DEMAND DRIVEN MATERIAL

REQUIREMENTS PLANNING:
The Next Generation MRP
Standard
MRP AND COMPLEXITY

Orlicky’s first edition MRP (1975) highlighted a need

to overhaul how a business plans and manages both
inventory and resource. By the year 1990 over 1
million companies were using MRP with little change
from its original concept.
Industry is now presented a new dilemma as the
circumstances that drove Orlicky’s original design
have dramatically changed.

Higher
Customer Long Lead Forecast Product Life Product
Year Complexity Inventory
Tolerance Time Parts Accuracy Cycle Variety
Turns
Long Long No
1975 LOW Few High Low
(Months) (Years / Decades) Concern
Short Low Short Business
2016 HIGH Many High
(Days) (Falling) (Months / Years) Priority

How Much Different is 2016 than 1975?

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MRP’s CURRENT IMPACT ON PERFORMANCE

 In 1975 MRP was designed around an environment that modeled

Scenario 1 with low demand volatility and long manufacturing lead times.
 The reality of 2016 looks more like Scenario 2 with high demand volatility
and still long manufacturing lead times.
 MRP no longer produces results that are aligned to the business
objectives and key metrics.

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EVOLUTION OF COMPLEXITY

Supplier MFG Distributor

1990s:
Serial flow across Customer
organizations.

2000s: Eng Eng Cust Cust Ship

Svc Svc Customer
Concept of the Value Mfg Dist Mfg Final
Dist Assy
Chain introduced
Internal processes begin
to move outward.

2007 to Present: Mfg Eng

Cust
No longer a chain but now a Svc
Supply Network with dynamic Mfg
Dist
relationships across all nodes in Customer
the Network. Final
Assy
Eng Dist

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 TYPICAL COMPLEX ENVIRONMENT

Today’s formal planning systems are fundamentally broken!

END USER MANUFACTURER SUPPLIER
RETAIL SUPPLIER SUPPLIER
CONSUMER STORE MFG FACILITY DC MFG
RETAIL MAIN DC
DC
Plan Buy Plan Buy Plan Buy

Push Push Push

HUB / TRANSIT
DC
D2C or ONLINE

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TWO PRIMARY DRIVERS OF ISSUES

 Today’s MRP systems are still designed based on 1975 technology.

However, the complexities of today’s environment are completely
different.

 Forecast accuracy is at a point of diminishing returns. We will never

achieve 100% accurate!
World Class forecast
accuracy has been identified
as 75%. Reality is far less
and difficult to improve.

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MRP OSCILLATION

Insufficient CauDon OpDmal CauDon Excessive

MRP Oscillates back and forth between insufficient and excessive inventory.
This is largely driven by the traditional planning process.

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ISSUES WITH MRP

 Demand is actual a combination of Forecast and Demand

 Too responsive to change with planning derived from a known
inaccurate forecast
 Change generates requirements where some may be past due and
many may not be real and/or impossible to meet
 Outmoded inventory management techniques
 Generates avalanche of exception messages many of which are
erroneous and and others that are ignored
 Creates nervousness and instability within the Supply Network
 MRP Assumptions
–  Lead times are known
–  Full allocation
–  Order Independence

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ISSUES WITH MRP

 Is an incomplete system without execution tools to manage the

environment
 Additional amount of analytical work and manual effort required to obtain
desired output
–  Reliance on Excel to plan and execute with the proliferation of manual
workarounds
–  Users rely on complicated Excel documents; 90% of Excel documents
contain errors of 1% or more of all formula cells [Wall Street Journal MarketWatch, April 20, 2013]

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WHAT IS DEMAND DRIVEN

 What is Demand Driven

–  Sensing and shaping of customer demand, then adapting planning and
production while pulling from suppliers all in real time. [Demand Driven Institute 2009)

 Evolution of Demand Driven

JIT TPS / DFT

Demand
Just-In- Lean
Demand Agile
Flow Tech Driven
Time

TOC
Theory of
Constraint

Moving from Push and Promote to Position and

Pull
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EVOLUTION OF MRP AS A STANDARD
 1975, McGraw-Hill published the 1st Edition of
Joe Orlicky’s Material Requirements Planning.
–  Detailed the procedures involved in an innovative
computer-based approach to improving
production planning & inventory control
  1994, McGraw-Hill publish 2nd Edition by
George Plossl
–  Original text updated to include post-MRP
developments such as MRP II, JIT, and TQM
 2011, McGraw-Hill publish 3rd Edition by Carol
Ptak & Chad Smith
–  Introduces the next generation of MRP logic,
Demand Driven MRP (DDMRP)
–  “The definitive reference for the next generation of
manufacturing practitioners and leaders.”  From
the Foreword by Dave Turbide, CFPIM, CMfgE,
CIRM, CSCP
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DEMAND DRIVEN INSTITUTE

 The Demand Driven Institute (DDI) is dedicated to proliferation of demand

driven strategies and tactics in industry
 DDMRP is becoming the world standard for the emerging demand
driven methodology in planning, scheduling and execution
 DDI was founded in 2011 by Carol Ptak and Chad Smith, co-authors of
Orlicky’s Material Requirements Planning, Third Revised Edition
–  Carol Ptak: Previously Vice President at PeopleSoft where Ms. Ptak
developed the concept of demand driven manufacturing and Global
Executive at IBM Corporation. Also past President of APICS
–  Chad Smith: Internationally recognized expert in the Theory of
Constraints (TOC)

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 WHAT IS DDMRP

 What is Demand Driven Material Requirements Planning (DDMRP)

–  Multi-Echelon Material and Inventory Planning and Execution system that
enables a company to become Demand Driven.

