Become Demand Driven is founded completely on the principle that learning and improving is everyone’s goal. We ask questions. We drive discussion. We seek solutions. We encourage curiosity and in-depth exploration to understand whether we are on the right path or if maybe we’re going in the wrong direction.
This page is our effort to channel our knowledge and our own curiosity for understanding into a reservoir of articles, videos, stories, and graphics that may resonate with our readers. When one of our stories catches your attention, it may provide some hint or spark to drive the momentum within your company. It may bring enough clarity for you to share this insight with your company leadership team.
Everything we do is about helping our supply chain colleagues to find the right path forward.
Stop Managing Chaos, Start Driving Change
It’s time to adapt and win.
The truth is that inventory is an asset and a leverage point for success.
Traditional MRP vs Demand Driven MRP Simplified
The difference between Traditional MRP and DDMRP
The solution starts with re-thinking the systems
we’ve been using.
Today’s supply chain is a huge source of competitive advantage for many companies.
Keep the right amount of money in each of your bank accounts.
Sometimes you just have to go your separate ways.
Traditional MRP was developed in the 1960’s and put into computer code in the 1970’s. It essentially hasn’t changed. What has changed? The conditions in which we work and the environment in which we live. Customer expectations have certainly changed. And the complexity and length of our supply chains have certainly changed. The business expectations (lower inventory investment) have also changed.
Think of it this way. If you live 5 miles from your workplace, you might ride to work on a bicycle. If you move and now live 50 miles from your workplace, you need to revise your thinking. Either you need to leave much earlier or you need a different mode of transportation.
Yes, the equations are still valid. And they still require the same degree of precision in the calculations.
For example: When our customer lead times were less than our supplier lead times, this was manageable. But now, I have a customer that wants finished product next week and my lead time for the components is six months? I can no longer wait for the customer order before I purchase my components. I need to predict when I will need the components and be prepared by having them on the way or in stock.
The problem comes in two parts.
Forcing precision into an imprecise situation is counterproductive and the harder we try, the more counterproductive it becomes.
Precision itself is not the enemy. It’s the length of and the steps involved in the precision that causes trouble. Why do most of us prefer one direct flight vs two stops when making travel arrangements? Because every stop is a potential for things to go wrong. One domestic flight
with no checked luggage vs. three segments with an international portion. It’s easy to say which one is more predictable in terms of timing. So, precision works, but the longer the timeframe, the more likely precision will fail. That timeframe is determined by each business (there is no
“one-size-fits-all”). In between the precision, we need something to absorb the variability so that precision can work.
The intent of safety stock is to protect against variations in demand and supply (paraphrased from APICS Dictionary). Sounds great. Useful even. But the application of this principle breaks down quickly. Safety stock is never intended to be used. If safety stock is breached, immediately the demand goes to past due, making it an emergency (which is what we’re trying to prevent by having safety stock). Safety stock is just a new zero, in terms of the application.
Safety stock is not a planning tool. It’s like a last chance, “wake-up call” for inventory management. It’s like an alarm you set for 6am and then hit snooze every three minutes until 6:30am.
An inventory buffer is a planning tool. We make our decisions using the inventory buffer always, not just when we’ve dropped below a “dangerous” level. Every day we review our situation (net flow position), and we compare that result with the planning buffer. If it’s above a certain amount, we are fine. If it’s below that amount, we place an order. If we’re far below that amount, we expedite.
With the inventory buffer, we develop a warning system. A percentage-based ranking that tells us our current risk.
With safety stock, we are either OK or NOT OK. Because safety stock is our last line of defense, not a tool for decision making.
Great question. Your home kitchen and meal planning/preparation/consumption provides an excellent example of inventory management, production planning, production, delivery and customer service. You have the ingredients (bill of materials), recipe (work instructions), Directions (Production routing), Grocery shopping list (Purchasing), Dinnertime (customer request date), Dining location (logistics and delivery), Stove, oven, mixer (equipment and maintenance), and several other specific similarities. Inventory management is similar too. You keep some ingredients all the time because you use them in many different meals or dishes. And some items you only buy when you need them, because they are very seldom used. And for items you use often, like eggs, you subconsciously set a “safety stock” of six eggs (for example). When you get to 6 eggs, you make a note that you need eggs and review whether or not the 6 eggs you have will last until the next time you drop by the store. This works great when you have one refrigerator and you are on-site. But if you have 100 refrigerators and you only have visual access to three of them, it’s a different story
First, we find the strategic locations to place inventory buffers. The purpose is to absorb variability, such that the precision that is between the buffers is allowed to work.
Second, we determine how much inventory should be placed in these strategic locations. And we focus on maintaining these inventory levels.
Third, our initial work in creating the buffers uses data that can change. We need those changes to automatically implement and adjust the buffers dynamically. We cannot wait a week or a month to adapt our decision-making tools.
Fourth, we need to follow the output from the system. We’ve put our work in up front. Now, the resulting suggestions and plans are appropriate. We still look for outliers, but we don’t have to question every suggestion.
Fifth, we create a simple system of showing the relative urgency or priority of the parts or the schedules involved. This means that anyone can clearly see what should be done first or next.
The first step to implementing Demand Driven MRP is to learn the methodology. There is not a secret component to DDMRP. We believe that you should learn the methodology first, then run a pilot program to test the potential, and then, purchase software as needed.
You can implement for a segment of your business, or you can implement an entire organization. If you are struggling with having too much of the wrong, too little of the right and overall, too much inventory, then DDMRP can help you.
The good news is that results start to appear in a relatively short time. It varies with your business, but generally improvements are shown in three to nine months.
Take the Demand Driven Planner class as a first step. Develop a spreadsheet to fine tune the methodology for your business and your application. The class is a 16 hour workshop, which Become Demand Driven offers over 2 full days in person or 4 half days virtually.
Located in Minneapolis, MN.
Serving the entire United States