As the ripples from 2020’s global events are still being felt throughout the manufacturing industry, now more than ever it is essential for manufacturers to manage their supply chain, forecast demand, and use production resources as efficiently as possible. It is during challenging periods such as these that manufacturing businesses need to review the tools they use to plan and manage inventory and production. A tool which has received some attention is DDMRP (Demand-Driven Material Requirements Planning).
Paradigms in manufacturing forecasting
A paradigm is a system of theories, procedures and standards that a body of people consider legitimate for their situation. The manufacturing industry has been through its own paradigms and shifts in its approach to planning and forecasting. The longest-standing one is MRP (Materials Requirements Planning). The latest one is DDMRP.
MRP has existed for many decades but advances in computing have led it to be deployed and used more broadly. MRP is concerned with production scheduling and inventory control to meet customer requirements, and attempts to keep adequate inventory levels to assure that required materials are available when needed. The major inputs are the master production schedule, on-hand inventory information, and bill of material. The outputs are production orders and purchase orders. A more recent variant is MRPII which is widely used and adds inputs of machine capacity scheduling, demand forecasting, quality assurance and general accounting.
With further computing advances in the 1990s came another paradigm – APS (Advanced Planning and Scheduling) – defined as “a computer program that uses advanced mathematical algorithms or logic to perform optimization or simulation on finite capacity scheduling, sourcing, capital planning, resource planning, forecasting, demand management, and others” (APICS 2011). APS had a brief period of popularity but fell into the trough of disappointment as its complexity and need for large volumes of data could not be handled by the average manufacturer.
What is DDMRP?
DDMRP was first proposed in 2011 to solve the shortcomings of MRP. The problem at the time with MRP was that there were few ‘good’ MRP implementations, and not anywhere near as many as professions hoped.
DDMRP was designed to define:
- where to stock;
- how much to stock;
- the generation of supply orders based on average daily usage and known sales spikes;
- how to conduct a review;
- a visual dashboard to guide and alert execution.
Since starting, DDMRP implementations have claimed higher service levels, significant inventory reductions, shorter lead times and cost reductions. All issues that manufacturers are looking to achieve. It also aims to reduce variability so that production can operate smoothly and without major hiccups. Variability is reduced by the intelligent use of inventory buffers at key junctions in the supply chain.
Pros of DDMRP
There are five components of DDMRP that can address supply chain process challenges and enhance a supply chain strategy.
- Helps ensure inventory is in the right place at the right time by providing visibility of where stock should be held in the supply chain for optimum performance.
- Allows visibility of buffer profiles and stock levels by assessing the stock on hand, the amount needed and their variability.
- Provides the ability to adjust stock levels dynamically by looking at trends in sales as well as seasonality.
- Uses demand-driven planning to create resupply signals so that the correct stock supply is prioritized based on the actual need.
- Delivers benefits by removing supply chain bottlenecks.
There are other benefits of DDMRP.
- It’s fairly easy to understand, easy to figure out, intuitive, consistent, and sustainable.
- Presents alerts in a visual way.
- Facilitates a better and rapid decision-making solution.
- Is fast to implement.
- Removes the importance of accurate sales forecasts to generate supply plans.
- Provides the same on-time delivery capability with less working capital than MRP, which means less Work-In-Progress and lower stock levels.
Problems with DDMRP
While DDMRP can reduce lead times there are some lead times that cannot easily be reduced, for example, overseas supply. That means DDMRP is more useful to companies that source locally.
Another issue with DDMRP is that it can determine where buffer stock should be located, but not how much should be stored in a location.
There is also an argument that it is not as accurate as forecast-driven inventory optimization.
Lastly, a number of supply chain consultants and practitioners have personal problems with the way DDMRP is promoted and marketed.
DDMRP can be applied by many manufacturers but nobody claims it is right for every situation.
In most cases, DDMRP is a third-party solution, although it can be integrated with ERP packages. It is not something that can be implemented without considering issues of technology requirements, skills and training, and of course, change to processes. Because the implementation risks can sometimes be difficult to assess, companies often choose to run pilots of DDMRP before deploying the final program.
One expert has pointed out that a better name would have been ODMRP (Order-Driven MRP) whilst traditional MRP would be FDMRP (Forecast-Driven MRP) ( [Linkedin https://www.linkedin.com/pulse/ddmrp-fistful-considerations-stefan-de-kok/] )
A number of academic studies have found that DDMRP does lead to improvements in operations.
The final point is this. Mid-size manufacturers in 2021 are seeking to remain profitable while finding new ways to compete successfully. They typically have small budgets, and if they are not yet locked into an MRP system, it is highly unlikely that they will find an alternative that can deliver as much value as DDMRP for as low of a cost.