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Operations Planning Demand Driven MRP - From “Push and Promote” to “Position and Pull” Chad Smith Partner Demand Driven Institute

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Page 1: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Operations Planning

Demand Driven MRP - From “Push and Promote” to

“Position and Pull”

Chad Smith Partner

Demand Driven Institute

Page 2: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Today’s formal planning

systems are

fundamentally broken!

What is the Problem we are Solving?

DDMRP Sneak Peek

2 Chad Smith

Page 3: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

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)

3

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)

40%

28%

23%

9%

High Degree

Moderate Degree

Low Degree

None

Companies using spreadsheets to augment MRP

Chad Smith

Page 4: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

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 ► 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?

Chad Smith

Page 5: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

The “New Normal” • Pressure for leaner inventories

• Inaccurate forecasts

• More product variety

• Long lead time parts/components

5

DDMRP Sneak Peek

• Global sourcing and demand

• Shorter product life cycles

• Shorter customer tolerance times

• More product complexity and/or customization

Worldwide there are more

complex planning and supply

scenarios than ever – the past is

NOT an predictor for the future

Chad Smith

Page 6: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

The First Law of Manufacturing

All benefits will be directly related to the speed of FLOW of materials and information.

Materials & Information

Information

Corollary: Materials and Information must be RELEVANT!!!

Chad Smith

Page 7: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Two Universal Point of Inventory

Too Much Too Little

A B

0

Optimal Range Warning Warning

Note: “Optimal” is from an on-hand perspective

Chad Smith

Page 8: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

The MRP “Bi-Modal” Distribution

Too Much Too Little Optimal Range

# o

f p

art

s o

r S

KU

Warning Warning

0

Chad Smith

Page 9: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

The Oscillation and its Effects

Too Much Too Little Optimal Range

# o

f p

art

s o

r S

KU

Warning Warning

Oscillation

0 Three Effects:

1. Persistent Unacceptable Inventory Performance

2. Service Challenges

3. High Expedite and Waste Related Expenses

Chad Smith

Page 10: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Supply Chains = Islands of MRP

External Orders

for Components

Master

Production

Schedule

Independent

Demand

Forecasts

Inventory

Record FileMRP SYSTEM

Product

Structure file

Manufacturing

Execution

System

MRP at the Heart of ManufacturingMRP

MRP

MRPMRP

MRP

MRP

MRPMRP

MRP

MRP

MRP

Today’s Complex Supply Chains

But how can we bring MRP into the highly complex

and volatile demand driven world?

Should we abandon MRP?

Chad Smith

Page 11: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

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.

Chad Smith

Page 12: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

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

Chad Smith

Page 13: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Demand Driven Material Requirements Planning

Strategic

Inventory

Positioning

Buffer Profiles

and Levels

Dynamic

Adjustments

Demand Driven

Planning

Visible and

Collaborative

Execution

Component 1: Positioning

Where? (Position)

BEFORE

How Much? (Quantity)

When? (Timing)

Chad Smith

Page 14: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Demand Driven Material Requirements Planning

Strategic

Inventory

Positioning

Buffer Profiles

and Levels

Dynamic

Adjustments

Demand Driven

Planning

Visible and

Collaborative

Execution

Component 1: Positioning

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

Chad Smith

Page 15: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

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

Chad Smith

Page 16: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Stock Out

Component 2: 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

Demand Driven Material Requirements Planning

Strategic

Inventory

Positioning

Buffer Profiles

and Levels

Dynamic

Adjustments

Demand Driven

Planning

Visible and

Collaborative

Execution

Chad Smith

Page 17: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Component 2: Buffer Profiles and Levels

Demand Driven Material Requirements Planning

Strategic

Inventory

Positioning

Buffer Profiles

and Levels

Dynamic

Adjustments

Demand Driven

Planning

Visible and

Collaborative

Execution

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

Chad Smith Chad Smith

Page 18: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Component 3: Dynamic Adjustments

