Material requirements planning in a demand driven world 2

Material Requirements Planning in a Demand-Driven World

Carol A. Ptak, CFPIM, CIRM

Chad Smith

Carol Ptak

Carol Ptak is the co-author of the third edition of

Orlicky’s 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. Additionally, Carol

is a past President and CEO of the American Production

and Inventory Control Society (APICS).

Chad Smith

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

Orlicky’s 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.

4

1975: The First Significant Explanation of MRP

“As this book goes into print, there are some 700

manufacturing companies or plants that have

implemented, or are committed to implementing,

MRP systems. Material requirements planning has

become a new way of life in production and

inventory management, displacing older methods in

general and statistical inventory control in

particular. I, for one, have no doubt whatever that it

will be the way of life in the future.”

Joe Orlicky

5

The Evolution of Inventory Planning

1920’s: Inventory Mgmt

1961: BOMP

1965: MRP

1972: Closed-Loop MRP

1980: MRPII

1990: ERP

1996: APS

2011 – Demand Driven MRP

(DDMRP)

6

What is Demand Driven MRP?

Material Requirements

Planning

(MRP)

Distribution Requirements

Planning

(DRP) Lean

Theory of

Constraints Innovation

Demand Driven MRP

(DDMRP)

A multi-echelon materials and inventory planning

and execution solution.

Today’s formal planning

systems are

fundamentally broken!

What is the Problem we are Solving?

7

8

Companies Using Spreadsheets for Demand Management

84

71

63

0 20 40 60 80 100

Laggards

Industry Average

Best-in-Class

Aberdeen Group (Demand Management, November, 2009)

8

Modern Planning Systems Broken?!

86% of respondents indicate that their management

team has asked them to find opportunities to improve their

companies supply chain planning processes and 71% of

respondents have indicated the same for supply chain

technology improvement. “

“

Aberdeen Group (Inventory Optimization Technology Strategies for the

Chief Supply Chain Officer, December 2010)

9

Old Rules, Old Tools, New Pressures

• Forecast error is on the rise

• Volatility in supply and demand is increasing

• Legacy planning tactics and tools are breaking down

10

The Planning Legacy

► Material Requirements Planning (MRP)

► Inside most modern ERP systems is MRP

► 79% of ERP Buyers implement MRP

► Conceived in the 1950’s

► Codified in the 1960’s

► Commercialized in the 1970’s and…

► …it hasn’t changed

► What has changed?

10

DDMRP Sneak Peek

11

The “New Normal”

► Global sourcing and demand

► Shortened product life cycles

► Shortened customer tolerance time

► More product complexity and/or customization

► Pressure for leaner inventories

► Inaccurate forecasts

► More product variety

► Long lead time parts/components

Worldwide there is more complex

planning and supply scenarios

than ever – the past is NOT an

predictor for the future

11

DDMRP Sneak Peek

12

The “New Normal” is Here to Stay

Forty-eight (48%) percent of companies indicate that increased supply

chain complexity is a top pressure. “ “

Aberdeen Group (Enabling Supply Chain Visibility in the Cloud, November, 2010)

12

13

The Typical Effects in the New Normal

Frequent Shortages Leading to:

• Unacceptable Inventory Performance

• Unacceptable Service Level Performance

• High Expedite Related Wastes

www.beyondmrp.com Survey Results

0

10

20

30

40

50

60

70

80

90

Poor Inventory

Performance

Poor Service

Level

High Expedite

Expense

At Least One

Effect

14

Is Improvement even possible in the New Normal?

15

Too Little =

stock-outs,

back orders,

expedites &

missed sales

Too much =

cash, capacity

and space tied

up in inventory

Asset

Waste

Amount of inventory

Inventory – Asset or Waste?

