Demand Driven MRP: FAQ
FAQ 1. How can I learn more? What’s my next step if I want to pursue Demand Driven MRP a little further?
If you want to pursue this online, I recommend you head over to www.demanddrivenmrp.com. There are 2 paths you can take from there; the Demand Driven Institute is set up to provide education on Demand Driven MRP, or you can head down the path of learning more about the support technology.
FAQ 2. Is there a high-level Executive Overview anywhere?
Link to the Demand Driven MRP Executive Overview.
FAQ 3. What are the principal performance issues that DDMRP resolves?
Depending on the company’s circumstances, performance issues include:
Ensure high availability of materials, parts, components and finished goods even in complex Bill of Material environments, even with high supply and demand variability … so, greatly improved fill rates, service levels, productivity, on-time plant performance, reduced expediting expenses.
Slightly different emphasis on the same thing but worth restating … in complex environments, and in environments where Lean “Pull” is being crippled by chronic parts shortages, this will transforms the flow of work through the resources of the plant by minimizing/eliminating shortages.
“Right size” your inventory … typically, record some serious inventory reductions.
Now initially this may not be so because an initial analysis typically reveals too many of what you don’t need but also too few of what you DO need so when you act to quickly increase the levels of the needed-but-not-enough, the increase is often faster than you can reduce the too-high levels of what you DON’T need. This corrects itself in time, at a rate that depends on management’s willingness to act.
Compressed lead times (strategic use of inventory can strip weeks out of a lead time).
Better execution of the Operations plan (plus, greatly improved plant stability … chicken and egg!).
Less expedite-related waste (expediting in, expediting out, overtime).
Competitive advantage for the whole supply chain.
Reduced frustration and improved job satisfaction … intangible but very important side-effects.
FAQ 4. Which companies are best positioned to capitalize on DDMRP ?
What are their performance characteristics or other characteristics that make them a great “fit” for Demand Driven MRP?
Click here to visit DDMRP Best User Characteristics.
FAQ 5. How is “Strategic Inventory Positioning” accomplished?
What’s involved? Isn’t it a huge task to identify where the impact is greatest?
This step is absolutely pivotal. Without the right inventory positioning no inventory/materials solution will live up to its potential.
It’s NOT a huge task given the right approach and visibility within the environment. That visibility is gained through a combination of thoughtware and software. Thoughtware is applied to analyze the business environment and its rules and assumptions in order to create a compatible DDMRP design. In complex Bill of Material scenarios (deep, broad, many where-used) software does the heavy computational lifting and analysis to point out areas of opportunities both to add stock positions and to take them away.
For more information see: Demand Driven MRP and Strategic Inventory Positioning.
FAQ 6. What goes into a Dynamic Buffer Profile?
How is it different between parts? How is it different from setting Order Points in pre-MRP days?
The profile sets the parameters for determining the size of the “Top of Green” inventory level in a Buffer, as well as the size of the individual Buffer Zones (Red, Yellow, Green). Factors such as lead time, demand variability, supply variability, average daily usage, order minimum, maximum and multiple, ramp-up and ramp-down and seasonality factors all play a role.
The “Top of Green” for a part can be hugely different from the “Top of Green” for a different part based on usage volume alone; but differences in the variability of demand and supply will also differentiate one product from another, for example.
The technique of Strategic Buffering is radically different from Re-Order Point; to begin with, the actual quantity to the “Top of Green” and in each Zone is dynamically adjusted as parameters change and as demand rates change, plus the Zone basis for Buffer Management – managing priorities based on %age penetration of the Buffer – has no equivalent in Re-Order Point Control. This is only scratching the surface of the differences – there’s really no comparison.
There is more information on Buffer Profiles and Buffer Level Determination here.
FAQ 7. What is Demand Driven Planning?
Isn’t this the same as the traditional Re-Order Point approach? How is the replenishment any different from traditional replenishment?
In Demand Driven Planning, different planning part types are assigned than in conventional MRP; most parts will still be MRP-planned parts subject to the usual MRP rules but in addition, some parts are designated as strategically buffered parts, some as a form of min/max, and some as critical lead-time-managed parts.
The DDMRP explosion then progresses from the top of the BOM as with conventional MRP but “stops” when a buffered part is encountered; this decouples the demand dependency, dampens the nervousness of the system, and brings stability.
The MRP-planned parts are managed by MRP logic; the Buffered parts are managed by TOC Replenishment logic, using the 5-Zone color coded system and perentage of buffer penetration for priority management.
