What Is Demand Driven MRP?

  • Are you a manufacturer with a modern ERP system and a challenging business environment?

  • Do material and component shortages regularly disrupt the flow of your work?

  • Are your Lean Manufacturing or TOC initiatives constantly frustrated by shortages?

  • Are you satisfied today with your inventory performance? With your service levels? Lead times? With expedite-related expenses and waste?

  • Are you under pressure from the market to reduce lead times? Under internal pressure to reduce inventories without damaging service levels? Are you frustrated with the results of your efforts so far?

  • Are you comfortable with the scale of work-arounds in play in your organization? You know … Excel spreadsheets, Access-based mini-systems, picky manual cut-and-paste routines, even hand-written laboriously updated whiteboards?

Demand Driven MRP (DDMRP) is a breakthrough technique that works with your existing ERP system to offer:

  1. A solution to a chronic MRP-related problem that plagues many manufacturers – shortages of materials, parts, and components that block the smooth flow of work through the plant. By preventing the shortages, DDMRP boosts service levels and productivity, and reduces expediting and associated expenses including premium freight and overtime.
    .
    When the shortages cause even more damage – by continually frustrating efforts to implement “Pull-based” systems such as Lean and Theory of Constraints –
    DDMRP can have a make-or-break impact on the whole implementation effort and expense.
  2.  

  3. A distinct competitive edge through strategic lead time reductions in qualifying environments.
  4.  

  5. Significant reductions in total inventory investment … while improving service levels.
  6.  

  7. Significant increases in service levels (fill rates, on-time delivery) while reducing total inventories in the system.
  8.  

  9. The opportunity to eliminate the need for many of the common “work-arounds” (personal spreadsheets, databases etc) that drive IT departments crazy and make a mockery of a key objective of the ERP investment … but which Operations personnel will claim are essential if the job is going to be done.

________________________________________

Through some innovative and highly effective inventory buffering strategies – available for materials, parts, components, finished goods, and downstream supply chain inventories, whichever are strategically appropriate – DDMRP is able to capitalize on your existing ERP system:

In “complex environments,” thanks to a combination of factors, chronic shortages are almost inevitable without DDMRP.

A complex environment here can mean one with very broad or deep Bills of Material (one DDMRP user has 28 levels of BOM), or where there are thousands (or tens of thousands) of component records, or where Routings are long and complex and impose weeks-long long internal cycle times on manufacturing, or where offshore supply lines impose weeks-long supply lead times and serious levels of variability, or where demand variability is also high. DDMRP includes mechanisms to examine the Bills and pin-point exactly where the points of most leverage are for generating the maximum impact from strategic inventory buffering.

  • DDMRP analyzes your Bills of Material from the crucial perspective of individual and cumulative lead times. The what-if capability can tell you, for example, “Hold a small buffer stock HERE … and you’ll reduce customer response time for these 5 products from 16 weeks to 6 weeks.”
  • DDMRP also analyzes your Bills of Material from another powerful perspective – inventory impact. The what-if analysis from DDMRP’s perspective can tell you, for example, “Hold a small buffer stock HERE, at this common part … and by carrying an additional $25,000 of components you can actually improve the availability of used-on finished products while reducing Finished Goods inventories by $70,000 for finished product ‘X’ and $60,000 for Finished Product ‘Y’ and … etc. Very powerful.

Typical results of Demand Driven MRP (DDMRP) include:

  • Order fill rates boosted from 70% to 98%
  • High material and component availability for Lean Manufacturing and TOC initiatives
  • Weeks stripped out of lead times
  • Inventories reduced … often greatly reduced. Although inventory reduction isn’t the prime motivator for DDMRP, in some environments the impact is major.
  • Whole-plant Productivity boosted … literally, more products can be made and shipped with the same resources.

Results like these give qualifying ERP users the opportunity to achieve the business case that initially justified the investment, but which is often “missing in action” in practice. And the use of DDMRP carries with it no implied criticism, no challenge, no second-guessing or backtracking on the original ERP decision. It makes what you already have, work as well as you hoped it would when the ERP decision was first justified.

