METHODOLOGY
What is Demand Driven Material Requirements Planning or DDMRP?
10/10/2022
Reading time: 4 min
The MRP method and the Lean method (Kanban) are two so-called classic production planning methods that are considered increasingly unsuitable for the changes in the industrial ecosystem.
The MRP method is based on calculations of needs from historical data and forecasts. Knowing that all forecasts are false and that we operate in an increasingly unpredictable world, this method is very sensitive to the “bullwhip” effects (i.e., rapid transition from a stockout situation to excess inventory).
The Lean method (e.g., Kanban) is based on the assumption of independence of items along the production chain and management based on actual consumption rather than on forecasts. It is suitable for productions where demand is stable and regular, where the risks of forecasting errors are low.
Since the beginning of the 21st century, the industry has evolved in a context characterized by the acronym VUCA: Volatility of markets, Uncertainty of demand, Complexity of products, and Ambiguity of cause-and-effect relationships from past interactions. To take this context into account, two researchers, Carol PTAK and Chad Smith, conceived a production scheduling tool that they describe in their book "Orlicky’s Material Requirement Planning, 2011: the DDMRP (Demand Driven Material Requirements Planning)".
The DDMRP is primarily applied in three sectors: purchasing, distribution, and production. This scheduling method incorporates elements of Lean and MRP while integrating demand. It results in a demand-driven MRP that maintains the notion of stock, now intermediate between production and demand.
The DDMRP method can be deployed at the level of supply, production, and distribution of an organization. Its implementation is divided into 5 steps.
Initial configuration and evolution of the DDMRP model
Step 1 :
Position the strategic stock buffers. This allows the production process to be split into independent links. This segmentation impacts scheduling and potentially all logistical flows (e.g., the supplier fluctuates its production and deliveries to customers based on the evolution of the buffers). To position the buffers, both the supply chain and the bill of materials for the finished product are taken into account.
The positioning factors are as follows:
Expected lead time by customers
Market opportunity lead time
The visibility horizon of sales orders
External variability
The leverage and flexibility point of the stock
The protection of critical operations.
Step 2 :
Size the stock buffers. It is essential to ensure that the buffers can absorb sources of variability (demand, management, operations, supplies…) and guarantee economic profitability. For each buffer, there are three color zones:
Green for rotating stock level
Yellow for decoupled lead time coverage. This quantity allows covering the supply lead time. This part of the buffer is not necessarily in stock but sometimes in production.
Red for the safety zone that absorbs variability shocks
The last sizing element is the calculation parameter for the three zones: the average daily consumption of the product.
Step 3 :
The adjustment of buffer levels according to the evolution of the item's attributes. In a VUCA context, it is necessary to constantly update buffer levels. This can be periodic adjustments (seasonality, launches, halts) or a total resizing of the calculation parameters if the context persists over time.
The operational aspects of DDMRP
Step 4:
DEMAND DRIVEN PLANNING - replenishment planning based on actual demand. The available flow equation calculates each day, for each buffer, whether an order needs to be scheduled. To do this, it takes into account the stock quantity, the pending orders, and the qualified demand.
Available flow = stock + supply - approved demands
We restart the supply of the buffer as soon as the available stock moves out of the green zone into the red or yellow zone. Then we will schedule a production order upstream of the loop corresponding to the cut cycle (start of the production line, or the previous buffer). If the flow equation of the buffer is:
In green: no production order launched
In yellow: production order launched to reach the green zone
In red: priority launch of production order to reach the top green to avoid disturbing the supply chain.
Step 5:
Visible and collaborative execution. With DDMRP, the great innovation is that we decide to launch a production order not based on its age but based on the filling rate of the buffer.
Like a living being, the buffer must “eat”, “fill up”. Depending on the filling rate of the buffer, an alert will be sent if production is stopped for a certain time. For example, if the filling rate of the buffer is 63%, an alert will be sent to the planning and supply teams after 8 days without production.
It tracks the orders launched and sends alerts based on two indicators: the result of the available flow equation and the physical stock of the item. An alert is sent when the stock moves into the red zone at the tracking level.
These alerts can also serve as indicators to assess the proper sizing of the buffer or its performance. The visual management of tracking is one of the elements particularly appreciated in DDMRP by planners.
Summary & Limitations of DDMRP
The DDMRP method helps to reduce variability and increase profitability. Production manages its inventory better and adapts to multiple changes in priorities. However, it is still a relatively "young" method. Research articles are quite limited and there is no consensus among professionals on many points. Thus, many manufacturers independently decide on the parameters of the buffers, ultimately conditioning the performance of production and the method.
Source:
“Understanding DDMRP and its adaptation: early empirical elements”, 2019, Baptiste Bahu, Laurent Bironneau & Vincent Hovelaque
“Demand Driven Material Requirements Planning (DDMRP): A Systematic Review and Classification”, Azzamouri, Baptiste, Dessevre, Pellerin, 2020
Accelerating flows in the Supply Chain using DDMRP, XL Consultants
