Introduction to Demand Driven MRP

Disclaimer: The article is a summary of the book "Demand Driven Material Requirements Planning (DDMRP) - by Carol Ptak and Chad Smith". My recommendation for companies and people that want to learn more about Demand Driven MRP is to go and get certified from the Demand Driven Institute https://www.demanddriveninstitute.com/ and of course read the book.

In order to understand DDMRP (Demand Driven MRP) we first will need to understand the concepts of MRP and it’s 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

Introduction to DDMRP Principles

The most important enemy of protecting and promoting flow of relevant information and materials is the Bullwhip effect.

 APICS definition:

« An extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in the supply chain. Inventory can quickly move from being backordered to being excess. This is caused by the serial nature of communicating orders up the chain with the inherent transportation delays of moving product down the chain. »

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?

Step 3: Dynamic Adjustments

Difference between recalculated and planned adjustment factors

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

Source: "Demand Driven Material Requirements Planning (DDMRP) - by Carol Ptak; Chad Smith"