DDMRP Implementation Support Pack 20160531 PDF

DDMRP
Demand Driven
Material Requirements Planning
Implementation Support Pack

The Demand Driven Institute logo is a trademark of the Demand Driven Institute. All rights reserved.
All material and content © copyright 2016 Demand Driven Institute. All rights reserved. 1
Support Pack Objectives
Enable a company team to support a DDMRP implementation

by:
• Providing a common understanding of the critical success
factors in today’s more complex supply chains
• Providing a common understanding why conventional
planning systems are failing in today’s more complex supply
chains
• Provide a common understanding of the five components of
Demand Driven MRP (MRP)
• Provide a common understanding of how to drive
improvements through a DDMRP system
Demand Driven Institute DDMRP Implementation Support Pack 2

All material and content © copyright 2016 Demand Driven Institute. All rights reserved.
Support Pack Objectives
• The support pack is intended to prepare a team

to support a DDMRP implementation
• It is NOT intended to create a team of experts in
DDMRP
• It is recommended that specific team members
responsible for the day to day operations of the
DDMRP system take the Certified Demand
Driven Planner (CDDP) program

MODULE 1: THE STATE OF
CONVENTIONAL PLANNING
SYSTEMS

What is the Problem we are Solving?
Today’s planning systems are

fundamentally broken!
5
5
Old Rules and Old Tools,
► Inside most modern ERP systems is MRP

► 79% of ERP Buyers implement MRP
► Conceived in the 1950’s
► Codified in the 1960’s
► Commercialized in the 1970’s and…
► …it hasn’t changed

New Pressures
► Global sourcing and demand
► Shortened product life cycles
► Shortened customer tolerance time
► More product complexity and/or customization
► Pressure for leaner inventories
► Inaccurate forecasts
► More product variety
► Long lead time parts/components
Worldwide there are more complex planning and

supply scenarios than ever – the past is NOT a
predictor for the future
Circumstance 1965 2013
Supply Chain Complexity Low. Supply chains looked like chains – they were more linear. High. Supply chains look more like “supply webs” and are
Vertically integrated and domestic supply chains dominated the fragmented and extended across the globe.
landscape
Product Life Cycles Long. Often measured in years and or decades (e.g. rotary Short. Often measured in months (particularly in technology)
phones)
Customer Tolerance Times Long. Often measured in weeks and months Short. Often measured in days with many situations dictating
less than 24 hour turns
Product Complexity Low. High. Most products now have relatively complex mechanical
and electrical systems and micro-systems. Can you even work
on a modern car anymore?
Product Customization Low. Few options or custom feature available. High. Lots of configuration and customization to a particular
customer or customer type.
Product Variety Low. Example – toothpaste. In 1965 Colgate and Crest each High – in 2012 Colgate made 17 types of toothpaste and Crest
made one type of toothpaste. made 42!
Long Lead Time Parts Few. Here the word “long” is in relation to the time the market is Many. Today’s extended and fragmented supply chains have
willing to wait. By default if customer tolerance times were resulted in not only more purchased items but more
longer it stands to reason that there were less long lead time purchased items coming from more remote locations.
parts. More so, however, is that fact that supply chains looked
different. Most parts were domestically sourced and thus often
much “closer” in time.
Forecast Accuracy High. With less variety, longer life cycles and high customer Low. The combined complexity of the above items is making
tolerance times forecast accuracy was almost a non-issue. “If you the idea of improving forecast accuracy a losing battle.
build it, they will buy it.”
Pressure for Leaner Inventories Low. With less variety and longer cycles the penalties of building High. At the same time operations is asked to support a much
inventory positions was minimized. more complex demand and supply scenario (as defined above)
they are required to do so with less working capital!
Transactional Friction High. Finding suppliers and customers took exhaustive and Low. Information is readily available at the click of the mouse.
expensive efforts. Choices were limited. People’s first experience Choices are almost overwhelming. People’s first experience
with a manufacturer was often through a sales person sitting in with a manufacturer is often through a screen sitting in front
front of them. of them.
From Demand Driven Performance – Using Smart Metrics (Debra Smith and Chad Smith, McGraw-Hill, 2013)

Two Universal Points of Inventory
A B
Too Little Warning Optimal Range Warning Too Much
0
Note: “Optimal” is from an on-hand perspective

The Conventional “Bi-Modal” Distribution
# of parts or SKU
0

The Oscillation
# of parts or SKU
0

Three Effects from the Bimodal Oscillation
• Unacceptable Inventory Performance

– Too much of the wrong
• Unacceptable Service Level Performance
– Too little of the right, Low fill rate, Loss of market
share
• High Expedite Related Wastes
– Expedited and additional freight, Overtime

MODULE 2: WHAT MUST WE
PROTECT TO BE SUCCESSFUL?

Plossl’s First Law of Supply Chain
Management
All benefits will be directly related to the speed of FLOW of
materials and information. George W. Plossl
Information and Cash
Materials and Information

All Benefits Means:
• Service is consistent and reliable when a system flows well.

• Revenue is maximized and protected.
• Inventories are minimized.
• Expenses ancillary and/or unnecessary are minimized.
• Cash flow follows the rate of product flow to market demand.
Protect and Promote Flow = ROI Maximization

Typical Functional Objectives & Metrics
Function Primary Objective Example Metric

Planning Synchronize supply and demand Shortages and Excess Inventory
Finance Drive shareholder equity Return on Average Capital
Sales Capture demand Order book
Marketing Create brand awareness and demand Market share
Operations Asset utilization Overall Equipment Effectiveness (OEE)
Quality Meet specification Warranty claims
All of these objectives are improved with better flow!

Flow is the intersection of
prevailing improvement methods
Lean
Primary Objective:
Reduce Waste
FLOW
Six-Sigma Theory of Constraints
Primary Objective:
Primary Objective:
Improve
Reduce Variability
Throughput

The Giants of Industry
Understood Flow
Henry Ford
Father of Mass Production
Primary Objective:
System Velocity at
Scale
Frederick Taylor FLOW F. Donaldson Brown

Father of Operations Management: Father of Management Accounting
Primary Objective: Primary Objective:

Time Standards Drive Return on
and Variances Working Capital

An Important Caveat
All benefits will be directly related to the speed of

FLOW of materials and information. George W. Plossl
Information
$
Materials
Caveat:
Both Materials and Information must be RELEVANT

What Determines Relevance?
To be relevant both the information and materials

must synchronize the assets of a business to what the
market really wants; no more, no less.
Having the right information is a prerequisite to having

the right materials.

The REVISED First Law of Supply Chain
Management
All benefits will be directly related to the

speed of FLOW of RELEVANT materials and
information.

The Primary Objective of Operations
Management Systems
Protect and Promote the flow of relevant

information and materials.
Is this reality in business today?

Today’s Reality – The Bullwhip Effect
The more parts – the worse the effect!
Bull-Whip Effect: “An extreme change in the supply position upstream in a supply
chain generated by a small change in demand downstream in the supply chain.
Inventory can quickly move from being backordered to being excess. This is caused by
the serial nature of communicating orders up the chain with the inherent
transportation delays of moving product down the chain.” (APICS Dictionary, 12th
Edition)
Distortions to relevant information
Sub-
Foundry Component
Assembler OEM
Distortions to relevant materials

A Bullwhip Example

An Example

MODULE 3: DEMAND DRIVEN MRP

PART 1: DEMAND DRIVEN MRP
INTRODUCTION

A New Type of Formal Planning
• If manufacturing is at the heart of supply chains

and…
• If MRP is at the heart of manufacturing and…
• If Manufacturing must become demand driven
then…
• MRP must become demand driven

What does being Demand Driven mean?
• Does not mean

– Make to order everything
– Simple pull
– Inventory everywhere
• Does mean
– Sensing changing customer demand, then adapting
planning and production while pulling from suppliers – all
in real time!

What is Demand Driven MRP?
A method to model, plan and manage supply chains to protect and promote the
flow of relevant information and materials. DDMRP is the supply order generation
and management engine of a Demand Driven Operating Model.
Demand Driven MRP (DDMRP)
Material Distribution
Requirements Requirements Theory of
Planning Planning Lean Six Sigma Innovation
Constraints
(MRP) (DRP)
Position, Protect and Pull

The Demand Driven Operating Model
Demand Driven Operating Model – A Demand Driven Operating Model is a

supply order generation, operational scheduling and execution model
utilizing actual demand in combination with strategic decoupling and control
points and stock, time and capacity buffers in order to create a predictable
and agile system that promotes and protects the flow of relevant information
and materials within the tactical relevant operational range (hourly, daily and
weekly). A Demand Driven Operating Model’s key parameters are set
through the Demand Driven Sales and Operations Planning process to meet
the stated business and market objectives while minimizing working capital
and expedite related expenses.

Demand Driven Sales
and Operations
Planning (DDS&OP)
MODEL AND PART

PARAMETERS
“Master Settings”
Demand Actual
Driven MRP Demand
Demand Driven
Capacity Scheduling
Demand Driven
Execution

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
Position Protect Pull
1 2 3 4 5

PART 2: STRATEGIC INVENTORY
POSITIONING

Today’s Reality – The Bullwhip Effect
The more parts – the worse the effect!
Bull-Whip Effect: “An extreme change in the supply position upstream in a supply
chain generated by a small change in demand downstream in the supply chain.
Inventory can quickly move from being backordered to being excess. This is caused by
the serial nature of communicating orders up the chain with the inherent
transportation delays of moving product down the chain.” (APICS Dictionary, 12th
Edition)
Distortions to relevant information
Sub-
Foundry Component
Assembler OEM
Distortions to relevant materials

DISTORTIONS TO RELEVANT
MATERIALS
Material is not ready at WHY?

needed time
DISTORTIONS TO RELEVANT
WHY? INFORMATION
Signals with known Latent signals Oversimplified Changing and Delays

error are used are used signals are used conflicting signals accumulate
WHY? WHY? WHY? WHY? WHY?
Weekly buckets BOMs are
are used flattened
WHY? WHY?
Supply continuity variability
WHY? Nervousness
transference occurs
Adjustments must occur as actual between nodes in
demand becomes known dependent networks
WHY? WHY?
MRP is loaded with
forecasts
WHY?
Cumulative Manufacturing and MRP Plans (timing and
Procurement Times are much longer quantity requirements) are
than customer tolerance times MRP treats everything built using all dependencies
as dependent
WHY? Demand Driven Institute DDMRP Implementation Support Pack 36
Mitigating The Bullwhip Effect
• The only way to stop the Bull Whip Effect is to stop

distortion from being passed between the parts of
the system IN BOTH DIRECTIONS
• This is accomplished by “decoupling” and then
“buffering” the “decoupling point”

Decoupling
Creating independence between supply and use of material. Commonly

denotes providing inventory between operations so that fluctuations in the
production rate of the supplying operation do not constrain production or use
rates of the next operation. (APICS, Page 43)
Transference and/or amplification of variability
X

Decoupling Point
The locations in the product structure or distribution network

where inventory is placed to create independence between
processes or entities. Selection of decoupling points is a strategic
decision that determines customer lead times and inventory
investment. (APICS, Page 43)