16

Asset

Waste Too Little =

stock-outs,

back orders,

expedites &

missed sales

Too much =

cash, capacity

and space tied

up in inventory

Unacceptable Inventory Performance

Unacceptable Service Level Performance

High Expedite Related Wastes

Oscillation

17

The Shift to Demand Driven

• The problem is not going away

• The world of “push and promote” is done

• Companies and supply chains need to align their working capital with actual consumption

• From “Push” to “Demand Driven”

18

Demand Driven Material Requirements Planning

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand Driven

Planning

4

Visible and

Collaborative

Execution

5

Modeling/Re-modeling the Environment Plan Execute

The Five Components of DDMRP

19



Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand Driven

Planning

4

Visible and

Collaborative

Execution

5

Modeling/Re-modeling the Environment Plan Execute Modeling/Re-modeling the Environment

20



Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand Driven

Planning

4

Visible and

Collaborative

Execution

5


21



Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand Driven

Planning

4

Visible and

Collaborative

Execution

5


22



Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand Driven

Planning

4

Visible and

Collaborative

Execution

5


23



Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand Driven

Planning

4

Visible and

Collaborative

Execution

5

Modeling/Re-modeling the Environment Plan Execute Plan

24



Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand Driven

Planning

4

Visible and

Collaborative

Execution

5

Modeling/Re-modeling the Environment Plan Execute Execute

25

Strategic Inventory Positioning

Where? (Position)

BEFORE

How Much? (Quantity)

When? (Timing)

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

26

Answering “Where?”

6 Factors 1. Customer Tolerance Time

2. Market Potential Lead Time

3. Supply and Demand Variability

4. Inventory Flexibility and Matrix BOM

5. Supply and Distribution Net Structure

6. Critical Resource Considerations

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

27

Dampen variability

Compress lead times

Better leverage working capital

Shaft

S

Castings

Press

Flow with Pull-Signals and Buffer Positions Identified

15” Rough 15” Finish

12” Rough & Finish



Endo Balance Assemble Finish Test

Paint Ship

MTO

Customer

Housing

Shaft

Stock

H

Castings

Distributor

Distributor

Outside

Replenishment Buffer

Pull Signals

Time Buffer

Pack

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

28

ASR LT + Matrix BOM

ASR Lead Time = The longest unprotected sequence in the BOM

Matrix Bill of Material depicts relationships between ALL child and parent items

1H01

203 204

305 309P

403P 501P

304P

101

201 203 205

305 307P

403P 501P

301

408P 409

304P

501P

20H1

304

401P 305

403P 501P

20Z1

303

403P 417P

301

408P 305

403P 501P

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

29

DDMRP Part Types All parts

Stocked Non-

Stocked

Replenished Replenished

Over-ride Min-max Non-buffered

Lead Time

Managed

= strategically positioned and managed part = non-strategic part

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

Typically ≈ 20% of Purchased Parts are strategic

Typically ≈ 10% of Manufactured Parts are strategic

Typically most Distributed Stock is strategic

30

Failure to properly position

inventory is a huge source of waste for most manufacturing and supply chain companies.

Position and Pull

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

31

ALERT! Rebuild OK Too Much Stock Out Stock Out

Buffer Profiles and Levels

Group Trait Inputs

Lead Time Category Make, Buy or Distributed Variability Category Significant Order Multiples

Individual Part/SKU Inputs

Average Daily Usage Appropriate Discrete Lead Time Ordering Policy (min, max, multiple) Location (distributed parts)

