Today I’ll be talking to you about Demand Driven Material Requirements Planning, or as it’s more commonly referred to DDMRP, which is a new and very different approach to planning your supply chain.
Most manufacturing organizations use a traditional MRP approach which has been around for over 50 years. The standard approach is to use forecasts to calculate requirements which are then turned into planned orders and exploded through a Bill Of Material into works orders or purchase orders. It’s no secret that forecasting accurately is difficult, and even more so trying to do that consistently, month in and month out for large portfolio of products. So when you base your short-term replenishment signals on these inaccurate forecasts, the result is wrong inventory levels, lots of expediting, high costs and poor service levels.
As an alternative, the DDMRP methodology uses real demand for replenishment, so it uses orders rather than forecasts. Obviously, in any supply chain you have to cope with manufacturing and supply lead-times, as well as the inherent variability of demand & supply. To handle this in DDMRP, inventory buffers are placed at strategic points along the supply chain. Then when an order triggers a replenishment signal, it is only passed along to the next buffer in the chain. These act as de-coupling points to absorb the variability and stop it being amplified along the supply chain.
One of the very clever features of DDMRP is how the size of the inventory buffers are calculated. They are sized based on the lead time between buffers, the estimated usage within the lead time, and the demand & supply variability. So the buffers are much more sophisticated than a traditional safety stock calculation based on a day’s cover or simple re-order point.
Ultimately DDMRP is about trying to improve the flow of material and information through the supply chain by using reliable replenishment signals and using inventory in the right way. You still need to forecast in order to plan your capacity and align your financial and operational plans, but you are not using those forecasts to drive short-term execution decisions.
Companies adopting this approach are reporting huge improvements in customer service, inventory levels and overall lead-time reduction. It’s a project that you can start yourself through a small pilot on a handful of products to see how it works. My advice is to try it and see what benefits a new approach of DDMRP can bring to your supply chain. What have you got to lose?