In recent years, we have witnessed a veritable upheaval in the business world.
Supply chains are no longer made up of chains, but of vast networks of players. Product life cycles are becoming shorter, customers are demanding ever shorter lead times, products are more varied and customized, and procurement 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, marketed in the 70s, was perfectly suited to a context where demand outstripped supply, but it no longer meets today's challenges and is beset by numerous difficulties: late deliveries, stock shortages, long lead times, fire-fighting mode, unreliable forecasts, etc.
So it's time to find a new model, and the Demand Driven Material Requirements Planning or DD MRP method seems to be an appropriate 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. MRP is a production planning methodology developed in the USA in the 2000s by Carol Ptak and Chad Smith, based on actual customer demand. We now speak of demand-driven flows, rather than production-driven flows.
Thanks to the concept of buffers and the positioning of strategic stocks (raw materials, components and finished products), the DD MRP method makes it possible to determine the quantities to be supplied so that stock levels are always as close as possible, thus reducing storage costs and production shortages, and increasing customer satisfaction.
Based on various concepts derived from MRP (Material Requirement Planning), DRP (Distribution Requirement Planning), Lean6 Sigma, and the theory of constraints, but with the addition of specific innovations, DD MRP enables conflicts between different approaches to be resolved with rapid results.
The method was first used in industry, then gradually spread to distribution and small and medium-sized businesses. However, many large companies and multinationals have also begun to see the potential of DDMRP, such as: MICHELIN, ACESCO, COCA COLA, SHELL, BIOMERIEUX, etc.
How do I set up DDMRP?
Implementing the DD MRP methodology in a company is very simple and inexpensive. It can be implemented in 5 steps, creating an agile system that protects and accelerates flows.
Operations management is collaborative and intuitive:
1. Strategically positioning buffers
In order to compress lead times and reduce whiplash effects, DD MRP has developed the important concept of "decoupling". This involves positioning different buffers along the supply chain to intelligently create inventories, with the aim of decoupling customer demand from production.
2. Calculate buffer levels
Define buffer sizes to ensure that stock levels match actual demand. Buffers are divided into 3 zones: green, yellow and red.
- The green zone is used to determine the number of orders/OFs and their frequency
- The yellow zone is used to define order thresholds. It depends on lead time and average daily consumption (ADC)
- The red zone: safety zone calculated on the basis of ADC (average daily consumption), lead time and variability.
3. Meeting demand
To meet demand as closely as possible (seasonality, novelty, end-of-life, etc.), buffers need to be made "dynamic", i.e. their sizes need to be regularly redefined.
4. Plan
Generate replenishment and production orders when a critical threshold is crossed, by anticipating future stock levels based on current stocks, orders to be filled, etc.
5. Run
Order and produce according to availability. Prioritization is facilitated and collaboration encouraged, thanks in particular to management . DDMRP encourages continuous improvement.
Axsens BTE has been a partner of the Demand Driven Institute since the DD MRP method was launched in France in 2013. We offer you simple tools to simulate the impact of the method on your inventories and service rates.
