In recent years, we have witnessed a real upheaval in the business world.
Supply chains are no longer linear chains but vast networks of players. Product life cycles are getting shorter, customers want ever shorter delivery times, products are more varied and customized, and supply times can be long, particularly due to globalization.
However, in the face of these changes, most companies continue to use MRP (Material Requirement Planning) as their central planning system. This model, which came out in the 70s, was perfect for a time when demand was higher than supply, but it doesn't really work for today's challenges and has a bunch of issues: late deliveries, out-of-stocks, long lead times, firefighting mode, unreliable forecasts, and so on.
It is therefore time to find a new model, and Demand Driven Material Requirements Planning, or DD MRP, seems to be a suitable response to the challenges of the "New Normal."
Read on to find out more!
What is DD MRP?
DD MRP stands for Demand Driven Material Requirements Planning. It is a production planning methodology developed in the 2000s in the United States by Carol Ptak and Chad Smith, based on actual customer demand. We now talk about demand-driven flows, rather than production-driven flows.
Thanks to the concept of buffers and strategic stock positioning (raw materials, components, and finished products), the DD MRP method makes it possible to determine the quantities to be procured in order to maintain optimal stock levels, thereby reducing storage costs and production interruptions and increasing customer satisfaction.
Based on various concepts derived from MRP (Material Requirement Planning), DRP (Distribution Requirement Planning), Lean, Six Sigma, and the Theory of Constraints, but with specific innovations added, DD MRP resolves conflicts between different approaches with rapid results.
The method naturally became established first in industry, then gradually spread to distribution and SMEs. However, many large companies and multinationals have also begun to see the potential of DDMRP, including Michelin, ACESCO, Coca-Cola, Shell, Biomerieux, etc.
How to implement DDMRP?
Implementing the DD MRP methodology in a company is very simple and inexpensive. It can be implemented in five steps and creates an agile system that protects and accelerates flows.
Operations management is collaborative and intuitive:
1. Strategically position buffers
In order to shorten lead times and reduce the knock-on effect, DD MRP has developed an important concept known as "decoupling." This involves placing various buffers throughout the supply chain to intelligently create stock with the aim of decoupling customer demand and production.
2. Calculate buffer levels
Define buffer sizes so that stock levels match actual demand. Buffers are divided into three zones: green, yellow, and red.
• The green zone is used to determine the number of orders/purchase orders and their frequency
• The yellow zone is used to define order thresholds. It depends on the lead time and the average daily consumption (ADC)
• The red zone is a safety zone calculated based on the average daily consumption (ADC), the lead time, and variability.
3. Responding to the request
To respond as accurately as possible to demand (seasonality, new products, end of life, etc.), buffers must be made "dynamic," i.e., their sizes must be regularly redefined.
4. Plan
Generate replenishment and manufacturing orders when a critical threshold is reached by anticipating future inventory levels based on current inventory, orders to be fulfilled, etc.
5. Execute
Order and produce based on item availability. Prioritization is facilitated and collaboration is encouraged, particularly through management . DDMRP promotes continuous improvement.
Axsens BTE a partner of the Demand Driven Institute since the launch of the DD MRP method in France in 2013. Our firm offers to implement simple tools to simulate the impact of the method on your inventory and service rates.
