Today, we live in a world that is only getting more complex. There are new sources of volatility, uncertainty, and ambiguity at every turn – from radical inflation to international conflict. Yet, at the same time, the appetite for consumption across most markets is increasing: people are looking for a greater variety of products delivered to their door in record time. Think of toothpaste, for example. If you go into any supermarket, you’ll be faced with tens of different varieties – from regular to travel size, charcoal, Pokemon and more – as brands endeavor to meet evermore exacting consumer requirements.
These factors create a challenging landscape for supply chain professionals, who need to ensure that raw materials or parts are in the right place, at the right time in the right quantities to enable production and meet consumer demand. Streamlining this strategy can be difficult when the business produces just one thing, but it becomes infinitely more complex when it involves tens or hundreds of product lines with supply chains spanning multiple continents – as is often the case.
Historically, organizations have relied on material requirements planning (MRP) to help them manage this process. However, the sheer scale and complexity of global supply chains and increasing consumer expectations of speed and choice mean this approach is no longer fit-for-purpose. Ask any supply planner if they’re happy with their MRP system and they’ll probably show you their evidence file of “MRP errors” – every planner has one to defend the resulting shortages, lateness or excess problem.
The downfall of MRP
MRP was designed as a make-to-order calculator, enabling time phase planning. At its inception, it was rightly hailed as a massive step forward in synchronizing supply and demand over time. However, there is one glaring issue with MRP; it relies on forecasting! And if there’s one thing we know about forecasts, they’re wrong more often then not. As a result, organizations looking to operate cost-effectively and meet buyer expectations of choice simply cannot afford to keep relying on such a precarious process.
As Einstein said, “Insanity is doing the same thing over and over and expecting different results.” In the same way, supply chain professionals cannot continue, again and again, trying to make their MRP system better. There needs to be a change in approach to align with the evolving nature of supply chains.
What’s behind the shift to DDMRP?
Demand-driven material requirements planning (DDMRP), introduced just over a decade ago, is a fusion of five existing methodologies: Core MRP, Distribution Requirements Planning (DRP), Theory of Constraints (TOC), Six Sigma, and Lean. Unlike traditional approaches, DDMRP breaks up long supply chains by creating decoupling points that act as safety buffers. By inserting decoupling points into supply chains, professionals can isolate an issue or slight fluctuation and deal with it immediately, thus minimizing the impact of the bullwhip effect.
Much like MRP, DDMRP is a conceptual calculator, with the addition of decoupling points enabling supply chain professionals to order product components in line with actual needs. The key to DDMRP is positioning decoupling points at the right places and sizing them to accommodate uncertainty and reduce waste. Get this right, and supply chain professionals can bask in the utopian world of shorter lead-times, fewer shortages and downtime and ultimately happier customers.
Improving the accuracy of supply and demand
DDMRP allows supply chain professionals to be more formulaic, focused and visible, linking material availability and supply directly to actual consumption. In effect, it reduces the risk associated with making supply and business decisions based purely on forecasts which as we’ve established are always wrong. By wrong, we mean lead-times that are too long, stockouts, late deliveries and too much inventory in the wrong place of the wrong parts. “Wrong” is a very broad-brush term in supply chain management and applies to anything that falls short of perfection – it’s a tough life in supply chain. Instead, professionals can use DDMRP to improve production and inventory management processes by clearly targeting the true customer and business needs rather than constantly juggling supply emergencies with financial overcommitments on inventory, freight, space, people resources and can stop trying to optimize an unoptimizable system.
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