DDMRP: Speed up your manufacturing proces and significantly reduce your stock in five steps
Do you predict product demand to optimally align your purchasing, stocks, production and deliveries? This blog will tell you why it is better to focus on the actual demand for your products and how you can respond to customer demand as quickly as possible without holding huge stocks.
No one knows exactly what the future holds, and yet many companies try to predict what they can expect. They make forecasts to determine how many materials and products they need to meet customer demand. However, this always involves guesswork. If the demand for a product suddenly increases and a company has little or no inventory, this will lead to dissatisfied customers who are not getting their deliveries on time. If the same company chooses to stay ahead of this negative scenario by holding products in stock, its costs will go up instantly.
What is the point of forecasting if it is costing you money and customers? The answer is easy. Many companies argue that the lead times of their products would be far too long if they waited to manufacture their goods until after their customers had actually placed the order. In my view, this is incorrect as there is an alternative. Allow me to introduce you to Demand Driven Material Requirements Planning (DDMRP).
Also follow our webinar: DDMRP – Faster production with less stock
Balance between customer and inventory
The DDMRP method enables companies to focus on their customers' actual demand. The methodology forces companies to strike a good balance between customer demand and their inventory. Which materials are necessary for the manufacturing process and what are the lead times of the materials? Parts that can be delivered quickly do not need to be held in stock. For materials with a longer lead time, stocks or 'buffers' are created. These buffers can then be tightened further based on the actual demand the company experiences in the market.
DDMRP with lampshades
Let me illustrate this with an example. A company manufactures and supplies lampshades. It has to buy materials to make its products. Because it is not sure how many lampshades it will be selling, it does not know how many materials it will need. That is why the company used to try to predict how many lampshades it would need to manufacture, but in reality customers always ended up ordering more or fewer lampshades than anticipated. This meant that the company almost always purchased too many (or not enough) materials.
Now that the manufacturer has switched to DDMRP, it does not start its manufacturing process until there is an actual demand for a product. The manufacturing of a lampshade requires felt, wood and fastening. Fastening and wood are easy to obtain, so minimum stocks are sufficient in that respect. However, felt is a scarce product with a longer lead time, so the company provides a strategic buffer for this product. Thanks to DDMRP, the company has significantly reduced its lead times by making sure that all the necessary critical materials are (almost) immediately available for manufacturing. In the past, this could also be achieved with large stocks, but these were inefficient and squeezed the margins. With DDMRP, the inventory costs fell by 14% and the margins actually increased.
How do you approach DDMRP?
Companies that use DDMRP make a conscious choice to completely redesign their purchasing, inventory, manufacturing and delivery processes. That is a big step. But how do you approach this? We will give you the tools to streamline this process from start to finish.
It is important to determine exactly the costs and benefits of the methodology's implementation for your organisation. What results can your company achieve with DDMRP? First, it is important to write a business case in this regard.
When you have prepared the right business case for your company, you are advised to involve and train all the stakeholders. What does DDMRP entail? How should it be implemented? The involvement and training of the stakeholders generates support and ensures your approach is fully adapted to the organisation.
Once the stakeholders have been trained, you can define the strategic stocks for critical items. Which parts will you be purchasing and which ones will you keep in stock? To make these decisions, you need to consider the lead times of each item and whether this item is critical to the manufacturing process. You can then define a clear model with agreements and parameters to monitor the buffers.
You test the model in a simulation. Based on the results, you adjust the model where necessary. Finally, you bring the solution to life. This is also when you start fine-tuning the buffers and evaluating the environment. You will then constantly improve the methodology based on your experiences.
Using the right solution is essential to support you in every step of the methodology. S/4HANA by SAP offers a solution that is certified by the DDMRP Institute to help you establish strategic buffers and test and optimise the model. By combining the latest technology and the proven successful methodology, you can strike the right balance between customer demand and your inventory. It will change your organisation's strategy for good.
If you are wondering whether DDMRP is right for your organisation, register for our webinar on 4 April. In less than, you will discover what DDMRP can do for your organisation.