For companies in challenging environments that are attempting to implement “Pull” execution systems – commonly Lean Manufacturing, or perhaps TOC – DDMRP can be THE solution to the shortage problem that often ham-strings attempts to implement the Pull mechanism and creates so much “Push” versus “Pull” conflict between material planners and the Lean champions in an organization.

You can know in advance whether DDMRP makes economic or strategic sense for you.

One valuable aspect of Demand Driven MRP is that a corporation interested in DDMRP can get a comprehensive, custom-modeled PROOF that the solution applies to their environment (or doesn’t) … and some sense of the REAL value it brings them, often with $ values calculated … right at the outset of their interest.

This obviously makes sense – no-one wants to waste time or money on a solution that has only a marginal application to their environment.

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. 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.

Are these outcomes relevant for your environment?

Would these be meaningful for you?

  • 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.

In addition, for companies implementing the “Pull” systems such as Lean Manufacturing or Theory of Constraints …

  • Strong support in terms of material, parts and component availability.
  • A rational basis for materials planners (working with long purchase lead times) and plant schedulers (working with complex Bills and Routings) and production personnel (attempting to execute a Pull mechanism) … to ALL be aligned with a “Pull” agenda. The basis for many day-to-day conflicts simply evaporates.

________________________________________

So … what exactly IS Demand Driven MRP (DDMRP)?

DDMRP is a combination of some unorthodox strategic thinking, some tactics, and some tools that change how a manufacturer performs material planning and executes the production schedule and purchasing plan. It’s a combination of thoughtware and software that has implications at policy, procedure, measurement and behavior levels of an organization.

Looked at another way, DDMRP is also a fusion of elements of several technologies. It involves an advanced and enhanced form of the TOC Distribution and Supply Chain solution (far beyond the standard solution); it involves a modified version of MRP logic and DRP (Distribution Requirements Planning) logic (if you use DDMRP-compliant software you can turn-off the MRP in your ERP system); there are elements of Lean; and there several innovative ideas that don’t owe their existence to any of the “popular” technologies, but which simply make sense.

DDMRP has 5 functional elements:

1. Strategic Inventory Positioning.

With Demand Driven MRP (DDMRP) the primary question isn’t how much inventory to hold … it’s WHERE to hold it for maximum performance (availability and stability and protection of critical resources), competitive (lead times), or economic (inventory amounts, expediting reduction) impact.

You use the DDMRP perspective on Bills, Routings, lead times and inventory to choose strategic inventory locations somewhere in the supply chain, … anywhere from raw materials at the plant, to the finished goods in a client’s warehouse or a client’s shop floor.

Once you know the locations, you’ll establish Dynamic Inventory Buffers of materials, or parts, or components, or finished products.

The next step following the selection of the strategic inventory locations is the Buffer Profile and Buffer Level determination step.

2. Buffer Profiles and Buffer Level determination

The concept of Dynamic Stock Buffers is central to the DDMRP solution.

Essentially, the mechanism involves maintaining a buffer stock of materials, parts, components or Finished Goods where it most protects work flow, or most protects product fill-rates, or where it most effectively strips lead time out of the total lead time for a product, or where it most effectively supports inventory reduction in Finished Goods through the investment of fewer dollars in stock buffers within the manufacturing process or in materials.
~~~~~~~~~~~~~~~

(SIDEBAR: In today’s Lean-oriented world, this talk of buffer inventory might immediately set all sorts of red flags flying, because of the Lean concept that unnecessary inventory is “Muda,” or waste. We’ll address all these red flags head-on later on this page… but at least understand that the overall impact is LESS total inventory, not more; and BETTER flow of work through the plant’s resources, not slower. More importantly, the inventory is used to achieve its ONLY useful purpose – to increase profits. It is far from being “waste” in any pragmatic sense.)
~~~~~~~~~~~~~~~

The Buffer for each part is viewed in terms of 5 color coded Zones.