This then feeds the requirements oif the Execution phase of the technology, where the conventional MRP reschedule reports that overwhelm planners are a thing of the past; where real priorities (not set by due-date) are highly visible internally and to vendors; and where various alerts position the Planners to take the correct actions to avoid stock-outs and synchronize supply with demand in even the most challenging and complex environments.
You’ll find more information on Demand Driven Planning here.
FAQ 8. What is meant by “Highly visible and collaborative execution?”
Don’t we have this right now?
Certainly in an ERP/MRP environment there is an intention of synchronization and collaboration, and in a well-ran company of course there is bound to be some degree of collaboration; but ERP/MRP is simply not an effective Execution tool. (The emergence of short-lived MES or Management Execution Systems in the 90’s was an attempt to address this shortfall, too).
With DDMRP , the Zone Colors are highly visible as a first degree tool for priority management; the degree of penetration provides a specific basis for priority management that far outperforms the use of due date as a priority parameter; the cascade of reschedule messages is replaced by a much more manageable suite of Alerts, benefititing from the stabilizing effect of the buffered parts; and with the information available to all who need it, both internally and to vendors, the degree of collaboration is very high.
There are also a number of tools with DDMRP in support of good execution (high visibility or otherwise). You can learn more of DDMRP ‘s Execution approach here.
FAQ 9. Is there any software to help with this?
One software application has been developed that is 100% DDMRP compliant.
Other software packages offer partial solutions to some of the Demand Driven MRP solution, for example there are software packages that support the color-zoned TOC Replenishment approach. There is as yet no other software that provides the support for the Strategic Inventory Positioning, the DDMRP explosion, management of lead-time managed purchased parts, or for the Execution-focused functions.
This logic – the DDMRP logic – has recently been thoroughly documented by Chad Smith and Carol Ptak in the 3rd Edition of the classic book Orlicky’s MRP, available from McGraw-Hill.
FAQ 10. Who is using DDMRP today?
What results have they experienced?
Companies with a wide range of circumstances are currently using Demand Driven MRP, including some highly complex plants (for example with 28 layers of Bill of Material, 165,000 part numbers, 300,000 BOM records and 60,000 manufacturing orders per year).
Typical results include fill rates improved to the 98% level and better, the elimination (or near elimination) of shortages and corresponding improved support for production schedules, inventory right-sized (and typically significantly reduced), improved productivity, and compressed lead times.
You can see some DDMRP success stories here.
FAQ 11. Don’t we do this (strategic inventory positioning) now?
We seem to have lots of WIP inventory already, too much really, and it hasn’t stopped our problems with shortages. How will adding MORE Buffer stock help?
There is a big difference between simply holding a stock of a material or component or a Finished Good, and Demand Driven MRP (DDMRP )!
The starting point with DDMRP is to identify precisely WHERE the inventory should be buffered to provide the benefits (lead time compression, elevated service levels, reduced inventory); without that up-front analysis, inventory, no matter how much, is disconnected from its impact.
Most WIP in non-DDMRP environments is in place either to protect a local performance measure on a resource, or as a by-product of having batch sizes that generate more than the company really needs, or as the outcome of a practice of releasing work too early into the plant to keep people and equipment busy. None of that has anything to do with Strategic Inventory Positioning.
FAQ 12. Why would we do this – doesn’t our MRP calculate what we need and plan to make sure we have enough?
The justification for implementing DDMRP is simply that it generates performance levels that in many environments are far superior to anything that ERP/MRP can generate.
MRP’s breakthrough 50 years ago was that the emerging power of the computer in the 1960’s could be used to calculate – via the Bills of Material and access to Inventory balances, Demand (Forecast and Sales Orders), and Supply Orders (Work Orders, Purchase Orders) – the exact Net Requirements of every part and material in a Bill of Material, and to recommend actions to ensure supply and demand lined-up.
This was a great step forward from the Re-Order point system that had previously dominated Production & Inventory Control; and the logic developed in the 50’s and programmed in the 60’s and 70’s is 100% intact in our ERP systems today.
The problem is that manufacturing realities have changed dramatically, and created a conundrum where at the same time as MRP logic is more essential than ever for calculating and recalculation requirements in a fast-changing world with complex Bills of Materials, frequent new product introductions, and short product cycles, … the logic is also poorly suited to deal with other realities of manufacturing.
Demand Driven MRP (DDMRP ) is tangentially a return to the stock buffers that manufacturers used to hold pre-MRP … except that DDMRP is 180 degrees removed from the old Re-Order Point system.
