The What and Why of DDMRP

The Complete Story of DDMRP and Why You Might Need to Use It

By Nico Groenewald, Principal SCMO₂

Introduction

Material Requirements Planning (MRP) has been with us for decades. It originated in the 1950s but with more available computer power, really took off in the 1970s. Production planners are very familiar with the concept and benefits but also its limitations. MRP is largely a push system—production supply is pushed based on a forecast.

JIT (just-in-time) manufacturing came along during the 1960s and 1970s, and along with Kanban (which actually originated in the 1940s), was used by Toyota to achieve a lean pull-type manufacturing environment. This pull-type planning method works better, but also has its limitations.

Theory of Constraints saw the light of day in the middle 1980s. This methodology places the focus on identifying and eliminating constraining factors (bottlenecks) in the manufacturing process.

Six Sigma was introduced at Motorola in 1980, implementing tools and techniques to minimize variability in manufacturing and business processes.

Finally, the Lean Manufacturing discipline originated from Japan in the 1990s with the aim of minimizing waste in the manufacturing process.

So why am I mentioning all these methods? As stated by the Demand Driven Institute, the organization responsible for introducing Demand Driven Material Requirements Planning in 2011, DDMRP combines some relevant aspects of all of the above methods. Kanban is not specifically mentioned, but DDMRP does have some things in common with Kanban as well.

How does DDMRP work?

DDMRP uses strategic decoupling points to drive supply order generation and management throughout a supply chain. DDMRP aims to reduce the bullwhip effect that can amplify variability throughout the supply chain, resulting in too little or too much inventory.

DDMRP is comprised of five sequential components:

• Strategic Decoupling—Strategically placed buffers throughout the supply chain that are put in place to stop the transfer of variability in both directions, demand signal as well as supply.

• Buffer Profiles and Levels—This step is in reference to color coded three-zone levels at the different decoupling points and how these are calculated.
• Dynamic Buffer Adjustments—This refers to the dynamic nature of the buffers, which are allowed to go up or down based on demand signals.
• Demand Driven Planning—sales orders within a short horizon are used as demand elements and are combined with buffer status drive supply order creation in what is called the Net Flow Equation:  Buffer Daily Net Flow Position = Quantity On-hand + Open Supply – Qualified Sales Order Demand. If the day’s net flow position is below the top of the yellow buffer level, then a supply order is issued to bring it back up to the top of the green level.

• Visible and Collaborative Execution—Pull execution is managed by open supply orders using easy to interpret signals to highlight priorities against the on-hand buffer position.

DDMRP Versus Safety Stock and Kanban

Safety stocks exist to reduce variability in the MRP world, and can be placed at any position in the supply chain. Most frequently, they are employed at the raw material and finished product level. Just as DDMRP buffers, safety stocks can also be adjusted dynamically, but need to be carefully planned because incorrect quantities can increase demand signal distortion.

Safety stocks and DDMRP buffers are similar concepts but implemented in total different ways. Kanban is implemented in a manner more similar to DDMRP than MRP safety stocks; however, both are pull concepts where buffer or Kanban levels are important. DDMRP goes further by also taking short term open sales orders into consideration and monitoring and recalculating buffer levels as necessary.

DDMRP Benefits

The following table shows typical improvements achieved by implementing DDMRP as provided by the Demand Driven Institute:

DDMRP for SAP IBP

SAP partnered with Camelot ITLab to co-develop a comprehensive DDMRP solution for IBP which was introduced in release 1705, and has been able to support all five components of DDMRP since the 1905 release. DDMRP is also available for S/4HANA, both on-premise as well as a service in the cloud. It provides the following functionality:

• A supply and production network visualization tool to facilitate setting up decoupling points
• Capabilities for simulation and versioning as well as impact analyses of decoupling alternatives
• The ability to do buffer level calculation (manual or automatic) and buffer performance review
• Generate order recommendations, including visualization to order spikes
• Inventory projections and alert functionality with dashboards and custom alerts
• Preconfigured IBP planning views and business user roles to support the DDMRP process
• Preconfigured FLOW Metric KPIs and dashboards in IBP SC Control Tower
• Complementary use and full integration with all SAP IBP modules and planning functionalities
• Delivered as a Rapid-Deployment-Solution (RDS) to jump-start implementation
• Bi-directional integration into SAP ERP for master data and transactional data

SAP DDMRP System Architecture

The following high-level diagram illustrates where DDMRP fits within the SAPIBP framework:

The Magic Bullet?

No, DDMRP is not a magic bullet that will resolve all supply chain issues. Like any other supply chain planning methodology, it has its shortcomings. For example, it does not make sense to keep buffers for very expensive products with infrequent demand and of course it can do nothing (like any other method) to shorten long procurement lead times. But it does offer significant potential and has already proven itself in practice.

Resources:

• Demand Driven Institute – https://www.demanddriveninstitute.com
• SAP Community WIKI – https://wiki.scn.sap.com
• SAP – https://help.sap.com
• CamelotITLab – https://www.camelot-itlab.com