Authored by: Andrei Colonescu 
DEMAND DRIVEN MRP
In order to understand Demand Driven MRP (DDMRP), we will first need to understand the concept of MRP and its limitations.
What is MRP?
Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes.
What are the objectives of an MRP system?
Ensure availability of materials for production processes and delivery to customers
Maintain the lowest possible material and product levels in store
Plan manufacturing activities, delivery schedules, and purchasing activities
What are the main inputs to an MRP system?
Finished product ID (forecast)
Quantity required
When the quantities are required to meet demand
Shelf life of stored materials
Inventory status records (on hand, on order)
Bills of materials
Planning data: (routing, labor and machine standards, quality and testing standards, lot size, scrap percentages, etc.)
What are the assumptions we make when using an MRP system?
File data is 100 % accurate and complete
Lead times are fixed and known
Every inventory item goes into and out of stock
There is full allocation: no order is started unless all the components are available
Components are discrete: things can be counted and measured (no “use as required”)
There is order independence, which means that every order can be started and completed on its own
Evidence of a Problem
There are three areas that point to major issues with the rules and tools of conventional planning featuring MRP.
The Problem with MRP
The conventional planning approach (MRP) actually creates the bullwhip effect and its inherent distortions to the flow of relevant information and materials.
Introduction to DDMRP Origin:
 | “Demand Driven Material Requirements Planning is a formal multi-echelon planning and execution method to protect and promote the flow of relevant information through the establishment and management of strategically placed decoupling point stock buffers.” |
 | The Demand Driven Institute relies on Pössl’s First Law of Manufacturing to explain the origin of DDMRP: “All benefits (customer service, revenue, quality, inventories, expenses, cash flow…) will be directly related to the speed of flow of information and materials.” |
 | Foundation of DDMRP: rules and tools of a business should be built around the protection and promotion of flow. |
Introduction to DDMRP Principles:
Introduction to DDMRP Principles:
Introduction to DDMRP – 5 steps to Achieve Demand Driven MRP
DDMRP has 5 sequential components. The first 3 components essentially define the initial and evolving configuration of a DDMRP model. The 4th and the 5th elements define the actual operational aspects of DDMRP.
STEP 1: STRATEGIC INVENTORY POSITIONING
Where should the decoupling points be placed in the supply chain to maximize effectiveness?
STEP 2: BUFFER PROFILES AND LEVELS
How much stock should be kept at the decoupling points to ensure sufficient protection?
What influences the buffer profiles?
What influences the buffer profiles?
STEP 3: DYNAMIC ADJUSTMENTS
Difference between recalculated and planned adjustment factors:
Recalculated Adjustments:
- Automated adjustments to buffer levels based on changes to individual part attributes or buffer profile adjustments: ADU, lead time, minimum order quantity. The most dynamic part attribute is the ADU, as it is consistently being recalculated and updated.
Planned Adjustments
- Based on certain strategic, historical, and business intelligence factors. Manipulations of the buffer equation affect inventory positions by raising or lowering buffer levels and their corresponding zones at certain points in time. These adjustments concern:
1) Demand Input Manipulations 2) Zonal Manipulations 3) Lead Time Manipulations
1. Demand adjustment factor (DAF): should be employed when variability threatens to overwhelm the buffers, as the buffers are robust and designed to absorb variability. The longer the horizon is to see spikes, the more robust the buffers’ performance will be for a higher variability.
- Rapid buffer adjustment: ADU alert (comparing ADU with demand) suggests higher or lower buffer levels.
- Product introduction, deletion, and transition: strategic buffer level decisions need to be made in order to tackle the current situation of a product.
- Seasonality: length and severity of seasonal swing together with the ADU calculation period determine the action to be taken. Lead time length and resource capacity also influence the actions needed (application of DAF pulled forward in time).
2. Zone Adjustment Factor: can be applied to individual parts or groups of parts; adjustment is applied to each zone specifically. Each zone has its function, so the application of the factor should be for the appropriate zone.
- Green zone adjustment: adjustment of order size and frequency
- Yellow zone adjustment: response to planned short-term promotions or supply disruptions
- Red zone adjustment: response to a temporary change in volatility, where a change in buffer profile is not warranted
3. Lead Time Adjustment Factor: Used when there is a disruption in lead time that increases or decreases the normal lead time for a certain period (road works that increase transportation time).
STEP 4: DEMAND DRIVEN PLANNING
The net flow position triggers the recommendation of the order generation signal (timing and quantity) for buffer replenishment.
STEP 5: VISIBLE AND COLLABORATIVE EXECUTION
The net flow position triggers the recommendation of the order generation signal (timing and quantity) for buffer replenishment.
In DDMRP, a careful distinction is made between planning and execution:
Planning is the process of generating supply order requirements using the net flow equation and the elements of decoupled explosion. Planning ends once the recommendation has been approved and becomes an open supply order (purchase order, manufacturing order, or transfer order).
Execution is the management of open supply orders against relevant criteria. These criteria are defined in two basic categories that are necessary to protect and promote flow: buffer status and synchronization alerts.
Buffer status alerts are designed to show the current and projected status of the decoupling point positions (independent) points across the Demand Driven Operating Module. If there is no on-hand, then the decoupling point is not decoupled and will most likely pass on variability. On-hand tells us if the position can perform its purpose: to maintain decoupling.
Synchronization alerts are designed to highlight problems with dependencies. Dependencies still exist in DDMRP. These dependencies are about known demand requirements versus projected supply availability. While the buffers mitigate the transference of variability up and down the chain, synchronization is still important in DDMRP between decoupling points and particularly between a decoupling point and the customer.
Source: “Demand Driven Material Requirements Planning (DDMRP) – by Carol Ptak and Chad Smith”
How can Krypt help you?
Krypt is an SAP preferred partner and has assisted in the success of global businesses across industries & geographies. We have helped businesses through the successful integration & implementation of SAP IBP, SAP GTS, SAP TM & SAP EWM. If your organization is regularly required to plan supply chain activities on a weekly or monthly basis in advance, then Krypt can help you implement/integrate SAP LBN to quickly analyze & respond to any scenario in near real-time using an informed decision.
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