Decoupling Inventory
“An amount of inventory kept between entities in a manufacturing or
distribution network to create independence between processes or entities.
The objective of decoupling inventory is to disconnect the rate of use from the
rate of supply of the item.” (Page 43)
Distortions to Relevant
Information
Sub-
Foundry Component
Assembler OEM
Distortions to
Relevant Materials
Decoupled Lead Times

MRP (Everything Dependent) versus
Strategically Decoupled
MRP Everything Dependent Strategically Decoupled

Gaining Time for a Better Demand Signal
• Decoupling Points are established as close as possible to the Sales Order
visibility horizon
• Independent planning horizons occur between the decoupling points
Planning Horizons
Sales Order
Visibility Horizon
Procurement Time Cumulative Manufacturing Time
Suppliers
Suppliers
Suppliers

Decoupling Unlocks a Solution
• Immediate lead time compression –the market is

defined at the latest decoupling inventory position
• Much more relevant information – sales orders can
now be used for demand signal input
• Two Critical Questions:
– Where to place these decoupling points? The answer is
neither “everywhere” nor “nowhere.” The answer is
simply stated as “somewhere.”
– How to size the protection at the decoupling point

Decoupling Point Placement Considerations
The time the typical customer is willing to wait before seeking
Customer Tolerance Time
an alternative source.
This lead time will allow an increase of price or the capture of
Market Potential Lead Time additional business either through existing or new customer
channels.
The time frame in which we typically become aware of sales
Sales Order Visibility Horizon
orders or actual dependent demand.
Demand Variability: The potential for swings and spikes in
demand that could overwhelm resources (capacity, stock, cash,
External Variability etc.).
Supply Variability: The potential for and severity of disruptions
in sources of supply and/or specific suppliers.
The places in the integrated bill of material (BOM) structure
(matrix bill of material) or the distribution network that
Inventory Leverage and Flexibility
enables a company with the most available options as well as
the best lead time compression to meet the business needs.
These types of operations include areas that have limited
Critical Operation Protection capacity or where quality can be compromised by disruptions
or where variability tends to be accumulated and/or amplified.

Inventory Positioning Example
• Our sample company makes two end items (FPG and FPH)
• Intermediate Component 201 is sold as a service part
2 2
FPG FPH
5 5 10
101 101 102P
3 20 3 20
201 204P 201 204P
30 30
301P 301P

Types of Lead Times 2
FPG
5
• “manufacturing lead time (MLT): The total time required to 101
manufacture an item, exclusive of lower level purchasing lead
time. (Page 98) 3 20
201 204P
30
301P
2
FPH
5 10
101 102P
3 20
201 204P
30
301P

FPG
5
201 204P
• “cumulative lead time (CLT): The longest planned length of
time to accomplish the activity in question. It is found by 30
reviewing the lead time for each bill of material path below 301P
the item; whichever path adds up to the greatest number
defines cumulative lead time.” (Page 38)
2
FPH
What is the cumulative lead time for FPG and FPH? 5 10

101 102P
3 20
201 204P
30
301P

FPG
5
201 204P
• “cumulative lead time (CLT): The longest planned length of
time to accomplish the activity in question. It is found by 30
reviewing the lead time for each bill of material path below 301P
the item; whichever path adds up to the greatest number
defines cumulative lead time.” (Page 38)
2
• “purchasing lead time (PLT): The total lead time required to
FPH
obtain a purchased item. Included here are order preparation
and release time; supplier lead time; transportation time; and
receiving, inspection, and put away time.” (Page 142) 5 10
101 102P
3 20
201 204P
30
301P

Manufacturing Our Sample Products
2 2
FPG FPH
5 5 10
101 101 102P
3 20 3 20
201 204P 201 204P
30 30
301P 301P
3 days 2 days
30 days C
301P A B C 201
S T FPG C
Z 101
20 days S T FPH C
204P B C E F
3 days
5 days
102P
10 days
Decoupling Point Placement Considerations
• FPG = 3days
Customer Tolerance Time • FPH = 5 days
• 201 = 3 days
• 201 has a quick turn market available (1 day).
Market Potential Lead Time • FPG has a quick turn market available (1 day).
• FPH has no quick turn market.
Sales Order Visibility Horizon 3+ days for most orders.
• Finished Item Demand: Low, Large finished item orders
are typically known well in advance.
• Service Part Demand: High 201 service part demand is
External Variability
highly variable.
• Supply: 301P and 204P are generally reliable. 102P has
a lot of service disruptions over the last year.
• 201 is can be directed to both FPG, FPH and directly to
Inventory Leverage and
the market.
Flexibility
• 101 is common to both FPG and FPH.
Critical Operation Protection Resource Z is a highly skilled assembly operation.

Customer Tolerance Time Consideration
• FPG = 3 days; decoupling must occur at 101
• FPH = 5 days; decoupling must occur at 101 & 102P
• 201 = 3 days; decoupling must occur at 301P or 201
3 days 2 days
30 days C
301P A B C 201
S T FPG C
Z 101
20 days S T FPH C
204P B C E F
3 days
5 days
102P
10 days
Market Potential Lead Time Consideration
• 201 has a quick turn market available (1 day); 201 must be
decoupled to take advantage of this.
• FPG has a quick turn market available (1 day); FPG must be
decoupled to take advantage of this.
• FPH has no quick turn market.
3 days 2 days
30 days C
301P A B C 201
S T FPG C
Z 101
20 days S T FPH C
204P B C E F
3 days
5 days
102P
10 days
Sales Order Visibility Horizon Consideration
• 3+ days for most orders.
• 101 and 102P decoupling points mean that highly
accurate demand signals are available within
response system response time. Sales Order Visibility
Horizon (3+ days
3 days 2 days
30 days C
301P A B C 201
S T FPG C
Z 101
20 days S T FPH C
204P B C E F
3 days
5 days
102P
10 days
External Variability Consideration
• Finished Item Demand: Low, Large finished item orders are typically
known well in advance; Reduces need to have finished items buffered.
• Service Part Demand: High 201 service part demand is highly variable; this
suggests that a buffer would be required to best satisfy service part
market potential.
• Supply: 301P and 204P are generally reliable. 102P has a lot of service
disruptions over the last year; 102P must be buffered to protect flow.
3 days 2 days
30 days C
301P A B C 201
S T FPG C
Z 101
20 days S T FPH C
204P B C E F
3 days
5 days
102P
10 days
Internal Leverage and Flexibility
• 201 is can be directed to both FPG, FPH and directly to the
market; a buffer can be leveraged against all requirements.
• 101 is common to both FPG and FPH; a buffer can be
leveraged against both finished items. Buffering 101 will
reduce stock requirements at FPG buffer (direct reduction to
DLT).
3 days 2 days
30 days C
301P A B C 201
S T FPG C
Z 101
20 days S T FPH C
204P B C E F
3 days
5 days
102P
10 days
Critical Operation Protection Consideration
• Resource Z is a highly skilled assembly operation.
• Under the design so far resource Z is subject to variability
passed from the 204P supplier and the internal string
processes in front of it.
• This suggests a buffer at 204P.
3 days 2 days
30 days C
301P A B C 201
S T FPG C
Z 101
20 days S T FPH C
204P B C E F
3 days
5 days
102P
10 days
Key Elements and Benefits of the Design
• The FPG and 201 buffers allow for the quick turn business opportunities to be
satisfied.
• The FPG stock position is minimized due to the 101 buffer.
• 101 and 102P buffers allow for a make to order strategy on FPH.
• 201 and 204P buffers protect resource Z as best as possible at the product
structure level.
• The 301P buffer minimizes the inventory liability at 201.
• 201 and 101 buffers can direct shared components actual requirements.
3 days 2 days
30 days C
301P A B C 201
S T FPG C
Z 101
20 days S T FPH C
204P B C E F
3 days
5 days
102P
10 days
What if the BOMs Were Flattened?
10 10
FPG FPH
30 20 30 20 10
301P 204P 201P 204P 102P
301P
3 days 2 days
30 days C
301P A B C 201
S T FPG C
Z
20 days S T FPH C
204P B C E F
3 days
102P
10 days
7&8 days
Decoupling Points Protect Each Other
• What we are learning is that levels or tiers of buffers

work together to promote and protect flow
• There are bidirectional benefits at each decoupling
point.
Supply Variability Demand Variability
Critical Purchased Critical Sub Critical End
Component Component Item
Decoupled Lead Times

A New Form of Lead Time Emerges
• The use of decoupling points also reveals the need

for a new type of lead time
• This new type of lead time must be understood and
calculated in order to:
– Compress lead times to require ranges
– Determine realistic due dates when needed
– Set decoupling points buffer levels properly
– Find high value inventory leverage points for decoupling

A New Lead Time for Manufactured Items
• Decoupling Points have been inserted. How

does it affect lead time calculations? 1
• manufacturing lead time (MLT)—The total FPB
time required to manufacture an item, 3

101
exclusive of lower level lead times. This is
gross UNDER-estimation. 5 3
201 207
• Delay accumulations on the non-decoupled
4 12
legs guarantees that manufacturing lead times 301 302P 310
2
will not be met.

10 30 30
401P 410P 411P

A New Lead Time for Manufactured Items
• cumulative lead time (CLT)—The longest

planned length of time to accomplish the 1
activity in question. It is found by reviewing the FPB
lead time for each bill of material path below 3
the item; whichever path adds up to the 101
greatest number defines cumulative lead time. 5 3

This is a gross OVER-estimation. 201 207
• For FPB the decoupling points an 410P and 4 12 2

301 302P 310
411P mean that the purchasing lead times
should not be considered. 10 30 30
401P 410P 411P
• For 201 the decoupling points at 302P and 401P
mean that the purchasing lead times should not
be considered.

DDMRP Uses Decoupled Lead Time (DLT)
• Decoupled Lead Time (DLT) – a qualified cumulative

lead time defined as the longest unprotected/un-
1
buffered sequence in a bill of material. FPB
• DLT is calculated as the summation of the 3
manufacturing lead times on that longest 101
unprotected sequence.
5 3
• Anytime a manufactured item has a non-buffered 201 207
(coupled component) it’s DLT will be greater than its
4 12 2
MLT. 301 302P 310
• In this product structure there are two manufactured
10 30 30
parts with decoupled lead times larger than their 401P 410P 411P
manufactured lead times (FPB and 201).
• What are the DLTs for each?

