically leads to an eventual reduction in total inventories)
  • Less expediting waste in terms of expediting in, expediting out and overtime
  • Compressed lead times provide a serious competitive edge
  • Eliminates the need for most work-arounds in the form of personal Excel spreadsheets and Access databases

Expanding on DDMRP’s benefits

Tackling Shortages

In challenging or complex manufacturing companies where ERP/MRP is the dominant planning and execution technology, chronic shortages can become a way of life; expediting is “the norm,” and the consequences of shortages go beyond the major points above to include:

  • High levels of frustration among workers
  • Often a great deal of finger-pointing between departments
  • Mistrust,  contempt and even hostility between departments

And, failed efforts to resolve the shortages problem leads eventually to cynicism and resignation among many workers; they quickly get “gun shy” of the latest improvement “fad,” and pay lip service to supporting whatever the current improvement technology is while quietly confident that it, too will fail.

Tackling Shortages in Lean and Theory of Constraints implementations

The frustrations are even higher within Lean and TOC  production solutions.

Both offer “demand pull” mechanisms for moving work through the resources of a plant, kanban for Lean and Drum-Buffer-Rope for Theory of Constrainst.

Both provide many techniques around these basic mechanisms … the concepts of takt time, level loading, single piece flow, set-up reduction, improved quality, standardized work, 5S, and much more for Lean; and the Drum, the Buffer, the Rope, priority management by buffer penetration and other Buffer Management techniques (and more) for TOC.

Both offer the promise of simplified work flow,  fast flow through the plant for reduced quoted lead times, high reliability for on-time performance and therefore of service levels, and low WIP.

Both require a serious commitment to a new way of working, one that pulls-in extensive education and training, development of new systems, improved people skills and communication skills.

And all of this falls completely apart if chronic shortages are a major problem for the company.

This is one of the very few causes that can threaten performance in some TOC implementations; and a source of serious aggravation in a Lean environment, where the frustration moves up yet another notch because among all the problem solving techniques people learn, and even if the problem-solving techniques of Six Sigma are deployed … there appears to be nothing to attack a chronic shortage problem in components and materials.

Demand Driven MRP (DDMRP)  is quite simply a prerequisite for Lean and TOC success in some manufacturers; it provides the missing element that justifies the investment in the Lean and TOC implementations.

Bring Stability to challenging Production Environments

Chronic shortages certainly get in the way of smooth, fast work flow. And the connection to lost productivity is obvious; workers waste a lot of hours trying to find the missing parts.

But less obvious is the tremendous effort that goes into recovering from the problems caused by shortages.

Expediting missing materials … this  takes time, and wastes money; but even more subtle is the reality that time is taken away from working on other things that need to be worked on, such as improved purchasing practices, vendor certification, alternative sourcing, negotiating pricing, etc.

These activities should be a significant part of some purchasers daily activities, but are often entirely absent. There is simply no time for them.

Expediting missing parts through the plant. This is the first element towards chaos.  Something is missing, and needed, so replacements need to be expedited … and the chain of undesirable events commences.

The materials released to make the missing quantity are likely to have been needed for some other parts; now, their shortage is probably assured for some later time.

The priority management system in many ERP/MRP plants is inadequate, so the only way that a newly released order will make speed through the plant is if it’s hand-chased. Someone has to personally baby-sit it.

Even if a “best of breed” priority system is in place …  frankly, it’s inadequate, too. How does such a system prioritize orders with identical due dates? Because if work was released to a level that is close to resource capacity, and now there’s added work with the same due date … what’s going to give?

So, something is going to have to be delayed; even, taken off a machine in progress. And, for whatever is delayed, there are bound to be downstream repercussions leading also to … shortages.  If work is taken off machines, set-ups thrown away … in some manufacturing environments that’s going to provide unfavorable variances in the reporting system, probably with repercussions, too.

Or, there’s always overtime. But overtime has 3 costs. One, the pure dollars per hour. Two, the potential in some organizations for burn-out through excessive overtime. And Three, overtime that is just a regular part of every week can too easily become institutionalized, embedded, considered an entitlement to a degree where it’s difficult to sort out the reason for any specific level of overtime. Such as when a 5 X 8hr week is changed to a 4 X 10 hour week yet somehow, the Friday’s occasional order-specific overtime somehow becomes routine and you are now paying for a 5 X 10 hr week, with 10 of those  hours at overtime rates … with no accountability between orders and that overtime … and try taking the overtime away and the howling from “entitled” workers suddenly unable to meet personal payments is deafening.

