9/20/2012
Material Requirements Planning in a Demand‐Driven World Carol A. Ptak, CFPIM, CIRM, Jonah Chad Smith, Jonah
Carol Ptak, CFPIM, CIRM, Jonah Carol Ptak is the co co-author author of the third edition of Orlicky’s Material Requirements Planning and a partner at the Demand Driven Institute. Previously, Carol was at Pacific Lutheran University as Visiting Professor and Distinguished Executive in Residence after years of executive management experience at PeopleSoft and IBM Corporation. Ptak served as the vice president and global industry executive for manufacturing and distribution industries at PeopleSoft PeopleSoft. Carol is a past APICS President and CEO.
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Chad Smith, Jonah Chad Smith is the co-author of the third edition of Orlicky’s Material Requirements Planning and a partner at the Demand Driven Institute. Chad is also the cofounder and Managing Partner of Constraints Management Group, a services and technology company specializing in demand driven manufacturing, materials, and project management systems for midrange and large manufacturers.
What is the problem we are solving?
Today’s formal planning systems are fundamentally broken!
4
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9/20/2012
How do you know if your How do you know if your demand and supply system is broken?
Two Universal Point of Inventory
A
B Warning
Too Little
Optimal Range
Warning
Too Much
0 Note: “Optimal” is from an on-hand perspective
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9/20/2012
# of parts or SKU
The MRP “Bi‐Modal” Distribution
Warning
Too Little
Optimal Range
Warning
Too Much
0
# of parts or SKU
The Oscillation and Its Effects Oscillation
Warning
Too Little
Optimal Range
Warning
Too Much
0
Three Effects: 1. Persistent Unacceptable Inventory Performance 2. Service Challenges 3. High Expedite and Waste Related Expenses
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9/20/2012
Old Rules, Old Tools, New Pressures • Forecast error is on the rise • Volatility in supply and demand is increasing • Legacy planning tactics and tools are breaking down • Compromises and workarounds are everywhere!
9
The Planning Legacy Material Requirements Planning (MRP) ► Inside most modern ERP systems is MRP Inside most modern ERP systems is MRP ► 79% of ERP Buyers implement MRP ► Conceived in the 1950s ► Codified in the 1960s ► Commercialized in the 1970s and… ► …it hasn’t changed it h ’t h d ► What has changed? ►
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The “New Normal” Global sourcing and demand ► Shortened product life cycles Shortened product life cycles ► Shortened customer tolerance time Worldwide there is more complex ► More product complexity and/or customization and supply scenarios ►planning Pressure for leaner inventories ►than Inaccurate forecasts ever – the past is NOT an ► More product variety M predictor d t i ffor t di the h ffuture ► Long lead time parts/components ►
11 DDMRP Sneak Peek
When Is It Time to Change? “Traditional inventory management approaches, in pre-computer days, could obviously not go beyond the limits imposed by the information processing tools available at the time. Because of this almost all of those approaches and techniques suffered from imperfection. They simply represented the best that could be done under the circumstances. They acted as a crutch and incorporated summary, shortcut and approximation methods, often based on tenuous or quite unrealistic assumptions, sometimes force-fitting concepts to reality so as to permit the use of a technique. The breakthrough, in this area, lies in the simple fact that once a computer becomes available, the use of such methods and systems is no longer obligatory. It becomes feasible to sort out, revise, or discard previously used techniques and to institute new ones that heretofore it would have been impractical or impossible to implement. It is now a matter of record that among manufacturing companies that pioneered inventory management computer applications in the 1960s, the most significant results were achieved not by those who chose to improve, refine, and speed up existing procedures, but by those who undertook a fundamental overhaul of their systems. systems ”
35+ Years Later Industry Finds Itself in Another Time of Transition and Re-Examination 12
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Is Improvement even possible in the new normal?
13
Demand Driven MRP? A multi-echelon materials and inventory planning and execution solution.
Demand Driven MRP (DDMRP)
Material Requirements Planning
Distribution Requirements Planning
(MRP)
(DRP)
Lean
Theory of Constraints
Six Sigma
Innovation
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The Five Components of DDMRP Demand Driven Material Requirements Planning Strategic Inventory Positioning
Buffer Profiles and Levels
Dynamic Adjustments
Demand Driven Planning
Visible and Collaborative Execution
2
3
4
5
Modeling/Re modeling the Environment Modeling/Re-modeling
Plan
Execute
1
15
Strategic Inventory Positioning
Where? (Position)
BEFORE How Much?