Distribution Net Positioning
Warehouse 1 Warehouse 2 Warehouse 3 Warehouse 4
15 10 15 6
10 10 4
5
5 5 2
0 0 0 0
1 3 5 7 9 11 13 1 3 5 7 9 11 13 1 3 5 7 9 11 13 1 3 5 7 9 11 13
Sourcing Unit
40
30
20
10
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14

Simulating Variability at Different Levels
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10 Day 11 Day 12 Day 13 Day 14 ADU
Warehouse 1 12 8 10 8 9 8 9 7 7 5 3 10 5 2 7.4
Warehouse 2 3 6 2 1 2 1 2 3 4 3 6 5 1 1 2.9
Warehouse 3 4 7 5 5 7 10 8 8 5 4 3 9 7 8 6.4
Warehouse 4 4 3 2 1 3 2 1 5 3 4 5 5 2 3 3.1
Sourcing Unit 23 24 19 15 21 21 20 23 19 16 17 29 15 14 19.7
Simulating variability at different levels ADU SD CV

Warehouse 1 = 2 dice each day 7.4 2.69 0.365
Warehouse 2 = 1 die each day 2.9 1.73 0.604
Warehouse 3 = 2 dice each day 6.4 2.03 0.315
Warehouse 4 = 1 die each day 3.1 1.33 0.434
Sourcing = Sum of all warehouses per day 19.7 4.04 0.205
The coefficient of variability (relative standard deviation) shows the smoother

variability experienced by the sourcing unit.

Push and Promote Positioning
1 2345 1 2345 1 2345 1 2345

Region 1 Region 2 Region 3 Region 4
Longer Lead Time

Effects:
More Inventory Required
Shortages
Expedites & Cross-ships

Basic Hub and Spoke Configuration
1 2345 1 2345 1 2345 1 2345
Region 1 Region 2 Region 3 Region 4
Transportation Lead Time
Decoupling HUB
Effects: 1 2345
▼ Inventory Requirements
▼ Shortages
▼ Cross-ships Sourcing Unit Lead Time
▲ Schedule Stability

Basic Hub and Spoke Benefits
• Mathematically maximizes availability with the least amount of total inventory
requirement.
• Essentially eliminates cross-shipments. Why cross ship when you can simply ship
from the hub? Additionally, a strategy can be employed to ship between hub and
spoke that can ensure efficient use of freight resources. “Prioritized Share” will be
covered later.
• Dramatically compressed planning horizon at the most variable demand point (the
region) resulting in more relevant demand signals and a minimization of the
bullwhip effect.
• Allows consumption and corresponding resupply signals to the plant to be
naturally consolidated into batches that are still sensible both from a plant
capacity and cost perspective.
• The decoupling hub also allows the manufacturing facility to schedule close in
time to actual hub requirements rather than to arbitrary frozen schedule horizons
that further limit flexibility and creates frustration for sales

PART 3: BUFFER PROFILES AND
LEVELS

Inventory; Asset or Liability
• Two Pre-Requisites to determine whether inventory

is an asset or liability
• Placement – dealt with in strategic positioning
• Sizing – the amount of inventory contained at the
right position

Inventory; Asset or Liability
A B
LIABILITY ASSET ASSET ASSET LIABILITY
We need a way to calculate

this range – to size the buffer

Buffer Zones
The size of the buffer is the summation of three
calculated zones.
A B
Stock Out Red Yellow Green Too Much

Each Zone Has a Specific Purpose and
Calculation
The heart of the order generation aspect of the

Green buffer determining the frequency of order
generation and the minimum size of each order.
Yellow The heart of the demand coverage in the buffer
Red The safety embedded in the buffer position

Calculating a Replenishment Buffer
Individual Part Group Settings Zone and Buffer Levels

Properties
x (Buffer Profiles) = for Each Part
Lead Time Item Type

Minimum Order Lead Time Category
Quantity (MOQ) Variability Category
Location
(Distributed parts only)
Average Daily Usage
(ADU)

Part Lead Time
Individual Part • Measured in days in most planning systems

Properties • Manufactured Items = Decoupled Lead Time
(DLT)
Lead Time • Purchased Items = Purchasing Lead Time
Minimum Order
Quantity (MOQ)
• Distributed Items = Transportation Lead Time
Location
Average Daily Usage
(ADU)

Minimum Order Quantity
Individual Part • MOQs can affect the green zone size

Properties when they are significant in relation to an
average rate of demand
Lead Time • That means that they will impact average
Minimum Order order size and frequency in a DDMRP
Quantity (MOQ) environment
Location
• Some MOQs are based on real limitations
Average Daily Usage
and solid assumptions – many are not
(ADU) • DDMRP will allow companies to see what
the impact of MOQs will be on the
working capital and material flow in an
environment.
Location (Distributed Parts)
Individual Part • Location is required to distinguish

Properties between different distribution points
• Each location will have a unique buffer
Lead Time level for the same item
Minimum Order • These different locations will behave
Quantity (MOQ)
differently:
Location
(Distributed parts only) – Different rates of demand
Average Daily Usage – Different transportation lead times
(ADU) – Different amounts of variability

Average Daily Usage (ADU) Critical Factors
Individual Part ADU is the rate of demand use used to

Properties formulate the buffers. Critical factors in its
calculation include:
Lead Time • Length of period consideration
Minimum Order • Frequency of update
Quantity (MOQ)
Location
• Past, forward or blended calculation
(Distributed parts only) • ADU exceptions
Average Daily Usage
(ADU)

Calculating a Replenishment Buffer
Individual Part Group Settings Zone and Buffer Levels

Properties
x (Buffer Profiles) = for Each Part
Lead Time Item Type

Minimum Order Lead Time Category
Quantity (MOQ) Variability Category
Location
Average Daily Usage
(ADU)

Item Type Categories (M, I, P , D)
Group Settings Four item type categories:

(Buffer Profiles) • Manufactured Items (End)
Item Type
• Manufactured Items (Intermediate)
Lead Time Category • Purchased Items
Variability Category
• Distributed Items

Item Type Category Rationale
Group Settings Parts are separated by type due to:

(Buffer Profiles) • Responsibility. Companies often designate the
control of these different item types to different
people or groups.
Item Type • Intuition. Knowledge about part specific part
Lead Time Category behavior is frequently limited to the specific group
Variability Category that controls those parts.
• Organizational Control. There is often a varying
degree of direct organizational control over these
different item types.
• Categorical Differences. Relative lead-time horizons
can be very different among these item types.

Lead Time Category (L, M, S)
Group Settings Minimum of three lead time categories:

(Buffer Profiles) • Long (L)
• Medium (M)
Item Type • Short (S)
Lead Time Category
The values of long, medium and short are
relative to the operating environment and part
type within the environment.
The lead time category determines the LEAD

TIME FACTOR (LTF)
Lead Time Factor (LTF)
Group Settings The LTF will be applied to a part’s average

(Buffer Profiles) demand within its lead time in order to supply
values used in the green and red zone
Item Type determination
Lead Time Category
Lead Time Category Lead Time Factor Range

Long .2 to .4
Medium .41 to .6
Short .61 to 1

The Lead Time Factor Rule
Group Settings • The Lead Time Factor Rule = The longer the
(Buffer Profiles) lead time the smaller the factor
• For long lead time items we want to force
Item Type the smallest possible green zone.
Lead Time Category • The green zone determines order frequency
Variability Category and size – we want to force long lead time
items to be ordered as frequently as
possible.

The “Conveyor Belt”
Group Settings
(Buffer Profiles) Large Infrequent Orders
Item Type
Small Frequent Orders
Lead Time Category
Cash Impact?
Supply Continuity Risk?

Variability Category (H, M, L)
• Heuristically, companies can use the following segmentation:

Group Settings – High (H) Demand Variability = this part is subject to frequent
(Buffer Profiles) spikes
– Medium (M) Demand Variability = this part is subject to
occasional spikes
Item Type – Low (L) Demand Variability = this part has little to no spike
Lead Time Category activity – its demand is relatively stable.
– High (H) Supply Variability = this part or material has frequent
supply disruptions
– Medium (M) Supply Variability = this part or material has
occasional supply disruptions
– Low (L) Supply Variability = this part or material has reliable
supply (either a highly reliable single source or multiple alternate
sources that can react within the purchasing lead time)
• Mathematically it can be determined through calculating the
coefficient of variability (Cv)for each category

Variability Category (H, M, L)
Group Settings Remember that different types of parts

(Buffer Profiles) are typically impacted by different
degrees of variability.
Supply Variability Demand Variability
Item Type
Lead Time Category
Critical Critical Sub Critical End
Purchased Component Item
Component
Variability Category Variability Factor Range

High Variability .61 to 1+
Medium Variability .41 to .60
Low Variability 0 to .4

Buffer Profile Groupings
Manufactured (M), Purchased (P),

Item Type
Distributed (D), Intermediate (I))
Lead Time Category Long (L), Medium (M), Short (S)
Variability Category High (H), Medium (M), Low (L)
Examples:
MLL (parts that are manufactured, have a long lead time and low
variability classification)
PSM (parts that are purchased, have a short lead time and medium
variability)

Buffer Profile Matrix
Part Type
Purchased Manufactured Distributed Intermediate
Short PSL MSL DSL ISL Low
Lead Time Category
PSM MSM DSM ISM Medium
PSH MSH DSH ISH High
Medium PML MML DML IML Low
PMM MMM DMM IMM Medium
PMH MMH DMH IMH High
Long PLL MLL DLL ILL Low
PLM MLM DLM ILM Medium
PLH MLH DLH ILH High

CALCULATING BUFFER LEVELS/ZONES

Calculating Replenishment Buffers by Hand
2 Determines supply order generation frequency and size
1. Minimum Order Quantity (MOQ value)
Green 2. Desired or imposed Order Cycle (# of days x ADU)
3. Calculated (LTF x ADU x DLT)
1
Yellow
The heart of the demand coverage in the buffer
ADU x DLT
Red Zone
Safety The embedded safety in the buffer
1. Red Zone Base (LTF x ADU x DLT)
3 2. Red Zone Safety (Red Zone Base x Variability Factor)
Red Zone 3. Total Red Zone (Red Zone Base + Red Zone Safety)
Base

Example Part
Part #123
Average Daily Usage 20
Buffer Profile M, M (.5), L (.25)
MOQ 200
Imposed or Desired Order Cycle (DOC) 7 days
Decoupled Lead Time (DLT) 14 days

Step 1 – Calculate the Yellow Zone
• The heart of the demand

coverage in the buffer
Yellow
The Yellow Zone is always calculated as 100% ADU x DLT

A Yellow Zone Example (PART #123)
Part #123
Buffer Profile
MOQ
M, M (.5), L (.25)
200
280
Step 1: Calculate the Yellow Zone

(ADU (20 per day) x DLT (14 days)) = 280

Step 2 – Calculate the Green Zone
• The heart of the supply

generation aspect of the
buffer
Green • Determines the frequency of
order generation and the
minimum size of each order.
The green is determined by one of three ways:

1. A factor of order cycle (minimum or user defined)
2. A calculated percentage of ADU over one full lead time
3. A significant minimum order quantity (if applicable)
Which ever way yields the greatest number determines the Green Zone

Calculating using Order Cycle
• A desired or imposed order cycle

can be used to calculate the Green
Zone
Green • The order cycle is typically
expressed in days
• Order cycle x ADU = Green Zone

Calculating using Lead Time Factor
• Calculating the green zone as a

percentage of usage through full
lead time requires us to know what
Green lead time category this part falls in
(short, medium or long)
• The percentage used will be called
“The Lead Time Factor”
Lead Time Factor Range

Long Lead Time 20-40% ADU x DLT
Medium Lead Time 41-60% ADU x DLT
Short Lead Time 61-100% ADU x DLT

A Green Zone Example (PART #123)
Part #123
Average Daily Usage
Buffer Profile
20
M, M (.5), L (.25) 200
MOQ 200
Step 1: Calculate the Green Zone using the Lead Time Factor and/or Order Cycle
(ADU (20 per day) x DLT (14 days)) x .5) = 140
(ADU (20 per day) x Desired Order Cycle (7 days)) = 140
Step 2: Compare the calculated green zone against any minimum order
quantity and take the greater
200 > 140

Step 3 – Calculate the Red Zone
• The Red Zone is the safety

embedded in the buffer position
• The higher the variability
Red associated with the part/SKU the
larger the Red Zone
Calculating the red zone requires three sequential equations:

1. The Red “Base” must be established
2. The Red Safety must be calculated
3. The Total Red Zone is reached by adding the Base and the Safety together

Calculating the Red Zone using ADU
1
Red Base Lead Time Factor Range
Long Lead Time 20-40% ADU x DLT The Red Zone Base is determined
by the Lead Time Factor
Medium Lead Time 41-60% ADU x DLT
Short Lead Time 61-100% ADU x DLT
2
Red Safety Variability Factor Range
High Variability 61-100% of Red Base Red Safety is determined by the
Medium Variability 41-60% of Red Base
Variability Factor multiplied against
the calculated Red Base from above
Low Variability 0-40% of Red Base
3 Calculated Red Base + Red Safety = Total Red Zone
Note: The lead time factor percentage of Red Base DOES NOT have to be the same as for Green. In
all of our examples, however, that is the case.

