9/20/2012

MaterialRequirementsPlanning
inaDemandDrivenWorld
CarolA.Ptak,CFPIM,CIRM,Jonah
ChadSmith,Jonah

CarolPtak,CFPIM,CIRM,Jonah

Carol Ptak is the co

co-author
author of the third edition of
Orlickys Material Requirements Planning and a partner
at the Demand Driven Institute. Previously, Carol was
at Pacific Lutheran University as Visiting Professor and
Distinguished Executive in Residence after years of
executive management experience at PeopleSoft and
IBM Corporation. Ptak served as the vice president and
global industry executive for manufacturing and
distribution industries at PeopleSoft
PeopleSoft. Carol is a past
APICS President and CEO.

1
 9/20/2012

ChadSmith,Jonah

Chad Smith is the co-author of the third edition of

Orlickys Material Requirements Planning and a partner
at the Demand Driven Institute. Chad is also the co-
founder and Managing Partner of Constraints
Management Group, a services and technology
company specializing in demand driven manufacturing,
materials, and project management systems for mid-
range and large manufacturers.

Whatistheproblemweare
solving?

Todays formal planning systems are

fundamentally broken!

2
 9/20/2012

Howdoyouknowifyour
How do you know if your
demandandsupplysystemis
broken?

TwoUniversalPointofInventory

A B

Too Little Warning Optimal Range Warning Too Much

0
Note: Optimal is from an on-hand perspective

3
 9/20/2012

TheMRPBiModalDistribution
# of parts or SKU

Too Little Warning Optimal Range Warning Too Much

TheOscillationandItsEffects
Oscillation
# of parts or SKU

Too Little Warning Optimal Range Warning Too Much

0
Three Effects:
1. Persistent Unacceptable Inventory Performance
2. Service Challenges
3. High Expedite and Waste Related Expenses

4
 9/20/2012

OldRules,OldTools,NewPressures
Forecasterrorisontherise
Volatilityinsupplyanddemandisincreasing
Legacyplanningtacticsandtoolsarebreaking
down
Compromisesandworkaroundsare
everywhere!

ThePlanningLegacy
MaterialRequirementsPlanning(MRP)
InsidemostmodernERPsystemsisMRP
Inside most modern ERP systems is MRP
79%ofERPBuyersimplementMRP
Conceivedinthe1950s
Codifiedinthe1960s
Commercializedinthe1970sand
ithasntchanged
it h t h d
Whathaschanged?

10

5
 9/20/2012

TheNewNormal
Globalsourcinganddemand
Shortenedproductlifecycles
Shortened product life cycles
Shortenedcustomertolerancetime
Worldwide there is more complex
Moreproductcomplexityand/orcustomization
planning and supply scenarios
Pressureforleanerinventories
than ever the past is NOT an
Inaccurateforecasts
M predictor
di i ffor
Moreproductvariety
d t t the
h ffuture
Longleadtimeparts/components

11
DDMRPSneakPeek

WhenIsItTimetoChange?
Traditional inventory management approaches, in pre-computer days, could obviously not go beyond
the limits imposed by the information processing tools available at the time. Because of this almost all of
those approaches and techniques suffered from imperfection. They simply represented the best that
could be done under the circumstances. They acted as a crutch and incorporated summary,
shortcut and approximation methods, often based on tenuous or quite unrealistic assumptions,
sometimes force-fitting concepts to reality so as to permit the use of a technique.

The breakthrough, in this area, lies in the simple fact that once a computer becomes available, the use
of such methods and systems is no longer obligatory. It becomes feasible to sort out, revise, or discard
previously used techniques and to institute new ones that heretofore it would have been impractical or
impossible to implement. It is now a matter of record that among manufacturing companies that
pioneered inventory management computer applications in the 1960s, the most significant results
were achieved not by those who chose to improve, refine, and speed up existing procedures, but
by those who undertook a fundamental overhaul of their systems.
systems

35+ Years Later Industry Finds Itself in Another

Time of Transition and Re-Examination

12

6
 9/20/2012

IsImprovementevenpossiblein
thenewnormal?

13

DemandDrivenMRP?
A multi-echelon materials and inventory planning and
execution solution.

