An Introduction Becoming DDMRP Certified · 2018. 6. 18. · DDMRP uses strategic decoupling points to drive supply order generation and management throughout a supply chain. Position,

An Introduction &

Becoming DDMRP Certified

All contents © copyright 2017 Demand Driven Institute, all rights reserved.

Material Requirements Planning“As this book goes into print, there are some 700 manufacturing

companies or plants that have implemented, or are committed to

implementing, MRP systems. Material requirements planning has

become a new way of life in production and inventory management,

displacing older methods in general and statistical inventory control in

particular. I, for one, have no doubt whatever that it will be the way of life

in the future.” Orlicky 1975Joe Orlicky

Features:• Time Phased Planning• Level by level BOM explosion• Dependent demand planning

Benefits:• Component synchronization• Reduction in inventory• Improved priorities

• MRP did become THE way of life for planning.• It was conceived in the 1950s with the

prevalence of computers.• It was codified in the 1960s by a small group of

practitioners.• It was commercialized in the 1970s• By 1990 most manufacturers of even modest

scale had an MRP system


But Something is Terribly Wrong

Companies Using Spreadsheets for Demand Management

84

71

63

0 20 40 60 80 100

Laggards

Industry Average

Best-in-Class

Aberdeen Group (Demand Management, November, 2009)

Spreadsheet use is rampant and often unmonitored.

Close to 90% of spreadsheet documents contain errors, a 2008 analysis of multiple studies suggests. “Spreadsheets, even after careful development, contain errors in 1% or more of all formula cells,” writes Ray Panko, a professor of IT management at the University of Hawaii and an authority on bad spreadsheet practices. “In large spreadsheets with thousands of formulas, there will be dozens of undetected errors.”

Wall Street Journal’s MarketWatch, April 20, 2013,

Jeremy Olshan

These spreadsheets have limited capability, scalability and transferability.

Most Planner and Buyers mistrust their planning tools.

They also are error prone.


Supply Chain Characteristics 1965 Today

Supply Chain Complexity Low High

Product Life Cycles Long Short

Customer Tolerance Times Long Short

Product Complexity Low High

Product Customization Low High

Product Variety Low High

Long Lead Time Parts Few Many

Forecast Accuracy High Low

Pressure for Leaner Inventories Low High

Transactional Friction High Low

Complex and Volatile is the “New Normal”

Conventional planning rules have not appreciably changed since the 1960s. MRP still plans today the way it did 50 years ago!

Today’s supply chains look VERY different from 1960’s supply chains when conventional planning rules were formulated but…


Conventional Inventory Management EffectsWe know there are two universal points with regard to inventory.

Between these points there is an optimal range to maintain.

Too MuchToo Little

A B

0

Optimal RangeWarning Warning


Conventional Inventory Management EffectsMost companies exhibit a “bi-modal distribution” – most of the inventory is either too low or too high

90% of companies report this issue!

Too MuchToo Little

# o

f p

art

s o

r S

KU

0

With every MRP run an oscillation effect often occurs in which inventory quickly moves from one distribution to the other.

Optimal RangeWarning Warning

A B


Three Bottom Line Effects to Companies:

1. Chronic Shortages

2. Excessive Inventory

3. High Expedite Expenses & Waste

But the real problem is at a higher level!


The Collective SCM ProblemBull-Whip Effect: “An extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in the supply chain. Inventory can quickly move from being backordered to being excess. This is caused by the serial nature of communicating orders up the chain with the inherent transportation delays of moving product down the chain.” (APICS Dictionary, 14th Edition)

End Item

AssemblerFoundry Component

Sub-

Assembler

Demand Signal Distortion

Supply Continuity Variability

Transference AND amplification of variability in BOTH directions.

A true solution must deal with demand AND supply distortion together.

The more parts to the supply chain – the worse the effect!


Demand Driven MRPA method to model, plan and manage supply chains to protect and promote the flow of relevant information and materials. DDMRP uses strategic decoupling points to drive supply order generation and management throughout a supply chain.

Position, Protect and Pull

Material

Requirements

Planning

(MRP)

Distribution

Requirements

Planning

(DRP)

LeanTheory of

ConstraintsInnovationSix Sigma

First articulated in 2011 by the Demand Driven Institute after 15 years of research and extensive application.

Through innovation critical planning needs are fused with mainstream improvement disciplines based on FLOW.


