There is a growing buzz around Demand Driven Material Requirements Planning (DDMRP) in manufacturing, supply chain management and logistics as discrete manufacturers try to get as lean as possible in an unpredictable economic climate. It is reshaping lean manufacturing principles for industrial manufacturers allowing them to react more effectively to market changes and shifts in consumer demand.
The Demand Driven Institute defines DDMRP as a ‘formal multi-echelon planning and execution method to protect and promote the flow of relevant information through the establishment and management of strategically placed decoupling point stock buffers.’ DDMRP differs from traditional forecasting processes which originate with a defined customer order or a forecasted demand. It instead uses what real demand exists and how that demand could put your buffer at risk, and not what could happen based on a single number sales forecast. This approach requires planning around a range of values, rather than a definite outcome. DDMRP offers a straightforward method of recognizing limitations in the production process and deploying buffers in those areas.
Such an approach might increase inventory for strategic purposes on some parts but should decrease inventories overall because the bullwhip effect is mitigated by these strategic buffers, unlike traditional lean manufacturing where initiatives may be measured on inventory reduction. Here is how DDRMP relates to current lean manufacturing approaches.
A New Outlook for BOM
Many discrete manufacturing organizations rely on a bill of material (BOM) to understand demand for component parts and materials needed to manufacture products and meet orders or projected demand, but DDMRP does not use a BOM to determine how you plan the manufacturing of a part.
The DDMRP approach recognizes that demand fluctuations can leave businesses on the back foot in their ability to respond to the customer or prospect, and aims to iron out bumps in demand than traditional lean manufacturing processes. Traditional lean manufacturing is built on the assumption that a nice, smooth schedule is the goal, whereas DDMRP allows you to adapt quickly to change and can enhance the agility of supply chain and manufacturing processes.
Instead of traditional BOM-driven planning and scheduling where planners will best determine if they have enough of a part to fulfill a given demand, under DDMRP they will monitor inventory levels and work out the level of demand they can respond to, given inventory on hand or on order. DDMRP also adds buffers in strategic parts of the value flow.
In terms of the best place for those strategic buffers, it depends on how frequent a part is in the BOM and at what stage in a manufacturing process you run out. Buffered inventory is not treated as excess or as waste, but to store potential to meet demand, and when that demand materializes, the inventory is then pulled through the system.
DDMRP at Work
IFS customers have begun to express interest in the capabilities of DDMRP, even if they did not initially use the term itself. What they are asking for is a way to reduce lead times and respond faster to opportunities, and this can be achieved by buffering parts intelligently to mitigate risk. Only then can they manage unanticipated demand without sacrificing existing or anticipated orders.
DDMRP is most effective in a discrete setting such as industrial manufacturing. One pain point industrial manufacturers typically struggle with is reacting to demand shifts, and DDMRP is an effective solution to this problem. DDMRP could make these manufacturers more competitive because they can provide a quicker turnaround on projects and therefore win more business. Ultimately, if you can commit to satisfying an order and your competitor can’t, it will be you who wins the business.
Make-to-stock discrete manufacturers selling through distribution channels can also prosper from DDMRP. For example, if you are supplying a large chain store, the retailer needs to keep a buffer in the stores to meet their daily requirements, and they or the manufacturer may also have a small buffer in their warehouses. But the manufacturer is separated from the end customer by the retailer, and often a wholesaler or distributor, so they need to watch for demand signals from the market that suggest they need to prepare for changes in order volume and adjust strategic buffers accordingly. These buffers are monitored and adjusted by changing the unprotected lead times.
Enterprise Resource Planning Continues to Evolve
As DDMRP becomes more popular, ERP must evolve to deliver functionality that streamlines and formalizes it in the system of record. Not all ERP software can cope with the introduction of DDMRP however, therefore you need to establish key criteria. The software must be able to facilitate protected versus unprotected lead time plus the average daily usage rates for parts—it will need tools to help you calculate those. There must also be a method to identify what demand is real by designating qualified demand versus unqualified demand—with qualified orders linked to a customer order and unqualified demand tied to anticipated demand fluctuations.
Software must be able to add DDMRP features to certain parts and identify the parts that require buffers. It needs the level of visibility to buffer inventory and get the best possible outcomes, with the flexibility to quickly adjust those strategic buffers so they stay in an optimal range.
Make Use of the DDMRP Opportunity Now
DDMRP has huge potential for manufacturers in industries where demand can fluctuate—which is in most industries in the current market climate. It is quickly replacing lean manufacturing principles and its use is only becoming more common. For a head-start on the DDMRP journey, take a look at the materials from the Demand Driven Institute, available for download or hard copy now.