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Demand-Driven Material Requirements Planning

By Carol Ptak, CFPIM, CIRM, and Chad Smith | N/A 2011 | 6 | 6

Since 1996, there has been a transition from a world of capacity limitations to one in which capacity exceeds demand. At the same time, supply chains have become increasingly extended, complex, and volatile. A revolution in formal planning and execution is indeed near, but it will not be achieved by focusing on better capacity scheduling. In most cases, by the time capacity is scheduled and applied, it is already too late__ the relevant materials are not present. And it only takes one missing component to disrupt a perfectly optimized schedule. A fundamental break from the antiquated rules, tools, and ad hoc systems characterized by traditional material requirements planning (MRP) and distribution requirements planning (DRP) implementations is needed. Today, it is all about flow and agility. This is where demand-driven MRP (DDMRP) comes into play.

At the heart of every supply chain is manufacturing; and at the heart of manufacturing is the ability to plan and synchronize materials needs__the fundamental job of MRP. To achieve more agile supply chains, we need more agile planning and synchronization signals and techniques that promote better service levels and minimize working capital simultaneously. Merely optimizing lot size and capacity is akin to rearranging deck chairs on the sinking Titanic.

The core driver behind these shifts is the fact that global capacity now exceeds global demand. Where companies struggled to wring out every bit of output from scarce capacity in the late 1990s, now, most companies have more internal capacity than market demand. The assumption made in the earliest days of MRP__that there was infinite capacity__is probably more realistic today than when MRP was first developed.

Even when a company has capacity issues, many are due to schedule deviations and expedites related to material shortages. Additionally, capacity efficiencies are easier to drive if demand signals are better synchronized with supply signals. Most capacity improvements are rendered impotent because the materials planning system cannot adequately synchronize these signals in the more complex manufacturing and supply landscape of the 21st century.

The traditional push-based approach has proven to be grossly inadequate in a highly volatile and variable manufacturing landscape dominated by complex planning scenarios. Seeing the benefits of being demand driven (aligning assets more closely to actual consumption), many decision makers have attempted to build walls around or disable the push-based aspects of traditional MRP in an attempt to use it in a more demand-driven fashion. At the same time, the limited set of materials planning and inventory control tools in pull-based philosophies such as lean and drum-buffer-rope also are proving to be grossly inadequate__ even counterproductive to the implementation of demand-driven manufacturing. A new type of MRP is required to effectively deal with today's circumstances and fully capitalize on and implement pull-based philosophies: DDMRP.

DDMRP is a multi-echelon demand and supply planning and execution methodology. It integrates multiple tiers (including the bill of material) in the supply chain in order to provide end-to-end integrated planning and execution visibility. DDMRP was developed in order to mitigate the effects of variability and volatility on manufacturing operations and supply chains and to promote visibility and velocity.

DDMRP is a no-compromise fusion of relevant MRP and DRP tactics, combined with the pull-based approaches and signals of lean and the theory of constraints. The solution includes planning and execution innovations for better lead time compression and execution visibility. It takes lean's waste reduction focus and visibility for execution and combines them with a new set of demand-driven planning tactics to generate unprecedented planning visibility across an enterprise and supply chain. The results are synchronized demand and supply signals that make capacity scheduling simpler, more realistic, and less stressful. Thus flow and agility are achieved, and the global landscape can more effectively manage the current capacity challenges so many companies are facing.

Carol Ptak is a partner with the Demand Driven Institute and was recently at Pacific Lutheran University as a visiting professor and distinguished executive in residence. She may be contacted at cptak@demanddriveninstitute.com.

Chad Smith is the co-author of Orlicky's Material Requirements Planning, Third Revised Edition, where readers can find a detailed explanation of DDMRP. He also is co-founder of the Constraints Management Group. He may be contacted at csmith@demanddriveninstitute.com.

Editor's note: Author Carol Ptak, CFPIM, CIRM, will present an educational session at the 2011 APICS International Conference & Expo in Pittsburgh, Pennsylvania. Her presentation, "Material Requirements Planning in a Demand-Driven World," will explore why most demand and supply planning systems deliver poor results, evaluate the core problems causing these inadequacies, and present an alternative. For more information, visit apicsconference.org

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