The Buffers in DDMRP are laser-pin-pointed for maximum impact (availability and avoidance of shortages, lead time compression, inventory reduction), the DDMRP Replenishment method is a far superior model with dynamic changes to Buffers depending on real life factors, the Buffer management priority control method is central to DDMRP but has no equivalent in Re-Order Point control (or anything else), and while the “P” in MRP stands for Planning, DDMRP has a rich suite of Execution tools that follow a philosophy of high visibility and excellent support for collaboration internally and with suppliers.
FAQ 13. Wasn’t MRP “invented” to deal with the difference between dependent demand and independent demand on products – and isn’t this treating a dependent demand part as if it is independent?
Yes, as explained in the previous FAQ point, both these statements are somewhat accurate; but the ability to use Buffer Stocks strategically (versus, stocks simply being the left-overs of a too-large batch size policy or being the basis for protecting local departmental performance) completely transforms the solution, and the use of buffers eliminates a lot of the “nervousness” of an MRP system in an environment where there are complex Bills of Material, or long lead times on Asian-sourced materials, and variability in supply and demand.
The replenishment of the Buffer stock using the DDMRP technology genuinely is treating dependent demand parts as if they are independent, in MRP’s eyes, which could be construed as sinful by staunch MRP devotees; but the outcome of the strategically selected buffer stocks is to strip the nervousness from the MRP systems and provide a stable platform for a priority management system that is far more meaningful than due-date priority; to reduce the cascade of rescheduling action messages whenever there’s a twitch in the system; and provide superior support for Executing the plan developed by the DDMRP system.
FAQ 14. Aren’t we supposed to be trying to reduce or even eliminate inventories, especially WIP inventories?
Isn’t the Buffering strategy of DDMRP contradictory? Won’t this actually increase inventories?
The role of Inventory is to help a company make more money. Too much inventory of too many things can certainly be considered waste (Muda, in the language of Lean, which is the most emphatic management philosophy in terms of inventory reduction). But too little inventory can be far more devastating in certain markets and economies, where it costs lost sales, lost contribution, lost profit, damaged customer satisfaction, and through the impact on lead times can even lose a company the opportunity to bid on some major contracts.
So DDMRP reflects an almost-obsessive focus on having the right inventory to meet demands, rather than an obsessive focus on not carrying any surplus.
However! This does not present Lean DDMRP users with a dilemma because correctly positioned and sized Buffers leads to REDUCED total inventories in the system. Buffering at stratagic points in the processes can enable significant reductions in finished goods inventory, for example, while maintaining or more likely improving overall customer service levels. It’s just that the inventory reduction doesn’t come from an all-out war on Inventory, but rather as a side effect of a judicious strategic use of inventory.
Moreover, other outcomes of Demand Driven MRP – improved flow through the resources of the plant, improved on-time performance, reduced waste of over-producing etc are entirely aligned with the spirit of Lean – just, not the dogma.
FAQ 15. This seems contradictory to what we’re trying to do in another way, too – we’re trying to flatten our Bills of Material explicitly to eliminate opportunities to hold inventory at stages within the manufacturing process.
We thought this (flattening Bills) is considered a Best Practice … isn’t it?
Flattening the Bills of Material in some environments is definitely a sensible activity, where work can realistically flow from material to finished goods with no need or justification for intermediate inventories, and no need or justification for Work Orders at every stage.
However, there are some manufacturing environments where a deep (multi-level) Bill of Material is simply necessary, and flattening the Bills is not only unnecessary it’s virtually impossible and would likely be harmful.
In these environments, Demand Driven MRP (DDMRP ) can bring another dimension to the table – one that is definitely counter-intuitive. A judicious and thorough analysis of a manufacturing environment can reveal that ADDING another level to a Bill of materials can actually provide the basis for lead time compression, improved service levels, and reduced whole-system inventories.
If this captures your interest you should watch the videos or register your interest in a DDMRP webinar where we’ll provide a detailed example.
FAQ 16. This also sounds like deliberately adding one of the “Mudas” (wastes) that Lean thinking tells us we should be trying to eliminate.
Isn’t this contrary to Lean? Aren’t we just adding “just in case” inventory after years of being told it’s the wrong thing to be doing?
This is addressed within FAQ 14 but there are some DDMRP perspectives worth explaining.
DDMRP is “non denominational” in terms of, it represents a fusion in some ways of TOC, Lean, MRP, DRP, as well as some innovative concepts from Constraints Management Group.