Demand Driven MRP

(DDMRP)

Material Requirements Distribution

Planning Requirements Planning Theory of
Lean Six Sigma Innovation
(MRP) (DRP) Constraints

7
 9/20/2012

TheFiveComponentsofDDMRP
Demand Driven Material Requirements Planning
Strategic Visible and
Buffer Profiles Dynamic Demand Driven
Inventory Collaborative
and Levels Adjustments Planning
Positioning Execution

1 2 3 4 5
Modeling/Re modeling the Environment
Modeling/Re-modeling Plan Execute

15

StrategicInventoryPositioning

Where?
(Position)

BEFORE
How Much? When?
(Quantity) (Timing)

Strategic Demand Visible and

Buffer Profiles Dynamic
Inventory Driven Collaborative
and Levels Adjustments
Positioning Planning Execution

1 2 3 4 5 16

8
 9/20/2012

Failuretoproperlyposition
inventory is a huge source of
inventoryisahugesourceof
wasteformostmanufacturing
andsupplychaincompanies.
Position and Pull
Strategic Demand Visible and
Buffer Profiles Dynamic
Inventory Driven Collaborative
and Levels Adjustments
Positioning Planning Execution

1 2 3 4 5 17

AnsweringWhere?

6Factors
1. CustomerToleranceTime
2. MarketPotentialLeadTime
3. SupplyandDemandVariability
4. InventoryFlexibilityandMatrixBOM
5
5. Supply and Distribution Net Structure
SupplyandDistributionNetStructure
6. CriticalResourceConsiderations

Strategic Demand Visible and

Buffer Profiles Dynamic
Inventory Driven Collaborative
and Levels Adjustments
Positioning Planning Execution

1 2 3 4 5 18

9
 9/20/2012

ASRLT+MatrixBOM
ASR Lead Time = The longest unprotected sequence in the BOM

Matrix Bill of Material depicts relationships between ALL

component and parent items
101 1H01 20H1 20Z1

201 203 205 203 204 304 301 303

301 305 307P 304P 305 304P 309P 401P 305 408P 305 403P 417P

408P 409 403P 501P 403P 501P 403P 501P 403P 501P

501P

Strategic Demand Visible and

Buffer Profiles Dynamic
Inventory Driven Collaborative
and Levels Adjustments
Positioning Planning Execution

1 2 3 4 5 19

DDMRPPartTypes
All parts

Non
Non-
Stocked
Stocked

Replenished Lead Time

Replenished Min-max Non-buffered
Over-ride Managed

Typically 20% of Purchased Parts are strategic

Typically 10% of Manufactured Parts are strategic
Typically most Distributed Stock is strategic
= strategically positioned and managed part = non-strategic part

Strategic Demand Visible and

Buffer Profiles Dynamic
Inventory Driven Collaborative
and Levels Adjustments
Positioning Planning Execution

1 2 3 4 5 20

10
 9/20/2012

BufferProfilesandLevels
Stock Out ALERT! Rebuild OK Too Much

Group Trait Inputs + Individual Part/SKU Inputs

LeadTimeCategory AverageDailyUsage
Make,BuyorDistributed AppropriateDiscreteLeadTime
Variability Category
VariabilityCategory Ordering Policy (min,max,multiple
OrderingPolicy( min ma m ltiple)
SignificantOrderMultiples Location(distributedparts)

Strategic Demand Visible and

Buffer Profiles Dynamic
Inventory Driven Collaborative
and Levels Adjustments
Positioning Planning Execution

1 2 3 4 5 21

SettingBuffersLevelsandZones
MOQ if > calculated green Lead Time
Green
zone using lead time factor

Usage over 1 LT Yellow

Red Zone
Variability Safety

Red Zone
Base

Strategic Demand Visible and

Buffer Profiles Dynamic
Inventory Driven Collaborative
and Levels Adjustments
Positioning Planning Execution

1 2 3 4 5

11
 9/20/2012

BufferProfilesandLevels

Part: 707 Buffer Profile:

Lead Time: 13 days M21 53 131 166
Green Zone 35
Yellow Zone 78 707 R Y G
Red Zone Safety 18
Red Zone Base 35 0% 20% 40% 60% 80% 10 0 %

