FIGURE 5-5 The five components of DDMRP
DDMRP is at the heart of the Demand Driven Operating Model, which is defined this way:
Demand Driven Operating Model—a supply order generation, operational scheduling, and execution model utilizing actual demand in combination with strategic decoupling and control points and stock, time, and capacity buffers in order to create a predictable and agile system that promotes and protects the flow of relevant information and materials within the tactical relevant operational range (hourly, daily, and weekly). A Demand Driven Operating Model’s key parameters are set through the Demand Driven Sales and Operations Planning process to meet the stated business and market objectives while minimizing working capital and expedite-related expenses.
Figure 5-6 depicts the Demand Driven Operating Model schema. Model and part parameters, commonly referred to as “master settings,” are supplied by the Demand Driven Sales and Operations Planning (DDS&OP) process to Demand Driven MRP. These settings will be thoroughly described in Chapters 6, 7, and 8. DDS&OP is the subject of Chapter 13. These master settings configure the DDMRP system and are combined with inventory and product structure records and actual demand to generate supply orders. If these supply orders are manufacturing orders, they are sent to scheduling. If the supply orders are purchase or stock transfer orders, they go directly into execution.
This book provides limited content on Demand Driven Capacity Scheduling or its respective master setting inputs. What content there is on this topic is found in Chapter 11. Additionally, the execution aspects in this book are confined to the execution elements of DDMRP—the management of open supply orders. For in-depth content on Demand Driven Capacity Scheduling and related shop floor execution tactics, refer to Smith and Smith’s Demand Driven Performance: Using Smart Metrics.
FIGURE 5-6 Demand Driven Operating Model schema
This chapter combined with Chapters 3 and 4 has laid the basic foundation for the critical elements of a new supply order generation method for the New Normal called Demand Driven Material Requirements Planning.
What do we know so far about the requirements for DDMRP?
1. It should be based on the protection and promotion of the flow of relevant information and materials. This connects it to driving better returns on investment. This was explained in Chapter 3.
2. It must allow for decoupling in order to mitigate demand signal and supply continuity variability as well as to compress lead times. This was explained in Chapter 4.
3. It should use the most relevant demand information available—actual demand. The problems associated with forecast error were described in Chapter 3 and previously in this chapter
4. It must provide easy-to-interpret signals for all resources. This was described previously in this chapter.
5. It must provide for a way to synchronize complex and dynamic environments.
Strategic Inventory Positioning
At the risk of oversimplifying the everyday tasks of buyers and planners, we should understand that they are constantly dealing with two questions of supply order management. The two questions are these: How much and when? Hundreds if not thousands of books have been written about a wide variety of techniques and tricks to attempt to answer these questions.
The question of how much is a question concerning quantity. Planners and buyers are continually validating, verifying, and supplementing how much they really need versus what MRP is telling them. The question of when is simply a question of timing. Planners and buyers are continually validating, verifying, and supplementing when they really need things versus what MRP is telling them. This is a constantly changing series of wrong answers as system nervousness and the bullwhip impact the environment.
Thus their daily objective degenerates to simply being less wrong. They are constantly challenged about how they historically answered these questions and why things are not available in the time or quantity that they are needed. A common practice is for the planners or buyers to save screenshots of the MRP system in order to create a defense for why they did what they did and when they did it. A frustrating situation indeed.
Perhaps all this activity and series of constantly dissatisfactory answers is not related to the questions, how much and when? Perhaps it is first and foremost related to our failure to ask a more fundamental question.
As discussed earlier, the key to protecting and promoting the flow of relevant information requires the use of decoupling points. Decoupling enables a bidirectional benefit—it mitigates the demand signal distortion (relevant information) and supply continuity variability (relevant materials) inherent in the bullwhip effect. But this raises a question—where should these decoupling points be placed within a supply chain or organization to maximize effectiveness?
Most organizations are completely unprepared to deal with this question. First, they lack the knowledge, comprehension, or even capability to even ask the simple question, “Where?” Even if they do ask the right question, they lack the ability to effectively answer that question.
Thus the first component of Demand Driven Material Requirements Planning is determining where the decoupling points and their respective buffers should be placed. This component becomes the cornerstone of the Demand Driven Operating Model discussed in Chapter 5. The selection of these points is a strategic decision that impacts the performance of the supply-demand network in many regards: service, working capital, expedite-related expenses, cash flow, and ultimately return on investment.
Chapters 1 to 4 created the in-depth case about why the question of “where” must be asked. This chapter focuses on how to properly answer this question through the consideration of six key factors.
This is the time the typical customer is willing to wait before seeking an alternative source. Customer tolerance time also can be referred to as demand lead time. According to APICS, demand lead time is:
The amount of time potential customers are willing to wait for the delivery of a good or a service. Syn: customer tolerance time. (p. 45)
Determining