+

ALERT! Rebuild OK Too Much

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

32

Buffer Profiles and Levels

Part: 403P

Lead Time: 21 days

Buffer Profile: B11MOQ

Green Zone 300

Yellow Zone 357

Red Zone Base 179

Red Zone Safety 54 0 % 2 0 % 4 0 % 6 0 % 8 0 % 10 0 %

403P

▼ 890

▼ 590

▼ 233

G Y R

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

33

Dynamic Adjustments

Recalculated Adjustments

Dynamic Buffer Adjustment

Availa

ble

Sto

ck P

ositio

n

Avera

ge D

aily

Usage

100

200

300

400

500

600

700

800

900

1000

10

20

30

40

50

60

70

80

90

100

Dynamic Buffer Adjustment

Availa

ble

Sto

ck P

ositio

n

Avera

ge D

aily

Usage

100

200

300

400

500

600

700

800

900

1000

100

200

300

400

500

600

700

800

900

1000

10

20

30

40

50

60

70

80

90

100

10

20

30

40

50

60

70

80

90

100

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

34

Dynamic Adjustments

100

200

300

400

500

600

700

800

900

1000

100

200

300

400

500

600

700

800

900

1000

10

20

30

40

50

60

70

80

90

100

10

20

30

40

50

60

70

80

90

100

Ave

rag

e D

aily

Usag

e

Zo

ne L

eve

ls

Avera

ge D

aily

Usage

Zone L

evels

100

200

300

400

500

600

700

800

900

1000

100

200

300

400

500

600

700

800

900

1000

10

20

30

40

50

60

70

80

90

100

10

20

30

40

50

60

70

80

90

100

▲Effectivity Date

Zo

ne L

eve

ls

100

200

300

400

500

600

700

800

900

1000

100

200

300

400

500

600

700

800

900

1000

10

20

30

40

50

60

70

80

90

100

10

20

30

40

50

60

70

80

90

100

Ave

rag

e D

aily

Usag

e

▲Effectivity Date

Planned Adjustments

Seasonality Ramp Up Ramp Down

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

Order Spike Horizon

Demand Driven Planning

10,000

5,000

Part Open Supply

On-hand Demand Available Stock

Recommended Supply Qty

Action

r457 5453 4012 1200 8265 0 No Action

f576 3358 4054 540 6872 3128 Place New Order

h654 530 3721 213 4038 2162 Place New Order

r672 2743 1732 623 3852 0 Expedite Open Supply (Execution)

Supply generation is based what zone the available stock equation

places the part

Available stock = on-hand + on-order – demand (past due, due today

and qualified spikes)

36

De-Coupled Explosion

101

201 203 204

302 303P

403P 404P

301

401P 402

304P

501P 501P

301

404P

304P

203

101

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

37

Highly Visible & Collaborative Execution Priority by Buffer Status

Order # Order Type Due Date Customer

MO 12367 Stock 5/12/2011 Internal

MO 12379 MTO 5/12/2011 Super Tech




Priority 1:

Priority 2:

Priority 3:

Priority 4:

Priority 5:

Order # Order Type Due Date Customer

MO 12367 Stock Due NOW Internal





Problem: Priority by DUE DATE

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

38

Highly Visible & Collaborative Execution Priority by Buffer Status

Order # OH Buffer Status Order Type Due Date Customer


MO 12401 12% (RED) Stock 5/14/2011 Internal

MO 12465 27% (RED) Stock 5/12/2011 Internal

MO 12367 33% (YELLOW) Stock 5/12/2011 Internal

MO 12411 41% (YELLOW) Stock 5/16/2011 Internal

Order # OH Buffer Status Order Type Due Date CustomerMO 12379 MTO 5/12/2011 Super Tech

MO 12401 12% (RED) Stock Due NOW Internal

MO 12465 27% (RED) Stock Due NOW Internal

MO 12367 33% (YELLOW) Stock Due NOW Internal

MO 12411 41% (YELLOW) Stock Due NOW Internal

Priority 1:

Priority 2:

Priority 3:

Priority 4:

Priority 5:

Solution: Priority by BUFFER STATUS!

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

39

Highly Visible & Collaborative Execution Material Synchronization Alert

Demand

Order # Part #

Release

Date QTY Order Type Shortage

Supply

Order # Part # Order Type QTY

Promise

DateMO 532-32 SAG 5/24/2011 40 Replenished 5 PO 625-71 PPZ Replenished 30 5/25/2011

