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Nine Key Scenarios to Keep in Mind before Adopting Demand Driven Materials Requirements Planning (DDMRP)

While the whole idea of implementing DDMRP in a manufacturing organization sounds tempting, a deep research on the methodology makes one suspicious of the benefits being claimed by its evangelists. For instance, the much talked about 97%-100% on time fill rate performance cannot be achieved solely by shifting from a traditional planning system to DDMRP, especially if other parameters remain the same. Supply chain management requires coordination of different operations among the key stakeholders across the business unit and other organizations, such as suppliers, retailers and branch offices. Therefore, being lean, reducing waste, understanding and addressing hurdles and delaying the last steps of production are all good to achieve the supply chain goals of high fill rates and low costs.  However, all these need to be achieved in an easy and intuitive manner for the tool to be accepted and adopted by the stakeholders.  Let’s look at some of the key features that can either make or break DDMRP adoption by manufacturing organizations.

  1. Visually appealing and intuitive to use

Most of the advanced planning tools are complicated to use. A nifty tool is one that is visually appealing, simple, and intuitive to understand. DDMRP clearly defines visual ranges for inventory in three zones –Red, Yellow and Green –based on the replenishment requirements.

  1. Keep an eye on supply side constraints

There are always constraints in production, transportation, warehousing and procurement operations. The strategically placed buffers, defined as part of DDMRP, can dampen the impact but the key reasons behind disruptions in demand and supply would still need to be addressed. Intel was able to manage a possible disruption to its manufacturing plans during the Tsunami in Japan in 2011 by looking for alternative suppliers and materials to handle the resulting global shortage of silicon wafers.

  1. What is the lead time to get supplies?

If you get supplies from local sources and those supplies are steady then you could very well do with a low inventory level. You could be confident of reacting to situations whenever they change. However, in case there are disruptions in the supply chain then you would be forced to maintain high inventory levels. This reduces the benefit that accrues through keeping inventories to a minimum, a key feature of DDMRP.

  1. Forecasting vs dynamic inventory buffers

DDMRP focuses on replenishing inventories based on actual consumption and hence there is little effort spent on forecasting. But the uncertainties in the cycle need to be managed in the form of dynamic buffer calculations. It still remains to be seen how much effort is required in maintaining forecasts vis-à-vis managing dynamic inventory buffers.

  1. Safety stock calculations

DDMRP focuses on replenishing internal buffers and so the variability of errors of forecast do not impact replenishment but actual usage. Therefore, to protect against unknown risks, ‘spike protection’ needs to actually quantify the uncertainties. There are advanced safety stock planning algorithms available that provide the flexibility to manage how safety stock is replenished, till what point it is stored, and the supply behavior against safety stock.

  1. Answering the real demand

In DDMRP, we replace ‘demand as only sales orders’ and manage with dynamically calculated buffers. The consumption is still as per sales orders and dynamically calculated buffers as well as spikes for unexpected orders. So, DDMRP is also anticipatory and not very different from the classical supply chain planning.

  1. Is DDMRP really JIT/Lean based?

JIT/Lean needs organizations to see the problems and solve them, whereas DDMRP manages the problem with a buffer, and does not need one to look at root case and solve it. So, the planning managers should know that while they can choose to manage with buffers, the real and long term solution would require them to solve intrinsic issues in the supply chain.

  1. Reduction in lead times

DDMRP’s benefits include a reduction of lead time because of strategically placed buffers. With classical safety stock also, an organization can strategically place safety stock at relevant states of manufacturing and work stations. This would also decouple supply and demand. The lead time could be reduced with inventory buffers or through alternate sourcing, investing in warehousing automation, and better supplier collaboration using technology.

  1. Business Process Maturity

Tools by themselves do not solve supply chain problems. Solutions to such problems also depend on how mature your business processes are, how well the strategy translates into the company culture and is reflected in decisions made during planning as well as execution. Whichever supply chain best practice an organization chooses to adopt, business processes need to be defined and communicated well. It is also important to have the right support during the execution phase.

Conclusion

While DDMRP packages such as Lean, TOC, postponement strategy provide a more visual inventory management method, there needs to be caution regarding the benefits or claims being made. In terms of ease of use or adoption, it would be interesting to get the feedback from organizations transitioning from existing planning methods to DDMRP. With a changing technological landscape, availability of cloud and mobile solutions, it is required to go back to simple and basic supply chain principles and reevaluate how to support businesses with digital capabilities.
To know more, please read our whitepaper on DDMRP.

Meet the Author

Anchal Sood

Director – Supply Chain (Asia Pacific)
Anchal has 14+ years of consulting experience in implementing SCM enterprise applications for different industries in India, SE Asia, US and Europe. An MBA in Supply chain and operations management from NITIE, Mumbai, she also pursued various industry certifications like APICS CSCP, APICS CPIM, SCOR, SAP SM while working on implementation of supply chain planning applications for global companies. She has deep interest in learning, simplification/standardization of processes and automation wherever possible.
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