When?
(Quantity)
(Timing)
Strategic Inventory Positioning
1
Buffer Profiles and Levels
Dynamic Adjustments
Demand Driven Planning
Visible and Collaborative Execution
2
3
4
5
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Failure to properly position inventory is a huge source of inventory is a huge source of waste for most manufacturing and supply chain companies.
Position and Pull Strategic Inventory Positioning
1
Buffer Profiles and Levels
Dynamic Adjustments
Demand Driven Planning
Visible and Collaborative Execution
2
3
4
5
17
Answering “Where?”
6 Factors 1. 2. 3. 4. 5 5. 6.
Customer Tolerance Time Market Potential Lead Time Supply and Demand Variability Inventory Flexibility and Matrix BOM Supply and Distribution Net Structure Supply and Distribution Net Structure Critical Resource Considerations Strategic Inventory Positioning
1
Buffer Profiles and Levels
Dynamic Adjustments
Demand Driven Planning
Visible and Collaborative Execution
2
3
4
5
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ASR LT + Matrix BOM ASR Lead Time = The longest unprotected sequence in the BOM Matrix Bill of Material depicts relationships between ALL component and parent items 101 201 301
203 305
1H01 205
307P 304P
408P 409 403P 501P
20H1
20Z1
203
204
304
305
304P 309P
401P 305
403P 501P
301
303
408P 305 403P 417P
403P 501P
403P 501P
501P
Strategic Inventory Positioning
Buffer Profiles and Levels
Dynamic Adjustments
Demand Driven Planning
Visible and Collaborative Execution
2
3
4
5
1
19
DDMRP Part Types All parts
Non NonStocked
Stocked
Replenished
Replenished Over-ride
Min-max
Lead Time Managed
Non-buffered
Typically ≈ 20% of Purchased Parts are strategic Typically ≈ 10% of Manufactured Parts are strategic Typically most Distributed Stock is strategic = non-strategic part
= strategically positioned and managed part Strategic Inventory Positioning
1
Buffer Profiles and Levels
Dynamic Adjustments
Demand Driven Planning
Visible and Collaborative Execution
2
3
4
5
20
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9/20/2012
Buffer Profiles and Levels Stock Out
ALERT!
Rebuild
+
Group Trait Inputs Lead Time Category Make, Buy or Distributed Variability Category Variability Category Significant Order Multiples Strategic Inventory Positioning
1
OK
Too Much
Individual Part/SKU Inputs Average Daily Usage Appropriate Discrete Lead Time Ordering Policy (min, max, multiple Ordering Policy ( min ma m ltiple) Location (distributed parts)
Buffer Profiles and Levels
Dynamic Adjustments
Demand Driven Planning
Visible and Collaborative Execution
2
3
4
5
21
Setting Buffers Levels and Zones MOQ if > calculated green zone using lead time factor
Green
Usage over 1 LT
Yellow
Variability
Red Zone Safety
Lead Time
Red Zone Base
Strategic Inventory Positioning
1
Buffer Profiles and Levels
Dynamic Adjustments
Demand Driven Planning
Visible and Collaborative Execution
2
3
4
5
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Buffer Profiles and Levels Part: 707 Lead Time: 13 days
Buffer Profile: M21
Green Zone
35
Yellow Zone
78
Red Zone Safety
18
Red Zone Base
35
53 ▼ R
707
0%
Strategic Inventory Positioning
1
131 ▼
20%
Y 40%
166 ▼ G
60%
Buffer Profiles and Levels
Dynamic Adjustments
Demand Driven Planning
Visible and Collaborative Execution
2
3
4
5
80%
10 0 %
Dynamic Adjustments 100
900
90
800
80
700
70
600
60
500
50
400
40
300
30
200
20
100
10
Average Daily Usag ge
Available Stock Posittion
Dynamic Buffer Adjustment 1000
