DDMRP: A practitioner’s perspective

The last weeks have seen a significant rise in the number of comments, blogs, and social media posts that have created a lot of healthy discussion and debate about DDMRP. However concurrently there has also been a lot of commentary that from my perspective doesn’t accurately depict DDMRP, its purpose, concepts, or even the real cases of success that I have myself heard and read from companies such as Michelin, Miba, and BT (just to name a few).

From the perspective of an industry practitioner with an understanding of the current supply chain planning landscape that is proliferated with processes, methodologies, and tools based on conventional planning methods and ideas, what much of the commentary fails to address are the core factors that have brought us to where we are now today. Having never myself written a blog/article I saw the timing as ideal to share my perspective of where we are indicatively today in industry, what challenges are faced, and where DDMRP fits in all of this.

However, before commenting further, and in anticipation of people questioning my credentials in making these comments, I will set the context by giving an overview of the journey of ongoing learning I am currently embarked upon, and the experiences that have brought me to what I presently see and believe. For those that do not wish to read about me and my background, please jump to the next section.

Commencing my career as a Supply Planner in Australia working for a Printing Inks and Chemical company, I have been fortunate to progress through roles from Master Scheduling, Training/Facilitation, Site Supply Chain Leadership, Multi-site Supply Chain Leadership, and now currently Global Supply Chain Solutions accountability, working in numerous industries and countries in Asia and now the US. Throughout this time the manufacturing environments have ranged from low volume intermittent batch environments with high part complexity (50K+ SKUs), to high volume repetitive environments, with customers ranging from wholesalers to OEMs to Retailers. My experience therefore can relate Supply Chain Planning processes to a reasonably diverse cross section of industries and manufacturing environments.

Additionally I have been fortunate enough to implement both MPS processes and MRP systems, been part of a business integration and ERP consolidation project combining multiple business units whilst migrating to a single ERP with a single standard planning process, implemented APS systems, and supported the definition of ‘best practice’ planning processes for global benchmarking in a large multinational. Through this entire journey my planning roots run deep. I started as a planner that completed the CPIM and CSCP and actively promoted conventional planning tactics whilst also dealing with the day to day challenges that all planners face.

I am not sharing these details for promotional purposes, I share them to provide context about my supply chain planning experiences that are the inputs to the perspective that I now wish to share.

The DDMRP learning Curve: It takes more than just a single whitepaper or webinar!

My simple message to anyone that wants to really understand DDMRP is that as with any new methodology, there can be a learning and personal change management process to go through. I myself experienced just this process as to some extent it requires us to re-wire the way we think. What is or is not really needed? What is or is not really important? There is therefore a time investment needed to truly understand DDMRP, but this time investment is certainly worthwhile.

My personal DDMRP learning curve started approximately 5 years ago in Shanghai at the APICS Asia conference where Carol Ptak was presenting a session. Being that my formal planning training and experience was based on the CPIM body of knowledge of the old MRPII plumbing chart, what I heard from Carol made sense, but conceptually I could not grasp what made these concepts different, what distinguished DDMRP from conventional methods. Truth be told the concepts of DDMRP are not anything new or different, they are all concepts that have been applied in some way or another in most companies. Dismissing DDMRP as ‘nothing new’ would have been the easy option.

Curiosity, however, got the better of me. I read more on the topic. A few months later I attended another APICS Conference, APICS 2012 from memory, where the combination of what I had previously seen, and what I had read since, resulted in a moment where the light went on as to what makes DDMRP different.

DDMRP is not promoting concepts that are new or foreign to anyone, it is the innovation and creativity to bring together elements of different planning methodologies (MRP, Lean, and TOC) into a single integrated approach based on the premise that the protection and promotion of flow will drive improved supply chain outcomes.

MRP, what does it do, why is it a problem?

When we talk about MRP virtually every supply chain professional knows what the acronym means. MRP is a long established and well known process that at one time may have provided an appropriate solution to the business landscape. In my experience working around the world I have found that few SC professionals can explain the underpinning calculations occurring in an MRP run with all the relevant item planning profiles and policies. Compounding on that statement, even fewer professionals can problem solve instances in which MRP is not producing the intended benefits.

This represents the first problem, the prevalence of ‘good’ MRP implementations are not anywhere near as common as we as a profession would hope. My comments, however, go beyond dismissing performance problems on ‘bad’ MRP implementations and are relevant to even ‘good’ implementations.

Admittedly there has been an evolution of Supply Chain planning processes to APS, Optimization, more advanced forecasting algorithms etc., etc., etc. However, the core basic principles of MRP remain unchanged. No matter what system you are using, no matter what advanced algorithms you are running, traditional planning systems still utilize basic MRP concepts of coupled bill of material explosion based on parent to child dependency. Let me explain further:

Based on finished goods forecasts (could be from an advanced forecasting software) a supply plan gets created (could be from an APS tool) and this supply plan after MRP is run generates dependent supply orders based on the bill of material, lead times, on hand inventory etc., that are coupled to (dependent upon) the finish goods supply plan. This same calculation occurs through the entire BOM down to its lowest level, with all supply order generation directly tied to the finished good supply plan. The key point, this is a tightly coupled BOM explosion based on dependency that ties all the way to the finished goods forecast and subsequent supply plan (probably an MPS).

