Demand Driven Material Requirements Planning (DDMRP)

Demand Driven Material Requirements Planning (DDMRP) is a production and inventory management method that addresses three phases: position, protect, and pull. Throughout human history, manufacturers have had to ensure that raw materials were available when needed, but they also had to store them until they were used. As the supply chain became increasingly global, accurate planning of shipping became crucial. Manufacturers adopted systems that allowed them to receive materials or parts just in time. However, disruptions of the supply chain because of natural disaster, political upheaval, or other uncertainties can cause significant production delays and affect a company’s economic health. The demand for accuracy in materials planning has led to the development of systems such as DDMRP.

Background

Early civilizations relied on locally produced materials; for example, a farm produced wool that was spun locally to produce thread. This was woven nearby to produce fabric that local people used to make clothing. Gradually, trade expanded to include regional partners and production.

The global supply chain developed as humans traded for materials at ever-growing distances from where they lived and worked. Colonization was strongly driven by the desire of nations such as Great Britain to obtain raw materials for manufacturing. The Industrial Revolution of the eighteenth and nineteenth centuries demanded coal for fuel and materials such as iron, copper, rubber, and manganese. Early methods of moving goods were slow and hazardous. As recently as the nineteenth century, many supplies were still sourced regionally, but with the advent and expansion of railroads and more reliable oceangoing vessels, trade expanded.

Logistics advanced rapidly during World War II (1939–1945), as military organizations had to move people and equipment rapidly and efficiently. This led to the development of supply chain engineering. The first shipping containers were developed in the 1950s to maximize space and increase efficiency. They became standardized so they could be densely packed onto container ships, removed at their destination, and placed on truck beds or railcars. In modern times, shipping containers can travel from China to the West Coast of the United States in about two to four weeks.

In the quest for efficiency, computerized tracking and software were developed in the late twentieth century. New technology, such as barcodes and scanners, reduced errors created by manually entering tracking information. The term supply chain management debuted in 1983. Route planning, flexible spreadsheets, distribution networks, electronic tags, and more were incorporated into this process.

Overview

DDMRP is a version of material requirements planning (MRP) that incorporates other theories and methods, including the Lean Systems approach and the Theory of Constraints. It is described in the 2017 book Precisely Wrong: Why Conventional Planning Systems Fail by Carol Ptak and Chad Smith. The authors, who founded the Demand Driven Institute in 2011, detail what they believe to be major shortcomings of MRP, notably that the reason for planning is the need for flow in an organization. Manufacturing, they contend, is simply flow; cash from the market to the supplier; flow of materials from suppliers to manufacturing facilities and from there through distribution systems and finally to customers; and flow of information about goals, steps, problems, and solutions. Smith and Ptak liken manufacturing to a river, where the water responds to the force of gravity by flowing, the slope affects the speed of flow, and obstacles impede flow and can create stagnant pools. Demand affects manufacturing speed and issues such as machine breakdowns create pools of inventory.

DDMRP is demand-driven in the sense that it does not follow traditional MRP, which is based on an order or a forecast for demand. MRP, the first computer-based inventory management system, was developed in the latter twentieth century as computers became more readily available to medium and large manufacturers. Companies have used MRP to assess the production process and determine inventory needs to produce goods. This includes which components and materials are needed, when they must be available, and how much is required without having too much. The materials to be evaluated include supplies as well as labor. MRP operates on a production schedule that has little room for deviation. It has several other drawbacks, for example, companies tend to overstock inventory. A Lean Systems approach identifies and eliminates waste or other factors that do not add value to the manufacturing process. The Theory of Constraints identifies the most important constraint, or element that stands in the way of achieving a goal, and focuses on improving that element until it ceases to be a constraint.

DDMRP has five sequential components: strategic inventory positioning; buffer profiles and levels; dynamic adjustments; demand-driven planning; and visible and collaborative execution. These fall within three phases: the first component comprises the position phase, the second and third make up the protect phase, and the fourth and fifth make up the pull phase.

A company must decide on various issues regarding these components. Strategic inventory positioning involves identifying the decoupling points, or important items that will be kept in stock, and how much of this stock, or buffer, will be kept. Decoupled inventory includes raw materials, partially manufactured items (works in progress or WIP), and items needed for operations, such as equipment that are set aside so that if the company faces a low-stock period, production does not stop. The company must determine minimum and maximum quantities and the point when the buffer should be reordered. The DDMRP identifies three zones related to buffers. The red zone is below the minimum quantity; the yellow zone is from the minimum quantity (also called the top of red) to the reorder point; the area from the top of yellow, or reorder point, to the maximum quantity that will be stocked is the green zone. The yellow zone, which is a measure of the quantity used from placing an order to receipt, is usually determined first. This involves calculating the average daily usage based on past consumption and forecasting future consumption. These calculations are easily completed using software like Microsoft Dynamics 365 Supply Chain Management, which includes DDMRP.

Dynamic adjustments identify how buffer profiles and levels vary based on events, market changes, etc. Planning and execution are the operational elements. Planning involves generating supply orders while execution refers to the actions taken to address these orders.

Bibliography

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“DDMRP.” Demand Driven Institute, www.demanddriveninstitute.com/ddmrp. Accessed 26 Oct. 2024.

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Kenton, Will. “Material Requirements Planning (MRP): How It Works, Pros and Cons.” Investopedia, 28 July 2024, www.investopedia.com/terms/m/mrp.asp. Accessed 26 Oct. 2024.

Leedale, Bill. “How Demand-Driven Planning Is Reshaping Manufacturing.” Reliable Plant, www.reliableplant.com/Read/31428/demand-driven-planning. Accessed 26 Jan. 2023.

Miclo, Romain, et al. “Demand Driven MRP: Assessment of a New Approach to Materials Management.” International Journal of Production Research, vol. 57, no. 1, 2019, pp. 166-81, doi:10.1080/00207543.2018.1464230. Accessed 26 Jan. 2023.

Ptak, Carol, and Chad Smith. Precisely Wrong: Why Conventional Planning Systems Fail. Industrial Press Inc., 2017.

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Smith, Chad. “DDMRP—What’s in the Name?” LinkedIn, 15 Feb. 2018, www.linkedin.com/pulse/ddmrp-whats-name-chad-smith. Accessed 26 Oct. 2024.