DDMRP

Material Distribution Demand Flow

Requirements Requirements Lean Six Sigma Technology Innovation
Planning (MRP) Planning (DRP) (DFT)

Using Forecast to plan, Demand to Produce

and Procure
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BENEFITS STORY FOR DDMRP

Top issues facing most Supply Chains

Reduce costs Growing lead
while improving Pressure to Complexities with
times through the
improve Inventory the Global Supply
customer service entire Supply
Turns Network
levels Network

Benefits of DDMRP based on case studies by the Demand Driven Institute.

20% 15%
65% 80%

Customer Inventory Raw Planner / Replenishment

Service Levels Material, FGI Scheduler Lead Times
and WIP Availability

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MINIMIZING THE ADVERSE IMPACT OF MRP
To minimize the system created nervousness of MRP through the Supply
Network we need to stop passing variability between the consuming and
producing companies within the system. The variation is the result of
demand distortion and supply disruption through the entire Supply Network.
Demand Driven methodology recommends to Decouple MRP at strategic
positions and then establish Strategic Inventory at these decoupled points
enabling a positive ROCE.

Strategic
Cumulative demand
Inventory Consistent availability of
& stable signal inventory

Supply Variability Demand Variability

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DDMRP REBALANCE

Insufficient CauDon OpDmal CauDon Excessive

DDMRP breaks down MRP’s bi-model distribution of part availability for strategic
inventory decoupling lead time, dampening variability and minimizing employed
working capital.

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DDMRP METHODOLOGY

 5 Point Plan for DDMRP Development

Strategic Demand Visible &

Buffer Profiles Dynamic
1 Inventory 2 & Zones 3 Adjustments 4 Driven 5 Collaborative
Positioning Planning Execution

Optimize Environment Plan Execute

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DDMRP INTELLIGENT ASSISTANT

 Strategic Inventory Positioning (Step 1)

–  Key factors that must be achieved
•  Absorb variability
•  Decouple lead time
•  Provide a Return on Capital Employed (ROCE)
–  Enables lead time reduction and inventory optimization
•  The Decoupled Lead Time (DLT) is the longest unprotected/unbuffered
sequence in the BOM
2 2 $46,000
$62,000
1 1 1 1 1 1 1 1

2 2 2 20 2 2 2 2 20 2

1 10 1 1 10 1

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$5,000

PP502 should be considered to be strategically positioned Strategic positioning of PP502 will mean the DLT path would
inventory as longest DLT is 31 days to produce FG101. move to PP305. DLT now 23 days for FG101.

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DDMRP INTELLIGENT ASSISTANT

 Buffer Profiles: Requirements (Step 2)

–  Buffer Profiles enable groups of parts with similar traits to be allocated into
particular Buffer Profiles with specific attributes defining:
•  Item Type
–  Manufactured, Purchased and Distributed
•  Level of Variability in Demand and Supply
–  Low, Medium and High
•  Length of Decoupled Lead Time
•  Short, Medium and Long
–  Sound statistically methodologies utilized to analyze demand profiles and
historic performance within manufacturing and of suppliers

Demand Variability Supply Variability

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SIMPLICITY OF DDMRP

 3 Buffer Zones indicated by color and representing the state of the

inventory system:
–  Green: Part requires no action OTOG
–  Yellow: Parts requires replenishment TOG
–  Red: Part may require special attention G
 Size of Buffer based on: TOY
–  Buffer Profile traits
•  Item Type / Variability / Lead Time
Y
–  SKU traits
•  Average Daily Usage (ADU) / Demand Driven Lead TOR
Time / Ordering Policies
 Available Stock is compared against buffer levels to R
determine Planning and Execution priorities
BLACK

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DDMRP INTELLIGENT ASSISTANT

 Buffer Zones: Requirements (Step 2)

–  Rolling average of demand defined as Average Daily Usage (ADU) measured
daily to sensing changes in demand.
Average Daily Usage
40

35

30

25
Demand

20

15

10

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Daily Demand ADU

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DDMRP INTELLIGENT ASSISTANT

 Buffer Zones: Design

–  Buffer Zones defined through simplistic color coding system, with levels of
inventory being defined for each zone.
–  Utilized for DDMRP Planning
–  Zone definition

Supply Order quantity and defines Quantity and Frequency of Ordering defined by maximum of
defines Frequency of ordering - % of Demand Coverage defined by Lead Time Profile
G - Demand usage in defined Order Frequency Period (every 10 days etc.)
Supply Order - MOQ
trigger point

