Supply chains have become far more fragmented and globally dispersed. As a supply chain manager, you’re being challenged by more impatient customers, shorter product lifecycles and more products with greater variety and customization. This “new normal” requires a new approach to supply chain planning and execution based on visibility, collaboration and real-time execution. The customer-centric strategy Demand-Driven Material Requirements Planning fits in very well as part of this solution.
“Push and Promote” is not flexible enough
Traditional ERP/MRP and DRP material planning and control systems use detailed predictions to purchase the requisite materials and to send supply orders through the production and distribution system until the point of consumption. This dependency-based system is called “Push and Promote.” Most purchasing and materials managers feel the pressure to eliminate the lack of essential components while drastically reducing inventories and minimizing export-related expenditure. In the current economic climate, this conflict has become more acute than ever before. Unfortunately, most of today’s dependency-based programs are insufficient to effectively resolve this conflict, given the increasing change and variability of supply and demand. These frequent demand and supply changes lead to nervousness for both the system and the planner.
The “Pull”-based Lean approach, on the other hand, establishes kanban positions, which are independent inventory positions typically placed at each resource position. Many Lean implementations attempt to abandon the traditional planning approach of MRP, because it overcomplicates things. However, the Lean approach itself tends to fail in providing visibility into critical dependencies and relationships regarding supply, demand, on-hand inventory and product structure. The more complex and variable the environments are, the more likely it is that Lean’s simple kanban system and lack of material planning will create an oversimplified approach.
Best of both worlds = DDMRP
What if there were a technology that combined the flow synchronization of MRP and the easy-to-interpret replenishment signals of Lean with innovative planning and implementation methods, to satisfy both traditional planning staff and Lean proponents? What if a reliable method for customer-centric pull-based planning and execution of supply chain materials with high degrees of visibility could be introduced to the MRP world? This method is Demand-Driven Materials Requirement Planning, or DDMRP.
How does DDMRP work?
DDMRP is a formal multi-echelon pull-based planning and execution method to protect and promote the flow of relevant information and materials by establishing and managing strategically placed decoupling point buffers. These buffers limit the propagation of demand and supply variability through the system and reduce the associated program and planner nervousness while compressing the lead times and reducing the working capital tied up in inventory. The DDMRP process consists of five sequential components.
1-2-3: Design the model
The first three components essentially define the initial and evolving configuration of a Demand-Driven Material Requirements Planning Model.
- Strategic inventory positioning: Where do the decoupling points come?
- Buffer profiles and levels: What degree of protection do they need?
- Dynamic adjustments: What degree of flexibility is needed based on operating parameters, market changes and planned or known future events?
4-5: Make it work
In DDMRP, demand-driven planning is the process by which supply orders (purchase orders, manufacturing orders, stock transfer orders) are generated. Visible and collaborative execution is the process by which a DDMRP system manages open supply orders.
By establishing and managing strategically placed decoupling point buffers, DDMRP makes it possible to increase stock rotation (i.e. smaller stocks), shorten delivery times and increase customer satisfaction. And that, ultimately, can have a significant positive impact on a company’s turnover.
Curious to find out how this DDMRP method can enhance your supply chain planning? Contact us.