The Five Components of DDMRP

Strategic DecouplingBuffer Profiles and

Levels

Demand Driven

Planning

Position

1

Protect

2 3

Pull

4 5

Dynamic

Adjustments

Visible and

Collaborative

Execution


Position – Strategic Decoupling

Strategically places decoupling points of inventory within the product structure and supply chain.

1

This stops the transfer and amplification of variability in BOTH directions where it matters most.

End Item

AssemblerFoundry Component

Sub-

Assembler

Demand Signal Distortion

Supply Continuity Variability

Planning horizons shorten AND lead times compress.


Position – MRP versus DDMRP

MRP (Everything Coupled) DDMRP (Strategically Decoupled)

1

MRP was never designed to decouple! It makes everything dependent forcing longer planning horizons and variability accumulation.

Critical Difference:


Protect – Buffer Profiles and Levels 2


=Order frequency and size

Safety

Primary coverage

Group Settings (Buffer Profiles) x Individual Part Properties =

Zone and Buffer Levels for Each Part

Item Type

Lead Time Category

Variability Category

Lead Time

Minimum Order Quantity (MOQ)

Location(Distributed parts only)

Average Daily Usage (ADU)

Protect – Dynamic Buffer Adjustment 3

Most conventional safety stock and reorder point positions are static NOT dynamic.Critical Difference:

Buffer levels flex as Average Daily Usage (ADU) is updated.

0

20

40

60

80

0

200

400

600

800

1000

1200

Recalculated Adjustments

Buffers are intentionally flexed up or down in anticipation of planned events or seasons.

0

20

40

60

80

100

0

200

400

600

800

1000

Demand Adjustment Factors


4The Net Flow Equation


Questions every planner cares about each day.

What do I have?What is coming to me?

What demand do I need to fulfill immediately?

What future demand is relevant?

Buffer Status and Supply Order Generation occurs through a DAILY

application of the “Net Flow Equation”.

Supply order issued for up to the top of the buffer

Net Flow Position

Qualified Sales Order DemandOn-Hand + Open Supply -

Decoupled Explosion• The explosion starts when a part’s

Net Flow position enters the rebuild zone

• The explosion stops at each stock position – No Matter What!!

101

201 203 204

302 303P

403P 404P

301

401P 402

304P

501P501P

301

404P

304P

203

101

Pull – DDMRP Execution

Easy to Interpret Signals on Open

Supply Priorities

Order # On-Hand Status Order Type Due Date Customer

MO 12379 MTO May - 12 Super Tech

MO 12401 12% RED MTS May - 14 Internal

MO 12465 27% RED MTS May - 12 Internal

MO 12367 53% YELLOW MTS May - 12 Internal

MO 12411 61% YELLOW MTS May - 16 Internal

Order # Order Type Due Date Customer

MO 12367 MTS May - 12 Internal

MO 12379 MTO May - 12 Super Tech




Order # On-Hand Buffer Status

PO 819-87 27% (RED)

WO 832-41 42% (RED)

WO 211-72 88% (YELLOW)

5

MRP = Priority by due dateDDMRP = Priority by buffer status

Critical Difference:

vs.


Say Goodbye to the Bi-Modal Distribution

DDMRP is proven to allow companies to plan and execute in the optimal range at strategically chosen points!

Too MuchToo Little Optimal Range

# o

f p

art

s o

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KU

Warning Warning

0

A B


DDMRP’s Proven Benefits

Benefit Typical improvements

Improved Customer Service

Users consistently achieve 97-100% on time fill rate performance

Lead Time Compression Lead time reductions in excess of 80% have been achieved in several industry segments

Right-sizes Inventory Typical inventory reductions of 30-45% are achieved while improving customer service

Lowest total supply chain cost

Costs related to expedite activity and false signals are largely eliminated (fast freight, partial ships, cross-ships, schedule break-ins)

Easy and Intuitive Planners see priorities instead of constantly fighting the conflicting messages of MRP

Major Adopters


THE authoritative book on Demand Driven Material Requirements Planning

THE authoritative education on Demand Driven Material Requirements Planning

www.demanddriveninstitute.com


Demand Driven Adaptive Enterprise Model

Actual Demand

Market Driven

Innovation

Model Configuration

Variance Analysis

Model Projections, Innovation & Strategic Recommendations

Business Plan Parameters


Next DDW Conference

Frankfurt

8 – 11th OCT

Documents

An Introduction Becoming DDMRP Certified · 2018. 6. 18. · DDMRP uses strategic decoupling points to drive supply order generation and management throughout a supply chain. Position,