In one of my previous lives, I was responsible for a supply chain where most of the suppliers were in Asia, supplying our European factories and distribution centres by sea.
Historically our service was poor and our inventory was overflowing everywhere. Our Chinese or Thai suppliers only accepted monthly orders, and imposed at least 2 months of firm orders on their production plan – our replenishment lead times were around 18 weeks including transport. Our national sales organizations throughout Europe provided very optimistic monthly forecasts – hoping that this would allow them to have stock…
We carried out a very ambitious lead-time reduction project, which enabled us to reduce lead time from 18 weeks to 7/8 weeks in just a few months, reduce inventory by more than 30% and increase the service rate from 90% to 97%. The main ingredients of this success have been :
- A pragmatic forecasting discipline led by a European team to project the most relevant demand ranges to expect from the markets.
- The involvement of our Asian suppliers into an end to end planning and execution loop based on pull flow principles, which enabled us to implement a wk+1 shipment call off from Asia
But the most important thing has been to bring stability to our Asian suppliers, who criticized us for constantly changing our volumes, in large proportions – and they were absolutely right.
What is the difference between MRP and DDRMP?
To understand the difference between MRP and DDMRP, we must understand the difference between a push vs a pull system. A push system starts production to anticipate the future demand, while a pull system starts production to react to the current demand. MRP is a push system in the sense that it starts production based on forecasting. DDMRP is a pull methodology to plan inventories and materials based on current demand.
Issues with an MRP System
Initially our operating logic was strictly MRP compliant.
During one of our project meetings, Anne-Laure, the planner in charge of one of the product lines, told us: why not make a forecast on the components we buy in Asia, instead of passing on the net requirements calculation from our ERP?
Wretch, I told her! Only the independent demand has to be forecasted, the dependent demand should be computed from the bills of material. Orlicky taught us that since the 70s!
On reflection, Anne-Laure was not entirely wrong, and we ended up inserting in our system an MPS at the level purchased items from Asia, to decouple and stabilize the supply plan. Without this decoupling, we would never have succeeded!
Over the years, the advent of technology has led us to interconnect everything in our supply chains. The MRP engine in our ERPs instantly reflects any changes along the BOMs, our EDI connections or cloud platforms transmit these signals to our partners, and we often live under the illusion that everything can and should be synchronized.
Demand Driven Approach
The integration of long chains of dependency induces the amplification of the slightest variation along the chain, the infamous “bullwhip effect” phenomenon.
The Demand Driven approach, and in particular DDMRP, puts at the heart of the system the creation of decoupling points to absorb variability, reduce lead times and reduce overall capital investment. The insertion of these decoupling points absorbs the signal distortions resulting from forecast errors, and only reflects demand based on actual consumption.
At the time, we opted for the implementation of a multilevel MPS, fed by dependent and independent requirements, which was technically complex to implement in our ERP.
We did not yet know about the DDMRP buffers that simply, naturally and visually integrate all these features!