Demand Driven Material Requirements Planning

Strategic

Inventory

Positioning

Buffer Profiles

and Levels

Dynamic

Adjustments

Demand Driven

Planning

Visible and

Collaborative

Execution

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

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

Seasonality Ramp Up Ramp Down

Recalculated Adjustment

Planned Adjustments

Chad Smith

Page 19: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Component 4: Demand Driven Planning

Demand Driven Material Requirements Planning Strategic

Inventory

Positioning

Buffer Profiles

and Levels

Dynamic

Adjustments

Demand Driven

Planning

Visible and

Collaborative

Execution

10,000

5,000

r457

f576

h654

r672

10,000

5,000

r457

f576

h654

r672

623

213

540

1200

Demand

0

2162

3128

0

Recommended

Supply Qty

2743

530

3358

5453

Open

Supply

Expedite Open

Supply (Execution)

38521732r672

Place New Order40383721h654

Place New Order68724054f576

No Action82654012r457

ActionAvailable

Stock

On-handPart

623

213

540

1200

Demand

0

2162

3128

0

Recommended

Supply Qty

2743

530

3358

5453

Open

Supply

Expedite Open

Supply (Execution)

38521732r672

Place New Order40383721h654

Place New Order68724054f576

No Action82654012r457

ActionAvailable

Stock

On-handPart

Order Spike HorizonOrder Spike Horizon

Chad Smith

Page 20: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Part/SKU Info

35 units

70 units

52 units

Replenishment Lead Time = 7 days Lead time = 7 days (Medium – 50%)

ADU = 10

Medium Variability (50%)

Order Spike Horizon = 7 days

Order Spike Threshold = 26 (50% Red)

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

Order Spike Threshold (50% of red)

Order Spike

Horizon

1 2 3 4 5 6 7

Sales Order Demand

Supply Orders

-4 -3 -2 -1

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

Chad Smith

Page 21: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Order Spike

Horizon

Order Spike Threshold

35

Sales Order Demand Supply Orders

1 2 3 4 5 6 7

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

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

65

72

10

37

127 Today’s Order Recommendation: NONE

1 2 3 4 5 6 7 8 9 10 11 12 13 14 12 13 14

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 1

On-Hand

Available Stock

10 18 17 6 5

9 10

Chad Smith

Page 22: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Order Spike Threshold

35

Sales Order Demand Supply Orders

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

37

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

55

72

48

79 Today’s Order Recommendation: 78

SP

IKE

8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 12 13 14

▪ ▪

◄SPIKE!

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 2

On-Hand

Available Stock

18 17 6 5

9 10 30

Chad Smith

Page 23: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Order Spike Threshold

Sales Order Demand Supply Orders

3 4 5 6 7

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

1 2 3 4 5 6 7 8 9 10 11 12 13 14 12 13 14

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

72

115

47

37

140

8

Today’s Order Recommendation: NONE

▪ ▪

78

9

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 3

On-Hand

Available Stock

SP

IKE

17 6 5

9 10 30 5

Chad Smith

Page 24: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Sales Order Demand Supply Orders

4 5 6 7

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

1 2 3 4 5 6 7 8 9 10 11 12 13 14 12 13 14

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

55

115

36

37

134

8

Today’s Order Recommendation: NONE

78

9

10

Order Spike Threshold

▪ ▪

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 4

On-Hand

Available Stock

SP

IKE

6 5 9 10 30

5 6

Chad Smith

Page 25: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Sales Order Demand Supply Orders

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

1 2 3 4 5 6 7 8 9 10 11 12 13 14 12 13 14

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

49

115

35

37

129 Today’s Order Recommendation: NONE

78

5 6 7 8 9 10

Order Spike Threshold

11

▪ ▪

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 5

On-Hand

Available Stock

SP

IKE

5 9 10 30

5 6 9

Chad Smith Chad Smith Chad Smith Chad Smith Chad Smith

Page 26: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Sales Order Demand Supply Orders