A Red Zone Example (PART #123)
Part #123
Average Daily Usage
Buffer Profile
20
M, M (.5), L (.25) 175
MOQ 200
Step 1: Calculate the Red Base using the Lead Time Factor
(ADU (20 per day) x DLT (14 days)) x .5) = 140
Step 2: Calculate Red Safety by applying the Variability Factor to the calculated
Red Base
140 x .25 = 35
Step 3: Add Red Base to Red Safety for the total red zone
140 + 35 = 175

The Entire Calculated Buffer for PART #123
◄Top of Green (TOG) = Red + Yellow + Green = 655
200
◄Top of Yellow (TOY) = Red + Yellow = 455
280
◄Top of Red (TOR) = 175
175
Additional Calculations
• Green Zone / ADU = average order frequency. What is the average

order frequency for the example?
• Red Zone / ADU = days of safety in the buffer. How many days of
safety are in the buffer?
• Yellow Zone / Green Zone = average number of open supply orders.
How many supply orders on average should we expect to see in our
example?

Quick Reference and Summary
Order Cycle
or
Green Lead Time Factor
or
MOQ
100% Usage in Lead Time Yellow
Red Zone
Variability Factor Safety
Red Zone Lead Time Factor

Base
Lead Time Category Green Zone Impact Red Base Impact Red Safety Impact Variability Factor Range
Long Lead Time 20-40% ADU x DLT 20-40% ADU x DLT High Variability 61-100% of Red Base
Medium Lead Time 41-60% ADU x DLT 41-60% ADU x DLT Medium Variability 41-60% of Red Base
Short Lead Time 61-100% ADU x DLT 61-100% ADU x DLT Low Variability 0-40% of Red Base

An Example – Part 707
Buffer Profile M, M (.45), M (.5)
MOQ None
2 What is the Green Zone quantity? 35 (78 x.45)

1 What is the Yellow Zone quantity? 78 (13 days x 6 per day)
3 What is the total Red Zone quantity? 53 ((78 x .45) + ((78 x .45) x .5))
4 What is the top the buffer (top of green)? 166 (35 + 78 + 53)

An Example 403P

Buffer Profile P, M (.5), L (.3)
MOQ 300
2 What is the Green Zone quantity? 300 (300 > 178 (357 x .5)
1 What is the Yellow Zone quantity? 357 (21 days x 17 per day)
3 What is the total Red Zone quantity? 233 ((357 x .5) + ((357 x .5) x .3))
4 What is the top the buffer (top of green)? 890 (300 + 357 + 233)

Profile Assignments Make a Difference
Buffer Profile PLL 500
ADU 10
Lead Time 20 days 450
A
Variability Factor Low
MOQ None 400
Buffer Profile PLH

350
ADU 10
Lead Time 20 days
B 300
Variability Factor High
MOQ None
250
Buffer Profile PLL (MOQ)

ADU 10 200
Lead Time 20 days

C
Variability Low 150
MOQ 120
100
Buffer Profile PLH (MOQ)
ADU 10
50
Lead Time 20 days
D
Variability High
0
MOQ 120 Scenario A Scenario B Scenario C Scenario D

PART 4: DYNAMIC ADJUSTMENTS

Two Forms of Dynamic Adjustments
• Recalculated Adjustments
• Planned Adjustments Factors

RECALCULATED ADJUSTMENTS

What is a Recalculated Adjustment?
An automated recalculation of a buffer position

involving any critical buffer equation input:
• ADU
• Lead Time
• Profile Changes
• MOQ

ADU Recalculation
Date Red Yellow Green ADU RedBase RedSafety DLT LTF VF

1-Jan 70 100 50 10 50 20 10 0.5 0.4
15-Jan 84 150 75 15 60 24 10 0.5 0.4
1-Feb 128.8 230 115 23 92 36.8 10 0.5 0.4
15-Feb 212.8 380 190 38 152 60.8 10 0.5 0.4
1-Mar 252 450 225 45 180 72 10 0.5 0.4
15-Mar 291.2 520 260 52 208 83.2 10 0.5 0.4
1-Apr 308 550 275 55 220 88 10 0.5 0.4
15-Apr 324.8 580 290 58 232 92.8 10 0.5 0.4
1-May 302.4 540 270 54 216 86.4 10 0.5 0.4
15-May 313.6 560 280 56 224 89.6 10 0.5 0.4
1-Jun 324.8 580 290 58 232 92.8 10 0.5 0.4
15-Jun 296.8 530 265 53 212 84.8 10 0.5 0.4

Recalculated Adjustments
Part #1234 Buffer Zone and ADU Change Over 6 Months
1200 70
60
1000
50
800
40
600
30
400
20
200
10
0 0
14-may.
05-feb.
12-feb.
19-feb.
26-feb.
08-ene.
05-mar.
12-mar.
19-mar.
26-mar.
07-may.
21-may.
28-may.
04-jun.
11-jun.
01-ene.
15-ene.
22-ene.
29-ene.
02-abr.
09-abr.
16-abr.
23-abr.
30-abr.
Red Yellow Green ADU

ADU Recalculation with MOQ
Date Red Yellow Green ADU RedBase RedSafety DLT LTF VF

1-Jan 70 100 300 10 50 20 10 0.5 0.4
15-Jan 84 150 300 15 60 24 10 0.5 0.4
1-Feb 128.8 230 300 23 92 36.8 10 0.5 0.4
15-Feb 212.8 380 300 38 152 60.8 10 0.5 0.4
1-Mar 252 450 300 45 180 72 10 0.5 0.4
15-Mar 291.2 520 300 52 208 83.2 10 0.5 0.4
1-Apr 308 550 300 55 220 88 10 0.5 0.4
15-Apr 324.8 580 300 58 232 92.8 10 0.5 0.4
1-May 302.4 540 300 54 216 86.4 10 0.5 0.4
15-May 313.6 560 300 56 224 89.6 10 0.5 0.4
1-Jun 324.8 580 300 58 232 92.8 10 0.5 0.4
15-Jun 296.8 530 300 53 212 84.8 10 0.5 0.4

Recalculated Adjustments with MOQ
Part #1234 Buffer Zone and ADU Change Over 6 Months, MOQ = 300
1200 70
60
1000
50
800
40
600
30
400
20
200
10
0 0
07-may.
05-feb.
12-feb.
19-feb.
26-feb.
01-ene.
05-mar.
12-mar.
19-mar.
26-mar.
14-may.
21-may.
28-may.
04-jun.
11-jun.
08-ene.
15-ene.
22-ene.
29-ene.
02-abr.
09-abr.
16-abr.
23-abr.
30-abr.

Lead Time and Profile Adjustments
Red Yellow Green ADU RedBase RedSafety DLT LTF VF MOQ Green (LTF)
1-Jan 70 100 50 10 50 20 10 0.5 0.4 0 50
15-Jan 84 150 75 15 60 24 10 0.5 0.4 0 75
1-Feb 128.8 230 115 23 92 36.8 10 0.5 0.4 0 115
15-Feb 212.8 380 190 38 152 60.8 10 0.5 0.4 0 190
1-Mar 252 450 225 45 180 72 10 0.5 0.4 0 225
15-Mar 291.2 260 182 52 208 83.2 5 0.7 0.4 0 182
1-Apr 308 275 192.5 55 220 88 5 0.7 0.4 0 192.5
15-Apr 324.8 290 203 58 232 92.8 5 0.7 0.4 0 203
1-May 302.4 270 189 54 216 86.4 5 0.7 0.4 0 189
15-May 313.6 280 196 56 224 89.6 5 0.7 0.4 0 196
1-Jun 324.8 290 203 58 232 92.8 5 0.7 0.4 0 203
15-Jun 296.8 265 185.5 53 212 84.8 5 0.7 0.4 0 185.5

Lead Time and Profile Adjustments
Part #1234 Buffer Zone and ADU Change Over 6 Months, Lead Time Reduced
1400 100
90
1200
80
1000 70
60
800
50
600
40
30
400
20
200
10
0 0
1-Jan 15-Jan 1-Feb 15-Feb 1-Mar 15-Mar 1-Apr 15-Apr 1-May 15-May 1-Jun 15-Jun

PLANNED ADJUSTMENTS

What is a Planned Adjustment?
• Planned adjustments are based on certain strategic, historical,

and business intelligence factors.
• These planned adjustments are manipulations to the buffer
equation that affect inventory positions by raising or lowering
buffer levels and their corresponding zones at certain points
in time.
• There are three primary type of planned adjustments:
– Demand Adjustment Factor
– Zone Adjustment Factor
– Lead Time Adjustment Factor

Demand Adjustment Factor (DAF)
• The Demand Adjustment Factor (DAF) is a manipulation to the

ADU input at a specific time period to a historically proven or
planned position based on an approved business case or as a
reaction to rapid changes in demand within short periods of
time.
• When a part is using a forward looking ADU it is often
unnecessary to use DAF
• This will depend on the confidence of the forecasted numbers
versus the robustness of the buffer profile assigned to the
part

When to use a DAF?
• It is easy to underestimate the robustness of the buffers - the
buffer’s purpose is to absorb variability up to a point
– The more responsive the plant/supplier the more robust the buffers’
performance will be for higher variability
– The higher the variability factor built into the buffer the more robust
the buffers’ performance will be for higher variability
– The longer the horizon to see spikes the more robust the buffers’
performance will be for higher variability
• DAF is meant to be used within windows of time when:
– Variability threatens to overwhelm the buffers (stock or capacity)
ADJUST UP
– Variability will cause large amounts of prolonged excess inventory
ADJUST DOWN