Recalculated Adjustments Strategic Inventory Positioning
1
Buffer Profiles and Levels
Dynamic Adjustments
Demand Driven Planning
Visible and Collaborative Execution
2
3
4
5
24
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Dynamic Adjustments
600
60
500
50
400
40
300
30
200
20
100
1000
100
900
90
800
80
10
700
70
600
60
500
50
400
40
300
30
200
20
100
10
1000
100
900
90
800
80
700
70
600
60
500
50
400
40
300
30
200
20
Average Daily Usage
70
Ramp Down
Zone Levels
80
700
Zone Levels
90
800
Average Daily Usage
900
Zone Levels
100
Average Daily Usage
Ramp Up
Seasonality 1000
10
100
▲
▲
Effectivity Date
Effectivity Date
Planned Adjustments Strategic Inventory Positioning
Buffer Profiles and Levels
Dynamic Adjustments
Demand Driven Planning
Visible and Collaborative Execution
2
3
4
5
1
25
Demand Driven Planning Supply generation is based what zone the available stock equation places the part Available stock = on on-hand hand + on-order on order – SALES ORDER demand (past due, due today and qualified spikes) Part
10,000
Open Supply
On‐hand
Demand
Available Stock
Recommended Supply Qty
Action No Action
r457
5453
4012
1200
8265
0
f576
3358
4054
540
6872
3128
Place New Order
h654
530
3721
213
4038
2162
Place New Order
r672
2743
1732
623
3852
0
Expedite Open Supply (Execution)
5,000
Order Spike Horizon
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9/20/2012
Example Order Spike Qualification Part # XYZ Order Spike Horizon = 14 days ASRLT = 14 days
Today’s Date: 06/21 Order Spike Threshold = 100
Demand
Quantity
Due Date
SO# 1234
50
06/23
SO# 1235
70
06/25
SO# 1236
20
06/27
SO# 1237
35
06/28
SO# 1238
50
06/29
SO# 1239
35
06/30
SO# 1240
20
07/01
SO# 1241 SO# 1241
35
07/03
SO# 1242 – SPIKE!
120
07/05
SO# 1243 (outside horizon)
50
07/08
SO# 1244 (outside horizon)
160
07/11
27
Example Planning Screen Priority Critical Critical Critical Critical Critical Critical Critical High High High Medium Medium Medium
% -101.7% -84.2% -83.3% -75.4% 0.0% 0.0% 0.0% 14.3% 14.5% 33.1% 35.6% 45.9% 46.0%
Part PPJ PPG PPI PPE FPA FPA FPA SAD SAB ICB 425-1001 425-1001 PPA
Profile B10 B10 B12 B11 B10 B10 B10 M10 M10 M11 B20 B11 B10
ASRLT 10 10 10 10 10 10 10 12 14 14 15 10 25
Supply Demand Available Today's On Hand Orders Allocations Stock TOG AF Due Date Reorder Qty Vendor 0 120 242 -122 120 100% 11/5/2010 242 Sony 50 70 221 -101 120 100% 11/5/2010 221 Philips 0 132 242 -110 132 100% 11/5/2010 242 Sony 30 96 221 -95 126 100% 11/5/2010 221 Philips 0 0 0 0 40 100% 11/5/2010 40 0 0 0 0 40 100% 11/5/2010 40 0 0 0 0 40 100% 11/5/2010 40 0 189 162 27 189 100% 11/9/2010 162 0 221 189 32 221 100% 11/11/2010 189 0 242 162 80 242 100% 11/11/2010 162 60 40 0 100 281 100% 11/12/2010 181 80 20 0 100 218 83% 11/5/2010 118 0 300 162 138 300 100% 11/26/2010 162 Siemens
Location Plant Plant Plant Plant Region 2 Region 1 Region 3 Plant Plant Plant Region 4 Region 3 Plant
Easily demonstrable RELATIVE PRIORITY is a crucial aspect of DDMRP
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9/20/2012
De‐Coupled Explosion • •
The explosion starts when a part’s available stock position enters the rebuild zone The explosion stops at each stock position – No Matter What!! 101 201 301
203 302
204
303P 304P
401P 402 403P 404P 501P
29
Average On‐Hand Position and Order Frequency
Part: 707 Lead Time: 13 days
Buffer Profile: M21
Green Zone
35
Yellow Zone
78
Red Zone Safety
18
Red Zone Base
35
53 ▼
131 ▼
R
707
0%
20%
Y 40%
60%
166 ▼ G
80%
10 0 %
