Global supply chains faced a rather unexpected domino effect this year.
COVID-19 related supply chain disruptions began in China and then spread across the globe as more shutdowns and closures happened – 94% of the Fortune 1000 companies faced supply chain disruptions earlier this year!
Though, the situation was different for every company.
While some faced weakening demand, others saw a jump in sales. While some couldn’t procure raw materials due to shortages others struggled with logistical issues.
This is why effective demand planning is more important in today’s uncertain economic climate than ever.
We’ve previously written about Demand-Driven Material Requirements Planning (DDMRP) and why companies should care about it but COVID-19 adds a whole new angle to this story.
Why traditional methods just don’t work anymore…
Material Requirements Planning (MRP) is the traditional approach that many businesses still use. It was effective in the past because products had longer lifecycles and there was little customization.
However, in today’s fast-evolving manufacturing landscape, this approach doesn’t work because it:
- Heavily relies on accurate forecasting
- Doesn’t support customer-driven reductions to delivery times
- Makes it harder to pivot given a change in production requirements
- Doesn’t facilitate personalization of products or innovation – both of which are critical aspects for companies today
Effective Supply Chain Management in the Era of COVID-19
This is where Demand-Driven Material Requirements Planning comes in. It is more practical because it relies on demand, not just forecasts – using stock buffers that make supply and demand independent.
It helps you address the three key challenges associated with today’s supply chains – visibility, velocity, and variability.
As demand drives decisions, DDMRP is able to eliminate the pain points of MRP while creating a more flexible supply chain. It allows production planners to use ERP systems to make more informed decisions.
According to a survey from the Institute for Supply Management®, a large number of companies are still expecting moderate to severe impact on supply chain operations, in the fourth quarter of 2020.
With DDMRP, they can reduce lead times, work with multiple suppliers, and still save costs.
This can be seen by looking at results achieved by companies that have implemented DDMRP. The companies saw:
I. Up to 30% improvement in service levels
II. Up to 60% reduction in inventory
III. Up to 70% reduction in work in progress
IV. Over 50% compression of lead times
How Can You Benefit?
DDMRP gives your business better control – which is particularly important in times where the demand is highly volatile and the industry landscape is changing rapidly.
Additionally, when it comes to DDMRP, the implementation is quick and you can see the results in as little as three months. So, you don’t have to wait long to see the difference.
A few months into the pandemic, many companies are realizing that they need a more diverse vendor network to deal with the challenges that COVID-19 poses. This includes looking at sourcing raw material locally and identifying new suppliers closer to home.
DDMRP gives you the flexibility to do this. Additionally, it enables you to ascertain what inventory is required and when, so you are able to make better decisions quicker and with fewer resources.
With COVID-19 affecting the bottom-line, you have to find new avenues of cost savings.
If you end up with extra inventory, you may have to destroy this inventory. This not only adds costs but also means that you’re not sustainably carrying out production activities. This can have far-reaching consequences on both business profitability and customer perceptions.
DDMRP can help avoid these situations.
At SHEA Global, we are supporting businesses across 25 countries, in learning about and implementing DDMRP.
Our innovative approach allows companies to find the best solution for them and help ensure that, in today’s changing environment, companies can make Business Better. Interested in learning more about DDMRP? Contact us for a consultation.