Strategic Demand Visible and

Buffer Profiles Dynamic
Inventory Driven Collaborative
and Levels Adjustments
Positioning Planning Execution

1 2 3 4 5

DynamicAdjustments
Dynamic Buffer Adjustment
1000 100
Available Stock Posittion

ge

900 90
Average Daily Usag

800 80
700 70
600 60
500 50
400 40
300 30
200 20
100 10

RecalculatedAdjustments

Strategic Demand Visible and

Buffer Profiles Dynamic
Inventory Driven Collaborative
and Levels Adjustments
Positioning Planning Execution

1 2 3 4 5 24

12
 9/20/2012

DynamicAdjustments
Seasonality Ramp Up Ramp Down
1000 100
1000 100
1000 100
900 90

Average Daily Usage

Average Daily Usage
900 90

Average Daily Usage

900 90
800 80
800 80
Zone Levels

800 80

Zone Levels

Zone Levels
700 70 700 70
700 70
600 60 600 60
600 60
500 50 500 50 500 50
400 40 400 40 400 40
300 30 300 30 300 30
200 20 200 20 200 20
100 10 100 10 100 10

Effectivity Date Effectivity Date

PlannedAdjustments

Strategic Demand Visible and

Buffer Profiles Dynamic
Inventory Driven Collaborative
and Levels Adjustments
Positioning Planning Execution

1 2 3 4 5 25

DemandDrivenPlanning
Supply generation is based what zone the available stock equation
places the part
Available stock = on
on-hand
hand + on-order
on order SALES ORDER demand
(past due, due today and qualified spikes)
Part Open Onhand Demand Available Recommended Action
Supply Stock SupplyQty

r457 5453 4012 1200 8265 0 NoAction

10,000 f576 3358 4054 540 6872 3128 PlaceNewOrder

h654 530 3721 213 4038 2162 PlaceNewOrder

r672 2743 1732 623 3852 0 ExpediteOpenSupply

(Execution)

5,000

Order Spike Horizon

13
 9/20/2012

ExampleOrderSpikeQualification
Part#XYZOrderSpikeHorizon=14days ASRLT=14days TodaysDate:06/21OrderSpikeThreshold=100

Demand Quantity DueDate

SO#1234 50 06/23

SO#1235 70 06/25

SO#1236 20 06/27

SO#1237 35 06/28

SO#1238 50 06/29

SO#1239 35 06/30

SO#1240 20 07/01

SO# 1241
SO#1241 35 07/03

SO#1242 SPIKE! 120 07/05

SO#1243(outsidehorizon) 50 07/08

SO#1244(outsidehorizon) 160 07/11

27

ExamplePlanningScreen
Supply Demand Available Today's
Priority % Part Profile ASRLT On Hand Orders Allocations Stock TOG AF Due Date Reorder Qty Vendor Location
Critical -101.7% PPJ B10 10 0 120 242 -122 120 100% 11/5/2010 242 Sony Plant
Critical -84.2% PPG B10 10 50 70 221 -101 120 100% 11/5/2010 221 Philips Plant
Critical -83.3% PPI B12 10 0 132 242 -110 132 100% 11/5/2010 242 Sony Plant
Critical -75.4% PPE B11 10 30 96 221 -95 126 100% 11/5/2010 221 Philips Plant
Critical 0.0% FPA B10 10 0 0 0 0 40 100% 11/5/2010 40 Region 2
Critical 0.0% FPA B10 10 0 0 0 0 40 100% 11/5/2010 40 Region 1
Critical 0.0% FPA B10 10 0 0 0 0 40 100% 11/5/2010 40 Region 3
High 14.3% SAD M10 12 0 189 162 27 189 100% 11/9/2010 162 Plant
High 14.5% SAB M10 14 0 221 189 32 221 100% 11/11/2010 189 Plant
High 33.1% ICB M11 14 0 242 162 80 242 100% 11/11/2010 162 Plant
Medium 35.6% 425-1001 B20 15 60 40 0 100 281 100% 11/12/2010 181 Region 4
Medium 45.9% 425-1001 B11 10 80 20 0 100 218 83% 11/5/2010 118 Region 3
Medium 46.0% PPA B10 25 0 300 162 138 300 100% 11/26/2010 162 Siemens Plant

Easily demonstrable RELATIVE PRIORITY is a crucial aspect of DDMRP

28

14
 9/20/2012

DeCoupledExplosion
Theexplosionstartswhenapartsavailablestockpositionenterstherebuildzone
Theexplosionstopsateachstockposition NoMatterWhat!!

