Saturday, December 13, 2014

Focus and Leverage Part 403

I finished my last posting by saying that we would dive more deeply into Demand Driven Material Requirements Planning (DDMRP).  In that posting I presented a Conflict Diagram with the conflict being the decision to either use or not use MRP.  Obviously we can't do both sides of this conflict, so there has to be a win-win solution somewhere out there.....and there is, DDMRP.  As I also stated, much of what I will write about today is taken from Carol Ptak and Chad Smith's book, Orlicky's Material Requirements Planning 3rd Edition.

DDMRP builds from the still relevant foundations of Orlicky's MRP, but it takes advantage of advances in technology over the past 60 years, as well as incorporating innovative new logic with regard to lead-time compression required to achieve and sustain a competitive advantage in the demand-driven world.  In addition to these innovations, DDMRP leverages the complete toolbox, including core MRP and distribution requirements planning (DRP) logic, Theory of Constraints (TOC), and Lean principles.  The bottom line is that DDMRP is a dynamic and effective demand-driven solution to answer the challenges of today's manufacturing landscape.  Through innovative approaches in inventory and product structure analysis, new demand-driven planning rules and integrated execution tactics.  DDMRP is designed to tie material availability and supply, directly to actual consumption throughout the bills of material (BOMs).  When used holistically across a supply chain, it removes the cascading and compounding disruptions that most supply chains face.  Additionally, this approach is a prerequisite to using and sustaining pull-based scheduling and execution methods such as Lean and DBR effectively in more complex manufacturing environments.

There are five primary components of Demand Driven MRP as follows:
  1. Strategic Inventory Positioning - The authors tell us to think of inventory as a break wall to protect boats in a marina from the roughness of incoming waves.  Out on the open ocean, the break walls have to be 50 to 100 feet tall, but in a small lake, the break walls are only a couple of feet tall.  In a glassy, smooth pond, no break wall is necessary.  A company will need to carefully analyze its environment and then position and build the necessary inventory break walls.
  2. Buffer Profiles and Level Determination - Once the strategically replenished positions are determined, the target levels of those buffers have to be set initially based on several factors.  Different materials and parts behave differently, but many also behave nearly the same.  DDMRP groups parts and materials chosen for strategic replenishment and that behave similarly into buffer profiles.  Buffer profiles take into account important factors, including lead time (relative to the environment), variability (demand or supply), whether the part is made or bought or distributed, and whether significant order multiples are involved.  These buffer profiles are made up of zones that produce a unique buffer picture for each part as their respective individual part traits are applied to the group traits.
  3. Dynamic Buffers - Over the course of time, group and individual traits can and will change as new suppliers and materials are used, new markets are opened and/or old markets deteriorate, and manufacturing capacities and methods change.  Dynamic buffer levels allow the company to adapt buffers to group and individual part trait changes over time through the use of several types of adjustments.  Thus, as more or less variability is encountered or as a company's strategy changes, these buffers adapt and/or are adjusted to fit the environment.
  4. Demand-Driven Planning - The world of push and promote is dead, so the holdovers of that era, both rules and tools, must be stripped away, greatly changed or enhanced, or completely restructured.  Instead of making things too complex or too simple, it is time to define a planning suite of rules that meet at least two requirements.  First is to take advantage of the sheer computational power of today's hardware and software.  Second is to take advantage of the new demand-driven approaches.  When these two elements are combined, then there is a best of both worlds:  relevant approaches and tools for the way the world works today and a system that promotes better and quicker decisions and actions at the planning and execution level.
  5. Highly Visible and Collaborative Execution - Simply launching purchase orders (POs), manufacturing orders (MOs), and transfer orders (TOs) from any planning system does not end the materials and order management challenge.  These POs, MOs and TOs have to be managed effectively to synchronize with the changes that often occur within the execution horizon.  The execution horizon is the time  from which a PO, MO, or TO is opened until the time it is closed in the system of record.  DDMRP is an integrated system of execution for all part categories in order to speed the communication of relevant information and priorities throughout an organization and supply chain.
These five components work together to dampen, if not eliminate, the unnecessary nervousness of traditional MRP systems and the resulting bullwhip effect in complex and challenging environments.  In using this approach, planners will no longer have to try to respond to every single part that is off by even one day.  Under the DDMRP approach, fewer planners can make better decisions more quickly.  This means that companies will be better able to leverage the working and human capital as well as the significant investments they have made in information technology.

In my next posting I want to key in on inventory and ask the question whether it is an asset or liability.
Bob Sproull

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