You might have heard the term “DDMRP” – demand-driven material requirements planning – before, but can you actually define what it is?
While DDMRP has grown in popularity in Europe, it is still a relatively new concept for North America — although that may be changing soon as more businesses recognize the benefits.
To get into what DDMRP is, let’s start with defining MRP – Material Requirements Planning.
MRP is the traditional approach that many businesses use. It comes from a time when products had long lifecycles and when companies generally manufactured larger quantities in limited runs and limited variations.
However, while MRP worked well in the 1960s and 1970s, as we enter the more modern era and business complexity expands, it faces major limitations, including:
- Unable to support customer driven reductions to delivery times.
- Challenges in offering personalized products or diversifying lines.
- Requiring ever more accurate forecasting.
- Stifling innovation by not supporting shortened product lifecycles.
- Unable to provide planners with proper decision support.
- Increased difficulty staying ahead of the competition.
At the same time as many markets have demanded shorter delivery times, to cut costs through outsourcing, many companies have ended up having longer lead times – which in turn can mean they are having to order more product. This creates a very inflexible supply chain. If a business using MRP wanted to, for example, create a seasonal product for November and December only, it would be difficult to forecast and plan for the exact right amount.
Often, as is the case with many clothing retailers, businesses end up creating too much product that they can’t sell, and, in some cases, end up destroying – leading to wasted time and wasted money with no revenue.
So, where does DDMRP fit into this? By taking a demand driven MRP approach, businesses can eliminate the pain points of MRP while creating a more flexible supply chain, reducing lead times, and saving costs and resources.
DDMRP offers a much more practical approach to today’s demands than just relying of forecasting. It uses stock buffers that makes supply and demand independent. With DDMRP, the supply network is broken up so demand drives decisions. Forecasting still plays its part but is no longer the main driving force for planning.
You might have heard of the five steps of DDMRP. These are:
- Strategic inventory positioning – determines where the decoupling points are placed.
- Buffer profiles and levels – determines the amount of protection at the decoupling points.
- Dynamic adjustments – defines how the level of protection adjusts based on specific criteria.
- Demand driven planning – the process in which supply orders are generated.
- Visible and collaborative execution – how a DDMRP system manages open supply orders.
The first three steps are involved in the implementation and set up – it is how a business defines what its version of DDMRP will look like. The final two relate to the day-to-day execution.
Through the five steps of DDMRP, planners have better control over the whole supply chain from start to finish.
Interested in learning more about DDMRP? SHEA Global can provide education and training to help your business decide if it’s right for you.