Yellow Zone = Usage over one full lead time (78) Average On-Hand On Hand Position = Red Zone + Half of Green Zone (53 + 18 = 71) Average time between orders = Green Zone/ADU (≈6 days)
30
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DDMRP Planning Example/Exercise
Part/SKU Info Replenishment Lead Time = 7 days
TOG = 157 ►
Lead time = 7 days (Medium – 50%) ADU = 10 Medium Variability (50%) Order Spike Horizon = 7 days Order Spike Threshold = 26 (50% Red)
35 units TOY = 122 ►
70 units
Order Spike Horizon ▼
TOR = 52 ► Supply Orders
52 units
Order Spike Threshold (50% of red) Sales Order Demand
-4
-3
-2
-1
1
2
3
4
5
6
7
As time progresses Sales Orders and Supply Orders advance toward the buffer
32
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9/20/2012
DAY 1
Supply Orders
Sales Order Demand
TOG = 157 ► TOY = 122 ►
Order Spike Horizon ▼
TOR = 52 ► Order Spike Threshold
37
-7
-6
35
-5
-4
-3
Beginning On‐Hand Open Supply S l Od D Sales Order Demand d Ending On‐Hand
-2
-1
65 72
10
18
17
1
2
3
6
5
4
5
9
6
10
7
127
Available Stock Order Recommendation
0
10 55
33
DAY 2
Supply Orders
Sales Order Demand
TOG = 157 ► TOY = 122 ►
Order Spike Horizon ▼
TOR = 52 ►
-7
-6
-5
35
-4
-3
Beginning On‐Hand Open Supply S l Od D Sales Order Demand d Ending On‐Hand
-2
-1
55 72
18
17
2
3
6
5
4
5
SPIKE
Order Spike Threshold
37
9
6
Available Stock Order Recommendation
10
30
7
8
109 48
18 37
34
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9/20/2012
DAY 3
Supply Orders
Sales Order Demand
TOG = 157 ► TOY = 122 ►
Order Spike Horizon ▼
TOR = 52 ►
78
-7
-6
-5
-4
17
-3
-2
-1
Beginning On‐Hand Open Supply S l Od D Sales Order Demand d Ending On‐Hand
3
6
5
4
5
SPIKE
Order Spike Threshold
37
9
10
30
6
7
8
5
9
Available Stock Order Recommendation
35
DAY 4
Supply Orders
Sales Order Demand
TOG = 157 ► TOY = 122 ►
Order Spike Horizon ▼
TOR = 52 ►
78
-7
-6
-5
-4
-3
Beginning On‐Hand Open Supply S l Od D Sales Order Demand d Ending On‐Hand
-2
-1
6
5
4
5
SPIKE
Order Spike Threshold
37
9
10
30
6
7
8
5
6
9
10
Available Stock Order Recommendation
36
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9/20/2012
DAY 5
Supply Orders
Sales Order Demand
TOG = 157 ► TOY = 122 ►
Order Spike Horizon ▼
78
Order Spike Threshold
37
-7
-6
-5
-4
-3
-2
5
5
-1
Beginning On‐Hand Open Supply S l Od D Sales Order Demand d Ending On‐Hand
9
6
10
7
SPIKE
TOR = 52 ►
30
8
5
6
9
10
9
11
Available Stock Order Recommendation
37
Supply Orders
Sales Order Demand
DAY 6 Order Spike Horizon ▼
78
-7
-6
-5
-4
Available Stock Today: On-Hand Open Supply Sales Order Demand
-3
-2
-1
120
SPIKE
Order Spike Threshold
37
9
6
10
7
30
8
5
6
9
10
9
10
11
12
Today’s Order Recommendation: 37
44 115
Available Stock
39
On-Hand TOG = 157 ► TOY = 122 ►
TOR = 52 ►
▪
▪
▪
▪
▪ ▪ ▪
▪
▪
▪
▪ ▪ 38
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9/20/2012
Supply Orders
Sales Order Demand
DAY 7 Order Spike Horizon ▼
78
SPIKE
Order Spike Threshold
37
-7
10
-6
-5
-4
Available Stock Today: On-Hand Open Supply Sales Order Demand
-3
-2
7
-1
147
30
8
5
6
9
10
9
10
20
11
12
13
Today’s Order Recommendation: NONE
72 115
Available Stock
40
On-Hand TOG = 157 ► TOY = 122 ►
TOR = 52 ►
▪
▪ ▪
▪
▪
▪ ▪ ▪ ▪
▪
▪
▪
▪ ▪ 39
Supply Orders
Sales Order Demand
DAY 8 Order Spike Horizon ▼
78
SPIKE
Order Spike Threshold
37
-7
-6
30
-5
-4
Available Stock Today: On-Hand Open Supply Sales Order Demand
-3
-2
8
-1
147
5
6
9
10
6
9
10
20
11
12
13
14
Today’s Order Recommendation: NONE
62 115
Available Stock
30
On-Hand TOG = 157 ► TOY = 122 ►
TOR = 52 ►
