Characteristics of those companies where DDMRP has the biggest impact

As I stated in the Executive Overview, there are 2 ways of looking at Demand Driven MRP; and viewing the technology from this perspective helps to characterize those companies that will best benefit.

Perspective #1:  … it fixes broken Planning systems to reduce or eliminate chronic shortages, correct inventory imbalances, reduce inventory substantially, avoid the nonsense of trying to get more accurate forecasts, and reduce expediting costs.  In some Lean environments it can be the “key” to making the Pull system work when shortages are crippling the implementation; and it can be the solution to the conflict between, “we’re supposed to be “Pull” not “Push”, we must turn MRP off” and “If we do, we die.”

Perspective #2: … it offers the opportunity to gain a serious competitive edge through dramatically improved customer service levels (for example, from 79% fill rates to 99%) with greatly reduced inventory (for example, in the range of 60% reductions in some cases) and through compressed lead times (days, even weeks), along with an approach that is far more tolerant of variability and volatility in demand, supply and processes.

Now, Planning systems are broken in a majority of manufacturing businesses – meaning, the systems that turn demand numbers into inventory and material and capacity plans and schedules really don’t work well. Executives might not like to admit it but the people working in planning are under no illusions, and those affected by the Planning problems don’t hold many illusions, either. The proliferation of workarounds – personal Excel spreadsheets, personal Access databases, even whiteboards – in companies with multi-million dollar ERP systems highlights the problem no-one likes admitting.

How do we know it’s the majority? Simple – we see it, we encounter it, our surveys confirm it, everyone else’s surveys confirm it.

Now, DDMRP provides a valuable solution in many other environments but this breakdown in the Planning systems is the most common, the most undeniable, and demonstrates the most massive repercussions, in challenging and complex environments.

What constitutes “complex” or “challenging?”

  • For example, deep, multi-layered bills of material that in your reality really cannot and should not be “flattened,” no matter how much this contradicts “Best Practices.” (One user of DDMRP has 28 levels in their BOM, and hundreds of thousands of component records. )
    • With DDMRP sometimes a company can ADD a layer to a Bill of Materials and as a direct result, dramatically improve fill rates and strip weeks off product lead times.
    • Yes, we understand that this might contradict what are supposed to be “Best Practices.” But this isn’t a game; the aim is to win, not to conform to the textbook. If that means taking a different direction from the herd – and especially if you can PROVE to yourself that this tactic WILL work, without risk, before you start – then, why not?
  • Companies with long, complicated routings that routinely lead to any schedule being invalid even before the ink has dried on the printed report; or where the routings inevitably translate into long lead times … both may be considered complex in terms of being an DDMRP “fit.”
  • Multiple where-used situations for common parts, especially where there are thousands of component parts involved.
    • We have an unorthodox perspective here: the more where-used situations you have for some components, the more leverage you can get towards improved performance with Demand Driven MRP (DDMRP ).
  • Or simply having thousands, even tens or hundreds of thousands of component records is likely to constitute a challenging environment from an DDMRP perspective.
  • Bills of Material where even with a great deal of effort into process improvements, the cumulative lead times (purchased and manufactured) of many components and finished products are not trivial – weeks, sometimes months – often create an environment where DDMRP will be of great benefit.
  • If you source materials and parts with weeks-long (even months-long) lead times … and have to tolerate serious variability in the supply line … you are a candidate for DDMRP .
  • If you have sets of highly repetitive builds; these can often be exploited by an DDMRP strategy.
  • If your market is going to reward you in terms of increased business, or premium prices, or both, if you significantly shrink your lead time … DDMRP is a likely “fit.”

  • Incidentally, many of these environments are where the power of an ERP solution was supposed to make itself most evident.

    And where the powerful solutions promised by Lean Manufacturing and TOC are so appealing … in theory … because of the potential for simplification.

    But in practice these are often the environments where you run up against realities of chronic shortages at component and material levels.

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

While there are definitely exceptions – some current users are in the $30 MM range, and we’re implementing this approach right now in a company with revenues under $10 MM – the odds are that if you are in a good position to capitalize on DDMRP you’ll probably have revenues of at least $100 MM, and quite possibly $1 Billion or more.

How the problems might appear in your organization

The most obvious way the problems show up is in the form of chronic material shortages, purchased parts shortages and component shortages at any level of assembly or fabrication.

However, while Operations “practitioners”  see and experience these realities directly (see ‘The Operations View’ directly following), the shortages and other problems addressed by DDMRP can be below the radar of executives who see only the disappointing performance outcomes without necessarily seeing the Operations problems themselves (see ‘Executives View’ later on this page).

The Operations View

If you’re a practitioner then you’ll experience the shortages directly because they either disrupt your plans and cause you to miss production and shipping targets, or else they steal your time, your energy and your attention as you try to recover from the problems they cause you.

And more often than not, the effort to recover from the problems in turn causes a cascade effect of disruptions through the whole Bill of Material, and you have to deal with that fallout, too.

And as an Ops practitioner you’ll know first hand whether “personal” shortage lists are circulating through the plant, whether people are trying to extract information from the formal system to copy onto white boards or flip charts or, more often these days, whether they’re building sophisticated Excel spreadsheets or Access mini-systems just to be able to work around the formal system.

The Executive’s View

If you’re an executive then these issues (shortages, work-arounds) might be below your radar; but you’ll see the outcomes in the form of poor service levels, poor inventory performance, and unwelcome and seemingly inexplicable expedite-related expenses – premium freight in, premium freight out, and overtime.

You’ll also be aware of the problems because of management frustration arising from the fact that the outcomes seem to make no sense.

