Having been immersed in ‘Inventory Management’ and ‘Demand Planning’ my entire career as both a professional and an academic, I am excited to now be a part of the global expansion of DDMRP. When I started focusing on DDMRP in 2017, I was sceptical. How could something so straightforward be revolutionary? In this week’s newsletter, I’ll revisit the basics, highlighting the differences between DDMRP and MRP and articulate why I now prefer the former.
Understanding Traditional MRP
Definition and Origin:
Developed in the 1960s, MRP is a systematic approach to planning and controlling inventory. Simplistically is uses a demand forecast and policy settings to construct a Master Production Schedule (MPS), which is then exploded through the Bill of Materials (BOM) to generate production and purchase orders. It is so foundational that I know of no ERP system where it isn't the default planning function.
Core Principles:
MRP is a comprehensive planning methodology that calculates time-phased material requirements at every BOM level and across the distribution network. Interestingly, MRP was not initially designed to incorporate forecasts, but as the world evolved over the last five decades, forecasting become the norm.
Advantages:
MRP is adept at automating planning calculations and providing a time-phased projection of production and purchasing requirements. In stable conditions, it ensures predictability and consistency.
Limitations:
The main drawback of MRP, in my view, lies within the operational range of planning—where supply order recommendations are generated and prioritized to align with market expectations. MRP fuses forecasted and actual demand, obscuring the actual customer requirements. This shortcoming is exacerbated in volatile markets, where forecasts invariably fail to match reality.
Exploring DDMRP
Introduction to DDMRP:
Conceived by Carol Ptak and Chad Smith in the USA around 2010, DDMRP was crafted to address the limitations of traditional MRP. It amalgamates the methodologies of Lean Manufacturing, Theory of Constraints, and Six Sigma with MRP, yielding a plan that is more responsive and suitable for today’s VUCA (Volatility, Uncertainty, Complexity, Ambiguity) climate. DDMRP empowers planners to generate new supply order recommendations as well as prioritize all available materials and resources to fulfil actual customer demand within the operational range.
Five Key Components:
DDMRP implementation requires the planner to follow five steps: Strategic Inventory Positioning, Buffer Profiles and Levels, Dynamic Adjustments, Demand-Driven Planning, and Visible and Collaborative Execution. These 5 steps provide a planner with a strong foundation upon which to make their decisions.
Benefits:
The advantages of DDMRP include enhanced supply chain responsiveness and reduced time to market. It ensures planners concentrate all their efforts where needed most to fulfil customer demand. The result is more visibility, less inventory, higher availability, and fewer expedited shipments.
Some Key Differences Between DDMRP and MRP
1. Fully Connected vs. Decoupling: DDMRP uses strategic decoupling points at which to place inventory buffers that defend against variability. The DDS&OP process of DDMRP teaches planners to set policies to automatically adjust these buffers and then manually override buffers where group policies are not refined enough. The method then pulls inventory through the supply chain based on actual demand. Conversely, MRP is a fully connected system that pushes inventory into stocking locations based on a forecast and safety stocks. As proven by the Massachusetts Institute of Technology back in the 80s, this process leads to a bull-whip effect where small variations in demand downstream can lead to massive volatility upstream.
2. Demand Forecasting vs. Demand-Driven: Both methodologies require a forecast; the more accurate, the better. However, MRP does not differentiate between the operational and tactical ranges. In DDMRP, the forecast is used tactically to set buffers, and actual demand is used operationally to pull inventory through the supply chain. For MRP, the planner's focus is on getting the forecast right. For DDMRP users, the focus is on right-sizing the buffers.
3. Adaptability and Responsiveness: MRP relies on optimization to be adaptive and responsive. For a mathematician like myself, the maths is exciting and complex but is often referred to as a 'black box' by planners. Forecasts are generated in either weekly or monthly buckets. DDMRP on the other hand uses simpler math to set initial buffer levels and then employs a continuous feedback loop to assess buffer performance. Buffers are automatically updated daily.
4. A Precise Answer vs. A Range: MRP provides a precise inventory level, whereas DDMRP works with ranges. I would highly recommend you read Carol and Chad’s book ‘Precisely Wrong’ to understand why planning within a range creates a more responsive and stable system.
5. Technology and Implementation: Many MRP providers have attempted to adapt their traditional MRP or TOC-based systems to DDMRP. From my experience, this results in a sub-par solution because of the fundamental changes required in the mathematics and visualizations.
DDMRP signifies a shift in inventory management philosophy, offering agility and flexibility in intricate supply chain contexts. As market volatility escalates, demand-driven approaches are poised to dominate.
Additional Resources
- "Demand Driven Material Requirements Planning (DDMRP)" by Carol Ptak and Chad Smith
- "Orlicky's Material Requirements Planning" 3rd Edition by Carol Ptak and Chad Smith
- "Precisely Wrong: Why Conventional Planning Systems Fail" by Carol Ptak and Chad Smith
Join the conversation at the Demand Driven Institute LLC on LinkedIn.
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Think Flow,
Kevin Boake
