Point One: The positioning of inventory, and how much is held in each position is what creates the capability for Customer Service.
Point Two: Disruption, and its unknown nature, forces us to be imprecise in our planning decisions.
What’s needed: Being roughly right based on forecasts, customer orders, and the application of our business intelligence (known promotions, seasonality, product history).
What we’re doing today: Being precisely wrong, expecting our plans to execute without disruption over any length of time, even long ones (and it’s clearly not working).
Our traditional planning tools force us to assume that the execution of our plan will happen exactly as expected. And all of us should know by now that no plans are ever executed without disruption.
Our traditional planning tools take information that we know to be incorrect and force us to make a plan that we know will not happen that way. And as long as we’ve been alive, we remain hopeful that we will somehow adjust and react to changes in the plan “on the fly”.
This leaves our buyers and planners plugging the holes, filling the cracks, and applying the proverbial duct tape required when our plans don’t align precisely with the execution. They are required to do this because the tools we’ve provided are flawed.
Continuing efforts to focus on a better plan (including more accurate forecast), assumes that our plans will not face disruption. By now, we must realize that’s not possible.
Our planning tools instead should focus on having a range of inventory that allows for flexibility, using forecast information but not directly and precisely tied to them. And we all know this intuitively because this is the logic we apply in every other aspect of life.
No one has a refrigerator that is empty except for the items needed to execute your food plans between grocery runs. No one.
No one puts just enough gas in their cars to allow for their daily transportation plan, budget constraints notwithstanding.
Fast Food restaurants are not creating algorithms to predict how many people will enter their location (and what they will order) between 2 and 3 o’clock next Wednesday. They hold an amount of inventory in their “kitchen” to allow for a range of requirements before their next delivery.
Eventually, companies must see the value of this slightly different approach.
There is one other important benefit to this proposed new approach. In traditional planning, if planners guess wrong their only recourse is to try and plan better next time, if they can even figure out where the plan went wrong. In this new approach, when our inventory positions are overrun (or over planned), we make relevant adjustments today that can easily be tested to see how it will perform in the future.
This new approach is called Demand Driven and applies to MRP or DRP, creating DDMRP and DDDRP. Whether you use this ready and available option, or try to create your own, you must realize the focus must be on having the right amount of inventory. And the traditional planning tools are A) Not designed to do that and B) Designed Not to do that. No wonder they fail.
John Melbye, DDPP, DDDP, DDOP, DDLP
Become Demand Driven