The technology focuses on business performance outcomes rather than claiming to be a part of any particular management philosophy. So, if holding more inventory of a component at some stage in the manufacture of a product offered the opportunity to better-support a kanban mechanism where the execution of the plan is continuously stumbling over shortages, while compressing a product lead time, becoming more competitive, and enabling the reduction of total system inventories … DDMRP would consider this a good use of inventory even if a stand-alone Lean view of the specific component suggested that the Buffer stock was “muda.”
In an environment where variability in the upstream supply chain and in the plant itself regularly led to shortages of materials and components needed to support a “Pull” execution system … yes, a strategically buffered component could be considered to be holding “just in case” inventory, a label that makes such inventory almost automatically “evil.”
But the reality is that the Buffer inventories are dynamic and constantly reflect the actual demand pull for the buffered parts. In the face of demand variability, supply variability, and customer demand volatility, thecarefully positioned, carefully set, dynamically maintained “Just In case” Buffer stocks aren’t a negative from any vantage point other than a fanatical adherence to the letter of the Lean principles.
They REDUCE overall inventory, compress lead time, add stability to chaotic environments, make a Lean “Pull” system practical in environments where it otherwise would not be, and support the highest level of customer service.
And, with the Buffer in place, efforts to reduce or eliminate the variability in the supply line can be made systematically using Lean or Six Sigma technologies while the performance of the plant is “immunized” against the variability.
FAQ 17. How would we know where in the Bills and Routings we’d get the most leverage from holding a buffer stock?
There are several factors to be considered here, including:
Customer Tolerance Time (CTT) – exactly how long is a customer prepared to wait for their product?
The variable rate of demand, and the variable rate of key sources of supply
Inventory flexibility, and product structure
Minimizing the bull-whip effect
The presence and location of resource constraints in their work flow
For more information see: DDMRP and Strategic Inventory Positioning.
FAQ 18. How do we know how much we should hold of any part or component or material?
From comments made by a webinar participant: “One concern is that we’d just get stuck with a lot of inventory we don’t need. Another is that our demand is all over the place, sometimes we’ll need more than at other times. And our forecasts are no basis for holding stock, not unless we want to fill the plant to the roof with inventory – and we’d probably still be stuck with shortages of some products we most need.”
Remember, we’re only holding Buffers in strategic locations. The majority of parts are still non-Buffered. And, one consequence of the careful application of Strategic Inventory Positioning is that overall Inventory is likely to be REDUCED, not increased, once the appropriate adjustments have been made (correcting the surplus of some, and the shortages of others).
For Buffered parts, the basis for setting the 3 Zones in terms of a STARTING Buffer size is well documented, and reflects the factors mentioned in #17. This is described more fully in Buffer Profiles and Buffer Level Determination and it’s also discussed in more depth in Chad Smith’s excellent short videos.
But once the system is in action, Buffer sizes reflect the rate of demand-pull; the system will recommend or highlight the opportunity for adjustments upwards when there’s a clear increase in average daily usage, or when there are too-frequent penetrations of the Red Zone; but the system will also recommend or highlight the opportunity for adjustments downwards – i.e. shrinking the size of the stock Buffers – when the rate of demand drops, and the average daily usage decreases.
In effect, the system is constantly right-sizing the Buffers.
One of the DDMRP case studies highlights a situation where 2 sister plants, one using MRP and one using DDMRP, simultaneously experienced extreme growth (more than 400% over 4 years). The Inventory in the MRP-based plant increased proportionately; the inventory in the DDMRP-based plant increased at a rate that was approximately 20% of the inventory growth rate in the MRP-based plant, AND the Demand Driven MRP plant outperformed the conventional MRP plant in every KPI including, service level, lead time, and financially.
This raises another question; eventually, the explosive growth slowed then sales took a downturn as the economic recession hit. With sales heading down, which plant would you rather be managing – the one where Inventory grew at the same rate as sales growth, or the one where Inventory grew at 20% of that rate yet maintained a superior service level?
FAQ 19. How do we replenish parts that get used? How often? How many at a time?
Modern manufacturing philosophies usually call for small, more frequent batch rather than fewer, large batches; but DDMRP forces no philosophy onto a user.
This is therefore entirely a decision for the company, where they get to define order minimums, maximums and order multiples that are to be figured into the Order quantity released to replenish a Buffer.
Naturally, we expect that an DDMRP user will be conscious of the many advantages of smaller transfer batches between processes, and the advantages in some situations of smaller process batches at resources.