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

1 2 3 4 5 6 7 8 9 10 11 12 13 14 12 13 14

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

44

115

39

37

120 Today’s Order Recommendation: 37

78

6 7 8 9 10

Order Spike Threshold

11

12

▪ ▪

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 6

On-Hand

Available Stock

SP

IKE

9 10 30 5 6

9 10

Chad Smith

Page 27: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Sales Order Demand Supply Orders

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

1 2 3 4 5 6 7 8 9 10 11 12 13 14 12 13 14

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

72

115

40

147 Today’s Order Recommendation: NONE

78

7 8 9 10

Order Spike Threshold

11 12 13

37

▪ ▪

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 7

On-Hand

Available Stock

SP

IKE

10 30 5 6

9 10 20

Chad Smith

Page 28: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Sales Order Demand Supply Orders

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

1 2 3 4 5 6 7 8 9 10 11 12 13 14 12 13 14

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

62

115

30

147 Today’s Order Recommendation: NONE

78

8 9 10

Order Spike Threshold

11 12 13 14

37

▪ ▪

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 8

On-Hand

Available Stock

SP

IKE

30 5 6

9 10 20 6

Chad Smith

Page 29: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Sales Order Demand Supply Orders

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

1 2 3 4 5 6 7 8 9 10 11 12 13 14 12 13 14

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

32

115

5

142 Today’s Order Recommendation: NONE

78

9 10

Order Spike Threshold

11 12 13 14

37

15

▪ ▪

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 9

On-Hand

Available Stock

5 6 9 10 20

6 11

Chad Smith

Page 30: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Sales Order Demand Supply Orders

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

1 2 3 4 5 6 7 8 9 10 11 12 13 14 12 13 14

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

105

37

6

136 Today’s Order Recommendation: NONE

10

Order Spike Threshold

11 12 13 14

37

15 16

▪ ▪

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 10

On-Hand

Available Stock

6 9 10 20

6 11 10

Chad Smith

Page 31: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Sales Order Demand Supply Orders

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

1 2 3 4 5 6 7 8 9 10 11 12 13 14 12 13 14

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

99

37

9

127 Today’s Order Recommendation: NONE

Order Spike Threshold

11 12 13 14

37

15 16 17

▪ ▪

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 11

On-Hand

Available Stock

9 10 20 6

11 10 20

Chad Smith

Page 32: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Sales Order Demand Supply Orders

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

1 2 3 4 5 6 7 8 9 10 11 12 13 14 12 13 14

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

90

37

10

117 Today’s Order Recommendation: 40

Order Spike Threshold

12 13 14

37

15 16 17

18

▪ ▪

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 12

On-Hand

Available Stock

10 20 6

11 10 20

Chad Smith

Page 33: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Sales Order Demand Supply Orders

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

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

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

80

77

20

137 Today’s Order Recommendation: NONE

Order Spike Threshold

13 14

37

15 16 17 18 19

40

▪ ▪

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 13

On-Hand

Available Stock

20 6

11 10 20

Chad Smith

Page 34: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Sales Order Demand Supply Orders

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

1 2 3 4 5 6 7 8 9 10 11 12 13 14

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

97

40

6

121 Today’s Order Recommendation: 36

Order Spike Threshold

14 15 16 17 18 19

40

20

▪ ▪

15 16 17

▪ ▪

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 14

On-Hand

Available Stock

6 11 10 20

Chad Smith

Page 35: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Sales Order Demand Supply Orders

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

1 2 3 4 5 6 7 8 9 10 11 12 13 14

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

91

76

11

156 Today’s Order Recommendation: 36

Order Spike Threshold

15 16 17 18 19

40

20 21

36

15 16 17

▪ ▪

▪ ▪

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 15

On-Hand

Available Stock

11 10 20

Chad Smith

Page 36: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Sales Order Demand Supply Orders

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

1 2 3 4 5 6 7 8 9 10 11 12 13 14

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

80

76

10

146 Today’s Order Recommendation: 36

Order Spike Threshold

16 17 18 19

40

20 21

36

15 16 17

22

▪ ▪

▪ ▪

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 16

On-Hand

Available Stock

10 20

Chad Smith

Page 37: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

Sales Order Demand Supply Orders

Available Stock Today:

On-Hand

Open Supply

Sales Order Demand

1 2 3 4 5 6 7 8 9 10 11 12 13 14

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

70

76

18

128 Today’s Order Recommendation: NONE

Order Spike Threshold

17 18 19

40

20 21

36

15 16 17

22 23

▪ ▪

▪ ▪

▪ ▪

▪ ▪

Order Spike

Horizon

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 17

On-Hand

Available Stock

20

Chad Smith

Page 38: Operations Planning Demand Driven MRP - From “Push · PDF fileOperations Planning Demand Driven MRP ... • Legacy planning tactics and tools are breaking down ... Location (distributed

0

20

40

60

80

100

120

140

160

180

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

Demand Available Stock On Hand Open Supply

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

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

65 55 72 55 49 44 72 62 32 105 99 90 80 97 91 80 70

72 72 115 115 115 115 115 115 115 37 37 37 77 40 76 76 76

DAY

Demand

Av Stock

On Hand

Supply

Average Daily Usage over 17 day period = 11.8 Average On Hand Inventory = 71.6

Chad Smith

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39

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Average On-Hand

Inventory = 71.6

On Hand Inventory Distribution

0

1

2

3

4

5

0 20 40 60 80 100

120

140

160

Chad Smith

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Component 5: Execution

Demand Driven Material Requirements Planning

Strategic

Inventory

Positioning

Buffer Profiles

and Levels

Dynamic

Adjustments

Demand Driven

Planning

Visible and

Collaborative

Execution

Order # OH Buffer Status Order Type Due Date Customer

MO 12379 MTO 5/12/2011 Super Tech

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

Solution: 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

MO 12465 Stock 5/12/2011 Internal

MO 12401 Stock 5/14/2011 Internal

MO 12411 Stock 5/16/2011 InternalProblem: Priority by DUE DATE

Chad Smith

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All material and content © copyright 2012 Demand Driven Institute. All rights reserved. Certified Demand Driven Planner (CDDP) is a trademark of the ISCEA

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

Med 41% 05/12 PO 276-54

Med 39% 05/12 PO 891-84

Critical 13% 05/12 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 WO 211-72

Critical 17% SAD 05/22 WO 832-41

Critical 13% FPA 05/24 WO 819-87

Buffer Status Item # Due Date Order #

Chad Smith

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The Power of DDMRP (Planning Perspective)

Too Much Too Little Yellow

# o

f p

art

s o

r S

KU

Red Green

0

Chad Smith

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Some DDMRP Early Adopters

Chad Smith

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FMCG Example

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

21

-Nov

23

-Nov

25

-Nov

29

-Nov

1-D

ec

5-D

ec

7-D

ec

9-D

ec

13

-Dec

15

-Dec

2-J

an

4-J

an

6-J

an

10

-Jan

12

-Jan

5-Over ToG 4-Low 3-Medium

300 Materials are buffered without increase in RPW

inventory. Lead-times de-coupled

Dampened the bull whip, now operating more

effectively, and inventory optimized

Before

After

Replenishment lead time has been

reduced 82% to 9 days from 50

days, becoming Responsive with

18% less Raw and Pack inventory

Finished Goods down 45% with

99.7% Service

Chad Smith

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Early Adopter Results

MRP

DDMRP

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

Chad Smith

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Early Adopter Results

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

DDMRP Sneak Peek

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

Chad Smith

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C

Steel

Products

Component

Supply

(H/L)

Offshore

Products

Mining

Products

C

C

Suppliers

Drilling

Systems

Forestry

Products

C

C

Synchronization and Flow Challenge

C = Customer

= Remote Location

Supply Variability

Distortions &

amplification in

demand requirements

reverberate backward

Demand /

Information

Variability

End Item Assembly

inherits the amplifying

upstream variability.

Lead Time before DDMRP

Chad Smith

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C

SP CS

OP

MP C

C

Suppliers

C = Customer

DS

FP

C

C

= Remote Location

= Time Buffer

= Strategic Replenishment Buffers

Chad Smith