I am confident that this point is well known and understood by many, but it in itself represents the second and pre-eminent problem. MRP whether in a ‘good’ or ‘bad’ implementation cannot deal with loosely indicative forecasts and supply plans because it is designed to tightly couple everything. Forecast/Demand Variability is a known constant we face. By tightly coupling supply order generation through entire bill of material structures I have seen and experienced the extent of planning, re-planning, then reverting, then re-planning again effort that often occurs. Expediting efforts abound (many completely unnecessary). Planners simply cannot win. They are doing their best using the tools that we force them to use. Tightly coupled dependency in a highly fluid business environment with loosely indicative forecasts just doesn’t work.

To conclude on this point, if you ever hear a supply planner / buyer complaining that they have either a shortage or overstock situation because the MPS changed then you know that your company is experiencing what I just explained.

DDMRP, what I have learnt, and where does it fit?

To start this point let us set the scene with what I see as a few of the key success factors for effective supply chain planning. Undoubtedly there are more things to consider than the below, but few people will argue that these represent a good starting point:

1. Supply plan synchronization with actual customer demand - This is certainly the intention of MRP by using tightly coupled bill of material dependencies. As forecast error is realized, compounded by elongated global supply chains and greater supply chain complexity, changes are the rule and not the exception.

2. Visibility of real planning priorities that are managed separately to execution priority - MRP treats planning and execution as the same thing, and provides exception messages based on a binary “OK” or “NOT OK” logic often linked to order due dates (assuming the due dates on orders represents what the real need now is). MRP simply assumes everything will go according to plan until the plan changes yet again or some form of variability is realized. Under the current landscape both are guaranteed to happen.

3. A method to strategically size inventory profiles and then measure actual performance against that profile to support ongoing improvements - DDMRP requires part buffer profile creation based on part characteristics of lead time, usage rates, variability etc., and then dynamically resizes these buffers over time. This allows for future visibility of inventory sizing and decision making that will impact working capital, service levels, and operating efficiency. MRP in itself does not do this, however, other software applications can be purchased to do equivalent calculations based on different calculation algorithms.

4. Intuitive and easy to understand methods, rules and calculations - As mentioned as the first problem articulated for MRP, poor implementations resulting in poor results will also be a source of sub-optimal outcomes in industry, however, the more intuitive the rules and tools are the more likely we are to be successful.

None of the above points are overly complicated. None requires advanced statistical optimization engines with long protracted implementation times and substantial investments. Most supply chain professionals would view them as fundamental requirements. This in itself is a big part of the power of what DDMRP provides. The concepts it is built upon and promote are intuitive concepts. They are logical and accepted. They use calculations that can be understood, replicated and consistently applied across the board of planners.

DDMRP may not be successful in ALL environments and ALL companies. Can anything meet that standard? I would, however, encourage readers to look further at the diverse range of success and case studies that are openly available online. The key to the success is what DDMRP does so eloquently and differently than conventional planning:

• Decoupled bill of material explosion: As opposed to tightly coupled BOM explosion based on dependency that occurs in MRP, DDMRP decouples supply and demand with strategic points that are managed buffers that act as a break wall in BOM explosions. By MRP creating dependencies across the cumulative lead time of a product through all BOM levels we are forced into longer planning horizons than when we decouple in DDMRP.
• Supply order generation initiated by actual demand/usage: Rather than launching supply orders against forecasts, DDMRP considers forecasted changes in demand as an input to buffer construction but does not directly tie supply order generation to forecasts. Supply orders get launched based on actual consumption and therefore improves inventory alignment to customer demand. I acknowledge that this concept is hard to grasp for someone not familiar with DDMRP, but in the limitation of keeping this article at a manageable length I encourage you to pursue this point further in future personal reading – it is not trivial.
• Distinct differentiation between Planning and Execution: DDMRP methods create a clear differentiation between the generation of new supply orders (planning) and the management of open supply (execution). MRP systems throw planning and execution in the same ‘action message’ bucket and therefore make it difficult for planners to manage these two very separate activities as two separate processes.
• Priorities determined by Buffer/Inventory status, not due dates: Rather than assuming that required due dates that were generated at the point of supply order release represent the best methods to prioritize, DDMRP instead considers item buffer/inventory status of strategic points to set priorities.

Concluding Comments

DDMRP addresses many of the limitations of conventional planning tactics by bringing together elements of existing methodologies in a well-articulated and integrated solution that addresses the key elements that are needed for Planning success, whilst promoting flow and synchronization of supply chain priorities to actual customer needs.

The concluding remark I would like to make is to quote Thibaut d’Herouville, Head of Industrial Supply Chain at Michelin : “DDMRP is fundamentally empowering for our factories because it brings them closer to customers and gives them tools to manage stock, service and costs”.

The more that practitioners experience the benefits that DDMRP provides, the more that the methods will proliferate throughout industry.

Matthew Gardner