Volume consumed during

replenishment period
Y Demand Coverage over DLT

Average On-Hand Position

Defined safety embedded into the buffer

Absorbs Variability enabling - Red Zone = Red Zone Base + Red Zone Safety
overall Buffer Design to cover R - Red Zone Base - % of Demand Coverage defined by Lead Time Profile
20-25% of demand ramp - Red Zone Safety - % of Red Base, defined by Variability Profile Factor

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 DYNAMIC SIZING

Average
On-Hand
Inventory

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DDMRP INTELLIGENT ASSISTANT

 Visible & Collaborative Execution

–  Focus changes from Net Flow between points of consumption and supply to
review On-Hand Inventory.
–  Priority based on On-Hand Buffer Status, not Due Date in MRP Execution.

DDMRP Planning Buffers compared to Net Flow

within Supply Network every day
Planning

Zones adjusted for an Execution perspective

DDMRP Execution Buffers compared to

Execution On-Hand Inventory every day

Execution Buffer Zones

Red 50% of Planning Red Zone
Yellow 50% of Planning Red Zone
Green 100% of Planning Yellow Zone

On-Hand Buffer Status Alerts (Top of Yellow = 100%)

Red Critical ≤50% On-Hand Buffer Status
Yellow Alert ≤100% On-Hand Buffer Status

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DEMAND DRIVEN VERSUS TRADITIONAL

MIN /
New DDMRP FCST
Model FDU ADU DVI LT SS MIN / MAX MAX
Order AVG ACCY
AVG

A 35 20 2.4 10d 10d 233 100 / 433 325 293 57%

B 20 14 1.8 5d 5d 163 70 / 233 175 118 70%

C 5 15 4.1 60d 60d 175 75 / 1,075 806 440 33%

Total 60 49 571 245 / 1,741 1,306 851 54%

 MRP will not use safety stock, therefore it is stagnant inventory levels
that must be consistently managed and updated. MRP uses safety
stock as a floor that it wants to constantly keep that amount on hand.
 Min / Max levels attempt to be Demand Driven but are calculated on
static forecast numbers and positions inventory across the board.
 DDMRP senses and shapes changes in Demand, with dynamic
adjustments at strategic locations where a positive ROCE is present.

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IMPACT OF DDMRP

The key to effectively leveraging working capital and capacity is to find the
places where inventory can have the biggest impact and provide the
greatest return otherwise system operates as a small node with no
positioned inventory.

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 BENEFITS STORY FOR DDMRP

Top issues facing most Supply Chains

Reduce costs Growing lead
while improving Pressure to Complexities with
times through the
Improve Inventory the Global Supply
customer service entire Supply
Turns Network
levels Network

Benefits of DDMRP based on case studies by the Demand Driven Institute.

20% 15%
65% 80%

Customer Inventory Raw Planner / Replenishment

Service Levels Material, FGI Scheduler times
and WIP Availability
Achieve these types of results for ~$50-75k+ annual investment
+ $75k investment is based on standard enterprise installation for one site, $50k annual license fee and $25k in implementation. Price and results can vary based on size, scale
and complexity.

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WHY CHOOSE TheONE DDMRP

•  Typical implementation costs of ~$75k ($50k annual

Benefit #1 license fee w/$25k in implementation)

Benefit #2 •  Entire Supply Chain efficiency improvement

Benefit #3 •  Leverage MRP with a JIT, DFT, Lean, Agile approach

Benefit #4 •  Improved service to customers

Benefit #5 •  Reduce inventory w/o the sacrifice of service

Benefit #6 •  Move away from reliance on inconsistent forecasts

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 Introduction: highimpact

Our Mission is to revolutionize manufacturing as the worldwide leader in

Demand Flow Technology (DFT) deployments and training.
We have over 75 years of combined experience in client transformations. We bring
specialties in Lean, Six Sigma and Demand Driven Supply Chain.

Results Driven - Progressive Customer Focused - Offer Thought Leadership - Pushing the
thinking that delivers impactful consistently great and impactful boundaries of our industry for over
results of up to 50% reduction in solutions to deliver bottom line 30 years, with a total of 75 years
working capital, 20% improvement results. Our integrations are experience in combining the
in customer service, 10% tailored to fit your needs, not the speed of Lean, the power of DFT,
reduction in Costs of Goods Sold other way around. whilst utilizing the structure and
(COGS) and 15% improvement in process of Six Sigma in a Demand
Safety performance. Driven world.

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ORCA SCM Solutions

Ø  Strategic Partner of High Impact

Ø  Consulting Services: Partner intimately with small to medium sized

businesses to achieve financial and operational excellence by aligning,
fully developing and leveraging the organization to achieve its most vital
strategic goals.

Ø  Supply Chain Services:

Ø  Performance Excellence
Ø  Business Development
Ø  Supplier Selection and Development
Ø  Inventory Optimization for Superior Service and ROCE

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DDMRP--The New Standard of MRP: Wrap Up

 Q & A

 THANK YOU!!!

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