▪
▪
▪
▪ ▪ ▪
▪ ▪ ▪
▪
▪ ▪
▪
▪
▪
▪
40
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9/20/2012
Supply Orders
Sales Order Demand
DAY 9 Order Spike Horizon ▼
78
Order Spike Threshold
37
-7
-6
-5
-4
Available Stock Today: On-Hand Open Supply Sales Order Demand
-3
-2
5
6
9
10
-1
142
9
10
20
11
12
13
6
14
11
15
Today’s Order Recommendation: NONE
32 115
Available Stock
5
On-Hand TOG = 157 ►
▪
▪
▪ ▪ ▪
▪
TOY = 122 ►
TOR = 52 ►
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪ 41
Supply Orders
Sales Order Demand
DAY 10 Order Spike Horizon ▼ Order Spike Threshold
37
-7
-6
-5
-4
Available Stock Today: On-Hand Open Supply Sales Order Demand
6
-3
-2
10
-1
136
9
10
20
11
12
13
6
14
11
10
15
16
Today’s Order Recommendation: NONE
105 37
Available Stock
6
On-Hand TOG = 157 ► TOY = 122 ►
TOR = 52 ►
▪ ▪ ▪ ▪
▪ ▪
▪
▪
▪ ▪
▪
▪
▪
▪
▪
▪ ▪
▪ 42
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9/20/2012
Supply Orders
Sales Order Demand
DAY 11 Order Spike Horizon ▼ Order Spike Threshold
37
-7
-6
-5
-4
Available Stock Today: On-Hand Open Supply Sales Order Demand
-3
-2
-1
127
9
10
20
11
12
13
6
14
11
10
20
15
16
17
Today’s Order Recommendation: NONE
99 37
Available Stock
9
On-Hand TOG = 157 ►
▪ ▪
▪
▪ ▪ ▪ ▪
▪
TOY = 122 ►
TOR = 52 ►
▪
▪
▪
▪
▪
▪
▪
▪
▪ ▪ ▪
▪ 43
Supply Orders
Sales Order Demand
DAY 12 Order Spike Horizon ▼ Order Spike Threshold
37
-7
-6
-5
-4
-3
-1
117
Available Stock Today: On-Hand Open Supply Sales Order Demand
-2
10
20
12
13
6
14
11
10
20
15
16
17
18
Today’s Order Recommendation: 40
90 37
Available Stock
10
On-Hand TOG = 157 ► TOY = 122 ►
TOR = 52 ►
▪
▪
▪ ▪ ▪
▪
▪
▪
▪ ▪
▪
▪
▪
▪
▪
▪
▪ ▪ ▪
▪ ▪
▪ 44
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9/20/2012
Supply Orders
Sales Order Demand
DAY 13 Order Spike Horizon ▼ Order Spike Threshold
40
-7
37
-6
-5
-4
Available Stock Today: On-Hand Open Supply Sales Order Demand
-3
-2
137
6
20
13
-1
14
11
10
20
15
16
17
18
19
Today’s Order Recommendation: NONE
80 77
Available Stock
20
On-Hand TOG = 157 ►
▪
▪
▪ ▪ ▪
▪
TOY = 122 ►
TOR = 52 ►
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪ ▪
▪
▪ ▪
▪ 45
Supply Orders
Sales Order Demand
DAY 14 Order Spike Horizon ▼ Order Spike Threshold
40
-7
-6
6
-5
-4
Available Stock Today: On-Hand Open Supply Sales Order Demand
-3
-2
14
-1
121
11
10
20
15
16
17
18
19
20
Today’s Order Recommendation: 36
97 40
Available Stock
6
On-Hand TOG = 157 ► TOY = 122 ►
TOR = 52 ►
▪ ▪ ▪ ▪
▪ ▪
▪
▪
▪
▪ ▪
▪
▪
▪
▪
▪
▪ ▪
▪
▪ ▪
▪ ▪
▪ ▪
▪ 46
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9/20/2012
Supply Orders
Sales Order Demand
DAY 15 Order Spike Horizon ▼ Order Spike Threshold
36
-7
40
-6
-5
-4
Available Stock Today: On-Hand Open Supply Sales Order Demand
-3
-2
-1
156
11
10
20
15
16
17
18
19
20
21
Today’s Order Recommendation: 36
91 76
Available Stock
11
On-Hand TOG = 157 ►
▪
▪
▪ ▪ ▪
▪
TOY = 122 ►
TOR = 52 ►
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪ ▪
▪ ▪
▪ ▪
▪ ▪ ▪
▪
▪ 47
Supply Orders
Sales Order Demand
DAY 16 Order Spike Horizon ▼ Order Spike Threshold
36
-7
-6
40
-5
-4
Available Stock Today: On-Hand Open Supply Sales Order Demand
-3
-2
-1
146
10
20
16
17
18
19
20
21
22
Today’s Order Recommendation: 36
80 76
Available Stock
10
On-Hand TOG = 157 ► TOY = 122 ►
TOR = 52 ►
▪ ▪ ▪ ▪
▪ ▪
▪
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▪ 48
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9/20/2012
Supply Orders
Sales Order Demand
DAY 17 Order Spike Horizon ▼ Order Spike Threshold
36
-7
-6
40
-5
-4
-2
17
-1
128
