In this week’s discussion I’ll cover the first of the 4 Innovations, decoupled lead time.
Traditional MRP is a push system where every step in the value chain is dependent. There are 2 possible buffer points, at the beginning, raw materials and at the end, finished goods. The first is trying to protect your factory from unnecessary stoppages due to variation in the upstream supply chain and the second is trying to protect your customer from variation that may occur in your process and also in their downstream supply chain. The reason for this is to protect your Customer service level, and optimal profitability.
Both buffers are protected by safety stock, a necessary evil, because MRP nets stock to zero. It is mathematically proven that customer service levels are directly proportional to the level of safety stock, which means you can hit one of your targets above, but not both.
The increasing level of complexity and competition in the business environment has resulted in a major disparity between Supplier lead times and customer tolerance times. This means that we’re having to forecast earlier and more accurately so that we don’t disrupt the flow of materials through our business. The effect, with the levels of competitiveness in the market at both the domestic and international levels is that when we get to a point where we can manufacture product A, the customer is looking for product B, or C or D……….
In any supply chain, there are 2 flows, information to the supplier and materials from the supplier. Any variability in the Information passed back to our suppliers makes them start their supply of materials to us from the wrong point of departure in terms of our plan. To compound this, our Suppliers also experience the same changes and fluctuations with their other customers. Variability has the same effect on our incoming materials. Natural disasters, conflict zones, port strikes, trade wars or even accidents on the haulage routes will affect us. This is the reality of variability.
The question we need to ask is:
How do we manage this transference and amplification of variability across the supply chain in both directions?
The solution to this lies in the way we deal with demand and supply distortion. Step 1 in solving this problem lies in the first innovation:
Decoupled Lead time – Innovation 1
First, we decouple the supply Chain. Decoupling disconnects the rate of use from the rate of supply, breaking the dependence characteristic of MRP and allowing each decoupled lead time to become independent.
A decoupled lead time gives us a much shorter horizon to control and minimises the level of variability. This decoupling process allows us to accurately and scientifically calculate WHERE the buffers should be placed. If you don’t get the positioning right, the buffers won’t support the decoupled lead time, nor will it effectively optimise the flow of materials throughout your business. Only once this step is complete do we look to start at the size of the buffers.
Always Where before When and How Much.
We are driven by buffer status and not by due date as with traditional MRP. This means that when the buffer directly feeding customer demand drops below a predetermined level, it triggers a demand signal upstream for replenishment. for the quantity to replenish it. This is what makes it a pull system. The triggered replenishment always ensures that the buffers support customer demand and is how DDMRP maintains stock levels at all times. Traditional MRP on the other hand pushes stock into the supply chain and the algorithm drives stock levels to zero.
Should you have any questions or comments, please in the comments section or email to firstname.lastname@example.org. You can also 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 with over 30 years’ experience, and currently 1 of 5 endorsed Demand Driven instructors on the African continent.