How Demand Driven MRP offers Major Benefits for Supply Chains

Demand Driven MRP DDMRP) creates a remarkably effective supply chain integration through highly visible and collaborative execution capability.

In a recent chat, Chad Smith of Constraints Management Group made 2 great points about supply chains.

  1. He put his finger on an issue that’s puzzling and frustrating — in a great many companies, “Supply Chain” equates to warehouse management and logistics.
  2. Manufacturers are still at the core of supply chains; and their demand signals, which are tied-in to the logic in the antiquated MRP software that is at the heart of even in the most modern, most expensive ERP systems, have massive implications for entire supply chains.

When the planning systems in manufacturers are broken — and they are inevitably broken in companies of any size today if they use MRP software, as most of them do — the entire supply chain quickly becomes distorted and the problems experienced by a manufacturing business become mirrored at every stage of the Supply Chain, upstream and downstream.

  • Too much inventory of what’s not needed
  • Too little inventory of what’s needed
  • Lousy customers service at each stage of the Chain
  • Too-high expediting expenses at every stage of the Chain
  • Lost potential sales, lost profits, and eroded ROI at every stage of the Chain

One aspect of this — and only one, there are many — is the issue of visibility and priority.

Most ERP and/or MRP systems offer limited visibility to the real priorities associated with a full queue of Purchase Orders, Transfer Orders and Manufacturing Orders throughout the supply chain.

Without this visibility, the supply chain (suppliers, manufacturing, fulfillment and customers) employ the usual default mechanism of priority by due date which results in lots of reactive expediting.

Any sort of visibility or specific answer often necessitates a manual workaround or subsystem which requires massive daily efforts of analysis and adjustments.

Priority by due date – we need something better

Priority by due dates does not convey real priorities within the execution horizon.

The point can be made abundantly clear with a simple question: do you prefer your vendors to deliver on time, or do you prefer that they make sure you never have a stock-out?

Since priorities are not static, they react to the actual market pulls within the lead time of your Purchase Orders and Manufacturing Orders; this is called the execution horizon.  The longer the execution horizon, the more volatile the changes are to priority and the more susceptible a company is to adverse material synchronization issues.

Ask yourself the following questions:

  • How does the manufacturing floor really know the priority of stock orders?
    • Do you ever have MOs to fulfill stock that have the same due date (either a discreet date or “DUE NOW)?”  How does the manufacturing floor decide what the priority is?
    • Do you ever have MOs to fulfill stock orders that have different due dates?  Is it conceivable that despite a MO being due later, it is actually a higher priority?
  • How does the supplier know how to align their capacity to your priorities?
    • Do you ever have several open POs to a supplier all with the same due date?  If yes, how do they know which is the most important to apply efforts to?
    • Do you ever have several open POs to a supplier with different due dates?  Is it conceivable that despite a PO being due later, it is actually a higher priority?

How does DDMRP solve the problem?

– Visible Buffer Status

DDMRP allows actual order priorities (POs, TOs or MOs) to be effectively conveyed without additional efforts, disconnected subsystems or other workarounds.

Color coding gives an easy to understand general reference.

The percentage of buffer remaining gives a specific discrete reference.  These references convey today’s real priority regardless of due date.

– Suppliers and manufacturers need to see this every day.

ASR Buffer example for purchase orders ASR Buffer example for purchase orders

Lead Time Managed (LTM) Parts

What about parts that are not stocked but instead are critical long lead time parts?

Many critical components simply don’t make sense to stock due to their relatively low volume. These long lead time components can be very difficult to manage especially if they are remotely sourced. Without an effective way to manage these parts we risk major synchronization problems, costly expediting or poor service level performance.

In ERP/MRP systems there is very little done about the management of these parts. They are managed by due date with no formal system of visibility and proactive management to reflect real priorities.

DDMRP gives special status and visibility to these parts.

These Lead Time Managed (LTM) parts are tracked and at a defined point in the part’s lead time buyers are prompted for follow up.  If resolution is not made  the warning continues to get more critical.  Resolution could be either the assignment of a follow up date (temporary resolution) or the assignment of final confirmed date and decision (could be sooner, on time or later).

Both the visible buffer status and lead time managed parts are supported by a strong front office interface involving text notes, calendar updates/exports and the ability to launch e-mails that are part AND order specific.

The key is to increase the amount of accurate and timely information available to the entire chain.

This highly visible and collaborative execution capability creates a remarkable effective supply chain that can respond to real market demand without manual workarounds and other disconnected subsystems.



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