Available Stock Today: On-Hand Open Supply Sales Order Demand
20
-3
18
19
20
21
22
23
Today’s Order Recommendation: NONE
70 76
Available Stock
18
On-Hand TOG = 157 ►
▪
▪
▪ ▪ ▪
▪
TOY = 122 ►
TOR = 52 ►
▪
▪
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49
DAY Demand Av Stock On Hand
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
10
18
17
6
5
9
10
30
5
6
9
10
20
6
11
10
17 18
127
79
140
134
129
120
147
147
142
136
127
117
137
121
156
146
128
65
55
72
55
49
44
72
62
32
105
99
90
80
97
91
80
70
72
72
115
115
115
115
115
115
115
37
37
37
77
40
76
76
76
Supply Average Daily Usage over 17 day period = 11.8
Average On Hand Inventory = 71.6
180 160 140 120 100 80 60 40 20 0 1
2
3
4
Demand
5
6
7
8
9
Available Stock
10
11
12
On Hand
13
14
15
16
17
Open Supply 50
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9/20/2012
# of parts or SKU
The Power of DDMRP
Red
Too Little
Green
Yellow
Too Much
0
What Execution Looks Like Purchased Items Due Date
Buffer Status
PO 820-89
05/12/09
Critical 13%
PO 891-84
05/12/09
Med 39%
PO 276-54
05/12/09
Med 41%
Supplier 1
Order # WO 819-87 WO 832-41 WO 211-72 211 72
Due Date 05/24/09 05/22/09 05/22/09
Purchased Parts List
Item #
Buffer Status
FPA
Critical 13%
SAD
Critical 17%
ICB
Med 34%
Supplier 3
PPJ
PPB
PPA
Location
Buffer Status
FPA
Region 1
Critical 11%
FPA
Region 2
Med 41%
FPA
Region 3
Med 36%
PPA
PPG
PPD
Item #
Region 1
Bill of Materials
PPE
Supplier 2
Distributed Items
Manufactured Items
Order #
PPI
ICA
SAC
PPH
SAF SAA
PPG
FPA
ICB FPA
Region 2
PPD SAD
PPI
PPF
PPC
PPE
SAB
ICC PPC
ICD
PPJ PPB
PPF
SAE
FPA
Region 3
PPH
Lead Time Managed Parts
notification ▼follow up
8 months
▼
FPA
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Continuous Improvement Primary DDMRP CI Objective:
R d Reduce the buffers without service erosion th b ff ith t i i Three ways to get there:
Lead Time Reduction MOQ Reduction MOQ Reduction Reduction of Variability
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Improvement Strategies (Part Green Zone is set to MOQ)
Lead Time reduction
Where the improvement came from
Variability reduction Max Max Avg
Min
Min
MOQ Reduction MOQ
MOQ
Note: MOQ = 300
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How is this Different Than Safety Stock? Safety Stock A supplementary inventory position designed to make up A supplementary inventory position designed to make up for misalignments between planned orders, actual demand and supply orders
Replenishment Are strategic and primary inventory position designed to Are strategic and primary inventory position designed to decouple areas in order to compress lead times and dampen variability
Replenishment Buffer =
Safety Stock =
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Re: PLANNING EQUATION Supply order signals based directly on the composition of the buffer and typical the size of the green zone
This picture represents a snapshot of a safety stock position. It looks to have a similar composition as the Replenishment buffer, but…
Resupply signal
Open Supply
Green The entire buffer flexes
Yellow
►avg on hand◄
Red
▲
Directly related to planned orders
Independent of planned orders (no forecast)
On-Hand
Independent of planned orders
When on-hand goes below red an EXISTING supply order is EXPEDITED
Safety Stock
Only this can be dynamic (typically not)
▲
When on-hand goes below safety stock a supply order is LAUNCHED and EXPEDITED
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9/20/2012
