Traditional methods of manufacturing planning, such as MRP (Material Requirements Planning), were once the gold standard for businesses, but that is no longer the case.
Many organizations are turning away from traditional methods and towards alternatives that offer better forecasting, more flexibility in the supply chain, and lower costs.
Read on to understand exactly why these traditional methods are transforming and how to make the change in your own business.
Why Traditional Manufacturing Planning is Falling Out of Use
MRP methodology became the status quo for manufacturing when it was introduced in the 1960s, but customer needs and production planning have drastically changed since then.
Traditional planning methods, like MRP, rely on forecasting. However, using forecasting to achieve better sales and operation planning (S&OP) presents an uphill struggle– you might reach your destination, but you won’t get there quickly, or even at all.
Forecasting has traditionally depended upon bringing together data from multiple sources — usually spreadsheets — and combining this with variables, such as historic sales data and predicted batch sizes.
Even small data inaccuracies are easily magnified in the final estimate, which poses a significant problem. As typical lead times get shorter, it becomes harder to produce accurate forecasts ahead. In turn, this often leads to uncertainty and variability, which makes it difficult to scale, add new products, and optimize time-to-market.
Wasted stock and underproduction harm many businesses, yet these same organizations continue to use traditional methods that proliferate the problem. However, there is a much more effective alternative available.
How Traditional Planning is Changing
Traditional MRP is shifting to a demand-driven model, often referred to as DDMRP (demand-driven material requirements planning) or a DDOM (demand-driven operating model).
Demand-driven planning factors variability into production planning, which means planners don’t need to be overly precise. It requires simplicity in an increasingly complex and complicated supply chain, and the results speak for themselves.
One advantage of demand-driven planning is that it determines priority based on buffer status, rather than the due date. For example, if only 20% of the on-hand stock is available but the due date is six weeks away, it will be deemed a higher priority than an order due in four weeks but with 65% on-hand availability. This allows for better stock management and inventory optimization.
This is just one example of how taking a demand-driven approach changes the manufacturing process for the better — both for managing business needs and customer satisfaction. Other benefits include cost-savings, improved revenue, and more.
How to Shift Your Business from Traditional to Demand-Driven Planning
We recently spoke with Olivier Gonot, Manager at Citwell, about what it takes for a business to become demand-driven. Citwell provides consultancy in supply chain operations, customer service, and, increasingly, DDMRP projects.
“Sometimes people think that implementing DDMRP is like inputting a little buffer somewhere in the flow,” Gonot said. “Whereas when you really want to implement DDMRP and get all the savings, you’ve got to review the material flows because we add decoupling points, for example. Review process and flows, especially the planning process, forecasting process, and so on.”
Gonot recommended that businesses look at their software to ensure it supports demand-driven planning.
Taking a demand-driven approach is simple in principle. It uses strategic decoupling, buffer levels, and dynamic adjustments to meet modern market needs. However, where it can be difficult to implement a demand-driven methodology is the mindset — it requires a different way of thinking, particularly for those working in the supply chain.
“When a supply planner becomes a buffer manager, his job is changing a lot,” Gonot said.
A traditional demand or supply planner would look at the forecast, whereas a buffer manager would take care of the service level and buffer profiles. Buffer managers are flow-oriented and anticipate changing demands.
“[A buffer manager] has more time to think, to prove, to analyze,” Gonot said.
The shift to demand-driven planning can take what is often a chaotic state and bring it to a more stable footing.
To make the change to demand-driven, Gonot recommended training first and foremost.
“Very often we say to our customers when they want to learn DDMRP, a pilot, for example, we say first of all be trained,” he said. “It’s like buying a new car. We don’t give you the keys if you don’t have a license to drive.”
Moving to the Manufacturing Planning of the Future
There are many training options available for businesses looking to move away from traditional planning methods.
For instance, attending a DDBRIX workshop is a hands-on way to learn the demand-driven methodology in a risk-free, fun environment.
More training is available, through Citwell, for example, for those looking for in-depth learning.
Businesses can also test out demand-driven planning using a pilot program. At SHEA Global, we offer a DDMRP pilot program that lets operation managers learn demand-planning while seeing the results it can bring to their business.
For any organization considering transforming, Gonot had one last piece of advice:
“Don’t be afraid,” he said. “It’s going to be okay.”
At SHEA Global, we have a proven record of successful demand-driven transformations. Ask us today about our training workshops, DDMRP pilot program, and other supply chain solutions. Our business experts can answer any questions and help determine what your organization needs to move away from traditional planning methods and towards a more effective system.