101

201 203 204

301 302 303P 304P

401P 402 403P 404P

501P

29

AverageOnHandPositionandOrderFrequency

Part: 707 Buffer Profile:

Lead Time: 13 days M21 53 131 166
Green Zone 35
Yellow Zone 78 707 R Y G
Red Zone Safety 18
Red Zone Base 35 0% 20% 40% 60% 80% 10 0 %

Yellow Zone = Usage over one full lead time (78)

Average On-Hand
On Hand Position = Red Zone + Half of Green Zone (53 + 18 = 71)
Average time between orders = Green Zone/ADU (6 days)

30

15
 9/20/2012

DDMRPPlanning
Example/Exercise

Part/SKUInfo

TOG = 157 Replenishment Lead Time = 7 days

35 units Lead time = 7 days (Medium 50%)
ADU = 10
TOY = 122
Medium Variability (50%)
Order Spike Horizon = 7 days
70 units
Order Spike Threshold = 26 (50% Red)

Order Spike
TOR = 52
Horizon

Supply Orders Order Spike Threshold (50% of red)
52 units
Sales Order Demand

-4 -3 -2 -1 1 2 3 4 5 6 7

As time progresses Sales Orders and Supply Orders advance toward the buffer

32

16
 9/20/2012

Sales Order Demand Supply Orders

TOG = 157

DAY 1 TOY = 122

Order Spike
Horizon
TOR = 52
Order Spike Threshold

37 35 6 5
10 18 17 9 10
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7

BeginningOnHand 65 AvailableStock 127

OpenSupply 72 OrderRecommendation 0
S l Od D
SalesOrderDemand
d 10
EndingOnHand 55

33

Sales Order Demand Supply Orders

TOG = 157

DAY 2 TOY = 122

Order Spike
Horizon
TOR = 52
Order Spike Threshold
SPIKE

37 35 6 5
18 17 9 10 30
-7 -6 -5 -4 -3 -2 -1 2 3 4 5 6 7 8

BeginningOnHand 55 AvailableStock 109

OpenSupply 72 OrderRecommendation 48
S l Od D
SalesOrderDemand
d 18
EndingOnHand 37

34

17
 9/20/2012

Sales Order Demand Supply Orders

TOG = 157

DAY 3 TOY = 122

Order Spike
Horizon
TOR = 52
78 Order Spike Threshold

SPIKE
37 6 5 5
17 9 10 30
-7 -6 -5 -4 -3 -2 -1 3 4 5 6 7 8 9

BeginningOnHand AvailableStock
OpenSupply OrderRecommendation
S l Od D
SalesOrderDemand
d
EndingOnHand

35

Sales Order Demand Supply Orders

TOG = 157

DAY 4 TOY = 122

Order Spike
Horizon
TOR = 52
78 Order Spike Threshold
SPIKE

37 6 5 5 6
9 10 30
-7 -6 -5 -4 -3 -2 -1 4 5 6 7 8 9 10

BeginningOnHand AvailableStock
OpenSupply OrderRecommendation
S l Od D
SalesOrderDemand
d
EndingOnHand

36

18
 9/20/2012

Sales Order Demand Supply Orders

TOG = 157

DAY 5 TOY = 122

Order Spike
Horizon
TOR = 52
78 Order Spike Threshold

SPIKE
37 5 5 6
9 10 30 9
-7 -6 -5 -4 -3 -2 -1 5 6 7 8 9 10 11

BeginningOnHand AvailableStock
OpenSupply OrderRecommendation
S l Od D
SalesOrderDemand
d
EndingOnHand

