The idea behind the videos and published articles is to share ideas so we can all become more informed about what is happening in the global supply Chain world. I am doing a series of live videos every Tuesday at 4PM CAT (2PM GMT) discussing various aspects of supply chain.
This article supports a live video of the same title screened on Tuesday 14 January 2020 and discusses three fundamental differences between traditional MRP and DDMRP methodologies so that we can all stimulate our thinking and start questioning our current processes and practices.
DDMRP as a methodology marries the best of TOC, Lean and Six Sigma to MRP and DRP, with 4 great innovations that are exclusive to the demand driven approach.
The 3 points broadly explain the differences between the methodologies.
- MRP uses forecasting as the basis for all replenishment decisions, where as in DDMRP these are based on Customer orders.
- From experience, we all know that the MRP algorithm is designed to drive individual stock items to a zero-stock level. This is then supported by safety stock that is designed not to be used. We also know that customer service level performance is directly proportional to the amount of safety stock.
- To compound this, every step in MRP is dependent on the preceding step and BOM explosions run through the complete routing before they stop. The result is that materials ordering is erratic and quantities tend to be overstated. There is also a need for constant revision as changes in actual demand affect the requirements in the MRP. The more often you run MRP, the more it changes and these swings are called nervousness.
- MRP still uses the same algorithm and principles devised by Joseph Orlicky and DDMRP has advanced this by using 4 innovations that are specific to DMRP.
- Strategic buffers
- These are buffers that are placed at key points in the supply chain so that it can be broken down into decoupled segments. The buffers support each decoupled lead time and also when they need to be replenished and the quantity required. So, we replenish based on buffer demand over a short lead time and not by due date over the cumulative lead time.
- Each buffer is made up of 3 zones, Green, yellow and red and each zone plays a key role in the robustness of the buffer. The colours also raise the level of visibility in reporting, making it easy for the planner to read and action the signals
- The lead time to customer is now the decoupled lead time between the last buffer and your customer. This reduction allows us to be more customer centric and responsive to demand. When setting up the strategic buffers, one of the rules is to place this buffer as close to the customer as possible. The buffers aren’t estimated either, they are calculated mathematically to optimise return on investment of working capital.
- Net flow equation
- The net flow equation is the key component of the planning phase, and continually functions in the future determined by the length of cumulative lead time. There is also an order spike threshold across the lead time horizon that accommodates any spikes in demand. This is how customer orders are used to determine replenishment demand. When the net flow position drops from green to yellow, the instruction is given to replenish to top of green.
- Decoupled explosions
- The BOM explosions only take place across the length of the decoupled lead time and this stabilises the system and supplier ordering process. The decoupled lead time minimises the Bullwhip effect which is a function of cumulative variation over time. As mentioned before, the explosion will only ensure that the relevant buffer is replenished because the model is driven by buffer replenishment rather than replenishment by due date.
- Planning Priority
- DDMRP is a very visual system, and gives clear visibility across the complete supply chain. Firstly, the buffer zones determine first level priority, then within each buffer, there is a planning priority percentage that guides the planner where to act first. The lower the percentage, the more urgent the action.
- This gives the planner a very clear picture and task list of the actions required on a daily basis.
- MRP has no executing phase, where DDMRP does.
- In MRP, Once the plan is generated by the planner during the master scheduling phase, it is handed over to production to work out how they are going to schedule this on the shop floor and manage the materials flows through the process. Often, plan changes result in batch runs being cancelled at the last minute or even between manufacturing and packing. This causes congestion on the shop floor which negatively impacts on quality and productivity.
- DDMRP on the other hand, gives a clear step by step schedule to the shop floor without any ambiguity or confusion by using the planning priority calculated to return the SKU stock levels to top of green. The execution phase also has buffer zones, and these are determined by the actual stock on hand.
In this discussion, we have only scratched the surface of DDMRP, and I know you will have a lot of questions. Please share them via email at firstname.lastname@example.org, or call me on +27 82 777 0922.
Thanks to the Demand driven institute for creating such an awesome methodology that is changing the face of supply chains around the world.
About the author
Dave Hudson is a supply chain and operations specialist and executive coach, and 1 of 5 endorsed Demand Driven instructors on the African continent.