Demand Adjustment Factor
900 100
800 90
700 80
70
600
60
500
50
400 PAF
40
2
300
30
1,5
200 20 1
100 10 0,5
0 0 0
15-feb.
02-mar.
17-mar.
01-may.
16-may.
31-may.
15-jun.
31-ene.
01-ene.
16-ene.
01-abr.
16-abr.
01-feb.
15-feb.
01-mar.
15-mar.
01-may.
15-may.
01-jun.
15-jun.
01-ene.
15-ene.
01-abr.
15-abr.
Red Yellow Green Adjusted ADU
The demand adjustment factor is applied to ADU to flex the buffer up and down

Demand Adjustment Factor Comparison
Part #ABC (No Demand Adjustment Factor)
1000
800
600
400
200
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
With Adjustment Factor

1000
800
600
400
200
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
Week 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Original ADU 33.59 33.59 33.72 33.89 33.91 34.41 34.68 34.96 34.68 33.86 33.72 33.80 33.78 33.86 33.67
DAF 1.00 1.10 1.20 1.40 1.60 1.80 1.80 1.80 1.60 1.40 0.90 0.80 0.80 0.90 1.00
Adjusted ADU 33.59 36.94 40.47 47.44 54.26 61.94 62.43 62.93 55.49 47.40 30.35 27.04 27.02 30.47 33.67

Demand Adjustment Factor Performance

DAF - Product End of Life Scenarios
Ramp Down PAF
600 60
500 50
400 40
300 30
200 20
100 10
0 0

DAF - Product Introduction Scenarios
Ramp Up PAF
600 60
500 50
400 40
300 30
200 20
100 10
0 0

DAF - Product Transition Scenarios
600 60
500 50
400 40
300 30
200 20
100 10
0 0
01-ene. 15-ene. 01-feb. 15-feb. 01-mar. 15-mar. 01-abr. 15-abr. 01-may. 15-may. 01-jun. 15-jun.
Red(Old) Yellow(Old) Green(Old) Red(New) Yellow(New) Green(New) ADU(New) ADU(Old)

Zone Adjustment Factor
• Another way to adjust part buffers

• Applied to single parts or groups of parts
• Zone adjustments can be applied to any of the three
zones
• Adjustments can be made in terms of a factor (1.5
would increase zone size by 150%) or days of
demand

Lead Time Adjustment Factor
• The use of a lead time adjustment factor coincides

with a planned or known expansion to the lead time
of a part
• Lead time adjustment factors could apply to an
individual part or a group of parts affected in the
same way by what is prompting the adjustment (not
necessarily parts in the same buffer profile).
• A factor of 1.5 would increase the lead time by 150%

Summary of all Dynamic Adjustments
Recalculated Planned Adjustments
Adjustments
Average Daily Usage Demand Adjustment Zone Adjustment Lead Time
(ADU) Factor (DAF) Factor (ZAF) Adjustment Factor
Lead Time Ramp Up Green Zone
Adjustment
Profile Change Ramp Down Yellow Zone
Adjustment
Minimum Order Product Transitions Red Zone
Quantity (MOQ) Adjustment
Seasonality

PART 5: DEMAND DRIVEN
PLANNING

THE NET FLOW EQUATION

The Net Flow Equation
• Supply Order Generation is created by the use of the

“Net Flow equation”
• Unique to DDMRP – used to create supply order
recommendations
• On-hand + On-order – Qualified Sales Order
Demands

The Net Flow Equation Components
• On-Hand: Inventory physically in stock

• On-Order: The quantity of stock that has been
ordered but not received
• Qualified Sales Order Demand: Sales Orders due
today, in the past and qualified future spikes.
On-Order
On-Hand

Shifting to a More Relevant Demand Input
– Accuracy
• Planned orders create supply orders in • Sales orders give a near perfect demand signal in
anticipation of need terms of what will be sold and when it will be sold.
• Forecast error associated with Planned orders
results in inventory misalignments and expedite
expenses
Plant Plant
Forecast Sales
From: Logistics Planning To: Logistics Planning
Order
Suppliers Suppliers
Highly Inaccurate Typically Very Accurate

Qualifying Demand Spikes
Total Quantity Ordered
Today 2 3 4 5 6 7 8 9
Order Spike Horizon = Length of time in the future in which spikes are considered
Order Spike Threshold = Quantity in daily buckets which would qualify for Net Flow
equation inclusion

Part # EXAMPLE Order Spike Horizon = 6 days Order Spike Threshold = 100 Today’s Date: 06/21
Demand Quantity Due Date
Example SO# 1234

SO# 1235
35
40
06/21
06/21
SO# 1236 40 06/22
SO# 1237 – SPIKE! 70 06/23
SO# 1238 – SPIKE! 50 06/23
Qualified Spike on 06/23 SO# 1239 – SPIKE! 60 06/23
SO# 1240 10 06/24
SO# 1241 25 06/24
Potential Spike on 06/29 SO# 1242 60 06/25
SO# 1243 10 06/25
SO# 1244 10 06/26
SO# 1245 15 06/26
SO# 1246 50 06/26
SO# 1247 20 06/26
SO# 1248 40 06/27
SO# 1249 (OUTSIDE HORIZON) 70 06/28
SO# 1250 – SPIKE! (OUTSIDE HORIZON) 80 06/29
SO# 1251 – SPIKE! (OUTSIDE HORIZON) 60 06/29

Net Flow Answers Key Planning Questions
• What do I have? The On-Hand value.

• What is coming to me? The On-Order value.
• What demand do I need to fulfill immediately? Sales
orders past due and due today.
• What future demand is relevant? Qualified future
spikes.

Calculating the Net Flow Position
Scenario 1 ◄455
• On-Hand = 105
120 130
• On-Order = 240
• Qualified Demand = 20 20 ◄325
• Net Flow = 325
Open Supply
• Order Recommendation = 130
Scenario 2 240
• On-Hand = 140
• On-Order = 255
On-Hand
• Qualified Demand = 20
• Net Flow = 375 95
• Order Recommendation = None

Shifting to a More Relevant Demand Input
– Timeliness
• The Net Flow Equation is performed EVERY DAY on
all buffered items
• Not all items will be ordered every day!
• Only those items in which the net flow position is in
yellow or red are ordered

Fill Out the Planning Grid for 401P
Today's Date: 15-July
Planning Qualified Net Flow Order Request Lead
Part# Priority On-Hand On-Order Demand Position Recommendation Date TOR TOY TOG Time
Yellow –
401P 79.1% 2178 6400 745 7833 3055 25-July 2438 8938 10888 10
401P Top of Red (TOR) 2438

12000 Top of Yellow (TOY) 8938
10000 1950 Top of Green (TOG) 10888
Net Flow Position 7833
8000
Planning Priority = Net Flow position as a Yellow –
6000 percentage of top of green 79.1%
6500
4000 Order Recommendation 3055
2000
Request Date 25-July
2438
0

Example Planning Screen
Today's Date: 15-July
Qualified Net Flow Order Request Top Top Lead

Part# Planning Priority On-Hand On-Order Demand Position Recommendation Date Top RED YELLOW GREEN Time
406P RED 19.8% 401 506 263 644 2606 4-Aug 750 2750 3250 20
403P YELLOW 43.4% 1412 981 412 1981 2579 23-Jul 1200 3600 4560 8
402P YELLOW 69.0% 601 753 112 1242 558 24-Jul 540 1440 1800 9
405P YELLOW 74.0% 3400 4251 581 7070 2486 24-Jul 1756 7606 9556 9
401P YELLOW 75.1% 2652 6233 712 8173 2715 25-Jul 2438 8938 10888 10
404P GREEN 97.6% 1951 1560 291 3220 0 1050 2550 3300 6
Easily demonstrable RELATIVE PRIORITY is a crucial aspect of DDMRP

DDMRP SUPPLY ORDER
GENERATION SIMULATION

DDMRP Planning Simulation
Example Part Buffer For Simulation 180

Average Daily Usage 10 Green Zone 35 160
Buffer Profile M, M (.5), M (.5) LT Factor: 35 (DLT (7)x ADU (10) x Lead
Time Factor (.5))
140 35
MOQ 20 Minimum Order Quantity: 20 120
Imposed or Desired Order Cycle None Order Cycle: N/A 100
(DOC)
80 70
Decoupled Lead Time (DLT) 7 days Yellow Zone 70 (7(DLT) x 10(ADU)) 60
Red Zone 52 (Red Base (60) + Red Safety (20)) 40
Order spike threshold = 26 Red Base: 35 (DLT (7)x ADU (10) x Lead
20 52
Time Factor (.5))
Order Spike Horizon = 8 days 0
Red Safety: 17 (Red Base (35) x
Variability Factor (.5))

DAY 1
net flow position
on-hand position
Supply Side Demand Side
(days remaining until receipt)
10 18 17 6 5 9 10 30
OST
37 35
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7 8
Planning Qualified Net Flow Order Request Top Top

Part# Priority On-Hand On-Order Demand Position Amount Date Top RED YELLOW GREEN Lead Time
YELLOW
EXAMPLE 61.8% 65 72 40 97 60 Day 8 52 122 157 7

DAY 2
18 17 6 5 9 10 30 5
60
37 35
-7 -6 -5 -4 -3 -2 -1 2 3 4 5 6 7 8 9

GREEN
EXAMPLE 88.5% 55 132 48 139 0 52 122 157 7
Ending OH = 72

DAY 3
17 6 5 9 10 30 5 6
60
37
-7 -6 -5 -4 -3 -2 -1 3 4 5 6 7 8 9 10

YELLOW
EXAMPLE 77.7% 72 97 47 122 35 Day 10 52 122 157 7
Ending OH = 55

DAY 4
6 5 9 10 30 5 6 9
60
35 37
-7 -6 -5 -4 -3 -2 -1 4 5 6 7 8 9 10 11

GREEN
EXAMPLE 96.2% 55 132 36 151 0 52 122 157 7
Ending OH = 49

DAY 5
5 9 10 30 5 6 9 10
60
35 37
-7 -6 -5 -4 -3 -2 -1 5 6 7 8 9 10 11 12

GREEN
EXAMPLE 93% 49 132 35 146 0 52 122 157 7
Ending OH = 44

DAY 6
9 10 30 5 6 9 10 20
60
35 37
-7 -6 -5 -4 -3 -2 -1 6 7 8 9 10 11 12 13

GREEN
EXAMPLE 87.3% 44 132 39 137 0 52 122 157 7
Ending OH = 72

DAY 7
10 30 5 6 9 10 20 6
60
35
-7 -6 -5 -4 -3 -2 -1 7 8 9 10 11 12 13 14

GREEN
EXAMPLE 80.9% 72 95 40 127 0 52 122 157 7
Ending OH = 62

DAY 8
30 5 6 9 10 20 6 11
60
35
-7 -6 -5 -4 -3 -2 -1 8 9 10 11 12 13 14 15

GREEN
EXAMPLE 80.9% 62 95 30 127 0 52 122 157 7
Ending OH = 92

DAY 9
Drop in Order!
5 36 9 10 20 6 11 10
DROP-IN
35
-7 -6 -5 -4 -3 -2 -1 9 10 11 12 13 14 15 16