MO 531-47 FPS 5/28/2011 60 NB 60 PO 611-54 PPY NB 60 6/2/2011

Todays Date: 5/20/2011Material Synchronization Alert

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

PO #87632

MO# 8763

MO #9432

Order Promise

Date

▼

▲

Order Promise

Date

Parent Order

Release Date Parent Order

Promise Date

▼

40


Demand

Order # Part #

Release


Supply


Promise


MO 531-47 FPS 5/28/2011 60 NB 60 PO 611-54 PPY NB 60 6/2/2011


Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

PO #87632

MO #9432

Order Promise

Date

▼

▲

Order Promise

Date

Parent Order

Release Date

MO# 8763

Parent Order

Promise Date

▼

PO #87632

MO #9432

41


Demand

Order # Part #

Release


Supply


Promise


MO 531-47 FPS 5/28/2011 60 NB 60 PO 611-54 PPY NB 60 6/2/2011


Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

MO# 8763

MO #9432

Order Promise

Date

▼ Parent Order

Release Date Parent Order

Promise Date

▼

▲

Order Promise

Date

PO #87632

MO# 8763

42

Highly Visible & Collaborative Execution Lead Time Alerts

Status Order # Days Left Part Type Part # ASRLT Request Date Promise Date

! PO 4532 LATE Purchased PPD 105 5/15/2011 5/19/2011

! PO 5120 6 Purchased PPI 63 5/26/2011 5/26/2011

PO 5214 10 Purchased PPJ 45 5/24/2011 5/30/2011

PO 5290 12 Purchased PPF 36 6/1/2011 6/1/2011

Today's Date: 5/20/2011Lead Time Alerts

G Y R

21 Day LTM Alert Zone

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Strategic

Inventory

Positioning

1

Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Dynamic

Adjustments

3

Demand

Driven

Planning

4

Demand

Driven

Planning

4

Visible and

Collaborative

Execution

5

Visible and

Collaborative

Execution

5

LATE

Order Due

Date

▼

Order Release

Date

▼

63 day lead time

▲

Notification

▲

Notification

▲

Notification

▲

Notification

43

What Execution Looks Like

FPA

SAC ICA PPI

PPJ

PPF

SAA

PPE

PPG

PPH

PPB

SAE PPC ICD

ICB

PPA

SAF

SAD

ICC SAB

PPD

Bill of Materials

FPA

FPA

FPA

Region 1

Region 2

Region 3

Supplier 1

Supplier 2

Supplier 3

PPA

PPJ

PPG

PPH

PPF

PPE

PPB

PPD

PPC

PPI

Purchased

Parts List

8 months

Lead Time Managed Parts ▼ notification ▼ follow up

Med 41% 05/12/09 PO 276-54

Med 39% 05/12/09 PO 891-84

Critical 13% 05/12/09 PO 820-89

Buffer Status Due Date Order #

Purchased Items

Med 36% Region 3 FPA

Med 41% Region 2 FPA

Critical 11% Region 1 FPA

Buffer Status Location Item #

Distributed Items Manufactured Items

Med 34% ICB 05/22/09 WO 211-72

Critical 17% SAD 05/22/09 WO 832-41

Critical 13% FPA 05/24/09 WO 819-87

Buffer Status Item # Due Date Order #

44


Strategic

Inventory

Positioning

1

Buffer Profiles

and Levels

2

Dynamic

Adjustments

3

Demand Driven

Planning

4

Visible and

Collaborative

Execution

5

Modeling/Re-modeling the Environment Plan Execute


45

The Power of DDMRP

Asset

Waste

Amount of inventory

Stock-outs,

back orders,

missed sales

Too much, cash,

capacity and

space tied up in

inventory

ALERT! Rebuild OK Too Much Stock Out

46

An Example of the Realignment

Projected Inventory Reductions Over 1 Year

Mo 1 Mo 2 Mo 3 Mo 4 Mo 5 Mo 6 Mo 7-12 Totals

Inventory Beginning of Period 9,564,443$ 7,738,294 7,869,529 7,569,990 7,392,764 7,278,870 7,194,836 9,564,443$

Projected Inventory Reductions (consumption) (2,415,391) (796,305) (313,565)$ (187,875)$ (113,894)$ (84,033)$ (794,430)$ (4,705,494)$

Projected Inventory Increases - (purchases) 589,242$ 927,540$ 14,025$ 10,649$ -$ -$ -$ 1,541,456$