37

Sales Order Demand Supply Orders

DAY 6
Order Spike
Horizon

78 Order Spike Threshold
SPIKE

37 5 6
9 10 30 9 10
-7 -6 -5 -4 -3 -2 -1 6 7 8 9 10 11 12

Available Stock Today: 120 Todays Order Recommendation: 37

44
On-Hand
115
Open Supply
Sales Order Demand 39
Available Stock
On-Hand
TOG = 157

TOY = 122


TOR = 52

38

19
 9/20/2012

Sales Order Demand Supply Orders

DAY 7
Order Spike
Horizon

78 Order Spike Threshold

SPIKE
37 5 6
10 30 9 10 20
-7 -6 -5 -4 -3 -2 -1 7 8 9 10 11 12 13

Available Stock Today: 147 Todays Order Recommendation: NONE

72
On-Hand
115
Open Supply
Sales Order Demand 40
Available Stock
On-Hand
TOG = 157


TOY = 122


TOR = 52

39

Sales Order Demand Supply Orders

DAY 8
Order Spike
Horizon

78 Order Spike Threshold
SPIKE

37 5 6 6
30 9 10 20
-7 -6 -5 -4 -3 -2 -1 8 9 10 11 12 13 14

Available Stock Today: 147 Todays Order Recommendation: NONE

62
On-Hand
115
Open Supply
Sales Order Demand 30
Available Stock
On-Hand
TOG = 157


TOY = 122


TOR = 52

40

20
 9/20/2012

Sales Order Demand Supply Orders

DAY 9
Order Spike
Horizon

78 Order Spike Threshold

37 5 6 6
9 10 20 11
-7 -6 -5 -4 -3 -2 -1 9 10 11 12 13 14 15

Available Stock Today: 142 Todays Order Recommendation: NONE

32
On-Hand
115
Open Supply
Sales Order Demand 5
Available Stock
On-Hand
TOG = 157


TOY = 122


TOR = 52

41

Sales Order Demand Supply Orders

DAY 10
Order Spike
Horizon

Order Spike Threshold

37 6 6
9 10 20 11 10
-7 -6 -5 -4 -3 -2 -1 10 11 12 13 14 15 16

Available Stock Today: 136 Todays Order Recommendation: NONE

105
On-Hand
37
Open Supply
Sales Order Demand 6
Available Stock
On-Hand
TOG = 157


TOY = 122



TOR = 52

42

21
 9/20/2012

Sales Order Demand Supply Orders

DAY 11
Order Spike
Horizon

Order Spike Threshold

37 6
9 10 20 11 10 20
-7 -6 -5 -4 -3 -2 -1 11 12 13 14 15 16 17

Available Stock Today: 127 Todays Order Recommendation: NONE

99
On-Hand
37
Open Supply
Sales Order Demand 9
Available Stock
On-Hand
TOG = 157


TOY = 122



TOR = 52

43

Sales Order Demand Supply Orders

DAY 12
Order Spike
Horizon

Order Spike Threshold

37 6
10 20 11 10 20
-7 -6 -5 -4 -3 -2 -1 12 13 14 15 16 17 18

Available Stock Today: 117 Todays Order Recommendation: 40

90
On-Hand
37
Open Supply
Sales Order Demand 10
Available Stock
On-Hand
TOG = 157


TOY = 122



TOR = 52

44

22
 9/20/2012

Sales Order Demand Supply Orders

DAY 13
Order Spike
Horizon

Order Spike Threshold

40 37 6
20 11 10 20
-7 -6 -5 -4 -3 -2 -1 13 14 15 16 17 18 19

Available Stock Today: 137 Todays Order Recommendation: NONE

80
On-Hand
77
Open Supply
Sales Order Demand 20
Available Stock
On-Hand
TOG = 157


TOY = 122



TOR = 52

45

Sales Order Demand Supply Orders

DAY 14
Order Spike
Horizon

Order Spike Threshold

40 6
11 10 20
-7 -6 -5 -4 -3 -2 -1 14 15 16 17 18 19 20

Available Stock Today: 121 Todays Order Recommendation: 36

97
On-Hand
40
Open Supply
