Material Requirements Planning (MRP) was developed in the 1950’s and 1960’s by Joe Orlicky. When MRP was brought to market in the 1970’s and Orlicky wrote the first edition of Material Requirements Planning there were only 700 companies in the world actually using MRP. In his book, Joe highlighted a need to overhaul how a business plans and manages both inventory and resources. By the year 1990, over 1 million companies were using MRP with little change from its original concept.
Industry is now presented a new dilemma as the circumstances that drove Orlicky’s original design have dramatically changed. Since 1970 when Orlicky’s model was launched, Forecasts have gotten worse, Supply Chain complexity has increased, customer tolerance has decreased and inventory has become a priority. These new age challenges have led to the inventory oscillation witnessed in MRP systems today. The levels of demand and supply variability that exist in the 21st Century are further compounded by the inabilities of MRP to provide reliable and appropriate information for today’s supply chain planners.
The answer to this common problem is demand driven material requirements planning (DDMRP), defined as a multi-echelon inventory and planning system that senses the shape of customer demand, then adapting planning and production systems all while pulling from suppliers in real time. [adapted from the Demand Driven Institute 2009]
DDMRP breaks down the myth that you need more inventory to maintain high customer service levels. It provides the planning and execution tools for the 21st Century, enabling companies to become Demand Driven and responsive to their market while significantly reducing lead time, eliminating variability and volatility across the entire supply chain and achieving Return on Capital Employed.
Easy and Intuitive
The first step of DDMRP is not a question of how much inventory a company should hold, or even the make/buy question. This first fundamental step of DDMRP is to identify where should inventory actually be positioned across the entire supply chain. Where in the supply chain, retail to distribution through to the factory and multi-tiered suppliers will we achieve maximum benefit from lead time compression and the dampening of variability? Where can we create maximum protection and establish decoupled independence between all points of demand and supply? Where will we achieve a Return on Investment?
After, and only after, the strategic locations have been identified can we then start to determine targeted inventory levels. However, we must first understand more about the parts that are being positioned at these strategic locations. The creation of Buffer Profiles will enable of parts to grouped based on particular behavioral traits of the parts in the group. The Buffer Profiles will define the part type, the level of demand and supply variability typically demonstrated and the replenishment lead time.
Once the Buffer Profiles have been established and parts assigned to these profiles, we can then size the targeted inventory levels which are referred to Buffer Zones. In DDMRP there are three specific zones that are utilized in subsequent Planning and Execution steps. The overall size of each zone will be defined based on the attributes of the Buffer Profile. A Buffer Profile defining parts with high demand variability will have a greater impact on the size of the zone more than a Buffer Profile defining parts with low demand variability.
As we know, nothing stands still for time within a supply chain. Buffer Profile attributes will change, demand patterns over time increase and decrease, and the parts being strategically positioned can change. All these changes together need to update the size of each Buffer Zone.
Dynamic Adjustments enable a company to continually optimize the inventory being positioned to ensuring maximized Return on Capital Employed (ROCE). Changes in demand patterns are sensed on a daily basis and Buffer Zones are dynamically recalculated. Such changes are incremental and don’t impact the supply chain in any manner.
Planned adjustments can be put into action to account for periods of seasonality, increasing Buffer Zones for peak seasons and product ramp up, and reducing Buffer Zones for low seasons and product planned obsolescence.
This step takes advantage of 21st Century Demand Driven techniques which react to the dynamic nature of the Buffer Zones, availability of inventory, current demand requirements and the supply situation at each strategic inventory location.
Demand Driven Planning within DDMRP is a quick, visible and effective task. Supply order requirements are defined based on the level of depletion in current inventory, demand spike criteria, and status of current open supply orders. Inbuilt visibility enables planners to very quickly understand what is required and take most appropriate action without the need of comprehensive Excel modeling.
MRP is a forecast driven planning system and has failed to provide specific execution tools to manage open orders. The final step completes the definition of the DDMRP integrated system providing execution management tools for all open orders, whether Supplier Purchase Orders, Manufacturing Work Orders or distribution Stock Transfer Orders. Planners are supported with an execution system that doesn’t rely on a due date but instead prioritizes all open supply based on the level of on-hand inventory depletion at each strategic location. Better to have a supplier who doesn’t stock you out than one who always delivers on time!
Tia: THE INTELLIGENT ASSISTANT
The Intelligent Assistant (Tia) within our DDMRP compliant software enables planners and buyers to become proactive towards further optimization of the supply network rather than being entrenched in the daily battle to have sufficient availability of inventory.
HOST SYSTEM OPTIONS
We offer both Cloud-based and On-Premises options. Here are a few key points regarding our cloud-based option.