In recent months there has been some movement on the subject of “demand-driven mrp” (demand-driven material requirements planning). SAP has announced that its implementation of DDMRP in S/4HANA has been certified by the Demand Driven Institute. However, not only SAP but also other providers, such as DynaSys, integrate this new planning philosophy into their planning solutions or SAP add-ons. This blog article is intended to present the new procedure in more detail and give an overview of the latest news on the subject.
Origin of the DDMRP
DDMRP was introduced in 2011 in a new edition of the book “Orlicky’s Materials Requirements Planning” by the authors Carol Ptak and Chad Smith and is now distributed by the Demand Driven Institute. The concept of the DDMRP claims to eliminate the “nervousness” of traditional MRP systems and the so-called “bullwhip effect” by using five components. As a result, considerable savings potential is promised through lower inventories and reduced default costs. The five elements of the DDMRP are:
- strategic inventory positioning,
- buffer profiles and levels,
- dynamic adaptation,
- requirements-based planning and
- visible and common execution.
Components of the DDMRP
strategic inventory positioning
One of the primary principles of the DDMRP is strategic inventory positioning. We break the supply chain and form small interim storage facilities as close to the point of demand as possible. These are intended to calm the supply network by enabling the planner to absorb supply interruptions or short-term fluctuations in demand and thus avoid a bullwhip effect.
buffer profiles and levels
In the warehouses, the buffer profiles and levels regulate the necessary stock level. The profiles contain the master data required to calculate the buffer levels for a group of articles. Materials with the same or similar logistical figures (for example, replenishment lead time, lead time, or consumption patterns) are grouped to reduce maintenance. The buffer level in DDMRP is a zone that signals the status of the warehouse to the planner: Green indicates “everything is OK”, in the yellow zone additional orders or production should be placed, and if red, immediate action is required to ensure the security of supply.
Since the input variables of the buffer calculation can change again and again, the DDMRP regulates a dynamic adjustment of the buffer levels. This dynamic can manifest itself, for example, in the fact that the characteristics of a material change. Therefore, you should assign it to a different buffer profile. Alternatively, the average daily requirement changes and you must recalculate the stock level within a profile.
Every day, the planner will now carry out requirements-based planning. The planning system calculates an available quantity of each material. This is the sum of the stock on hand and the planned goods receipts minus the sales orders (or requirements) for this day. If this available quantity is in the yellow zone, production order or purchase order is triggered. The number corresponds to the difference between the maximum of the green buffer level and the amount available on this day.
visible and common execution
The display of the planning situation in buffer levels should contribute to a visible and common execution. Due to the apparent colour classification, each supplier or production area can see how the stock situation is. A material whose currently available stock is in the red zone has the highest priority at the time of the evaluation. This visual display is supplemented by notifications to draw attention to critical materials. Ultimately, it is more important that a stock-out situation never occurs than that a supplier delivers on the initially ordered date. With its high transparency and useful visualisation, DDMRP wants to contribute precisely to this.
The DDMRP concept links elements of traditional material requirements planning with aspects of lean management. The aim is to achieve quieter supply chain planning with low inventory costs and high material availability. As an overall concept, this approach is initially conclusive, and the advantages are apparent. However, the individual elements, such as working with dynamic safety stocks, are not new. It depends on how the combination of these elements is implemented in the different software systems, such as SAP. Ultimately, the acceptance of this philosophy by users will determine the future dissemination and success of the concept.
A good source for first and further information is the Demand Driven Institute, to be reached here: https://www.demanddriveninstitute.com/
Read my article on safety stocks if you want to understand how this part is handled in SAP®-ERP: 4 kinds of safety stock in SAP®
20. November 2017 SAP announced in a Press release that S4/HANA® supports the concept of DDMRP: SAP press release
Just a day later DynaSys announced as well that Demand Driven Institute certified their planning solution DSCP as DDMRP compliant: DynaSys press release