The critical 3 zones are:

Green … if a stock level is in the Green Zone, there’s plenty.

Yellow … when inventory crosses into the Yellow Zone, it’s time to build the Buffer again (buy or make).

Red … when inventory is in the Red Zone, it’s time to expedite; to move heaven and earth if necessary to get more in.

There’s a Blue Zone above the Green, meaning far more stock than is needed; and a Black Zone below Red meaning … out of stock.

Although it has been the standard for the TOC Replenishment solution, the 3 key zones are NOT usually proportioned in thirds. Instead the settings for the Zones represents issues of supply variability, demand variability, and length of lead time. Parts are grouped into, for example, “long lead time low variability” or “medium lead time medium variability” etc.  These form the Buffer Profiles. So for example, a part with a long lead time and a high variability might have a Red Zone that is substantially larger than just 1/3.  There are likely to be several other parts with a similar profile, so it makes sense to Group parts in this way.  The Profile reflects some important characteristics of the part.

The Buffer Levels are set with reference to other parameters … average daily usage, order minimums, etc.

3. Dynamic Buffers

The Buffer management concept is that these buffers are not static – they are DYNAMIC. If, for example, the average daily usage of a part increased substantially, it’d be reasonable to see the Buffer also increase in size to provide the same degree of protection and availability while parts are being drawn at a faster rate. One aspect of this is likely to be that the Safety Stock portion of the Red Zone would increase, for example – Dynamic Safety Stock, a concept that has always made sense but never been embedded in systems.

The increase in Buffer size is termed a Buffer adjustment.

Similar Buffer adjustments can take place for a variety of reasons, including provisions for ramp-up, phase-out, and seasonality; essentially, the Buffer stock is continuously “rightsizing.”

The stock buffers are therefore set once but then automatically adjusted and maintained to ALWAYS be in sync with actual rates of consumption.

4. Demand Driven Planning

As part of the Demand Driven Planning, parts are assigned a Planning Type.

In a typical manufacturing environment, the majority of parts will not be Strategically Buffered; the majority will be “regular” MRP-controlled parts. But some will be strategically buffered, with dynamic buffers; others stratagically buffered but (for various reasons) NOT dynamic; some parts will be a special form of the classic Min/Max controlled type; and some non-stocked, critical purchase parts will be designated as “Lea time managed” parts.

Now, the Demand Driven MRP explosion can be run from Finished Goods on down to components, as with a regular MRP run; EXCEPT that the BOM explosion STOPS whenever it encounters a strategically Buffered part.

So, we DECOUPLE the dependency; dampen the flood of reschedules that can occur in a traditional MRP environment as minor changes in customer demand or inventory adjustments trigger scores of reschedule messages that cascade down the Bill of Material.

Replenishment is used to manage the launching of work to replenish the stratagic Buffered parts.

The mechanism behind this is deceptively simple, and very effective.

5. Highly visible, and collaborative, execution

MRP, Materials Requirements Planning – the planning software embedded in ERP software – has never been a great tool for execution. It was never intended to be.

This was true 50 years ago when numerous APICS-Certified MRP experts were embedded in every sizable manufacturing business, and the MRP technology received even more attention in our factories than Lean Manufacturing or Six Sigma do today.

It’s even truer today, as realities have tightened the screws on manufacturers.

What we need is an execution system that genuinely allows Purchasing, Manufacturing and Fulfillment personnel to see the bigger picture, to plan for today’s high-pressure environment, AND execute meaningful plans in detail.

For example, recognizing the level of variability in a supply line or in customer demands. Planning intelligently for it. Being able to quickly see the true ramifications of a late delivery of some purchased goods. Being notified immediately of the potential for out-of-stock situations in purchased or manufactured parts, and being able to see immediately the ramifications … and what corrective steps are needed. Or highlighting where there is a lack of synchronization between component availability and “parent” need for those parts.