YELLOW
EXAMPLE 54.8% 92 35 41 86 71 Day 16 52 122 157 7
Ending OH = 87

DAY 10
36 9 10 20 6 11 10 18
71
DROP-IN
35
-7 -6 -5 -4 -3 -2 -1 10 11 12 13 14 15 16 17

GREEN
EXAMPLE 100% 87 106 36 157 0 52 122 157 7
Ending OH = 86

DAY 11
9 10 20 6 11 10 18 12
71
-7 -6 -5 -4 -3 -2 -1 11 12 13 14 15 16 17 18

GREEN
EXAMPLE 94.3% 86 71 9 148 0 52 122 157 7
Ending OH = 77

DAY 12
10 20 6 11 10 18 12 8
71
-7 -6 -5 -4 -3 -2 -1 12 13 14 15 16 17 18 19

GREEN
EXAMPLE 87.9% 77 71 10 138 0 52 122 157 7
Ending OH = 67

DAY 13
20 6 11 10 18 12 8 6
71
-7 -6 -5 -4 -3 -2 -1 13 14 15 16 17 18 19 20

YELLOW
EXAMPLE 75.2% 67 71 20 118 39 Day 20 52 122 157 7
Ending OH = 47

DAY 14
6 11 10 18 12 8 6 5
71
39
-7 -6 -5 -4 -3 -2 -1 14 15 16 17 18 19 20 21

GREEN
EXAMPLE 96.2% 47 110 6 151 0 52 122 157 7
Ending OH = 41

DAY 15
11 10 18 12 8 6 5 8
71
39
-7 -6 -5 -4 -3 -2 -1 15 16 17 18 19 20 21 22

GREEN
EXAMPLE 89.2% 41 110 11 140 0 52 122 157 7
Ending OH = 30

DAY 16
10 18 12 8 6 5 8 2
71
39
-7 -6 -5 -4 -3 -2 -1 16 17 18 19 20 21 22 23

GREEN
EXAMPLE 82.8% 30 110 10 130 0 52 122 157 7
Ending OH = 91

DAY 17
QUALITY HOLD = 40
18 12 8 6 5 8 2 12
39
-7 -6 -5 -4 -3 -2 -1 17 18 19 20 21 22 23 24

YELLOW
EXAMPLE 71.3% 51 79 18 112 45 Day 24 52 122 157 7
40 taken out of on-hand due to quality hold!

Ending OH = 33

DAY 18
QUALITY HOLD = 40
12 8 6 5 8 2 12 20
45 39
-7 -6 -5 -4 -3 -2 -1 18 19 20 21 22 23 24 25

GREEN
EXAMPLE 92.4% 33 124 12 145 0 52 122 157 7
Ending OH = 21

DAY 19
QUALITY HOLD = 40
! 8 6 5 8 2 12 20 9
45 39
-7 -6 -5 -4 -3 -2 -1 19 20 21 22 23 24 25 26

GREEN
EXAMPLE 87.3% 21 124 8 137 0 52 122 157 7
EXPEDITE SHIPMENT FOR 39 FOR DELIVERY AT END OF DAY!

Ending OH = 52

DAY 20
QUALITY HOLD = 40
6 5 8 2 12 20 9 8
45
-7 -6 -5 -4 -3 -2 -1 20 21 22 23 24 25 26 27

GREEN
EXAMPLE 83.4% 52 85 6 131 0 52 122 157 7
Ending OH = 46

DAY 21
5 8 2 12 20 9 8 5
45
-7 -6 -5 -4 -3 -2 -1 21 22 23 24 25 26 27 28

GREEN
EXAMPLE 80.3% 86 45 5 126 0 52 122 157 7
QUALITY HOLD Cleared!

Ending OH = 81

Net Flow and On-Hand Positions
Simulation Results
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 18 19 20 21
Red Yellow Green On-Hand Net Flow Position
Average On-Hand 59.24

ADU = 12.4

On-Hand Position Distribution
On-Hand Position Frequency
5
4 4
4
3 3 3
3
2
2
1 1
1
0 0 0 0 0 0 0 0 0
0
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160
Day 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
On-Hand 65 55 72 55 49 44 72 62 92 87 86 77 67 47 41 30 51 33 21 52 86
No Bi-Modal Distribution!

CALCULATING AVERAGE ON-HAND
RANGE AND TARGET

Calculating Average On-Hand Position and
Range
60
• Average On-Hand position will be the
total red zone plus one half of the
green zone (example: 100 + 30 =
180
130)
• Average On-Hand range is from the
top of red to the top of red + green
zone
• Let’s understand why… 100

Average On-Hand Example
60
• Top of Green = 340
• Top of Yellow = 280
• Top of Red = 100 180
• ADU = 10
• Lead Time = 18 days
100

• ADU = 10
• Green Zone = 60
• Average Order Frequency is 6 days
• Typically 3 Supply Orders in Play at any one time
DAY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Supply 60 60 60
Order

Net Flow
• After completing the daily plan and accepting
orders to bring the Net Flow position to green a 60
planner will have 3 open supply orders for at
least 60 units each
• That means there would be at least 180 units of
open supply when the Net Flow is in green
• Demand has already been cleared, Net Flow is at
top of green, open supply = 180 – that means 180
that on-hand will be 160
• We still have 6 days of demand left before an On-Hand
open supply is due to be received. The on-hand
position will drain over that time.
DAY -18 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1
Supply 60 60 60
Order
100

= Daily Demand
Average On-Hand Example = Supply Order Receipt
Average Net Flow Range
Average On-Hand Inventory Range

160 ►
130 ►
100 ►
18 Day Lead Time DAY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

The Bimodal Distribution
# of parts or SKU
Too Little Red Yellow Green Too Much

Average On-Hand Inventory Range
# of parts or SKU
Too Little Red Yellow Green Too Much
0 Green

DECOUPLED EXPLOSION

MRP Requirements Explosion
Requirements Explosion - The process of calculating demand for components

of a parent item requirements by the component usage quantity specified in
the bill of material. (APICS, Page 149)
End Item Demand

DDMRP De-Coupled Explosion
End Item Demand
• The explosion starts when a part’s

Net Flow position enters the rebuild
zone
• The explosion stops at each stock
position – No Matter What!!
• Decoupled Explosion literally means
“independent dependence”

MRP and DDMRP Explosion Similarities
• In between the decoupling points DDMRP explodes in the EXACT same

manner as MRP
• DDMRP still seeks to net to zero between the decoupling points
MRP Explosion DDMRP Decoupled Explosion

PART 6: DEMAND DRIVEN
EXECUTION

DDMRP Execution Alerts
DDMRP
Execution
Independent Points Dependent Points
Buffer Status Synchronization

Alerts Alerts
Material
Current On- Projected On-
Synchronization Lead Time Alert
Hand Alert Hand Alert
Alert

On-Hand Focused
• DDMRP Execution Alerts DO NOT use the net flow

equation
• They are focused on current and projected on-hand
positions across the DDMRP model

Buffer Status Alerts Require Two
Perspective Changes
• A change in the way that we determine priority
• A change in the way we view the color of the zones
DDMRP
Execution

Alerts Alerts

Priority Determination
Or worse yet….
Priority 1:
Priority 2:
Priority 3:
Priority 4:
Priority 5:

Now What’s the Priority?
Order # OH Buffer Status Order Type Due Date Customer
MO 12379 MTO May - 12 Super Tech
MO 12401 12% (RED) Stock May - 14 Internal
MO 12465 27% (RED) Stock May - 12 Internal
MO 12367 53% (YELLOW) Stock May - 12 Internal
MO 12411 61% (YELLOW) Stock May - 16 Internal
Order # OH Buffer Status Order Type Due Date Customer

MO 12379 MTO May - 12 Super Tech
MO 12401 12% (RED) Stock Due NOW Internal
MO 12465 27% (RED) Stock Due NOW Internal
MO 12367 53% (YELLOW) Stock Due NOW Internal
MO 12411 61% (YELLOW) Stock Due NOW Internal
Priority 1:
Priority 2:
Priority 3:
Priority 4:
Priority 5:
Challenging Priority by Due Date
• Default priority management is through due date (antiquated

rule)
• Would you rather have suppliers on-time or never stock you
out?
• What does this say? Protecting availability is paramount.
• Priority by due date does not necessarily protect availability
• Priority by buffer status ALWAYS connects to protecting
availability

Planning Versus Execution
• The Average On-Hand Range is what we 60

expect on-hand (current and projected) to
be within
• The total Red Zone is the safety 180
• The deeper the on-hand penetration into
the safety the more sever the situation is
100

Planning Versus Execution
• This means that in DDMRP execution the average 60

on-hand range is actually green (it’s what we expect
with on-hand)
• For simplicity the entire yellow planning zone is
treated as green 180
• The red zone is divided between yellow and red
• Deeper on-hand penetrations go from yellow to red
as more safety is consumed
• The yellow and red barrier is called the “On-Hand
Alert Level”
100
• Dark Red indicates a negative on-hand situation –
(stocked out with demand)

Our Simulation – Execution Perspective
Day 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
On-Hand 65 55 72 55 49 44 72 62 92 87 86 77 67 47 41 30 51 33 21 52 86
Execution Buffer Status Color Schema

140
120
100
Net Flow Zones
80
60
40
20
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
All material and content © copyright 2015 Demand Driven Institute. All rights reserved. 189
Certified Demand Driven Planner (CDDP) is a trademark of the ISCEA
Starting With Current On-Hand Alert
DDMRP
Execution

Alerts Alerts
Material
Alert

Current On-Hand Alert
• Indicates which positions are in trouble right now from an
on-hand perspective
• Identifies parts whose open supply may need to be expedited
On-Hand Alert
Part # OH Buffer Status
FPA 27% (RED) Zone % is displayed
as a % of the total
FPE 42% (RED) Red Zone (on-hand /
SAE 88% (YELLOW) top of red)

On-Hand Alert
Part # OH Buffer Status Part Type On-Hand Qty Open Supply Demand Net Flow Status
FPA 27% (RED) Manufactured 2000 17,000 0 19,000 (GREEN)
FPE 42% (RED) Manufactured 400 1,550 250 1,700 (GREEN)
SAE 88% (YELLOW) Manufactured 70 0 60 10 (RED)
Planning View Execution View

20000 20000
Part: FPA ◄ Net Flow Position ►
18000 18000
Top of Green 20,000
16000 16000
Top of Yellow 15,000
14000 14000
Top of Red 7,500
12000 12000
On-Hand Alert 3,750
10000 10000
Net Flow 19,000
8000 8000
On-Hand 2,000 (27%)
6000 6000
4000
◄ On-Hand Alert ► 4000
2000 ◄ On-Hand Position ► 2000
0 0
FPA FPA
FPA Open Supply
Part #: FPA OH Buffer Status: 27% Today's Date: 20-May

Order # Quantity Request Promise Status
MO 123-72 6,000 1-May 11-May In progress at Paint
MO 122-11 5,000 10-May 15-May In progress at Mill 230
MO 119-10 6,000 1-Jun 1-Jun Released, awaiting start
• No expedite required as an additional 6,000 are about to be

moved into On-Hand

On-Hand Alert
Part # OH Buffer Status Part Type On-Hand Qty Open Supply Demand Net Flow Status
FPA 107% (GREEN) Manufactured 8000 11,000 0 19,000 (GREEN)
FPE 42% (RED) Manufactured 400 1,550 250 1,550 (GREEN)
SAE 88% (YELLOW) Manufactured 100 0 60 10 (RED)
Planning View Execution View

20000 20000
Part: FPA ◄ Net Flow Position ►
18000 18000
Top of Green 20,000
16000 16000
Top of Yellow 15,000
14000 14000
Top of Red 7,500
12000 12000
On-Hand Alert 3,750
10000 10000
Net Flow 19,000
On-Hand 8,000 (107%)
8000 ◄ On-Hand Position ► 8000
6000 6000
4000
◄ On-Hand Alert ► 4000
2000 2000
0 0
FPA FPA
Distribution Network Execution Priority–
Current On-Hand Alert
SKU Seattle Burbank Denver Chicago Newark Atlanta Dallas Overall
ABC 52% 42% 41% 58% 13% 21% 110%
CDF 188% 63% 106% 58% 45% 92% 125%
TUX 12% 32% 55% 28% 57% 27% 56%
XYZ 53% 135% 57% 55% 165% 171% 119%
SKU# Status Location

TUX 12% Seattle
ABC 13% Newark
ABC 21% Atlanta
TUX 27% Atlanta
TUX 28% Chicago
TUX 32% Burbank
ABC 41% Denver
ABC 42% Burbank

Other DDMRP Execution Alerts
DDMRP
Execution

Alerts Alerts
Material
Alert

What Execution Looks Like
Manufactured Items Distributed Items
Purchased Items
Order # Due Date Item # Buffer Status Item # Location Buffer Status
Order # Due Date Buffer Status
WO 819-87 05/24 FPA Critical 13% FPA Region 1 Critical 11%
PO 820-89 05/12 Critical 13%
FPA Region 2 Med 51%
PO 891-84 05/12 Med 52% WO 832-41 05/22 SAD Critical 24%
FPA Region 3 Med 66%
PO 276-54 05/12 Med 61% WO 211-72 05/22 ICB Med 54%
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

▼follow up ▼
notification FPA
8 months
MODULE 3 SUMMARY

MODULE 4
DDMRP and the Operational Environment

DDMRP STRATEGIC BUFFER
CRITERIA

Six Tests for a DDMRP Buffer
• The Decoupling Test

• The Bi-Directional Benefit Test
• The Order Independence Test
• The Primary Planning Mechanism Test
• The Relative Priority Test
• The Dynamic Adjustment Test

The Decoupling Test
1. It must decouple the supply side lead time – it must

provide a clear break in the lead time chain
dependency
X

The Bi-Directional Benefit Test
2. It must provide benefit for both sides of the buffer

– the supply side gets an aggregated order
requirement that corresponds to actual
demand/consumption while the consuming side
gets compressed lead time and high availability
Stock Level
Aggregated Supply Requirement Reliable Output/Availability

The Order Independence Test
3. It must be order independent – stock in the buffers

is not allocated to any specific order, it is available
on demand to any order as required. This
distinguishes DDMRP stock buffers from WIP
buffers as WIP, by definition, is connected or
committed to a specific order.

The Primary Planning Mechanism Test
4. It is the primary planning mechanism – All supply

order signals for a buffered part must be generated
through or from the buffer – if a part is chosen for
strategic buffering all relevant demand, on-hand
and open supply information is combined at the
buffer to plan that position.
Part Open On-hand Demand Net Flow Recommended Action
Supply Supply Qty
r457 5453 4012 1200 8265 0 No Action
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)

The Relative Priority Test
5. It is the primary planning mechanism – All supply order
signals for a buffered part must be generated through or
from the buffer – if a part is chosen for strategic buffering all
relevant demand, on-hand and open supply information is
combined at the buffer to plan that position.
On-Hand Alert
Part # OH Buffer Status
FPA 27% (RED)
FPE 42% (RED)
SAE 88% (YELLOW)

The Dynamically Adjusted Test
6. It must be dynamically adjusted based upon rate of

use changes over a user defined horizon.

How Does Safety Stock Stack Up?
DDMRP Strategic Buffer Compliance Criteria Safety Stock?
It must decouple the supply side lead time NO
It must provide benefit for both sides of the buffer NO
It must be order independent YES
It is the primary planning mechanism NO
It clearly depicts relative priority between orders NO
It must be dynamically adjusted based upon rate RARELY
of use changes over a user defined horizon

How Does Order Point Stack Up?
DDMRP Strategic Buffer Compliance Criteria Safety Stock?
It must decouple the supply side lead time YES
It must provide benefit for both sides of the buffer NO
It must be order independent YES
It is the primary planning mechanism YES
It clearly depicts relative priority between orders NO
It must be dynamically adjusted based upon rate NO
of use changes over a user defined horizon

Additional Order Point Issue – NO DEMAND
• While order point passes the primary planning
mechanism test it plans distinctly differently than
DDMRP
• Order point does not use the net flow equation
• The order point equation is limited to on-hand plus
on order
• With no demand visibility order point positions are
subject to higher variability
– Increases risks of stock outs
– Increases inventory requirements to compensate

DDMRP IMPACTS TO SCHEDULING

Basic Scheduling Assumptions
1. Demand signals are known and accurate

2. Lead times for supply order release, receipt and
synchronization are realistic.
3. Material and capacity are available on the specified dates.
The relative validity of these assumptions will determine how

realistic the schedule is.
The less realistic a schedule is the more likely that it will be
disrupted.
How valid are these assumptions in the conventional approach?

Assumption #1 Validity in DDMRP
Assumption: Demand signals are known and accurate
The use of qualified sales orders means that demand signals are
much more relevant, accurate and timely.

Assumption: Lead times for supply order release, receipt and

synchronization are realistic.
• The use of decoupling points creates shorter independently
planned and managed horizons - less variability (demand and
supply) is passed through the system.
• This results in synchronization dates that are at the same time
more realistic throughout the system yet less important due
to the cushion at the buffers.
• Those buffers are realistically sized through the use of
decoupled lead time.

Assumption: Material and capacity are available on the specified

dates.
• The DDMRP buffers represent points of stored capacity and
materials.
• DDMRP plans strategic positions to be always be available.
• If these positions are maintained with on-hand always
available, then the stored capacity and materials at those
positions are always available.
• The use of DDMRP’s execution components bring degrees of
visibility to open supply orders that must be expedited to
maintain stock buffer integrity and to meet critical
synchronization needs.
Visible and Priority Based Scheduling
Sequencing
Work Orders are launched based on the Net Flow Status

work orders
FPB
ICB
FPA
SAF
Machining Assemble
FPE
ICS
Part Open On-hand Demand Net Flow Recommended Action

Supply Supply Qty
FPB 5453 4012 3200 6265 (60%) 6500 Create Work Order
FPE 3358 4054 540 6872 (66%) 3128 Create Work Order
FPA 530 3721 213 4038 (67%) 2162 Create Work Order

WIP Priority Management with DDMRP
Finished Items
Easy and Visible Scheduling Sequencing and Priority Order # Due Date Item # Buffer Status
– Work Orders can be reprioritized based on the real WO 819-87 05/24 FPA Critical 13%
time buffer status WO 832-41 05/22 FPB Critical 17%
WO 211-72 05/22 FPE Med 54%

34%
FPB
WO 819-01
ICB WO 819-87
WO 832-41
WO 832-62
WO 211-72
WO 211-99
FPA
SAF
Machining Assemble
FPE
ICS
Machined Items
Order # Due Date Item # Buffer Status
WO 819-01 05/24 ICS Critical 20%
WO 832-62 05/22 SAF Critical 35%
WO 211-99 05/22 ICB Med 51%

MODULE 5 SUMMARY

MODULE 6
Demand Driven S&OP, DDMRP Analytics and
Projections

DEMAND DRIVEN S&OP

Demand Driven S&OP Definition
Demand Driven Sales and Operations Planning (DDS&OP) – DDS&OP is a bi-

directional integration point in a Demand Driven Adaptive System between
the strategic (annual, quarterly and monthly) and tactical (hourly, daily and
weekly) relevant ranges of decision making. DDS&OP sets key parameters of
a Demand Driven Operating Model based on business strategy, market
intelligence and key business objectives (strategic information and
requirements). DDS&OP also projects the model performance based on the
strategic information and requirements and various model
settings. Additionally, DDS&OP uses variance analysis based on past model
performance (reliability, stability and velocity) to adapt the key parameters of
a Demand Driven Operating Model and/or recommend strategic alterations
to the model and project their respective impact on the business.

Demand Driven S&OP Schema
Demand Driven
Plan Parameters Model Projections
Model Parameter Management
Control, Measure, Adapt & Project

CAPABILITIES PERFORMANCE
TARGETS DEMAND
NEW
PORTFOLIO
ACTIVITIES
• Buffer Profiles (stock, time,

MODEL AND PART
capacity) PARAMETERS
• Profile Assignment
• Part Planning Properties Demand Driven
• Part & Resource Scheduling Variance Analysis
Properties
• Resource Assignment
Demand Driven
Operating Model
Demand Driven S&OP Schema
Demand Driven
Model Parameter Management
Control, Measure, Adapt & Project

TARGETS DEMAND
NEW
PORTFOLIO
ACTIVITIES
• Buffer Profiles (stock, time,

MODEL AND PART
capacity) PARAMETERS
• Profile Assignment
• Part Planning Properties Demand Driven
• Part & Resource Scheduling Variance Analysis
Properties
• Resource Assignment
Demand Driven
Operating Model
DDMRP Analytics
DEMAND DRIVEN MRP ANALYTICS

DDMRP Analytics and Reports
• The DDMRP model is constructed with the flow of relevant

information and materials in mind
• Once the design is operational how do we ensure that the
flow relevant information and materials is occurring for the
best possible ROI?
– Are the right signals being conveyed without distortion in a timely
fashion?
– Are the right materials available when needed? Is the inventory in
excess?
– Is the blueprint performing as designed?
– How can it be better?

DDMRP Analytics Focus
• Relevant Information – Signal Integrity (Timeliness

and Accuracy)
• Relevant Materials – Decoupling Point Integrity
• Outlier Analysis

Measuring Relevant Information – Signal Integrity
Chicken Truffle Chicken Noodle Beef Stew Minestrone

DDMRP DDMRP DDMRP DDMRP
Date Recommendation Actual Recommendation Actual Recommendation Actual Recommendation Actual
1-Oct GREEN GREEN OTOG GREEN
2-Oct YELLOW 1200 GREEN OTOG GREEN
3-Oct YELLOW 1321 1800 GREEN OTOG 1200 YELLOW 1900 1900
4-Oct OTOG GREEN OTOG GREEN
5-Oct OTOG GREEN OTOG GREEN
6-Oct GREEN YELLOW 2400 OTOG GREEN
7-Oct GREEN YELLOW 2600 OTOG GREEN
8-Oct GREEN YELLOW 2950 GREEN GREEN
10-Oct GREEN YELLOW 3500 GREEN YELLOW 2150 2150
12-Oct YELLOW 1700 RED 6000 GREEN GREEN
13-Oct YELLOW 1762 RED 6200 6200 GREEN 1200 GREEN
Which product appears to be best planned?

