Saturday, December 27, 2014

Five Primary Components of DDMRP

I hope everyone had a very Merry Christmas and I wish you all a very happy and prosperous New Year.  I finished my last posting by telling you we would define the five primary components of DDMRP.  The authors of the book, Orlicky's Material Requirements Planning 3rd Edition, Carol Ptak and Chad Smith, explain that all five of these primary components are necessary to remove the undesirable MRP conflict symptoms and compromises and open the door to agility and that ignoring any of these components will reduce the value of the solution dramatically in most environments.  So with this in mind, here are the five primary components of DDMRP.  I recommend that you purchase Carol and Chad's book to get the full explanation of these components.

  1. Strategic Inventory Positioning - The first question of effective inventory management is not how much inventory should we have, nor is it when should we make or buy something.  The first question to ask in today's manufacturing environment is, given our system and environment, where should we position inventory (within BOMs and the facility) to have the best protection?  The authors tell us to think of inventory as a breakwall to protect boats in a marina to protect boats from the roughness of incoming waves.  A company will need to carefully analyze the environment and then position and build the necessary inventory breakwalls.
  2. Buffer Profiles and Level Determination - Once the strategically replenished positions are determined, the targets levels of these buffers have to be set initially based upon several factors.  Buffer profiles take into account important factors, including lead time, variability (both demand and supply), whether the part is made, 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 - The authors explain that 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 authors explain that the world of push and promote is dead and has been replaced with pull based methodologies like Lean's Kanban system and/or TOC's Drum Buffer Rope.  They explain that the holdovers of the push and promote era, both the 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-driver approaches.  When these two elements are combined, then there is the 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 levels.
  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.  Demand-driven MRP 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.
The authors explain that these five components work together to dampen, if not eliminate, the unnecessary nervousness of traditional MRP systems and the resulting bullwhip effect in comlex and challenging environments.  In using this approach, planner will no longer have to try to respond to every single message for every single part that is off by even one day.  This approach provides real information about those parts that are truly at risk of negatively affecting the planned availability of inventory.  DDMRP sorts the significant few items that require attention from the magnificent many parts that are currently being managed.  Under the DDMRP approach, fewer planners can make better decisions more quickly.  This means that companies will be better able to leverage their working and human capital as well as the significant investments they have made in information technology.

The authors add the following note:  There is a challenge associated with writing this book.  A large portion of the solution involves high visibility.  A large portion of that visibility is accomplished through easy-to-interpret color signals.  This book is printed in monochromatic format.  Printin monochromatically does not bring that visibility to life very well.  The reader will have to use some amount of imagination to get the proper sense of visibility.

This will complete my series on this wonderful book and I highly recommend that my readers go purchase a copy.  In closing, I want to remind everyone that these same authors have put together a conference set for March 2015 in Houston, Tx and I encourage everyone to attend to learn first-hand from these experts.  And the good news is, they have set up a special promo code for my readers that further discounts the early bird registration, but you must take advantage of it before December 31st.  The promo code is BOBSBLOG so if you plan to attend, make sure you sign up by December 31st to get your extra discount.  Here is a link to the conference registration:

Bob Sproull

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