How to optimise your buffers: Demand Driven MRP vs MRP

Posted by Jonathon Vaiksaar on 09-Oct-2015 16:29:00

When discussing Demand Driven MRP (DDMRP) one question often comes up:
How much benefit of DDMRP is due to daily planning?

This is driven by the understanding that reviewing your plan more frequently will enable you to make quick changes to demand. This is true. However, the difference between DDMRP and MRP remains that whilst MRP reacts to the changes of inaccurate forecasted demand, DDMRP reacts only to confirmed demand, not forecast. 

What are the results?

Let's use Jamestown Container Company, the leading package solutions organisation as an example. Jamestown Container competes in an industry where there is significant overcapacity, high fixed costs, pressuring price competition with slimming margins. Implementing DDMRP enabled them to achieve agility and best in class customer service levels with immediate stock, relieving the burden of inventory investment for both their customers and themselves. 

Jamestown Container Company DDMRP Results

Olivehorse's simulation tool will help visualise the results of running both MRP and DDMRP using the same inputs: material, lead-time, order quantity and review frequency.

Another question often asked is:
How do I decide the correct buffer levels and average usage for a material?

Thankfully (depending on your viewpoint) there is no standard deviation statistical model to size your DDMRP buffers. Sizing is dependent on the diligence of the planners to review settings regularly. This is to ensure that they are at an appropriate level. Olivehorse's simulation tool takes away the guessing of work and helps you optimise your buffers.

To achieve success in your inventory management you need to answer these TWO questions:

1. What are the correct settings for my red zone buffer?
Experienced practitioners of DDMRP are well aware that the buffers are very resilient to variability- too much though and you have excess inventory, too little and you risk service / costs due to expedites. However, there is no mechanism to identify the optimum buffer settings to achieve a desired service, until now.

2. What is the correct horizon to use to calculate the average usage for each product?
Forwards, backwards, 9 weeks, 13 weeks- which is best? Often users define an arbitrary setting for the ADU horizon and rarely change it. Olivehorse’s simulation shows you what ADU logic to use to achieve your target service level with the lowest inventory.

Use your own data and environment in Olivehorse's Demand Driven MRP vs MRP Simulation tool to see how DDMRP's methodology can impact your organisation. 

Download this free simulation tool now!

Read more on: DDMRP, SAP IBP, Demand Driven Adaptive Enterprise, Integrated Business Planning, DDAE, DDS&OP, Demand Driven Replenishment