Net Inventory Reduction by Period (1,826,149)$ 131,235$ (299,540)$ (177,226)$ (113,894)$ (84,033)$ (794,430)$ (3,164,038)$

Inventory End of Month 7,738,294$ 7,869,529$ 7,569,990$ 7,392,764$ 7,278,870$ 7,194,836$ 6,400,406$ 6,400,406$

% Cumlative Inventory Reduction 19.1% 17.7% 20.9% 22.7% 23.9% 24.8% 33.1% 33.1%

Net Inventory Reduction by Period

(2,000,000)

(1,500,000)

(1,000,000)

(500,000)

-

500,000

1 2 3 4 5 6 7

Total Dollars Drained by Period

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

1 2 3 4 5 6 7

Total Dollars to Build Positions by Period

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1 2 3 4 5 6 7

Asset

Waste Stock-outs,

back orders,

missed sales

Too much,

cash,

capacity and

space tied up

in inventory

Asset

Waste Stock-outs,

back orders,

missed sales

Too much,

cash,

capacity and

space tied up

in inventory

47

Is DDMRP really different? DDMRP ERP/MRP Kanban/Super Spreadsheets

5 Zone Buffers YES RARELY NO RARELY

Dynamically Adjusted Buffers YES SOME SOME SOME

Planned Adjustments to Buffers YES YES, but1 NO RARELY

Relative Priority Based on Buffer Status YES NO NO RARELY

Globally Managed Buffer Profiles YES NO NO NO

Decoupled BoM Explosion YES YES, but3 YES, but2 NO

ASR Lead Time Calculation YES NO NO NO

Qualified Order Spike Horizon and Threshold YES RARELY NO RARELY

Material Synchronization Alert YES YES, but4 NO NO

Multi-Location Buffer Status Visibility YES SOME SOME RARELY

Lead Time Managed Parts YES NO NO NO

Matrix BoM + ASR Lead Time Analytics YES NO NO NO

Simple and Visible YES RARELY YES YES, but5

YES, but1 (Planned positions are often forecast driven and, thus, not integrated into a demand driven framework)

YES, but2 (Kanbans have no recognition of the BoM, they simply treat every connection as independent and factor only on-hand and on-order stock

positions)

YES, but3 (While almost every MRP system has the ability to do what is called “two level master scheduling,” it requires someone with extensive MRP

background and is a very advanced technique. We have never seen it successfully implemented)

YES, but4 (Shortage lists are typically limited to current and past shortages not future potential misalignments)

YES, but5 (Most homegrown systems are simple and visible ONLY to the person who uses the tool)

Early Adopter Results

Mountain House Division: • Sales increased 20%

• Customer Fill Rate improved from 79% to 99.6%

• 60% reduction in inventory

Industrial Ingredient Division: • 60% reduction in make to order

lead time

• 100% On-Time-Delivery

• 20% reduction in inventory

Raw Material No out of stock

Reduced inventory $2.5M+

All material and © copyright Demand Driven Institute 2011, all rights reserved


MRP

DDMRP



Stock-outs reduced by over 66%!

0

100

200

300

400

500

600

700

Dec '01 Dec '02 Dec '03 Dec '04 Dec '05 Dec '06 Dec '07 Dec '08 Sep

'09A

$M

illio

ns

Longview Inv Longview TR

0

100

200

300

400

500

600

700

Dec '01 Dec '02 Dec '03 Dec '04 Dec '05 Dec '06 Dec '07 Dec '08 Sep

$M

illio

ns

Houston Inv Houston TR

High Inventories

Shortages

Massive Expedites

Low Inventories

High Service

Fewer Expedites


What Would “Papa Joe” Say about DDMRP?

“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.”

35 Years Later Industry Finds Itself in Another Time

of Transition and Re-Examination

[email protected]

[email protected]

Date post:	04-Dec-2014
Category:	Documents
Upload:	jacksonbowie
View:	2,471 times
Download:	3 times

Material requirements planning in a demand driven world 2

Documents