Putting shock absorbers into your Supply chain with Demand Driven MRP – A new approach to managing the exponential speed and agility needed in Digital Supply Chains

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By David Sweetman, Senior Marketing Director – SAP S/4HANA Digital Supply Chain

 

MRP at its core hasn’t changed much since it came in to being in the 1960’s. It drastically improved the reliability of supply, optimized production and provided huge benefits in reduced inventory and optimized capacity.  At its heart was the principle of evaluating demand forecasts balanced with actual demand, against available product.   It would time phase the distribution, manufacturing, and procurement to meet that demand.     Safety stock inventory was set up to mitigate against the variability of demand and the inaccuracy of our forecasts.

 

In the early days,  supply chains were less complex, less volatile and with longer product life cycles , so MRP was more than adequate.    In today’s world, classic MRP has issues:   it relies on the assumption of forecast accuracy,  and the concept of the bill of materials to propagate dependent demand,   which often leads to the “bull whip effect”,  high inventories, and service challenges.

 

The “new normal” challenges of complexity and volatility in the supply chain challenge the assumptions of classic MRP.      Happily, a new approach has emerged:   Demand Driven MRP

Supply chain characteristics	Before Digitization	In the Digital Age
Supply Chain Complexity	Low	High
Product Life Cycles	Long	Short
Customer Tolerance times	Long	Short
Product Complexity	Low	High
Product Customization	Low	High
Product Variety	Low	High
Lead time Parts	Few	Many
Forecast Accuracy	High	Low
Pressure for Leaner Inventories	Low	High
Traction Friction	High	Low

 

 

Today our world is characterized by high customer expectations,  customizable products,  global competition,  and distributed, long-lead-time supply networks.   In such a world, the assumption of forecast accuracy is challenged,  and the approach of using safety stock to mitigate variability leads to imbalanced stocks,  with many SKUs with too much inventory,   many SKUS with too little,  resulting in the worst of both worlds:   high stocks in conjunction with inadequate service.

 

DDMRP offers a different approach:    by strategically locating inventory buffers at “decoupling points”  and focusing replenishments on true demand,  we limit the bullwhip effect.     These inventory buffers are then dynamically adjusted to reflect the actual demand and lead times that we are experiencing.     Buffers are monitored and managed using a simple visual process,  and orders are prioritized according to the status of the buffer,   not according to the MRP due date.

 

SAP has been a supporter of the Demand Driven Operating Model for some time, and has been engaged with the Demand Driven Institute, along with many of our customers to drive this new approach. SAP now delivers DDMRP, both in the cloud-based Integrated Business Planning environment (IBP), as well as in S/4 HANA, SAP’s next generation ERP solution.  The solution is jointly offered with our partner, Camelot ITlab.   DDMRP running on S/4HANA is a comprehensive approach, spanning planning and execution,  which will deliver significant improvements to customer service, working capital, and overall responsiveness.

 

I’d encourage you to learn more about DDMRP and see if it makes sense for your business, a wealth of materials is available at:

 

An Executive overview of DDMRP https://vimeo.com/208396607

 

The precisely wrong video (an explanation of DDMRP) https://vimeo.com/219437991

 

The SAP DDMRP Strategy Blog https://blogs.sap.com/2017/06/19/saps-ddmrp-strategy/

 

DDMRP Institute http://www.demanddriveninstitute.com/

You can also email ddmrp@sap.com for further questions

David is the SAP senior marketing director of SAP S4/HANA Digital Supply Chain.