All about the Demand Driven MRP (Material Requirement Planning), but what is this stuff here? Wasn’t it enough what we already had? MRP, Lean, TOC (Theory Of Constraints), Six Sigma and now even DDMRP ( Demand Driven Material Requirement Planning)!
It is not that the inventors of the method, Chad Smith and Carol Ptak, waking up in a bad moon one morning thought they were playing a trick on thousands of executives around the world, and came up with DDMRP. It is that the world has become a nightmare for a great many executives! The so-called VUCA world, i.e., characterized by Volatility, Uncertainty, Complexity and Ambiguity; put simply, it means that is a big mess. And bringing home the bacon becomes more and more difficult.
Put yourself in the shoes of Paris, one of the many Operation o Supply Chain Manager who populate companies.
And to Paris precisely instead of having to choose which goddess to give the golden apple to, it is up to him to simultaneously guarantee:
- Stock reduction and thus better turnover ratio of the same; if not, the CFO will maul it.
- Increased Level of Service (OTD-C, On Time Delivery to Commit, i.e., punctuality on promised date); if it doesn’t the Sales Manager eats it up.
- Increased Responsiveness, resulting in reduced OFLT (Order Fulfillment Lead Time) and improved customer request fulfillment (OTD-R On Time Delivery to Request), ditto as above, and the Marketing Director also attends the banquet, because the company has focused everything on responsiveness to differentiate itself from competitors.
- Reduced order handling cost, i.e., optimization of the time resources spend on order management (order release and follow-up on the execution phase) and the resulting induced costs (expediting). Because let’s face it, ROI, value is fine but at the end of the day a nice cost reduction we all want, first and foremost the CEO.
Paris dreams of going back to the time of mythology (three goddesses is a lot of stuff) and instead he is here on planet Earth; he has tried with Lean, with Six Sigma, he has not yet tried with TOC because he is not convinced, it seems too beautiful to him; but he is still far from having satisfied the four “beasts” that are hunting him.
And now this Demand Driven MRP comes up! Without going into too much technical detail, let’s try to focus on why DDMRP should succeed where others have failed.
The culprit is as usual one of the house, our “butler,” whose name is MRP; the system by which an exaggerated number of companies plan their Supply Chain to meet customer demands. In reality, MRP alone cannot combine all the “messes” we find in companies. It needs a powerful ally, which is called the forecast. Since if I wait for the customer order to arrive to leave I arrive too late (the cumulative lead time is much greater than the customer is willing to wait) I use the forecast to get ahead of the work. It would work in theory if it weren’t for variability. Which in the VUCA world is a lot of stuff.
What are the main consequences induced by the use of traditional MRP (with the complicity of forecasting)?
- I have too much stock of materials that I don’t need (risk of overstock and obsolescence), and too little of the materials I need (stock-out and low service levels), and in general too much immobilized stock (low capital turnover, too much fixed assets in stock).
- At each subsequent planning cycle the MRP messes up all my priorities considered in the previous round. The planner is bombarded with “MRP Alerts,” which it tends not to consider.
- One is able to send planning forward only because of the experience of the planner, who based on his knowledge of the materials is able to discern the relevant information that comes from the new planning cycle. To do this he somehow “augments” the needs report output from the MRP with external files (Excel or similar).
Despite investing a lot of money on Supply Chain evolutions in the Demand Planning area trying to improve the forecast, in the belief that better forecasting ability solves all my problems, the results are not visible. In fact, the problem lies elsewhere.
An injection is needed, TOC would say. And two good TOC experts found the injection (for the record that’s what TOC is for, finding injections when the road to ROI seems inexorably blocked).
It is the key principle of Demand Driven MRP: decoupling buffers to react to customer orders only.
No more forecasting (which is actually used for purposes other than Supply Chain planning), no more devastating effects of MRP.
Are you interested but also perplexed? No fear you can request our guide to Demand Driven MRP.
