Season Two, Episode Six
The Next Evolution of Material Requirements Planning
For years now, there has been a new methodology called Demand Driven Material Requirements Planning (DDMRP). It combines MRP (Material Requirements Planning), DRP (Distribution Requirements Planning), Theory of Constraints, Lean and Six Sigma to create a new way to think about inventory, scheduling, and business management among other things.
Traditional MRP has become the focus of Buyers, Planners, and Schedulers with input from Sales and Customer Service and output impacting operations, shipping, and logistics. Essentially MRP has become the backbone of a large portion of the business. But there is so much disconnect between different areas that the interaction, and hence collaboration, breaks down.
What if Traditional MRP evolved into something that tied into the business Return on Investment, threw out the invalid assumptions of MRP and added the best of Lean, Six Sigma and Theory of Constraints? What if Flow became our measure of success? What if chaos was not the normal order of business, but a calm, logical, problem solving approach was standard? What if connecting sales and operations was intentional and included in our processes? What if Supply Chain made sense to everyone in the organization? And what if the consequences or resulting effects of decisions were demonstrable and understood across the company.
These are the things that Demand Driven MRP can bring to the table. It’s really the next evolution of traditional MRP because MRP is still a key pillar. A handful of innovations in the foundation added to the vision that connects everything into the full enterprise: Demand Driven MRP.
Let’s go through the major innovations.
1. Decoupled Lead Time and Decoupled Explosion. The important lead time is the lead time between the decoupling points. MRP doesn’t know about this one. And once it’s understood, MRP’s traditional explosion (if anything changes, everything changes) morphs into shorter, more manageable explosions that stop at the next buffered position.
2. The Net Flow Equation. Start with the assumption that maintaining a certain level of inventory is good. It stands to reason that we must adapt our ordering to calmly accomplish this versus today’s knee-jerk reactions. That is the function of the Net Flow Equation.
3. Prioritization and Prioritized Share. Once we can establish an expected level of inventory, we can easily create priorities to go along with that and quickly understand which things require immediate attention. Getting a warning that trouble is approaching is better than getting a notice that a problem occurred. Prioritized share can be used to mitigate capacity constraints.
4. Execution. Traditional MRP is only Planning. There is no Execution capability inside of MRP. Demand Driven MRP provides a separate yet connected set of rules that are an execution framework. Scheduling achieves the same progress as purchasing in terms of reduced chaos.
On one hand, Demand Driven MRP is incredibly different because it allows us to impact the entire organization by creating some connections that we didn’t understand until now. On the other hand, it’s really MRP with several amazing innovations.
There is no reason to fear Demand Driven MRP. If it calms the chaos and provides better visibility to the problems that are likely to arise next, if it provides visibility into your performance and how your actions are impacting the business, and if it improves customer service while reducing the working capital invested in inventory, then it really doesn’t matter what you call it. It’s a win-win for your business.
John Melbye, DDPP, DDLP, CSCP