The Demand Driven MRP methodology begins with Positioning. Inventory Positioning specifically. What is so special about positioning? It is the key to solving one of the basic problems of supply chain management, what I call “The Precision Dilemma”.
Let’s go back to our basic supply chain structure, where we start with a demand prediction we call a forecast. Or in some cases, a customer order. Because of the lead time of our components, we need to consider the prediction (or order) in a relatively distant future. Let’s call it 3 months.
Whether it’s a forecast or a customer order, the likelihood that what we are seeing in the system today will remain exactly the same is almost none. The forecast is wrong, The customer made a change. Anything can happen, and often does.
But all our actions start with the expectation that the future will unfold precisely as planned. And thus is born the situation where a guess is preferable to having no guess.
This is where positioning comes in. Positioning, in this regard, is about locating something in a place such that when the real requirement becomes known, we can adjust quickly to meet the actual, known, 100% true demand.
Can we find examples relevant in our lives? Sure. I choose to have dinner near the theater, so I can rush to the show if need be. I choose to work from a location near the airport to be more responsive when picking up a friend.
Consider baseball, particularly the outfield. Based on the batter, the outfielders will “position” themselves to be near where the ball is likely to be hit. Not pure conjecture, but with some science or historical information. No outfielder is positioning themselves expecting not to move when the ball is hit. But to start from where they can easily move, once the destination is precisely known.
It would be ridiculous for the outfielder to stand where they predicted the ball to be hit and then complain about the prediction accuracy.
It would be equally ridiculous for the outfielder to wait until the ball was hit to run onto the field.
If we are going to work in a reactive environment like supply chain, let’s at least have a chance to succeed. Positioning of Inventory, or Resources, creates a likelihood of success.
John Melbye, Become Demand Driven
