Demand Driven Adaptive Enterprise
Building a Demand Driven Adaptive Enterprise
The demand driven philosophy is simple: the better you’re able to sense and adapt to change, the more likely you are to succeed in a volatile environment.
The Demand Driven Adaptive Enterprise (DDAE) is a management model that enables you to embed this capability within your organization. It ensures that all parts of your business work together to promote the smooth flow of information and materials — and that everyone has timely access to the data they need to boost resilience and agility.
In this guide, we’ll review what DDAE is, how it helps manufacturers, and how to implement its principles at your company.
What is the Demand Driven Adaptive Enterprise (DDAE)?
DDAE is a management and operational model that enables companies to sense market changes, adapt planning and production, and develop more innovative offerings.
It’s about pacing operations — how we manage complex supply chains, how we use our production resources — to true consumption in the market, then creating a targeted process for translating strategic plans and innovations back to the production floor.
To accomplish this, DDAE creates a structured feedback loop with three primary components:
Here’s how it works
Business plan parameters create a shared view of how the company should adapt to the future
The Operating model uses that view to assess how the company can adapt to the future
Variance analysis helps assess the plan’s success
Those insights inform the company’s broader strategic direction
How can DDAE help you take control of your company’s future?
The History of the Demand Driven Movement
MRP encourages manufacturers to optimize costs by driving productivity at the unit level. Developed by Dick Ling in the 1960s and popularized Joseph Orlicky in the 1970s, it took off in the 1980s as computers became more deeply embedded in management and manufacturing environments. The logic behind MRP is simple: once you “know” (i.e., can forecast) how much you’re going to sell, and you understand the rate of error associated with the forecast, it’s not hard to calculate how much inventory should be in stock to cover projected sales for each SKU.
Lean, on the other hand, is a pull system that bases production on true demand rather than forecasts. Order generation is done at the execution level and centers around the concept of “one piece flow” — or, as Toyota called it, “sell one, buy one, make one.”
ToC, too, advises manufacturers to use real demand to drive production, while controlling any constraints that limit the system’s broader productivity.
The Demand Driven movement dates back to a light-bulb moment when Chad Smith — then a Regional Director at the Goldratt Institute — was asked to help a client at OFD Foods explore solutions for improving service, not unit cost, in its freeze-dried food business.
That insight? The power of decoupling. ToC encourages manufacturers to synchronize their schedules from the end item all the way through the product structure.
The Demand Driven movement, on the other hand, introduced strategically placed decoupling points that act like firewalls and split the system into multiple independent planning horizons. These decoupling points act like shock-absorbers to help the system absorb variability. They’re called buffers, and they can come in a few different forms, depending on the type of variability that executives are trying to control.
- Inserting extra stock helps when there’s a recurring demand for specific items.
- Inserting extra time is well suited to make to order (MTO) processes since non-recurring items can’t be stored.
- Maintaining additional capacity can absorb peaks in demand or help manufacturers catch up with a contingency-related delay.
Good schedules don’t always translate to perfect execution — or protect us from unpleasant surprises like supplier delays, demand spikes, or, say, a global pandemic. However, by applying the Demand Driven philosophy and building a DDAE, we can synchronize what’s happening, protect our control points, and increase ROI.
How did we get here?
DDAE and DDMRP
DDMRP is a supply order generation engine that uses actual demand to release work, purchase, and stock transfer orders in a Demand Driven system. It’s a key operational component of the Demand Driven Operating Model and thus of the DDAE, helping deliver both inventory and customer service benefits.
But the DDAE model is far broader than DDMRP, taking us from strategy to the shop floor and defining an enterprise-wide system of adaptive cycles that enable companies to continuously respond and adjust to complex, volatile environments. DDAE also facilitates visibility throughout business operations, rather than at strategic supply chain decoupling points.
Align inventory to market demand
The Benefits of DDAE
The value of agility seems self-evident in a volatile world, but it isn’t always straightforward. By creating a structured process for moving efficiently between market demand and market-driven innovations, the DDAE model enables companies to:
- Define tactical and strategic feedback loops for identifying and executing improvements
- Understand the impact that future plans will have on business operations
- Use intuitive, visual signals to take action on a daily basis
- Align around a shared view of the business
Ensuring Success with DDAE Metrics
Metrics are key to understanding and sustaining the results of any business transformation, and DDAE is no different. The DDAE model includes metrics that span the operational, tactical, and strategic range.
Assess what people should start, continue, or stop doing to improve material flow.
- Reliability – How well are we able to execute to the model, plan, schedule, and market expectations?
- Stability – How much variation is there in our results?
- Speed – Are we passing on the right work as quickly as possible?
Assess how well people are capturing opportunities to reduce waste.
- Waste reduction opportunities – How well have we identified obstacles to flow?
- Expenses – Are we spending the minimum amount that enables us to meet our requirements?
- ROI – Have we maximized the system’s return according to tactical opportunities like volume and rate?
Assess how our innovations are contributing to the bottom line of the business.
- Contribution margin: Have our innovations driven growth?
- Working capital: Are we generating enough working capital to protect and promote flow?
- Customer base: Have we secured and grown a solid based of business?
Align inventory to market demand
Getting started with DDAE
Building a DDAE requires clear vision from the management team, a shared commitment and common language across functions, and adequate information systems.
These requirements can seem daunting, and many executives use them as an excuse not to implement Demand Driven methods. Supply chain maturity is a great goal, but it isn’t a prerequisite for building a DDAE. Neither are a pristine ERP, robust S&OP processes, or fully digitized supply chain flows.
In fact, our experience supporting Demand Driven transformations suggests that, in a matter of months, companies can implement end-to-end Demand Driven models. Here’s how: