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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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9/20/2012

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 co-
founder and Managing Partner of Constraints
Management Group, a services and technology
company specializing in demand driven manufacturing,
materials, and project management systems for mid-
range and large manufacturers.

What is the problem we are 
solving?

Today’s formal planning systems are
fundamentally broken!

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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

Too Little Warning Optimal Range Warning Too Much

0
Note: “Optimal” is from an on-hand perspective

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Persistent Unacceptable Inventory Performance 2. High Expedite and Waste Related Expenses 4 . 9/20/2012 The MRP “Bi‐Modal” Distribution # of parts or SKU Too Little Warning Optimal Range Warning Too Much 0 The Oscillation and Its Effects Oscillation # of parts or SKU Too Little Warning Optimal Range Warning Too Much 0 Three Effects: 1. Service Challenges 3.

9/20/2012 Old Rules. 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? 10 5 . Old Tools.

lies in the simple fact that once a computer becomes available. sometimes force-fitting concepts to reality so as to permit the use of a technique. shortcut and approximation methods. systems ” 35+ Years Later Industry Finds Itself in Another Time of Transition and Re-Examination 12 6 . 9/20/2012 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 ►planning and supply scenarios Pressure for leaner inventories ►than ever – the past is NOT an Inaccurate forecasts M predictor di i ffor ► More product variety d t t the h ffuture ► Long lead time parts/components 11 DDMRP Sneak Peek When Is It Time to Change? “Traditional inventory management approaches. The breakthrough. in pre-computer days. and speed up existing procedures. Because of this almost all of those approaches and techniques suffered from imperfection. It is now a matter of record that among manufacturing companies that pioneered inventory management computer applications in the 1960s. or discard previously used techniques and to institute new ones that heretofore it would have been impractical or impossible to implement. They acted as a crutch and incorporated summary. in this area. could obviously not go beyond the limits imposed by the information processing tools available at the time. It becomes feasible to sort out. the use of such methods and systems is no longer obligatory. refine. They simply represented the best that could be done under the circumstances. revise. but by those who undertook a fundamental overhaul of their systems. the most significant results were achieved not by those who chose to improve. often based on tenuous or quite unrealistic assumptions.

Demand Driven MRP (DDMRP) Material Requirements Distribution Planning Requirements Planning Theory of Lean Six Sigma Innovation (MRP) (DRP) Constraints 7 . 9/20/2012 Is Improvement even possible in  the new normal? 13 Demand Driven MRP? A multi-echelon materials and inventory planning and execution solution.

9/20/2012 The Five Components of DDMRP Demand Driven Material Requirements Planning Strategic Visible and Buffer Profiles Dynamic Demand Driven Inventory Collaborative and Levels Adjustments Planning Positioning Execution 1 2 3 4 5 Modeling/Re modeling the Environment Modeling/Re-modeling Plan Execute 15 Strategic Inventory Positioning Where? (Position) BEFORE How Much? When? (Quantity) (Timing) Strategic Demand Visible and Buffer Profiles Dynamic Inventory Driven Collaborative and Levels Adjustments Positioning Planning Execution 1 2 3 4 5 16 8 .

9/20/2012 Failure to properly position  inventory is a huge source of inventory is a huge source of  waste for most manufacturing  and supply chain companies. Customer Tolerance Time 2. Market Potential Lead Time 3. Supply and Distribution Net Structure Supply and Distribution Net Structure 6. Critical Resource Considerations Strategic Demand Visible and Buffer Profiles Dynamic Inventory Driven Collaborative and Levels Adjustments Positioning Planning Execution 1 2 3 4 5 18 9 . Inventory Flexibility and Matrix BOM 5 5. Position and Pull Strategic Demand Visible and Buffer Profiles Dynamic Inventory Driven Collaborative and Levels Adjustments Positioning Planning Execution 1 2 3 4 5 17 Answering “Where?” 6 Factors 1. Supply and Demand Variability 4.

9/20/2012 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 1H01 20H1 20Z1 201 203 205 203 204 304 301 303 301 305 307P 304P 305 304P 309P 401P 305 408P 305 403P 417P 408P 409 403P 501P 403P 501P 403P 501P 403P 501P 501P Strategic Demand Visible and Buffer Profiles Dynamic Inventory Driven Collaborative and Levels Adjustments Positioning Planning Execution 1 2 3 4 5 19 DDMRP Part Types All parts Non Non- Stocked Stocked Replenished Lead Time Replenished Min-max Non-buffered Over-ride Managed Typically ≈ 20% of Purchased Parts are strategic Typically ≈ 10% of Manufactured Parts are strategic Typically most Distributed Stock is strategic = strategically positioned and managed part = non-strategic part Strategic Demand Visible and Buffer Profiles Dynamic Inventory Driven Collaborative and Levels Adjustments Positioning Planning Execution 1 2 3 4 5 20 10 .

9/20/2012 Buffer Profiles and Levels Stock Out ALERT! Rebuild OK Too Much Group Trait Inputs + Individual Part/SKU Inputs Lead Time Category Average Daily Usage Make. Buy or Distributed Appropriate Discrete Lead Time Variability Category Variability Category Ordering Policy (min. max. multiple Ordering Policy ( min ma m ltiple) Significant Order Multiples Location (distributed parts) Strategic Demand Visible and Buffer Profiles Dynamic Inventory Driven Collaborative and Levels Adjustments Positioning Planning Execution 1 2 3 4 5 21 Setting Buffers Levels and Zones MOQ if > calculated green Lead Time Green zone using lead time factor Usage over 1 LT Yellow Red Zone Variability Safety Red Zone Base Strategic Demand Visible and Buffer Profiles Dynamic Inventory Driven Collaborative and Levels Adjustments Positioning Planning Execution 1 2 3 4 5 11 .

9/20/2012 Buffer Profiles and Levels Part: 707 Buffer Profile: Lead Time: 13 days M21 53 131 166 Green Zone 35 ▼ ▼ ▼ Yellow Zone 78 707 R Y G Red Zone Safety 18 Red Zone Base 35 0% 20% 40% 60% 80% 10 0 % Strategic Demand Visible and Buffer Profiles Dynamic Inventory Driven Collaborative and Levels Adjustments Positioning Planning Execution 1 2 3 4 5 Dynamic Adjustments Dynamic Buffer Adjustment 1000 100 Available Stock Posittion ge 900 90 Average Daily Usag 800 80 700 70 600 60 500 50 400 40 300 30 200 20 100 10 Recalculated Adjustments Strategic Demand Visible and Buffer Profiles Dynamic Inventory Driven Collaborative and Levels Adjustments Positioning Planning Execution 1 2 3 4 5 24 12 .

000 Order Spike Horizon 13 .000 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. 9/20/2012 Dynamic Adjustments Seasonality Ramp Up Ramp Down 1000 100 1000 100 1000 100 900 90 Average Daily Usage Average Daily Usage 900 90 Average Daily Usage 900 90 800 80 800 80 Zone Levels 800 80 Zone Levels Zone Levels 700 70 700 70 700 70 600 60 600 60 600 60 500 50 500 50 500 50 400 40 400 40 400 40 300 30 300 30 300 30 200 20 200 20 200 20 100 10 100 10 100 10 ▲ ▲ Effectivity Date Effectivity Date Planned Adjustments Strategic Demand Visible and Buffer Profiles Dynamic Inventory Driven Collaborative and Levels Adjustments Positioning Planning Execution 1 2 3 4 5 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 Open  On‐hand Demand Available  Recommended  Action Supply Stock Supply Qty r457 5453 4012 1200 8265 0 No Action 10.

1% ICB M11 14 0 242 162 80 242 100% 11/11/2010 162 Plant Medium 35.5% SAB M10 14 0 221 189 32 221 100% 11/11/2010 189 Plant High 33.3% PPI B12 10 0 132 242 -110 132 100% 11/5/2010 242 Sony Plant Critical -75.3% SAD M10 12 0 189 162 27 189 100% 11/9/2010 162 Plant High 14.6% 425-1001 B20 15 60 40 0 100 281 100% 11/12/2010 181 Region 4 Medium 45.9% 425-1001 B11 10 80 20 0 100 218 83% 11/5/2010 118 Region 3 Medium 46.0% FPA B10 10 0 0 0 0 40 100% 11/5/2010 40 Region 2 Critical 0.0% PPA B10 25 0 300 162 138 300 100% 11/26/2010 162 Siemens Plant Easily demonstrable RELATIVE PRIORITY is a crucial aspect of DDMRP 28 14 .2% PPG B10 10 50 70 221 -101 120 100% 11/5/2010 221 Philips Plant Critical -83. 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 Supply Demand Available Today's Priority % Part Profile ASRLT On Hand Orders Allocations Stock TOG AF Due Date Reorder Qty Vendor Location Critical -101.4% PPE B11 10 30 96 221 -95 126 100% 11/5/2010 221 Philips Plant Critical 0.0% FPA B10 10 0 0 0 0 40 100% 11/5/2010 40 Region 1 Critical 0.7% PPJ B10 10 0 120 242 -122 120 100% 11/5/2010 242 Sony Plant Critical -84.0% FPA B10 10 0 0 0 0 40 100% 11/5/2010 40 Region 3 High 14.

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!! 101 201 203 204 301 302 303P 304P 401P 402 403P 404P 501P 29 Average On‐Hand Position and Order Frequency Part: 707 Buffer Profile: Lead Time: 13 days M21 53 131 166 Green Zone 35 ▼ ▼ ▼ Yellow Zone 78 707 R Y G Red Zone Safety 18 Red Zone Base 35 0% 20% 40% 60% 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 15 .

9/20/2012 DDMRP Planning  Example/Exercise Part/SKU Info TOG = 157 ► Replenishment Lead Time = 7 days 35 units Lead time = 7 days (Medium – 50%) ADU = 10 TOY = 122 ► Medium Variability (50%) Order Spike Horizon = 7 days 70 units Order Spike Threshold = 26 (50% Red) Order Spike TOR = 52 ► Horizon ▼ Supply Orders Order Spike Threshold (50% of red) 52 units 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 16 .

9/20/2012 Sales Order Demand Supply Orders TOG = 157 ► DAY 1 TOY = 122 ► Order Spike Horizon TOR = 52 ► ▼ Order Spike Threshold 37 35 6 5 10 18 17 9 10 -7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7 Beginning On‐Hand 65 Available Stock 127 Open Supply 72 Order Recommendation 0 S l Od D Sales Order Demand d 10 Ending On‐Hand 55 33 Sales Order Demand Supply Orders TOG = 157 ► DAY 2 TOY = 122 ► Order Spike Horizon TOR = 52 ► ▼ Order Spike Threshold SPIKE 37 35 6 5 18 17 9 10 30 -7 -6 -5 -4 -3 -2 -1 2 3 4 5 6 7 8 Beginning On‐Hand 55 Available Stock 109 Open Supply 72 Order Recommendation 48 S l Od D Sales Order Demand d 18 Ending On‐Hand 37 34 17 .

9/20/2012 Sales Order Demand Supply Orders TOG = 157 ► DAY 3 TOY = 122 ► Order Spike Horizon TOR = 52 ► ▼ 78 Order Spike Threshold SPIKE 37 6 5 5 17 9 10 30 -7 -6 -5 -4 -3 -2 -1 3 4 5 6 7 8 9 Beginning On‐Hand Available Stock Open Supply Order Recommendation S l Od D Sales Order Demand d Ending On‐Hand 35 Sales Order Demand Supply Orders TOG = 157 ► DAY 4 TOY = 122 ► Order Spike Horizon TOR = 52 ► ▼ 78 Order Spike Threshold SPIKE 37 6 5 5 6 9 10 30 -7 -6 -5 -4 -3 -2 -1 4 5 6 7 8 9 10 Beginning On‐Hand Available Stock Open Supply Order Recommendation S l Od D Sales Order Demand d Ending On‐Hand 36 18 .

9/20/2012 Sales Order Demand Supply Orders TOG = 157 ► DAY 5 TOY = 122 ► Order Spike Horizon TOR = 52 ► ▼ 78 Order Spike Threshold SPIKE 37 5 5 6 9 10 30 9 -7 -6 -5 -4 -3 -2 -1 5 6 7 8 9 10 11 Beginning On‐Hand Available Stock Open Supply Order Recommendation S l Od D Sales Order Demand d Ending On‐Hand 37 Sales Order Demand Supply Orders DAY 6 Order Spike Horizon ▼ 78 Order Spike Threshold SPIKE 37 5 6 9 10 30 9 10 -7 -6 -5 -4 -3 -2 -1 6 7 8 9 10 11 12 Available Stock Today: 120 Today’s Order Recommendation: 37 44 On-Hand 115 Open Supply Sales Order Demand 39 Available Stock On-Hand TOG = 157 ► ▪ ▪ ▪ ▪ TOY = 122 ► ▪ ▪ ▪ ▪ ▪ TOR = 52 ► ▪ ▪ ▪ 38 19 .

9/20/2012 Sales Order Demand Supply Orders DAY 7 Order Spike Horizon ▼ 78 Order Spike Threshold SPIKE 37 5 6 10 30 9 10 20 -7 -6 -5 -4 -3 -2 -1 7 8 9 10 11 12 13 Available Stock Today: 147 Today’s Order Recommendation: NONE 72 On-Hand 115 Open Supply Sales Order Demand 40 Available Stock On-Hand TOG = 157 ► ▪ ▪ ▪ ▪ ▪ TOY = 122 ► ▪ ▪ ▪ ▪ ▪ ▪ TOR = 52 ► ▪ ▪ ▪ 39 Sales Order Demand Supply Orders DAY 8 Order Spike Horizon ▼ 78 Order Spike Threshold SPIKE 37 5 6 6 30 9 10 20 -7 -6 -5 -4 -3 -2 -1 8 9 10 11 12 13 14 Available Stock Today: 147 Today’s Order Recommendation: NONE 62 On-Hand 115 Open Supply Sales Order Demand 30 Available Stock On-Hand TOG = 157 ► ▪ ▪ ▪ ▪ ▪ ▪ TOY = 122 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOR = 52 ► ▪ ▪ ▪ 40 20 .

9/20/2012 Sales Order Demand Supply Orders DAY 9 Order Spike Horizon ▼ 78 Order Spike Threshold 37 5 6 6 9 10 20 11 -7 -6 -5 -4 -3 -2 -1 9 10 11 12 13 14 15 Available Stock Today: 142 Today’s Order Recommendation: NONE 32 On-Hand 115 Open Supply Sales Order Demand 5 Available Stock On-Hand TOG = 157 ► ▪ ▪ ▪ ▪ ▪ ▪ TOY = 122 ► ▪ ▪ ▪ ▪ ▪ ▪ TOR = 52 ► ▪ ▪ ▪ ▪ 41 Sales Order Demand Supply Orders DAY 10 Order Spike Horizon ▼ Order Spike Threshold 37 6 6 9 10 20 11 10 -7 -6 -5 -4 -3 -2 -1 10 11 12 13 14 15 16 Available Stock Today: 136 Today’s Order Recommendation: NONE 105 On-Hand 37 Open Supply Sales Order Demand 6 Available Stock On-Hand TOG = 157 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOY = 122 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOR = 52 ► ▪ ▪ ▪ ▪ 42 21 .

9/20/2012 Sales Order Demand Supply Orders DAY 11 Order Spike Horizon ▼ Order Spike Threshold 37 6 9 10 20 11 10 20 -7 -6 -5 -4 -3 -2 -1 11 12 13 14 15 16 17 Available Stock Today: 127 Today’s Order Recommendation: NONE 99 On-Hand 37 Open Supply Sales Order Demand 9 Available Stock On-Hand TOG = 157 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOY = 122 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOR = 52 ► ▪ ▪ ▪ ▪ 43 Sales Order Demand Supply Orders DAY 12 Order Spike Horizon ▼ Order Spike Threshold 37 6 10 20 11 10 20 -7 -6 -5 -4 -3 -2 -1 12 13 14 15 16 17 18 Available Stock Today: 117 Today’s Order Recommendation: 40 90 On-Hand 37 Open Supply Sales Order Demand 10 Available Stock On-Hand TOG = 157 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOY = 122 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOR = 52 ► ▪ ▪ ▪ ▪ 44 22 .

9/20/2012 Sales Order Demand Supply Orders DAY 13 Order Spike Horizon ▼ Order Spike Threshold 40 37 6 20 11 10 20 -7 -6 -5 -4 -3 -2 -1 13 14 15 16 17 18 19 Available Stock Today: 137 Today’s Order Recommendation: NONE 80 On-Hand 77 Open Supply Sales Order Demand 20 Available Stock On-Hand TOG = 157 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOY = 122 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOR = 52 ► ▪ ▪ ▪ ▪ 45 Sales Order Demand Supply Orders DAY 14 Order Spike Horizon ▼ Order Spike Threshold 40 6 11 10 20 -7 -6 -5 -4 -3 -2 -1 14 15 16 17 18 19 20 Available Stock Today: 121 Today’s Order Recommendation: 36 97 On-Hand 40 Open Supply Sales Order Demand 6 Available Stock On-Hand TOG = 157 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOY = 122 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOR = 52 ► ▪ ▪ ▪ ▪ 46 23 .

9/20/2012 Sales Order Demand Supply Orders DAY 15 Order Spike Horizon ▼ Order Spike Threshold 36 40 11 10 20 -7 -6 -5 -4 -3 -2 -1 15 16 17 18 19 20 21 Available Stock Today: 156 Today’s Order Recommendation: 36 91 On-Hand 76 Open Supply Sales Order Demand 11 Available Stock On-Hand TOG = 157 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOY = 122 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOR = 52 ► ▪ ▪ ▪ ▪ 47 Sales Order Demand Supply Orders DAY 16 Order Spike Horizon ▼ Order Spike Threshold 36 40 10 20 -7 -6 -5 -4 -3 -2 -1 16 17 18 19 20 21 22 Available Stock Today: 146 Today’s Order Recommendation: 36 80 On-Hand 76 Open Supply Sales Order Demand 10 Available Stock On-Hand TOG = 157 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOY = 122 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOR = 52 ► ▪ ▪ ▪ ▪ 48 24 .

9/20/2012 Sales Order Demand Supply Orders DAY 17 Order Spike Horizon ▼ Order Spike Threshold 36 40 20 -7 -6 -5 -4 -3 -2 -1 17 18 19 20 21 22 23 Available Stock Today: 128 Today’s Order Recommendation: NONE 70 On-Hand 76 Open Supply Sales Order Demand 18 Available Stock On-Hand TOG = 157 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOY = 122 ► ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ TOR = 52 ► ▪ ▪ ▪ 49 DAY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Demand 10 18 17 6 5 9 10 30 5 6 9 10 20 6 11 10 18 127 79 140 134 129 120 147 147 142 136 127 117 137 121 156 146 128 Av Stock 65 55 72 55 49 44 72 62 32 105 99 90 80 97 91 80 70 On Hand 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 5 6 7 8 9 10 11 12 13 14 15 16 17 Demand Available Stock On Hand Open Supply 50 25 .

