What is DDMRP? A guide to demand-driven MRP
Material requirements planning (MRP) has been the backbone of manufacturing software systems for half a century. MRP is the calculation engine that specifies which materials and parts to order, how many of each are required, when they will be needed, and when activity must begin to complete the work so products are ready by the forecasted completion date.
Traditional MRP is inherently forecast driven. However, the one thing we know about forecasts is that because they are based on past activity, they are not always accurate in predicting the future. We may have some limited control of variability through procedural discipline, strong quality processes, reliable vendor partners, and other factors, but some uncertainty will remain. There will be surprises… and shortages.
Today’s supply chain – with greater volatility, uncertainty, complexity, and ambiguity – calls for additional planning capabilities that are sensitive to real-time fluctuations in demand. This is where demand-driven MRP (DDMRP) comes in.
DDMRP is the acronym for demand-driven material requirements planning (MRP), an approach to material control and replenishment that improves on the functionality of traditional MRP. Because DDMRP is demand driven, it is by definition more sensitive and responsive to the variations in demand and supply that can cause shortages, production disruptions, and chaos in manufacturing facilities.
DDMRP, also referred to as demand-driven replenishment, is an optional extension of MRP, not a replacement. For many manufacturers using ERP, MRP is sufficient; however, DDMRP helps it work better, especially in a volatile environment.
How does traditional MRP work?
Traditional MRP does a good job of planning the materials and resources needed to build a product, as long as the forecast is accurate and there are no unexpected changes to demand within the total lead time allocated to build the product. Unfortunately, in a dynamic environment, things change quickly.
When demand fluctuates, MRP’s way of reducing risk is to stage extra “just in case” inventory throughout the supply chain using a number of assumptions and formulas. When the unexpected does occur, some of that extra buffer inventory can therefore be consumed. The extra inventory does prevent shortages, but only some of them; shortages may still occur. And carrying extra inventory ties up cash and space.
Also, when MRP detects an impending shortage – when buffer inventory is being consumed – it will issue alerts to users to expedite replacements for that inventory, triggering a series of manual operations.
The real problem is variability caused by forecast inaccuracy and supply chain variations, including late receipts, late order completions, excess scrap, quality problems, and inaccurate records, for example. While manufacturers realize that variability cannot be altogether eliminated, they want a way to reduce extra inventory and experience fewer shortages. DDMRP offers an enhancement to traditional MRP that does exactly that.
How does demand-driven MRP work?
While MRP is a “push” technique that pushes inventory into the system based on the forecasted need, DDMRP operates differently.
DDMRP takes variability out of the equation by using “pull” for materials in a demand-driven approach. Rather than relying on forecast accuracy – and buffering for fluctuations in demand and supply – DDMRP tracks actual usage and manages replenishment through a simple visual system. Buffer inventory is only used to ensure the availability of key items that are deemed to be of strategic importance. With the use of DDMRP, there is less inventory overall and fewer shortages.
DDMRP is structured around a methodology that can best be described as “position, protect, and pull.”
- Position: Bills of materials are examined to identify strategic items – materials or components – at critical points within the structures. In an adaption of the Theory of Constraints method, in which critical resources known as “constraints” determine production limitations, these key materials must be the focus of control above all other components.
- Protect: Availability of these critical items is also ensured by using inventory as a buffer. But this buffer inventory is not deployed as part of the initial MRP planning formula; rather, it is replenished dynamically as needed.
- Pull: Buffer inventory is managed through an innovative pull technique that continually monitors inventory levels and uses visual cues to maintain the buffer within a specified range.
Here are the detailed steps in the process:
- Identify the strategic items to manage through DDMRP.
- Establish the target inventory (buffer) level and parameters (resupply trigger zones).
- Replenish using the pull signals represented by the colored indicators.
- Plan using functions within DDMRP.
- Collaborate with supply chain partners using the replenishment zones/triggers to execute on the plan.
DDMRP users pull controlled inventory at strategic positions to protect the production schedule by avoiding shortages.
