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What is Demand Driven MRP?

Posted by [email protected] on Apr. 11, 2022  /  Subscribe 0

This is the 21st century. What was once known as a “purchasing agent'' is now known as a logistics manager. What was once known as “purchase orders'' has become supply chain planning. As times change, not only does the terminology but also the scope of planning systems, supply chain organization, and strategic inventory control. In the 80s and 90s, the focus was on JIT (Just In Time) inventory management, where what was needed for production was decided when a sales order was received. The idea was to free up capital by reducing inventory buffer issues. It was a good idea back then but when supply chains reached a global scope, time was a huge factor in production-driven material requirements planning. Production demands result in material requirements planning, or MRP. But there's more to it than just planning.

Traditional MRP

Manufacturing Resource Planning, or MRP, was instituted to better enable production environments to operate more efficiently and profitably. By ensuring the needed materials for manufacturing orders were available, manufacturers were able to simplify the planning and execution of a production run. But as supply chains became further and further extended across more and more territory, the process of MRP became more concerned with matching production requirements to sales and service levels rather than building up inventory to sit on shelves. The costs and risks of having inventory on the shelf exceeded the value of having the capital asset of the inventory in the bank. The need for demand-driven material requirements planning, or DDMRP, made more sense to production floor managers, accountants, and CEOs.

The Next Level

As with all things in business and manufacturing, evolutionary processes are in constant flux. The process of evolving from a purchasing agent issuing purchase orders to a complex, computerized manufacturing resource planning applications that reflect customer demand cycles interwoven with supplier delivery schedules, has brought the process full circle. When a customer orders a product, the manufacturing cycle begins the process of identifying what materials are required, where those materials are in the supply chain, the time required to produce the item as well as what it takes to get it all delivered to the consumer. MRP and distribution requirements planning are the second half of the equation. The ability to go from start to finish with an eye on potential acquisition bottlenecks, production conflicts, and delivery obstacles makes DDMRP the only way to go.

Supply Chain Safety Net

In order to make sure the supply chain stays connected and doesn't cause log jams or droughts, logistics managers install "decoupling point" protocols within their supply chain providers. The decoupling point allows logistics managers to "direct traffic" so that when demand falls or increases, adjustments can be made to accommodate the situation with the least amount of difficulty or cost. DDMRP methodology demands that control points are implemented to avert inventory disasters and unnecessary capital expenditures. By implementing a strategy employing decoupling points, logistics managers are able to better serve both production demands as well as meet customer needs without the need for costly "stop/start" manufacturing processes.

The First Step Towards DDMRP

Many manufacturing companies already utilize a form of MRP program to acquire needed materials. Converting to a demand-driven MRP process will not only enable production to meet customer demands but will also effectively eliminate shortages or overages that can occur due to spotty or non-cyclical sales activity. To better understand the significance of upgrading to a demand-driven MRP, logistics managers can go to the Demand Driven Institute to more fully understand how the change can affect their organization in a positive and dynamic way. The principles behind DDMRP, as well as the implementation processes for creating the right DDMRP system, becomes clear and understandable.

DDMRP System Capabilities

There are five operating components to all DDMRP systems and their goal is to simplify, identify, report, and keep logistics managers on top of what is happening. Tracking materials and identifying waypoints in their progress is only part of the overall management benefit. A more important factor is the power to make adjustments to the process to better ensure a smoother flow into and out of the production facility. The five main components of a DDMRP system are:

1. Strategic Inventory Positioning - Determines where the best decoupling points should be established.
2. Buffer Profiles and Levels - Determine how to protect the decoupling points
3. Dynamic Adjustments - Determines how, when, and where material acquisition should be modified to achieve the best results.
4. Demand-Driven Planning - Determines which purchase orders, manufacturing orders, and stock transfer orders should be created.
5. Visible and Collaborative Execution - Determines how to manage open supply orders.

The Purpose of DDMRP

You may be thinking that this all sounds like another layer of complicated computer programs adding visibility to already existing data, but it's not. By implementing a demand-driven MRP system, manufacturers take a proactive position concerning their supply chains and vendors. Those involved in supply chain operations and management already know how easily things can be messed up. Transportation delays, documentation issues, quality control protocols, and a host of other concerns can affect whether or not a logistic manager is going to have a bad day or not. A dedicated DDMRP system will not only improve their day, but it will also improve the production manager's day and the company accountant's day, as we see a rise in production and a decline in costs.

How ASCM Houston Can Help You

Time doesn't go backwards, only forward. Production managers and supply chain supervisors who haven't implemented a demand-driven MRP system are missing a shot at new innovation. Not only are there significant cost savings and improvements in efficiency, but there is also the "peace of mind" factor. Now is the time for every manufacturer to implement DDMRP. To do otherwise imperils the company and only gives competitors an advantage. Once a company makes its MRP system and philosophy demand-driven, it'll never look back. The Houston Chapter of the ASCM (Association for Supply Chain Management) offers free online introductory seminars for DDMRP methodology. Keep a lookout for our latest events and enroll in our programs to learn more about how demand-driven MRP can change the face of supply chain today.

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