The DDAE model has a defined development path for companies to achieve increasing levels of success through their demand driven transformation. This path has five distinct stages. The entire path is depicted below. Each stage is explained in more detail below.
Stage 1: Operational Efficiency (Cost)
The development path starts where most companies find themselves today – locked in a constant struggle trying to drive operational efficiency by controlling or minimizing cost. It’s not that flow goes unrecognized in these systems but any flow-based metrics such as on-time delivery constantly struggle against directly competitive cost-based metrics and objectives. This is a recipe for failure in today’s hyper-competitive and volatile markets. The characteristics of these companies are listed below.
Stage 2: Operational Efficiency (Flow)
Stage 2 begins a company’s transformation into a Demand Driven Adaptive Enterprise. Moving from Stage 1 to Stage 2 takes a dramatic philosophical shift in thinking and understanding about what is truly “efficient” from a system perspective. This shift is not trivial as it requires a fundamental break from the conventional emphasis on cost. The graphic below illustrates this disparity in perceptions. Stage 1 connects ROI improvement to better cost performance while Stage 2 connects ROI improvement to better flow performance. These two views are not compatible with each other – they are, in fact, antithetical to each other.
The initial shift to Stage 2 typically occurs at a relatively local level (plant) and is led by a local champion implementing DDMRP principles in a limited fashion. The results, however, are significant and quickly realized. Planners and buyers, once skeptical of another new “improvement” method quickly take to DDMRP because it is intuitive, appeals to their common sense and promotes better visibility than the conventional approach of MRP with disjointed, disconnected and inconsistent spreadsheets.
Additionally DDMRP represents the least amount of system “shock” in beginning to prove the beneficial difference of the Stage 2 flow emphasis over the Stage 1 cost emphasis. The benefits come quickly and are tangible in terms of service, working capital and expedite expenses; all of which are easily connected to ROI improvement. This provides the organization with the confidence to proceed further by expanding the DDMRP implementation and eventually moving to the next stage of the DDAE Development Path.
Stage 3: DDAE Level I
Stage 3 is the first level in which an organization can really begin to describe itself as “Demand Driven.” Thus the name of the stage is “DDAE Level I”. This features a fully implemented Demand Driven Operating Model (DDMRP, Demand Driven Capacity Scheduling and Demand Driven Execution methods in use). The movement from DDAE Stage 2 to DDAE Stage 3 can take years in larger organizations with multiple facilities and vertical integration. This represents an extensive (but hugely beneficial) overhaul of operating tactics impacting supply order generation, resource scheduling, operational execution and metrics. This stage is thoroughly described in Demand Driven Performance – Using Smart Metrics (Smith and Smith, McGraw-Hill, 2013). A maturing Stage 3 company will eventually become constrained by a lack of alignment from other functions in the organization.
Stage 4: DDAE Level II
Stage 4 (DDAE Level II) describes the expansion of the Demand Driven concepts throughout the organization. Tactical reconciliation is in place and the organization as a whole understands how to leverage the mature DDOM capability into the market and throughout the organization for better financial performance. Its personnel understand and see the company as a system. Finance, Engineering, IT, Marketing, Sales and Strategic Planning understand how to use the DDOM as a competitive weapon and can communicate through a common flow-based language.
Stage 5: DDAE Level III
Stage 5 (DDAE Level III) describes how the organization can become a valuable and strategic supply chain partner facilitating flow with its suppliers and customers in mutually beneficial ways. Its personnel understand and see the supply chain as a complete interconnected network identifying opportunities for better flow creation and protection. Management has the capability to define current and/or impending strategic conflicts and reconcile them through adaptive and innovative solutions. These organizations are capable of mentoring new generations of management through the DDAE model in order to sustain and even accelerate momentum.
A complete journey through these five stages can take years. Indeed, the upper stages (4 and 5) may never be achieved as key personnel exit and/or acquisitions occur that slow the momentum or sponsorship of driving the DDAE. At each step the ROI improves and accelerates.
What stands in the way of Demand Driven proliferation is a series of common conventional practices and assumptions in both Operations and Finance that must be understood for what they really are – common nonsense. Optimizing these old and inappropriate rules in this more complex and volatile set of circumstances will only push organizations farther away from embracing flow and encourage devastating amounts of waste resulting in eventual company failure.
The Demand Driven Adaptive Enterprise model is first and foremost about visibility to what is relevant. It recognizes that the only way to effectively implement and foster flow is to enable a company to determine truly relevant information at both the strategic, tactical and operational levels. Through that visibility, companies can also strip out what is irrelevant, distortive and damaging.
The Demand Driven Adaptive Enterprise (DDAE) Model spans the operational, tactical and strategic ranges of an organization allowing it to continuously and successfully adapt to the complex and volatile market conditions we see today. It combines the fundamental principles of flow management with the emerging new science of complex adaptive systems (CAS). DDAE is the way that successful businesses will work in the 21st Century.