DDMRP – Demand-Driven MRP – is rapidly becoming the default methodology used by supply chain leaders. If you haven’t come across it yet, in this post you will find out why I think you should make sure you do.
DDMRP is actually just part of a wider business methodology called the Demand-Driven Adaptive Enterprise. But since it is usually the first part implemented, and it delivers most of the quick wins, the overall approach has become known as “DDMRP”. Within weeks of starting pilot projects, the majority of the hundreds of companies that have used DDMPR have seen…
Inventory down by 10-30%
Service level/Availability up to 95%+
Lead time for manufacturing down 50%
and these have not needed any new technology or major change. Similar results have been obtained in fields ranging from pure distribution to spare parts, and in both make-to-stock and make-to-order environments. In Colombia, a branded clothing manufacturer went from being one of the worst performing suppliers, to winning a major retailer’s supply chain award in under 2 years, just by using DDMRP. The idea of a pull supply chain is not new. What DDMPR brings to the table, is a detailed, robust, and repeatable methodology. You really can take a 2-day course, and use what you learned immediately. In fact this is exactly how many organisations start.
Take the Demand Driven Planner course (2-days)
Next day, take your most difficult-to-manage SKU’s (Stock Keeping Units) off your system, and manage their replenishment using DDMRP formulae, in a spreadsheet. Anywhere between 50-250 is easily manageable in Excel.
Watch what happens. In most cases with fast-moving items, the results can be seen within a few weeks
No new software, no consultants, no big approval needed, and no long delay between trying something and seeing the results. Hundreds of companies have done just this. In July 2017 I attended the Demand Driven World conference in Lyon. Almost all of the dozens of presenting companies did exactly this, from manufacturers like Michelin and SAMES KREMLIN, to retailers and service organisations like BT (British Telecom). Of course, once the pilot is successful, rolling out DDMRP across thousands of SKUs and different locations, will require specialist software, integration to your ERP, and a managed transformation project – especially if like Michelin you have a target to implement it across over 50 locations within a year! But by then the idea the idea is no longer a theoretical proposal, and the business case is solid. Carol Ptak of the Demand Driven Institute told me that many companies free up more cash from inventory reductions in the first 6 months using DDMRP, than it costs in training, consulting and software to implement. At the time of writing, very few of the mainstream ERP providers have integrated DDMRP into their core code, so most companies implement with specialised middle-ware. These systems take data from ERP, do the replenishment calculations, and send orders back to ERP. SAP has announced it will be incorporating DDMRP into its product range (see the video at the end of this article). So what makes DDMRP/DDAE unique? Here are a few of the things I found…
It is fast and easy to implement and test out: You quickly get out of the common problem of having too much stock of the things you don’t need, whilst you are running out of the things you do need.
Inventory is treated like the asset is should be, and it is used strategically to stabilise your whole supply chain and make it more agile and flexible – no more Bullwhip Effect. The key decision is not how much to hold and when to replenish, but where it should be held.
The decision when to replenish an inventory SKU, and how much to reorder, is driven by their unique “Net Flow Equation”. This is much more flexible and precise that usual MRP reorder points and safety stock.
Reorder triggers and stock levels are automatically adjusted to follow actual usage patterns, and can be adjusted for known future changes (eg seasonality, marketing campaigns or maintenance events).
Whilst following pull principles like “When you use one, reorder it”, it also allows this to be overridden when it makes sense to order in batches or on a fixed time cycle.
Simple colour codes (red-yellow-green), and unique KPI’s are used to give clear priorities and actions to planners, expediters, and their managers. There is a significant reduction in expediting, and it becomes proactive – “There is a risk we will run out in 3 days”, rather than reactive – “Oh no, we’ve run out of Gizmos!”.
Forecasts of your needs are not used to trigger orders, so there is much less need for an “accurate forecast”. Forecasts are used for medium and long-term configuration of the system, but not to drive operations. Most DDMRP-driven operations can cope with demand variations of +/- 25%, or highly variable demand without any particular issue, . So no more fancy and costly forecasting models – finger-in-the-air guesstimates are good enough.
DDMRP does not try and ‘optimise’ your supply chain in real time. It embraces the fact that there is so much variability, uncertainty, complexity and ambiguity (VUCA) in the real world that you will always miss something. What it does is designs a robust, yet agile, system that easily copes with 95% of real-world variation, so you are not continuously chasing your tail and having to override the system.
There are some great places that you can find out more about DDMRP – I’ve listed a few at the bottom of this article. The development of DDMRP and the DDAE has been led by Carol Ptak and Chad Smith. For the past few years they have dedicated their lives to spreading the word, through the Demand Driven Institute. They have put all the details of the methods out in the public domain – there is no secret ingredient that is kept back. Through the DDI, Carol and Chad have trained and coached a global network of Affiliates and Instructors, developed standard training and accreditation materials, and they certify software that claims to be DDMRP-compliant.
Good enough to get the “Father of S&OP” out of retirement
One of my favourite stories about DDMRP involves a guy called Dick Ling. Dick was around at the time MRP was developed – he was part of “the gang”. He is the person who developed S&OP (sales and operations planning), along with the idea of the Master Production Schedule (MPS), which he developed to overcome some of MRP’s weaknesses. At the age of 80, Dick came out of retirement to work with the DDI to develop the strategic elements of the DDAE model. Dick says DDMRP is the piece that was missing back in the 60’s. He is now travelling the world again to, as he says, “…tell people that I was wrong back in the 80’s and 90’s!”.
And if you can, see if you can get along to a live presentation by Carol, Dick or Chad.
Are you going to stick with the previous generation methods and technologies, and like King Canute, resist the incoming demand-driven tide? Will you immediately dismiss the idea because “It can’t be that easy”, or you want to wait until the big ERP providers get on board? Or are you going to learn a bit more, and take a lead role in helping your organisation to innovate and achieve the kind of results that those who have already implemented it achieved? Your problem now you have read this far, is that you can’t claim that you didn’t know!
Postscript:
Here is Franz Hero, SVP for supply chain development at ERP giant SAP, talking about their plans with DDMRP:
Disclaimer:
Although I am a consultant who is more than happy to support clients who want to implement DDMRP, I have no affiliation with the DDI, or and DDI instructors – though I do know many of them. DDMRP is not the main part of my business. I don’t make money if you follow up on my suggestions or click on the links above. I have posted this in the hope it helps procurement and supply professionals become aware of what the DDI is doing. I’m convinced DDAE and DDMRP will come to all manufacturers, distributors, and inventory management over the coming years.
The DDAE graphics are copyright of the Demand Driven Institute. Used with permission
Ian is an academic and consultant who helps improve the performance of capital projects and programmes.
Hi early career experience included 15 years working as a project manager on capex projects, 10 years in procurement, including being chief procurement officer for a large construction company, and 10 years management consulting with niche consultancies in supply chain and procurement.
Thanks Carol. You, Chad & Dick are doing an inspirational job in supporting so many people to get to know DDMRP, and to make it easy for them to put it into practice. Keep it up!! Ian