Sales Order Demand 6
Available Stock
On-Hand
TOG = 157


TOY = 122



TOR = 52

46

23
 9/20/2012

Sales Order Demand Supply Orders

DAY 15
Order Spike
Horizon

Order Spike Threshold

36 40
11 10 20
-7 -6 -5 -4 -3 -2 -1 15 16 17 18 19 20 21

Available Stock Today: 156 Todays Order Recommendation: 36

91
On-Hand
76
Open Supply
Sales Order Demand 11
Available Stock
On-Hand
TOG = 157


TOY = 122



TOR = 52

47

Sales Order Demand Supply Orders

DAY 16
Order Spike
Horizon

Order Spike Threshold

36 40
10 20
-7 -6 -5 -4 -3 -2 -1 16 17 18 19 20 21 22

Available Stock Today: 146 Todays Order Recommendation: 36

80
On-Hand
76
Open Supply
Sales Order Demand 10
Available Stock
On-Hand
TOG = 157


TOY = 122



TOR = 52

48

24
 9/20/2012

Sales Order Demand Supply Orders

DAY 17
Order Spike
Horizon

Order Spike Threshold

36 40
20
-7 -6 -5 -4 -3 -2 -1 17 18 19 20 21 22 23

Available Stock Today: 128 Todays Order Recommendation: NONE

70
On-Hand
76
Open Supply
Sales Order Demand 18
Available Stock
On-Hand
TOG = 157


TOY = 122



TOR = 52

49

DAY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Demand 10 18 17 6 5 9 10 30 5 6 9 10 20 6 11 10 18
127 79 140 134 129 120 147 147 142 136 127 117 137 121 156 146 128
Av Stock
65 55 72 55 49 44 72 62 32 105 99 90 80 97 91 80 70
On Hand
72 72 115 115 115 115 115 115 115 37 37 37 77 40 76 76 76
Supply
Average Daily Usage over 17 day period = 11.8 Average On Hand Inventory = 71.6
180

160

140

120

100

80

60

40

20

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Demand Available Stock On Hand Open Supply

50

25
 9/20/2012

ThePowerofDDMRP
# of parts or SKU

Too Little Red Yellow Green Too Much

WhatExecutionLooksLike
Purchased Items Manufactured Items Distributed Items
Order # Due Date Buffer Status Item # Location Buffer Status
Order # Due Date Item # Buffer Status
PO 820-89 05/12/09 Critical 13% FPA Region 1 Critical 11%
WO 819-87 05/24/09 FPA Critical 13%
PO 891-84 05/12/09 Med 39% FPA Region 2 Med 41%
WO 832-41 05/22/09 SAD Critical 17%
PO 276-54 05/12/09 Med 41% FPA Region 3 Med 36%
WO 211-72
211 72 05/22/09 ICB Med 34%

Supplier 1
Purchased Region 1
Parts List Bill of Materials
PPA
PPE
PPJ
PPG FPA
SAC ICB
Supplier 2 PPB PPI ICA
PPD
PPH SAF FPA Region 2
SAA PPD
PPA SAD
PPG
PPI PPF SAB ICC
FPA
PPC PPE PPC ICD SAE
Supplier 3
PPJ
PPB Region 3
PPF

PPH

Lead Time Managed Parts notification follow up FPA

8 months
52

26
 9/20/2012

ContinuousImprovement
PrimaryDDMRPCIObjective:
R d
Reducethebufferswithoutserviceerosion
th b ff ith t i i

Threewaystogetthere:
LeadTimeReduction
MOQ Reduction
MOQReduction
ReductionofVariability

53

ImprovementStrategies Where the

(Part Green Zone is set to MOQ) improvement
came from
Lead Time reduction

Variability reduction
Max

Max
Avg
Min
Min

MOQ Reduction
MOQ
MOQ

Note: MOQ = 300 54

27
 9/20/2012

HowisthisDifferentThanSafetyStock?

