Demand Driven Material Requirements Planning combines aspects of Material Requirements Planning (MRP) with the pull and visibility emphases found in Lean and the Theory of Constraints and the variability reduction emphasis of Six Sigma.
DDMRP is a planning method that is designed to better meet the needs of business for high service levels combined with low inventories. After all, MRP was created in the 1940s and widely adopted by industry from the 1960s onwards. While MRP II arrived in the 1980s, it widened the scope of MRP, not the basic principles, therefore the complexities of modern transnational supply chains requires adopting a more dynamic model.
Compared to MRP, DDMRP generates orders based on actual sales orders, rather than forecast. This allows for much higher customer service levels, lower costs in expedite, and the right levels of inventory.
DDMRP changes from the MRP forecast driven model to a sales order driven lean pull model. In MRP, requirements are calculated based on the forecast, which eventually becomes irrelevant as time moves on. In DDMRP, your inventory consumption is driven by sales orders. Inventory is stocked in strategic Kanbans, followed by material being pulled by the sales order.
Decoupling the planning system from sales forecasts (where the only pertinent question is “How wrong is the forecast?”) reduces the bullwhip effect. This effect is a distribution channel phenomenon in which forecasts generate supply chain inefficiencies. It refers to increasing spikes in inventory in response to shifts in customer demand as we move further up the supply chain. In a similar manner, forecast accuracy decreases as we move upstream also. For example, many consumer goods have fairly consistent consumption at retail, but this signal becomes more chaotic and unpredictable as you move upstream from the consumer, due to poor inventory policies, feedback and time delays, panic ordering and perceived risk reactions along the supply chain, leading to artificial demand spikes at the raw material, manufacturing and warehousing stages.
To begin the DDMRP journey, classifying materials into runners, repeaters and strangers helps select the most appropriate material planning strategy for production scheduling and supply chain management. RRS is derived from Lean and Six Sigma principles.
Recommended tools for the RRS principle are shown below and please note this is a mixed model scheduling. The Kanban is a pull system whilst MRP is a push system. Mixed model sequences are derived from product mix demand i.e. ABC
Recommended Product planning Methodology:
A Runner is a product or product family having sufficient volume to justify dedicated facilities or manufacturing cells. This does not mean that such facilities need to be utilised all the time, merely that it is economic or strategically justifiable to operate such facilities on an as-and-when basis, and not to share them with other products.
A Repeater is a product or product family with intermediate volume, where dedicated facilities are not justifiable. Repeaters should be scheduled at regular slots. Even though the quantity may vary, the slot time should remain approximately constant. Repeaters form the backbone of the schedule and should be slotted in at regular intervals as often as capacity will allow, maximising flow and minimising inventories.
A Stranger is a product or family with a low or intermittent volume. Strangers should be fitted into the schedule around the regular repeater slots. Strangers should be scheduled around the repeaters. They have lowest priority for the production schedule but still needs the same care and attention fitting the customer order around the other two.
Once thus classified, DDMRP calculates where, how many and what size Kanban(s) are needed to minimise inventory and customer response time, combining the agility of a lean pull one-piece-flow system, with the push of an Economic Order Quantity (EOQ) MRP system.
The results speak for themselves. Typical inventory reductions of 30%-50%, massive improvements in service level, minimise overtime and order expediting and building a firm basis for a continuous improvement programme.