The color coded Zones gives a high degree of visibility to the Planners to support Execution of the plans. By showing the percentage by which a Buffer has been penetrated, Planners can also get a clear priority picture that is far superior to relying on due date. By cutting-out the cascading of reschedules, Planners are “bought” time to think and to … well, Plan.

By replacing the flood of reschedule messages with a color-coded priority visibility, and with Alerts to want of problems developing, Demand Driven MRP provides a strong basis for effective Execution of a plan that is solid from the outset.

Reality check: if this opportunity is for you, you are probably not a small company

While there are certainly exceptions, if you are well-placed to REALLY capitalize on DDMRP, you’ll probably have revenues of at least $100 MM, and quite possibly $1 Billion or more.

DDMRP is independent of the popular improvement “movements” … but supports them ALL

DDMRP is “agnostic,” meaning – it has no “religious” affiliation with any of the popular improvement technologies, but rather enhances them all.

The basic Replenishment mechanism (substantially expanded and refined for DDMRP) originated with Theory of Constraints, and the DDMRP development team certainly has more than 100 man-years of TOC experience.

But the DDMRP technique is so effective in part because it understands and exploits a failing in the MRP logic embedded in every ERP software package … and again, the team behind Demand Driven MRP has decades of MRP and ERP experience.

And DDMRP is a Lean-enabler; it literally makes Lean Manufacturing implementations feasible where before DDMRP, even the most heroic attempts to improve materials and parts synchronization led to chronic shortages and frustration in attempts to implement a “pull” flow through the resources of the plant.

DDMRP is a proven approach

While Demand Driven MRP IS a breakthrough technique, applicable to almost any manufacturing environment, you are NOT pioneering with DDMRP. The replenishment technique itself has been implemented in scores of businesses world-wide, and the full DDMRP solution has already yielded superb results in a variety of companies.

________________________________________

The Obvious Questions

Click on the link inside the question to be taken to a detailed explanation page.

  1. How can I learn more? What’s my next step if I want to pursue DDMRP a little further?
  2. Is there a high-level Executive Overview anywhere?
  3. What are the principal performance issues that DDMRP resolves?
  4. Which companies are best positioned to capitalize on DDMRP? What are the performance characteristics or other characteristics that make them a great “fit” for DDMRP?
  5. How is “Strategic Inventory Positioning” accomplished? What’s involved? Isn’t it a huge task to identify where the impact is greatest?
  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?
  7. What is Demand Driven Planning? How much does it borrow from conventional MRP? Is it a form of Re-Order Point control? How is the replenishment any different from traditional replenishment? Or from TOC Replenishment
  8. What is meant by “Highly visible and collaborative execution?” Don’t we have this right now?
  9. Is there any software to help with this?
  10. Who is using DDMRP today? What results have they experienced?

And, some reservations (and potential red flags) you might be considering – especially if you’re an Operations specialist with solid MRP or Lean Manufacturing know-how:

  1. Don’t we do this (strategic inventory positioning) now? We seem to have too much WIP already and it hasn’t stopped our problems with shortages.
  2. Isn’t this just the old Re-Order Point method?
  3. Why would we deliberately do this … doesn’t our MRP calculate what we need and plan to make sure we have enough?
  4. 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?
  5. Aren’t we trying to reduce or even eliminate inventories, especially WIP inventories? Isn’t this contradictory? Won’t this actually increase inventories?
  6. 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 was considered a Best Practice … isn’t it?
  7. This also sounds like deliberately adding one of the types of “Muda” (waste) that Lean thinking tells us we should be trying to eliminate. Isn’t this contrary to Lean Manufacturing? Aren’t we just adding “just in case” inventory after years of being told it’s the wrong thing to be doing?
  8. How would we know where we’d get the most leverage from holding a buffer stock?
  9. How do we know how much we should hold of any part or component or material? 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.
  10. How do we replenish parts that get used? How often? How many at a time?

 


Be Sociable, Share!