Safety Stock Replenishment

A supplementary inventorypositiondesignedtomakeup
Asupplementary inventory position designed to make up Are strategic and primary inventorypositiondesignedto
Arestrategicandprimary inventory position designed to
formisalignmentsbetweenplannedorders,actual decoupleareasinordertocompressleadtimesand
demandandsupplyorders dampenvariability

Safety Stock = Replenishment

Buffer =

55

Re: PLANNING EQUATION

Supply order signals based directly
on the composition of the buffer and
typical the size of the green zone This picture represents a snapshot
of a safety stock position. It looks
to have a similar composition as
the Replenishment buffer, but
Resupply signal

Open
Green
Supply
Directly related to
planned orders
The entire Independent of
buffer flexes Yellow planned orders On-Hand
avg on hand (no forecast)

Only this can be

Safety dynamic (typically
Red Independent of
planned orders Stock not)

When on-hand goes below red an When on-hand goes below safety
EXISTING supply order is EXPEDITED stock a supply order is
LAUNCHED and EXPEDITED

28
 9/20/2012

ReplenishmentBuffersareFirewalls
onbothsides

The win for suppliers The win for consumers

Aggregated and Steadier Supply Reliable Availability

Requirements
Compressed Lead Time

Green
Cumulative Supply Variability Cumulative Demand Variability

Yellow

Red

Supplier of Stock Consumer of stock

SafetyStockisdesignedtoprotectonlyonesideoftheequationandmay
evenexacerbatevariability.
57

Safety Stock Forecasted Order

Demand Signals
Safety Stock Order

Supplier Supply Manufacturer

Safety
Stock

Lead Time

Aggregated Supply Order Signal Based On Actual

Replenishment
Consumption and Order Spikes

Actual Orders/ Consumption

Supply Supply
Supplier Consumer

Lead Time
Lead Time
58

29
 9/20/2012

LEAD TIME IMPACTS DDMRP

Dampened Variability

Compressed Lead Times

Supplier Raw Intermediate Finished

Stock
Mfg Stock Mfg Stock
DC

Partially Dampened Variability

Safety Stock

Open Supply Open Supply Open Supply

On-Hand On-Hand On-Hand

Safety Stock Safety Stock Safety Stock

Uncompressed Lead Times

59

TheFiveComponentsofDDMRP
Demand Driven Material Requirements Planning
Strategic Visible and
Buffer Profiles Dynamic Demand Driven
Inventory Collaborative
and Levels Adjustments Planning
Positioning Execution

1 2 3 4 5
Modeling/Re modeling the Environment
Modeling/Re-modeling Plan Execute

60

30
 9/20/2012

TheDDMRPPyramid
ROCE
DDMRP
Bottom Line Benefits High Lower
Without Tradeoffs Service Inventory
Fewer Expedites

New Operational Equation Lead Buffer Order

Elements and Emphasis
Time Status Minimums

Fundamental Planning Sales Decoupling

Changes Orders
O d P i t
Points

Fundamental Principal
FLOW
61

DDMRPKeySolutionComponent
Summary
Demand Driven MRP (DDMRP Critical Components)
5 Zone Buffers
Dynamically Adjusted Buffers
Planned Adjustments to Buffers
Globally Managed Buffer Profiles
Decoupled BOM Explosion
ASR Lead Time Calculation
Order Spike Protection
Material Synchronization Alert
y
Multi-Location Buffer Status Visibility
Provides easy status and relative priority visibility for planning and execution at all levels
Flexes buffer positions based on changes to consumption
Accounts for seasonality, product introduction/deletion/transition
Parts/SKU are grouped by like attributes for ease of management
Creates a unique blend of dependence and independence for planning
Lead time determination based on the BOMs longest unprotected sequence
Highlights and accounts for problematic sales orders based on a threshold and horizon
Identifies specific misalignments between child supply and parent demand
Relative status visibility across a distribution net for like parts/SKU

Lead Time Managed Parts Managing critical non-stocked items through timed alert zone
Matrix BOM + ASR Lead Time Analytics A revolutionary lead time and working capital compression approach across all BOMs

62

31
 9/20/2012

ImmediateResultsforMaterials FMCG

300MaterialsarebufferedwithoutincreaseinRPW Dampenedthebullwhip,nowoperatingmoreeffectively,
inventory.Leadtimesdecoupled andinventoryoptimized

$
$1,600,000 Before
$1,400,000

$1,200,000

$1,000,000

$800,000
After
$600,000

$400,000

$200,000
$200 000

$-

5-Over ToG 4-Low 3-Medium

Replenishment lead time has been
reduced 82% to 9 days from 50 days,
becoming Responsive
63

cptak@demanddriveninstitute.com

csmith@demanddriveninstitute.com

32