Replenishment Buffers are Firewalls on both sides The win for consumers
The win for suppliers Aggregated and Steadier Supply Requirements
Reliable Availability Compressed Lead Time
Green Cumulative Demand Variability
Cumulative Supply Variability
Yellow Red Supplier of Stock
Consumer of stock
Safety Stock is designed to protect only one side of the equation and may even exacerbate variability. 57
Safety Stock
Forecasted Order
Demand Signals Safety Stock Order
Supply
Supplier
Safety Stock
Manufacturer
Lead Time
Replenishment
Aggregated Supply Order Signal Based On Actual Consumption and Order Spikes
Actual Orders/ Consumption
Supplier
Supply
Supply
Lead Time
Consumer
Lead Time 58
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9/20/2012
LEAD TIME IMPACTS
DDMRP
Dampened Variability
Compressed Lead Times Raw Stock
Supplier
Mfg
Intermediate Stock
Finished Stock
Mfg
Partially Dampened Variability
DC
Safety Stock
Open Supply
Open Supply
On-Hand
On-Hand
Open Supply On-Hand
Safety Stock
Safety Stock
Safety Stock
Uncompressed Lead Times 59
The Five Components of DDMRP Demand Driven Material Requirements Planning Strategic Inventory Positioning
Buffer Profiles and Levels
Dynamic Adjustments
Demand Driven Planning
Visible and Collaborative Execution
2
3
4
5
Modeling/Re modeling the Environment Modeling/Re-modeling
Plan
Execute
1
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9/20/2012
The DDMRP Pyramid ROCE▲ DDMRP Bottom Line Benefits Without Tradeoffs
High Service
Lower Inventory
Fewer Expedites
New Operational Equation Elements and Emphasis Fundamental Planning Changes Fundamental Principal
Lead Time
Buffer Order Status Minimums
Sales Orders O d
Decoupling P i t Points
FLOW 61
DDMRP Key Solution Component Summary Demand Driven MRP (DDMRP Critical Components) 5 Zone Buffers
Provides easy status and relative priority visibility for planning and execution at all levels
Dynamically Adjusted Buffers
“Flexes” buffer positions based on changes to consumption
Planned Adjustments to Buffers
Accounts for seasonality, product introduction/deletion/transition
Globally Managed Buffer Profiles
Parts/SKU are grouped by like attributes for ease of management
Decoupled BOM Explosion
Creates a unique blend of dependence and independence for planning
ASR Lead Time Calculation
Lead time determination based on the BOM’s longest unprotected sequence
Order Spike Protection
Highlights and accounts for problematic sales orders based on a threshold and horizon
Material Synchronization Alert
Identifies specific misalignments between child supply and parent demand
y Multi-Location Buffer Status Visibility
Relative status visibility across a distribution net for like parts/SKU
Lead Time Managed Parts
Managing critical non-stocked items through timed alert zone
Matrix BOM + ASR Lead Time Analytics
A revolutionary lead time and working capital compression approach across all BOMs
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9/20/2012
Immediate Results for Materials ‐ FMCG 300 Materials are buffered without increase in RPW inventory. Lead‐times de‐coupled
Dampened the bull whip, now operating more effectively, and inventory optimized
$ $1,600,000
Before
$1,400,000 $1,200,000 $1,000,000 $800,000
After
$600,000 $400,000 $200,000 $200 000 $-
5-Over ToG
4-Low
3-Medium
Replenishment lead time has been reduced 82% to 9 days from 50 days, becoming Responsive 63
[email protected]
[email protected]
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