Demand Driven Material Requirements Planning
Trying to plan the unplannable. Today’s customers are challenging manufacturers with demands for more options, more products, and shorter lead times. With the increasing complexity of product Bills of Materials, the task of having the right stock at the right time becomes more difficult.
Written by Andrew Burton. First published at Blog.ifs.com, Nov. 4th 2021.
Early days of planning with MRP
During my 40 years plus of working in Manufacturing and Supply chain, I have seen the introduction of computer systems, replacing the stock cards, and ‘Lines of Balance’ charts. They were a huge step-change from the totally manual system to a level of automation. The next step was MRP (Material Requirements Planning) in the 1960s. This new process relied on a correct Bill of Materials and accurate stock records. This gave Production Planners the chance to order parts to meet the top-level production plan.
As the systems improved over the next few years, so did the integration of other processes. Purchase orders can be created from the demand and stock position. The next big step was to bring in the manufacturing capacity, and MRP II (Manufacturing Resource Planning) was created. These new features started rolling out in the 1970s.
MRP and MRP II still had their foundations in a simple Bill of Materials. Both methods try to create a plan that nets off to zero. MRP and MRP II are push systems, they assume that what is ordered/planned will be made in the time slot that the system needs.
MRP evolves into ERP
Over the next few years, MRP systems became ERP systems (Enterprise Resource Planning) bringing in more vital business processes. CRP (Capacity Requirements Planning) became part of ERP to bring in a feedback from what was happening on the factory floor and introduce an element of a pull system. As the millennium approached, manufacturing became more dependent on these ERP systems. Products being produced became more complex as customers demanded more variety and customizations. Customers weren’t prepared to wait the long lead-times that were necessary. Forecasting what the customer might need becomes more and more difficult. Add in a variable supply chain and the challenges are compounded to the point of guesswork or having stock just in case! The extra inventory does prevent shortages, but only some of them. Shortages still may occur. The extra inventory ties up cash and warehouse space. If the extra inventory has a shelf life, there is a risk that it will expire before use and lead to waste.
Once a production plan is changed due to supply, build or customer demand variations, MRP will produce copious numbers of exception messages, with demands for many parts falling due on the same date, many in arrears. It’s not possible to sort these messages into the most urgent, so you can’t identify the ones to action first.
It was not until 2016 that a possible solution to these supply challenges was developed. This is when DDMRP was first suggested as a way forward for manufacturing. It took the thinking of lean manufacturing and the theory of constraints and came up with a different way of looking at supply and demand where forecasting is difficult.
Is DDMRP the answer?
DDMRP (Demand Driven MRP) is described as an approach to material control and replenishment that improves on the functionality of traditional MRP. Because DDMRP is demand driven, it is more sensitive and responsive to the variations in demand and supply that can cause shortages, production disruptions, and chaos in manufacturing facilities.
DDMRP is an extension of MRP, not a replacement and is not suitable for all parts that need to be planned. It works by looking at actual usage and forward forecast to determine if a part has sufficient stock to cover possible demand.
Because DDMRP uses actual consumption, it is possible to reduce the total lead time of a product so that replenishment can be happening earlier than MRP would normally suggest.
A recent IFS White Paper, DDMRP and Lean Manufacture, talks about this very point. “Instead of traditional BOM-driven planning and scheduling where a planner will try to determine if they have enough of a part to fulfill a given demand, under DDMRP they will look at inventory levels and determine what level of demand they can respond to given inventory on hand. DDMRP also adds buffers in strategic places in front of shipment, bottlenecks, or in other parts of the value flow that make sense for the business”.
DDMRP has a structured methodology: Position – Protect – Pull:
Position: Bills of materials are examined to identify strategic items – materials or components – at critical points within the structures. In an adaption of the Theory of Constraints method, in which critical resources known as “constraints” determine production limitations, these key materials must be the focus of control above all other components.
Protect: Availability of these critical items is also ensured by using inventory as a buffer. But this buffer inventory is not deployed as part of the initial MRP planning formula; rather, it is replenished dynamically as needed.
Pull: Buffer inventory is managed through an innovative pull technique that continually monitors inventory levels and uses visual cues to maintain the buffer within a specified range.
There are only a few ERP solutions that have DDMRP embedded in the central MRP calculations and it’s best to find a software provider that is certified by the Demand Driven Institute (IFS Cloud is fully certified).
DDMRP is built for people not perfection. Planning to a forecast has always been a challenge and very few of us get it correct. DDMRP does not suit all industries, however it can be used very effectively on some parts taking away the constant chasing of changing material demands.
In my opinion, DDMRP gives manufacturing another tool to help in the ever-changing landscape of forecasts and customer customization.