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Does the Demand Driven methodology apply to my company?

By Bernard Milian
demand driven methodology - team

We are all different…

The question is a recurring one. “We manufacture to order, is this relevant to us?” “For the automotive industry, yes, but we are in the aerospace industry, we have many more items!” “We have many constraints, is it compatible?” “It’s for large corporations, isn’t it? We are a SME!” “Okay for simple products, but when we have complex bills of materials?”

 “Yes, but at home it’s different ” Is it not?

Every company is different, of course. For each company, a suitable management model is required. Is the Demand Driven model for you?

The risk of standardization

Methods, standards, and best practices allow us to progress. However, applying a standard model to a company is not necessarily a great idea. Let us take the example of the MRP logic incorporated in our ERP systems. This same logic has been used throughout the industry: Forecasting, Sales & Operations Plan, Master Production Schedule, Dependent Demand, Materials Requirements Planning, Safety Stocks, DRP, etc. Was it always appropriate? Obviously not, with sometimes dramatic consequences.

So be careful and suspicious: if you are told about a new magic model such as “Demand Driven,” DDMRP, DDAE, DDOM, etc., take the time to understand what it means for you and to transpose it to your business reality! Take the time to understand what is truly in it for you!

A wide variety of case studies

I was fortunate in early 2014 to attend the Demand Driven conference held in Portland, one of the first meetings between companies, then pioneers, that had deployed Demand Driven methodologies.

I was amazed by the diversity of the contexts presented then. There was a testimony from a large FMCG group, from a company manufacturing custom excavators for the mining industry, and even from an ETO company – designing their products to order in a project mode. There were large groups and SMEs.

I am talking about a time before the rise of DDMRP. “DDMRP compliant” software didn’t exist yet, in fact the event at the time looked like a Demand Driven Technologies user conference, which was then three years old.

Since then, the DDMRP methodology has spread across the industry, compliant software has proliferated, major ERP vendors have recognized its relevance, and case studies flourished. Feel free to explore our case studies or those on the Demand Driven Institute website, you will find all types of contexts!

Yes, it is for you, but…

When does the Demand Driven model not apply? At our March user conference, Chad Smith, co-founder of the Demand Driven Institute, summed it up this way:

  • If your company does not face variability (in demand, supply, management)
  • And if your cumulative procurement, processing and delivery lead times are shorter than your customers expectations

… then Demand Driven is not for you!

Maybe if you are running a very over-capacity 3D printer shop to do additive manufacturing you escape these criteria, otherwise…

However, it is important to realize that the Demand Driven model comprises a coherent set of techniques, processes, and tools, but that the implementation must be adapted to each one. This is one of the strengths of the methodology: the first step is to design the Demand Driven model that suits your company now. And then to evolve and adapt this model over time.

MTS, MTO, ETO, VATI, all different!

Each type of company and flow has its own appropriate techniques. If you are in an MTS mode (make-to-stock, distribution channel, retail), the basic DDMRP techniques will apply perfectly well, all along the chain.

If you are in an MTO (make-to-order) or mixed MTO / MTS mode, DDMRP techniques can be applied, rather upstream of the chain, on recurring components or semi-finished products. But to control your end-to-end flows, you need to implement a complete control model, integrating the scheduling of the critical control points of your flows, and the mechanisms of capacity buffers and time buffers. This is known as the DDOM (Demand Driven Operating Model).

If you are in ETO, you will also use DDOM techniques, which you may need to complement with Critical Chain Project Management (CCPM) techniques.

The nature of your flows will also lead to different problems and different management logics. We usually categorize the flows under the VATI acronym, as described in the diagram below.

VATI model

For example, if your flows are V-shaped (a multitude of finished products are produced and distributed from a few base components), your challenge will be to differentiate as late as possible and take advantage of relative priorities aligned with actual demand.

If you are in A (manufacturing of assemblies gathering multiple components), your challenge will be to enable short assembly lead time by securing the availability of components / semi finished before assembly. Each context has its own adapted model.

Not adapting your management model can have disastrous effects. For example, there are many “V” companies that have implemented a standard MRP / DRP model, since this was the standard promoted by their ERP supplier. These companies spend a lot of efforts to forecast at the most detailed level (the top of the V), and aggregate them by upstream, which mechanically leads to unreliable forecasts, and generates at the source a very variable and distorted signal, hence unbalanced inventories. If you are in V, do not do that!

Adapt your model and adopt the right tools

Yes, the Demand Driven model is for you. But you need to understand what elements to implement to meet your specific needs. You also need to select the right software solutions: DDMRP software will often suffice for MTS, but for MTO or ETO you will need a DDOM compliant solution.

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