Urban legend has it that we need a very accurate forecast. Of course, we know that this won’t happen, as actual demand will differ from forecasts. Nevertheless, major efforts are being made to improve forecast accuracy in demand-driven planning.
For the sake of curiosity, let’s take a look at an item replenished using a Demand Driven Material Requirements Planning (DDMRP) buffer and see the impact of different sets of demands. This buffer is calculated on the basis of historical demand data over a 12-week consumption history, with a two-week replenishment lead time.
With our current forecast, here’s how our inventory management projections look (black curve).
Let’s test this same article with a 50% lower demand variability forecast. Half as much demand over the whole horizon. It’s okay—the stock is a bit high at the beginning of the horizon but quickly adjusts to the correct level. Without human intervention.
Now, let’s test with double demand over the whole horizon. It’s a bit tight at the beginning of the horizon, with a very low inventory. Since we’re calculating the DDMRP buffer based on historical demand data, there’s a bit of a delay effect, but it’s not too bad without human intervention. If we have a planner that monitors and reacts to exception alerts, it will go even better.
You can even call on Intuiflow intelligent adjustments, which will better secure the start of the horizon without overreacting, as a human might do.
The Role of DDMRP in Effective Inventory Management
Let’s summarize. In this example, the supply chain agility provided by the stock buffer setup reacts satisfactorily to demand that is half as high or twice as high. Supply chain resilience in practice…
It’s true that this item has a relatively short-term lead time and frequent replenishments—perhaps because its inventory management strategy is designed with decoupling points that enable this responsiveness.
If your lead times are longer, the operating range will be narrower, making it more appropriate to use forecast accuracy rather than historical demand data to adjust buffers. But doesn’t this little example make you rethink the obsession with demand variability?
In today’s complex supply chain management landscape, balancing inventory levels while meeting customer demands is a major challenge. Supply chain leaders must navigate market fluctuations, production and distribution constraints, and supply chain disruptions, such as those caused by the COVID-19 pandemic. This makes demand forecasting a critical tool, though it is never completely accurate. By leveraging real-time data and inventory management systems, businesses can mitigate risk and improve supply chain performance.
How DDMRP Improves Supply Chain Management
DDMRP provides a robust alternative to traditional forecasting methods. Instead of relying solely on projections, it utilizes real-time data to dynamically adjust stock buffers. This approach not only improves order fulfillment rates but also significantly reduces costs associated with excess or insufficient inventory.
Here’s how DDMRP contributes to an improved supply chain:
- Enhanced Responsiveness: Traditional forecasting methods struggle to adapt to sudden demand spikes or drops. With DDMRP, supply chains remain agile, responding effectively to shifts in customer demands without overstocking or running out of finished goods.
- Cost Reduction: Maintaining optimal inventory levels prevents both excess holding costs and stockouts, leading to a more cost-effective operation.
- Minimized Lead Times: By strategically placing decoupling points, companies can buffer against unpredictable demand, ensuring a steady flow of materials and reducing delays in production and distribution.
- Resilience Against Disruptions: Whether it’s a supplier delay or a global crisis like the COVID-19 pandemic, DDMRP allows businesses to adapt quickly without significant financial loss or operational setbacks.
The Role of Inventory Management Software in DDMRP
The increasing adoption of inventory management software has further strengthened the application of DDMRP. Modern inventory management systems offer real-time tracking, demand forecasting capabilities, and automation tools that support demand-driven planning. These systems ensure that businesses can respond to changes in demand efficiently while optimizing their inventory levels.
By incorporating these technologies, supply chain leaders can:
- Monitor inventory trends in real time and adjust replenishment strategies accordingly.
- Reduce dependency on long-term forecasts that may not align with actual customer demands.
- Enhance collaboration between production and distribution teams to streamline operations.
The Future of Demand-Driven Planning
As supply chains continue to evolve, businesses must adopt more flexible and data-driven strategies. DDMRP, supported by advanced inventory management software, represents the future of demand-driven planning. Instead of focusing on perfecting forecasts, companies can use real-time data and dynamic stock buffers to maintain efficient order fulfillment processes while reducing costs.
The obsession with demand forecasting accuracy may never completely disappear, but the key to effective inventory management lies in understanding that supply chain disruptions and demand fluctuations are inevitable. By shifting focus toward agility and adaptability, businesses can build a more resilient and improved supply chain—one that thrives despite uncertainty.
Ultimately, DDMRP is a powerful tool in modern supply chain management. It ensures that businesses remain responsive to market changes, optimize their inventory levels, and achieve consistent order fulfillment. As demand variability continues to challenge traditional planning methods, supply chain leaders should consider embracing this demand-driven approach for long-term success.
