Demand Driven MRP (DDMRP)
Demand Driven Material Requirements Planning is a material planning method that uses actual customer orders to control the flow of materials within an organization or supply chain. DDMRP promotes flow and reduces variability. These effects are achieved by using flow buffers on critical positions in the product structure or a supply chain. With traditional MRP (Material Requirements Planning), flow is negatively impacted by internal and external variation due to lack of synchronization.
The main objective of the Demand Driven method is to maximize flow. Flow is expressed by how much inventory is needed to produce the products to be delivered to the customer. When output increases and/or inventory decreases, flow will be improved. So, by adding flow to processes, the return on assets (money earned compared to inventory being hold) will be enhanced. Flow also stabilizes production processes, resulting in lower costs.
In a traditional MRP planning environment, every change in the forecasted demand for products results in a changed need for materials along the levels in the production and supply chain process. Traditional MRP commonly leads to frequent changes in order priorities that need planner attention. These changes often have high priority, because materials should arrive earlier than is allowed for by regular lead times used by ERP systems. A delay in the availability of one component can stop an entire process. Additionally, variability in customer demand, purchasing lead time, and internal processes creates compounded variability. Many companies hold safety stock to be used to absorb that variability in demand or supply. MRP planning, however, does not actually use safety stock, because safety stock is used as a reorder point instead of a buffer to be used. In this way, traditional MRP contributes to the bullwhip effect. The bullwhip effect is caused by a lack of synchronization with real customer demand. This leads to fluctuations in projected demand that is magnified with each upstream step in the supply chain.
In a Demand Driven MRP environment, flow buffers are used to promote flow. Flow buffers absorb variation instead of passing it on. By strategically positioning these inventory buffers, lead times can be reduced and capacity better utilized, while having better customer service. Shortened lead times result in lower levels of work in process (WIP) and reduced nervousness in the planning. Actual customer orders and the buffer profiles determine when and how much to produce or purchase. Unlike traditional MRP, DDMRP actually uses safety stock while minimizing the cost of expediting orders. All this helps to increase customer satisfaction while reducing inventory levels.
There are three types of buffers to individually or collectively promote flow. Using one buffer influences the need and capacity of another one.
An inventory buffer is an amount of inventory at a specific position in the Bill of Material. This buffer is calculated using variability, lead time, item type, and Average Daily Usage (ADU). Each inventory buffer is managed independently from other buffers. The inventory buffers have demand that triggers the replenishment of these buffers.
In a time buffer materials are scheduled to arrive before their scheduled need to absorb variability towards a critical operation. This vital operation could be a bottleneck of capacity or customer delivery. Effective buffer management synchronizes the timely arrival of materials with the schedule of the bottleneck.
Capacity buffers are workstations that can produce more than is needed to feed the critical operations, such as bottlenecks. This overcapacity could be used to speed up the output of the supplying workstations, and thereby reducing process variability.