9/20/2012 The Power of DDMRP  # of parts or SKU Too Little Red Yellow Green Too Much 0 What Execution Looks Like Purchased Items Manufactured Items Distributed Items Order # Due Date Buffer Status Item # Location Buffer Status Order # Due Date Item # Buffer Status PO 820-89 05/12/09 Critical 13% FPA Region 1 Critical 11% WO 819-87 05/24/09 FPA Critical 13% PO 891-84 05/12/09 Med 39% FPA Region 2 Med 41% WO 832-41 05/22/09 SAD Critical 17% PO 276-54 05/12/09 Med 41% FPA Region 3 Med 36% WO 211-72 211 72 05/22/09 ICB Med 34% Supplier 1 Purchased Region 1 Parts List Bill of Materials PPA PPE PPJ PPG FPA SAC ICB Supplier 2 PPB PPI ICA PPD PPH SAF FPA Region 2 SAA PPD PPA SAD PPG PPI PPF SAB ICC FPA PPC PPE PPC ICD SAE Supplier 3 PPJ PPB Region 3 PPF PPH Lead Time Managed Parts notification ▼follow up ▼ FPA 8 months 52 26 .

9/20/2012 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 53 Improvement Strategies Where the (Part Green Zone is set to MOQ) improvement came from Lead Time reduction Variability reduction Max Max Avg Min Min MOQ Reduction MOQ MOQ Note: MOQ = 300 54 27 .

 actual  decouple areas in order to compress lead times and  demand and supply orders dampen variability Safety Stock = Replenishment Buffer = 55 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 Green Supply Directly related to planned orders The entire Independent of buffer flexes Yellow planned orders On-Hand ►avg on hand◄ (no forecast) Only this can be Safety dynamic (typically Red Independent of planned orders Stock not) ▲ ▲ When on-hand goes below red an When on-hand goes below safety EXISTING supply order is EXPEDITED stock a supply order is LAUNCHED and EXPEDITED 28 . 9/20/2012 How is this Different Than Safety Stock? Safety Stock Replenishment A supplementary inventory position designed to make up  A supplementary inventory position designed to make up Are strategic and primary inventory position designed to  Are strategic and primary inventory position designed to for misalignments between planned orders.

9/20/2012 Replenishment Buffers are Firewalls  on both sides The win for suppliers The win for consumers Aggregated and Steadier Supply Reliable Availability Requirements Compressed Lead Time Green Cumulative Supply Variability Cumulative Demand 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 Supplier Supply Manufacturer Safety Stock Lead Time Aggregated Supply Order Signal Based On Actual Replenishment Consumption and Order Spikes Actual Orders/ Consumption Supply Supply Supplier Consumer Lead Time Lead Time 58 29 .

9/20/2012 LEAD TIME IMPACTS DDMRP Dampened Variability Compressed Lead Times Supplier Raw Intermediate Finished Stock Mfg Stock Mfg Stock DC Partially Dampened Variability Safety Stock Open Supply Open Supply Open Supply On-Hand On-Hand On-Hand Safety Stock Safety Stock Safety Stock Uncompressed Lead Times 59 The Five Components of DDMRP Demand Driven Material Requirements Planning Strategic Visible and Buffer Profiles Dynamic Demand Driven Inventory Collaborative and Levels Adjustments Planning Positioning Execution 1 2 3 4 5 Modeling/Re modeling the Environment Modeling/Re-modeling Plan Execute 60 30 .

9/20/2012 The DDMRP Pyramid ROCE▲ DDMRP Bottom Line Benefits High Lower Without Tradeoffs Service Inventory Fewer Expedites New Operational Equation Lead Buffer Order Elements and Emphasis Time Status Minimums Fundamental Planning Sales Decoupling Changes Orders O d P i t Points Fundamental Principal 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 62 31 .

000.  inventory.000 $800.com csmith@demanddriveninstitute.com 32 .000 $200 000 $- 5-Over ToG 4-Low 3-Medium Replenishment lead time has been reduced 82% to 9 days from 50 days.000 $1.  Lead‐times de‐coupled and inventory optimized $ $1.000 $1. becoming Responsive 63 cptak@demanddriveninstitute.000 $400.000 After $600.200. 9/20/2012 Immediate Results for Materials ‐ FMCG 300 Materials are buffered without increase in RPW  Dampened the bull whip. now operating more effectively.000 Before $1.400.000 $200.600.