For better or worse, customers have come to expect short lead times. Responding to those expectations has become more complex from a supply chain perspective: product availability has become less predictable, which lowers forecast accuracy; parts have long lead times; and there’s pressure to maintain leaner inventories to reduce holding costs. Is it possible to have high customer service levels while not holding too much inventory? With Demand Driven Material Requirements Planning (DDMRP), it is.
DDMRP is a formal method for modeling, planning, and managing supply chains. It has been proven to improve performance in these volatile, complex, and ambiguous environments, where cumulative lead times are longer than your customers’ tolerance. It’s based on maintaining a stock buffer at strategic decoupling points, absorbing variability to avoid the bullwhip effect.
DDMRP methodology consists of five sequential components:
1. Strategic inventory positioning: Determine decoupling points where stock buffers can be placed.
2. Buffer profiles and levels: Determine the amount of protection (“shock absorption”) at the decoupling points that’s needed to mitigate variability in both directions. Historical and forecasted usage rates and DDMRP part settings are used to create unique, three-zone, color-coded buffers.
3. Dynamic adjustments: After the initial buffer sizes are determined, allow the level of protection to flex up or down based on factors such as operating parameters, market changes, and known or planned future events.
4. Demand-driven planning: Generate supply orders (purchase orders, manufacturing orders, and stock transfer orders) from qualified (as opposed to planned) sales orders within a short planning horizon. The equation On-Hand + Open Supply – Qualified Sales Order Demand determines each day’s net flow position. If the net flow position is below the top of the yellow zone, a supply order is generated for the amount needed to reach the top of the green zone.
From Demand Driven Institute
5. Visible and collaborative execution: Manage open supply orders using intuitive, easily interpreted signals on open supply priorities against the on-hand buffer position. The lower the on-hand level, the higher the risk to maintaining flow and the higher the execution priority. That is, priority is assigned by buffer status, not due date. It’s easy to get an overview of the state of the buffers.
DDMRP has proven benefits across many industries:
|Improved customer service||97%–100% on-time order fulfillment rates|
|Lead time compression||Lead time reductions of more than 80%|
|Balanced inventory||Inventory reductions of 30%–45%|
|Lowest total operating cost||Costs related to expedited activity and false signals are largely eliminated|
|Improved planner productivity||Planners see priorities instead of constantly fighting the conflicting messages of MRP|
From Demand Driven Institute
Microsoft Dynamics 365 Supply Chain Management is DDMRP-compliant according to the Demand Driven Institute, the leading authority on demand-driven methodologies. To be compliant, software must meet five compliance criteria. By compliant, we mean that Dynamics 365 Supply Chain Management follows the methodology according to the DDMRP industry standards as indicated by the Demand Driven Institute.
DDMRP is a new concept for many companies. We suggest you start with a small pilot or simulation involving a subset of items to determine if DDMRP would be valuable for your organization. It’s simple to set up. Just enable Priority Driven MRP support for Planning Optimization and DDMRP for Planning Optimization in Dynamics 365 Supply Chain Management.