As you can see, DDMRP users pull controlled inventory at strategic positions to protect the production schedule by avoiding shortages. DDMRP also requires less inventory because only strategic items are buffered, and the pull technique ensures the right amount of that inventory is maintained for those strategic items. The visible execution cues complete a simple and dynamic replenishment process that is easy to implement and maintain. MRP is still a part of the picture, however, as it maintains its normal function for non-strategic items and coordinates with DDMRP in the planning process.
DDMRP vs. MRP
Here’s a summary of the differences between DDRMP and MRP that illustrate their complementary relationship:
How did DDMRP software evolve?
DDMRP was created and refined by some of the sharpest and most innovative thinkers in traditional manufacturing management, lean manufacturing, and the Theory of Constraints. After proving and refining the process at manufacturing locations across the globe, the team formed the Demand Driven Institute with the following goals:
- Spread the word about DDMRP.
- Educate and certify manufacturing professionals in its implementation and use.
- Work with software developers to integrate DDMRP into their ERP products.
- Validate that the functionality complies with DDMRP guidelines and standards.
Where can I get DDMRP?
DDMRP is offered by many leading ERP system providers, typically available in the cloud as a part of a supply chain planning solution. Look for modern systems that integrate with your ERP, as well as offer other aspects of planning such as sales and operations planning (S&OP), demand forecasting, inventory planning, and “what if” scenario analysis.
Additionally, these DDMRP and supply chain capabilities should use real-time information, visualization, alerts, and machine learning to help companies respond more quickly to market and business unpredictability.
Demand-driven MRP FAQs
Material replenishment is simply the act of replacing parts and materials that have been used. A company may decide to maintain a supply of a certain part. As they use or sell these items, they will reach a point at which they will order more in the hope that they will receive the replacements before the supply runs out. There are many methods of managing resupply/replenishment.
Demand is the use or requirement for an item or product. For end items (products), demand is primarily customer orders but may also include transfers to another facility or warehouse, internal use (as part of a kit or larger product), samples, or items for testing, for example. Demand for components and materials is primarily for use in production of higher-level assemblies or products, and for service or replacement parts. Components and materials may also be sold or transferred to other corporate divisions or plants.
Advanced planning systems provide another way to plan material requirements using a different planning methodology. Both APS and MRP calculate the materials and schedules to manufacture products. MRP is the calculation methodology at the core of most enterprise resource planning (ERP) systems. It creates plans based on projected forecasts and assumes infinite resources such as capacity. APS can plan materials and schedules, but it factors in constraints such as limited production capacity in manufacturing processes (such as, painting, heat treatment, and testing). APS uses these constraints to create a plan that can be executed in the time required.
Cumulative material lead time, or CMLT, is the total time required to manufacture a product. It uses the product’s bill of materials (BOM) to calculate the maximum time needed to procure raw materials and components from outside sources, to assemble subcomponents, and for the final build of the product and testing. That maximum time to complete the entire process is the cumulative material lead time.
Kanban is a manual material management technique that uses a physical signal like a card, a tag, or an empty bin to trigger replenishment. Kanban, a Japanese word meaning “card,” is primarily used to move parts to point-of-use locations within a factory, but it is also used to trigger production in a feeder line or focused factory, initiate purchase orders or releases for purchased parts, and for other supply chain uses. Modern ERP software systems may include an electronic Kanban function.
DDMRP works with and within traditional MRP, replacing the MRP “push” replenishment process with a visually oriented “pull” demand-driven methodology for strategically important parts. MRP continues to handle its planning processes and the replenishment of non-strategic parts. DDMRP is available to handle changes to demand and is an optional add-on from ERP vendors.
Make to order (MTO) is a sales and manufacturing strategy where customers can customize the product to their specifications during the sales process. Examples include custom kitchen cabinetry or a luxury custom vehicle. Production of the final product only starts after the customer sales order has been received. Because of that, MTO manufacturers cannot rely on forecasts. Since MTO products are all customized, the lead time to deliver is longer compared to products that are prebuilt and shipped from stock. Tools such as DDMRP and advanced planning systems (APS) are useful because they react to volatile demand and help deliver product quicker.
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