...on Demand Driven MRP

Demand Driven MRP is a new concept coming up on the heels of Orlicky's original MRP. the people from DDMRP have written a multitudes of books - each single one of them I wholeheartedly recommend to anyone interested in improving supply chain behaviour. Most prominently is "Demand Driven Performance: Using Smart Metrics" by Debra Smith, Chad Smith. It has a very interesting section on the perils of development, serialization and getting to market Boing's Dreamliner. But it also does a very nice job getting the concepts of the new MRP across.

I write in my blogs and the documentation on our optimization projects about "The old paradigm and the new..." by which I suggest, in a nutshell, to use buffers instead of a static safety stock. And using some Factory Physics insights we know that three buffers develop when variability is present - no matter what you do! You have two choices to deal with variability: either you wait until it comes and deal with the buffers that will develop then or you plan ahead and build a combination of the buffers time, inventory and capacity so that the incoming variability can be absorbed... to the extend of the service level you have set. Demand Driven MRP has taken an approach to further define these three buffers and how you can plan for them. At bigbyte (www.bigbytesoftware.com) we have then taken their approach and made it our focus to find away to use this concept in our system of Effective Materials Planning

Let's first look at the inventory buffer:

The inventory buffer is the one we think about the most.  If your vendors have long lead-times and a lot of lead time variability or your customers order very erratically, you may have a large buffer of safety stock.  That way, when orders come in, you can ship them on time and your customers don’t have to worry about your unreliable vendors. To identify too little, too much or the range of 'just about right', DDMRP uses a traffic light system as show above. With it you can always see whether you're doing well or not (bi-directional - stock outs / superfluous inventory). 

So how do you display this in SAP? well you can use a traffic light system there too: transaction MD07. You might say "but I can only define traffic lights for the entire portfolio of mterials' and you're right. However, if you apply a SAPnote (LOG_PP_MIS: Enhancements in the Collective Displays of Material Requirements Planning ) you can set the traffic lights for each materials separately. 

An even better solution is to use the SAP Add-On Tools MRP Monitor and Inventory Controlling Cockpit and use the classification to set your control limits to something like this...

this way you can check daily on your inventory levels and take action if necessary.

Capacity Buffer

A capacity buffer can take on many shapes. If your unreliable vendor usually ships to you via ocean containers and you don’t buffer with enough inventory, you can use emergency air shipments when you run out of product.  Think of the air shipments as extra (and expensive) shipping capacity.  Or, if your unreliable supplier is actually your own plant, you can use overtime or extra lines to meet unexpected demand.  The capacity buffer may be more expensive than holding inventory.  But, in a make-to-order environment, it may be a good choice.

The capacity buffer can also be setup in SAP. You can use the scheduling marguin key (on the material master's MRP2 screen) to use a float before and a float after production. With a reduction key you can use these floats then in scheduling and capacity planning in the graphical board (CM25). More detailed you can also use with shift sequences (in the work center record) to open up additional shifts on a Saturday for example.

Time Buffer

 The time buffer is usually the buffer you end up with if you don’t create other buffers.  If your supply chain has variability (and it does), and you don’t buffer with inventory or capacity, then when your demand is higher than expected or a vendor shipment is late, your customers simply have to wait.  Even though you promised the delivery in three weeks, it may be five weeks before you ship.  This buffer avoids the expense of extra inventory or capacity, but comes with the big downside that your customers may take their business elsewhere.

The time buffer is the least intuitive to set up in SAP. You'll have to carefully evaluate how you want to set up your lead times (In-House Production Time, Planned delivery Time and Total Replenishment Lead Time) as, on one hand, if your lead time is too long you'll raise your inventory levels and on the other when the lead time is too short you're generating tons of exception messages.

Get service level agreements with your management and set them rigorously. This is another big discussion point which exceeds the capacity of this blog but nevertheless very important.