You’ll probably notice that the discussion at the monthly and quarterly meetings seem to be recycled month after month, with conversations typically summarized as:

  • “How can our service levels be so lousy while our inventories are going through the roof?”
  • “How come our capacity plans tell us we have plenty of capacity but we spend a fortune on overtime every month?”
  • “How come we have a multi-million dollar computer system to help us with our planning, and a team of experienced planners, yet we’re still not capable of having the materials we need when we need them?”

Also, an Executive may not encounter the proliferation of personal spreadsheets and Access databases directly but is more likely to hear of them from someone (probably the Exec responsible for IT) making the uncomfortable observation that a major part of the justification for the new ERP system was to eliminate the need for so many “local” mini-systems, yet you now seem to have more than ever … and people seem to rely on them more than ever.

And reality is that these work-arounds don’t just drive the IT department crazy, it’s a serious threat to company performance.

These are sub-systems that aren’t documented, that no-one else knows how to use, that no-one can be sure is accurate, that are often using incorrect data because changes to your mainstream system don’t get reflected in these sub-systems.

Another Exec-level issue: if ERP is your dominant internal system, and you have a challenging environment such as the issues described above, it’s close to a certainty that you’re not delivering the business case that initially justified the acquisition of the ERP system.

Surveys indicate that somewhere between 50% and 80% of ERP implementations don’t achieve the business case that was laid out in preparation for their implementation.

One major vendor, talking with their people in one city, even told us (off the record) that they suspected fewer than 20% of their implementations really hit the bulls eye.

And we’ve all heard the horror stories … “we spent $15 MM on a new system, our inventories just went through the roof at the same time as we had to fire $2 MM of business because we couldn’t get anything out the door.”

What’s interesting is that while the complexities of today’s software can lead to bigger horror stories than in the past, these success ratios really haven’t changed since the leading edge software was just called an “MRP system,” or Material Requirements Planning system, 30 years ago.

And neither have the excuses.

It’s a lack of management commitment. Or, a lack of a valid Master Schedule. Or, inaccurate data. Or, if only those darned employees would for just once in their life actually follow the schedule we give them. Or, “it’s the customers’ refusal to order according to the forecasts we develop for their demand, darn it.”

These were invalid as reasons 30 years ago,  and they’re invalid today; they’re just good places to go when no-one really understands the problem.

When Lean Manufacturing is your dominant operating philosophy

If Lean Manufacturing is your dominant philosophy, and you have multi-level or complex Bills Of Material, problems are again almost inevitable.

Lean today is a HUGE movement. Search for “Lean manufacturing” on Google and you’ll find there are approximately 2.5 Million pages on websites that mention it. There are about 8000 searches a day on Google for that 2-word phrase. Every business magazine and trade association is full of Lean-related stories.

The “pull” concept of Lean Manufacturing is one of the key elements; make only what’s needed, at the rate that the product is consumed. No waste of surplus inventory. Or over-production. Or unnecessary processes, or waiting around, or unnecessary travel, etc.

And it’s called “Pull” in contrast to the traditional practice of pushing work into the plant to keep resources busy – the so-called “Push” concept.

But what happens to Lean when there IS variability, and volatility, in an environment with large, complex multi-level Bills of Material?

When the Bills of Material are many levels deep, and there are hundreds or thousands of parts involved in the finished products, and long lead times are inevitable inside the plant, and even longer lead times now to bring materials in from Asia … what happens?

When materials simply HAVE to be bought to forecast, with long lead times, … then orders come in differently than the forecast?

When required quantities change just after the container of materials left China, when a tooling problem damaged a handful of parts and the shortage cascaded down through 6 levels of Bills of Material and left you needing more on that container that just left?

The common reality is that the simple, elegant, no-waste Pull system (usually based on the kanban mechanism) is all too often crippled by shortages in companies with large, complex, multi-level Bills of Material. And after spending 6- and 7-figures on consultants, education, training and “Kaizen events,” management’s frustration when this happens can be acute.

Work-arounds sprout all over, of course.

Some companies try to flatten the Bills … it’s one of three fashionable responses, but in many larger companies it simply isn’t practical, or desirable. (In fact, with DDMRP we’ll sometimes ADD a layer into the Bill of Material and dramatically shorten lead times and increase fill-rates as a result.)

Another fashionable response is to try to just make-to-order … but this comes at a price, too. Either you carry a substantial amount of surplus capacity, or else you risk your delivery performance and quoted lead times.

And a third response … try to get a better forecast. The problems with this are well documented in our DDMRP White paper, “Beyond MRP – Meeting the Current Materials Synchronization Challenge.”

Unfortunately, none of these have resolved the challenge of supporting a Lean initiative with the right materials, parts and components in a complex environment.

Same situation with Theory of Constraints (TOC)

The situation is almost parallel with Theory of Constraints (Drum-Buffer-Rope) implementations in similar environments – with complex Bills.

Theory of Constraints has earned a well-deserved reputation for fast, massive performance improvement; much of which is owed to the Production application.

The production schedule in a Theory of Constraints implementation will use either the technique known as DBR, Drum-Buffer-Rope, or a more recent variation s-DBR, simplified Drum-Buffer-Rope.

In either case, the technique aims at generating a smooth, fast flow of work through a plant’s resources – similar to the expected flow in a Lean implementation, although the actual mechanism is different.

And just as with Lean implementations, the combination of complex Bills, volatility and variability can combine to seriously disrupt the Finite schedule (Drum-Buffer-Rope) or the flow of work through the plant (s-DBR).

And chronic shortages are one of the very few things that can seriously interfere with the success of a DBR or s-DBR implementation.

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