Now, if the plant has deep or deep and broad Bills of Materials,  the outcome of even a single shortage and the need for a replacement order can create a cascade of effects that pass level by level through the whole Bill of Material. Reschedule reports are inches thick; and the reality is that many of the reschedules simply will never be made because planners don’t have enough time to execute the reschedule, and even if they did the plant would ignore them in the hope of retaining a little stability in the face of pressure for on-time delivery and high productivity.

With chronic shortages, a flood of reschedule messages, ignored reschedules, and expediting being the “norm,” the plant loses all concept of stability.

Right-Size Inventories

Virtually all companies with Finished goods or a stock of raw materials are entirely familiar with the syndrome where senior managers are concerned at the high inventories in the system, while sales are complaining bitterly about poor service levels.

Most often the balancing act leads to any of 3 unacceptable outcomes.

  1. Too high inventories are tolerated until finally someone in management or in Corporate “cracks” and the edict goes out for inventory reduction. Among the many problems arising from this is … what happens to the already poor service levels?
  2. Or, poor service levels are tolerated until the shouting from Sales management, perhaps backed by threats from a major customer to take their business elsewhere unless service improves,  becomes dominant and… inventories start to grow.
  3. Or, the company attempts to compromise … where there really isn’t a practical one available, and the problem continues in the form of poor service levels with too much overall inventory. And management remains baffled as to how this can be.

It’s common to encounter companies where the pendulum swing between high inventories and satisfactory service levels is almost as regular as clockwork, and can be tracked for decades into the past.

By synchronizing inventories with demand, and recognizing the realities of the incoming supply chain, DDMRP right-sizes inventories in materials, WIP and finished goods categories.

Compressed Lead times

Strategic Inventory Positioning is a fascinating opportunity.

A small stock buffer at exactly **this** place in the Bill of Materials, as pin-pointed by an DDMRP analysis tool, maintained by the Demand Driven MRP technique  … and you can strip days or weeks out of the lead time, increase the availability of the component for improved work flow, increase the availability of all the used-on components and finished products for improved service levels, AND probably reduce the overall inventory of the system.

In the appropriate marketplaces, your competitiveness just bumped ahead of anyone else. In other marketplaces, you might have just been given entry into a competition that would not have considered you before … perhaps with opportunities worth 7- and 8-figures or more.

Eliminates the need for many Work-Arounds

The circumstances that have created a problem that DDMRP can solve have a great deal to do with the MRP conundrum (MRP, Material Requirements Planning, being a major module in your ERP system).

On the one hand, MRP is more necessary today than ever, for a variety of reasons; on the other hand, MRP is less relevant to today’s realities than ever, for a variety of reasons.

Combined with the reality that MRP has always been a poor execution tool, many employees simply find that to perform their work effectively on an hour-to-hour or day-to-day basis, they need special, one-of, personal spreadsheets or Access databases. Or sometimes just the time to cut and paste a bunch of information from their multi-million dollar ERP system to a word processor or spreadsheet; or even, just the time to hand write extracts from the ERP system onto flip charts or whiteboards in the Planning office that guarantee a steady stream of people will be walking through the door to review … because this is the REAL data they need to operate the plant.

And this is a nightmare for a company’s IT department, for some senior managers, and a nightmare in the making for the company’s performance.

  • No-one except the user actually knows what the spreadsheet or database does, how it’s developed, where it gets the data from, how to use it … and these personal systems are often filled with “quirks” because they are not developed by professionals. If the “owner” is absent, or leaves … there’s a huge hole, mostly with no documentation to help fill it, in the real operating system for the plant.
  • Changes to the system may call for changes to the spreadsheets and personal databases … but the developer is usually the user, and often there’s simply not enough time (or know-how) to make the appropriate changes.
  • The data is often extracted by cut-and-paste or more sophisticated means from the company’s main system. When there are any changes to the main company database – tables change, data definitions change, user-defined fields previously unused are assigned, etc – IT have no idea who owns or uses these work-arounds so has no opportunity to pass along the changes. One obvious result is that these work-arounds can easily be working with wrong data.

There is a more frustrating problem for senior or corporate managers and for the IT department … the very justification for the investment in the main ERP system almost certainly included the promise of eliminating the need for these work-arounds, with phrases such as “everyone reading from the same book” being passed around the boardroom.

And now they are seeing more of them than ever.

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