Measuring Decoupling Point Integrity
Net Flow Perspective
Average OH Target Range

Red zone to Red zone + Green Zone
On-Hand Analytics Perspective

Average OH Target
Red zone + ½ Green

Simulation Analytics Run Chart
Day 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
On-Hand 65 55 72 55 49 44 72 62 87 82 86 77 67 47 41 30 51 33 21 13 86
170
150
Extreme High
130
110
Warning (High)
90
70 Optimal
50
Warning (Low)
30
10 Extreme Low
-10

Too Much
Focusing on Outliers Extreme High
Warning (High)
Optimal
Warning (Low)
Extreme Low
Too Little
Dark Red R Y Optimal Range Y R Dark Red

Too Little Warning Warning Too Much
0

Outlying Event Reports

0
Outlying event reports are designed to promote

visibility to the outlying events that break down
material flow on both sides of the loss function
distribution

Suppliers Disruption Report

Supplier Performance (SO & SOWD) Last 180 Days
Ace Supply
Super Tech
SOWD SO
Rapid Tech
GMG Foundries
0 20 40 60 80

Excess Inventory by Planner

Excess Inventory Report by Planner Date Range: May 1-31

Beginning Excessive End Excessive OH Excess Inventory Beginning High End High OH
Planner Number of Parts OH (Dark Red) (Dark Red) Change OH (Red) (Red) $ High OH Change
(12)
Nick M. 152 (19) $121,633.00 (17) $112,361.00 -$9,272.00 (26) $165,223.00 $67,284.00 -$97,939.00
(25)
Carmine M. 113 (10) $51,471.21 (12) $67,897.67 $16,426.46 (13) $71,233.00 $172,913.00 $101,680.00
Julia W. 49 (1) $5,123.00 0 -$5,123.00 (7) $9774.00 (1) $674.00 -$9,100.00
Excess Inventory on May 31

$300.000,00
$250.000,00
$200.000,00
$150.000,00
$100.000,00
$50.000,00
$0,00
Nick Julia Carmine
Excessive OH High OH

Excess Inventory by Part

Excess Inventory by Part Date Range: May 1-31

Beginning Excessive End Excessive OH Excess Inventory Beginning High End High OH High OH
Part # Planner OH (Dark Red) (Dark Red) Change OH (Red) (Red) $ Change
FPT Nick M. $1,256.00 0 -$1,256.00 $2,135.00 $136.00 -$1,999.00
FPH Carmine M $5,471.21 $1,781.00 -$3,690.21 $1124.00 $1124.00 0

FPI Carmine M 0 $1,231.00 $1,231.00 $356.00 $1254.00 $898.00

Evolving Results – Outlier Elimination
Starting Demand Driven MRP
Mature DDMRP Implementation
Initial DDMRP Results

Improvement Strategies
Primary DDMRP Improvement Objective:

Reduce the buffers without service erosion
Three ways to get there:

Lead Time Reduction
MOQ Reduction
Reduction of Variability
These would all change the capabilities of the Demand

Driven Operating Model

Improvement Strategies Note: MOQ = 300
Where the
improvement
came from
Lead Time reduction
Variability reduction
Max
Max
Avg
Min
Min
MOQ Reduction
MOQ
MOQ

DEMAND DRIVEN MODEL
PROJECTIONS

Projecting Demand Driven Operating Model Performance
Demand Driven
TARGETS DEMAND
NEW
PORTFOLIO
ACTIVITIES
Projected Projected
Capabilities ADU
Capacity Load
Impact
Working
MODEL AND PART
Capital
PARAMETERS Impact
Space Impact

Example
• This company makes four products.

• They have forecasted ADU at the SKU level 6 months from
now.
Part # Current Projected ADU Lead Time Desired MOQ Variability
ADU (6 mos) Order Cycle
XYZ 100 150 5 (low – 75%) 3 500 Medium (50%)
ZYX 50 75 7 (medium – 50%) 3 250 Medium (50%)
ABG 25 10 5 (low – 75%) 3 250 Low (25%)
GJK 20 200 5 (low – 75%) 3 250 High (70%)

Current Buffers and Average OH
Current Buffers
1800
1600
1400
1200
1000
800
600
400
200
0
XYZ ZYX ABG GJK
Green 500 250 250 250
Yellow 500 350 125 100
Red 563 263 118 128
Average OH 813 388 243 253
Red Yellow Green Average OH
Part # Current ADU Lead Time Desired Order Cycle MOQ Variability
XYZ 100 5 (low – 75%) 3 500 Medium (50%)
ZYX 50 7 (medium – 50%) 3 250 Medium (50%)
ABG 25 5 (low – 75%) 3 250 Low (25%)
GJK 20 5 (low – 75%) 3 250 High (70%)

Projected Buffers and Average OH
Projected Buffers
3500
3000
2500
2000
1500
1000
500
0
XYZ ZYX ABG GJK
Green 563 263 250 750
Yellow 750 525 50 1000
Red 845 395 48 1275
Average OH 1126,5 526,5 173 1650
Red Yellow Green Average OH
Part # Projected ADU (6 mos) Lead Time Desired Order Cycle MOQ Variability
XYZ 150 5 (low – 75%) 3 500 Medium (50%)
ZYX 75 7 (medium – 50%) 3 250 Medium (50%)
ABG 10 5 (low – 75%) 3 250 Low (25%)
GJK 200 5 (low – 75%) 3 250 High (70%)

Projected Change to XYZ Projected Change to ZYX
2500 1400
2000 1200
1000
1500 800
1000 600
400
500 200
0 0
XYZ (now) XYZ (projected) ZYX (now) ZYX (projected)
Green 500 563 Green 250 263
Yellow 500 750 Yellow 350 525
Red 563 845 Red 263 395
Average OH 813 1126,5 Average OH 388 526,5
Red Yellow Green Average OH Red Yellow Green Average OH
Projected Change to ABG Projected Change to GJK

600 3500
500 3000
400 2500
300 2000
1500
200 1000
100 500
0 0
ABG (now) ABG (projected) GJK (now) GJK (projected)
Green 250 250 Green 250 750
Yellow 125 50 Yellow 100 1000
Red 118 48 Red 128 1275
Average OH 243 173 Average OH 253 1650
Red Yellow Green Average OH Red Yellow Green Average OH

Working Capital
Converting targeted on-hand inventory to capital required.
Part # Dollars per Current Target Targeted working Projected Target Projected working
units Inventory Level capital in inventory Inventory Level capital in inventory
XYZ $100 813 $81,300 1127 $112,700
ZYX $90 388 $34,920 527 $47,430
ABG $80 243 $19,440 173 $13,840
GJK $50 253 $12,650 1650 $82,500
Total $148,310 Total $256,470
Average OH Inventory Dollars

$120.000
$100.000
$80.000
$60.000
$40.000
$20.000
$0
XYZ ZYX ABG GJK
Current OH Target Projected OH Target

Space Requirements
Converting targeted on-hand inventory to space needed
Part # Number per Current Target Current Number of Projected Target Projected Number of
pallet Inventory Level pallets positions Inventory Level pallets positions
XYZ 10 813 81 1127 113
ZYX 20 388 20 527 27
ABG 50 243 5 173 4
GJK 30 253 9 1650 55
Total 115 Total 199
Pallet Positions
120
100
80
60
40
20
0
XYZ ZYX ABG GJK
Current OH Target Projected OH Target

Projecting Capacity Load
Establish an average daily load on a critical resource (ADUs x capacity units/SKU)
Critical Resource: Lathes
Lathes available = 5
Minutes available per lathe per day = 1200 (6,000 total per day) 10000
9000
8000
Part # Minutes/unit Current Current Average Projected Projected Average 7000

on lathe ADU Daily Load ADU Daily Load
6000
XYZ 30 100 3000 minutes 150 4500 minutes
5000
ZYX 25 50 1250 minutes 75 1875 minutes
4000
ABG 20 25 500 minutes 10 200 minutes
GJK 10 20 200 minutes 200 2000 minutes
3000
Total 4950 minutes Total 8575 minutes 2000

1000
0
Current Load Projected Load
XYZ ZYX ABG GJK

Projecting Average Order Frequency
Green Zone/ADU = Average Order Frequency
Part # Current Green Current ADU Current Order Projected Green Projected ADU Projected Order
Zone Frequency Zone Frequency
XYZ 500 100 5 500 150 3
ZYX 250 50 5 266 75 3.5
ABG 250 25 10 250 10 25
GJK 250 20 12.5 750 200 3.75

DDMRP
Demand Driven
Material Requirements Planning
Implementation Support Pack


DDMRP Implementation Support Pack 20160531 PDF

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

DDMRP Implementation Support Pack 20160531 PDF

Hochgeladen von

Copyright:

Verfügbare Formate

DDMRP

Implementation Support Pack

Enable a company team to support a DDMRP implementation

Demand Driven Institute DDMRP Implementation Support Pack 2

• The support pack is intended to prepare a team

Demand Driven Institute DDMRP Implementation Support Pack 3

Demand Driven Institute DDMRP Implementation Support Pack 4

Today’s planning systems are

► Inside most modern ERP systems is MRP

► Conceived in the 1950’s

► Codified in the 1960’s

► Commercialized in the 1970’s and…

► …it hasn’t changed

Demand Driven Institute DDMRP Implementation Support Pack 6

Worldwide there are more complex planning and

Demand Driven Institute DDMRP Implementation Support Pack 8

Too Little Warning Optimal Range Warning Too Much

Demand Driven Institute DDMRP Implementation Support Pack 9

Too Little Warning Optimal Range Warning Too Much

Demand Driven Institute DDMRP Implementation Support Pack 10

Too Little Warning Optimal Range Warning Too Much

Demand Driven Institute DDMRP Implementation Support Pack 11

• Unacceptable Inventory Performance

Demand Driven Institute DDMRP Implementation Support Pack 12

Demand Driven Institute DDMRP Implementation Support Pack 13

Information and Cash

Materials and Information

Demand Driven Institute DDMRP Implementation Support Pack 14

• Service is consistent and reliable when a system flows well.

Protect and Promote Flow = ROI Maximization

Demand Driven Institute DDMRP Implementation Support Pack 15

Function Primary Objective Example Metric

All of these objectives are improved with better flow!

Demand Driven Institute DDMRP Implementation Support Pack 16

Demand Driven Institute DDMRP Implementation Support Pack 17

Frederick Taylor FLOW F. Donaldson Brown

Primary Objective: Primary Objective:

Demand Driven Institute DDMRP Implementation Support Pack 18

All benefits will be directly related to the speed of

Demand Driven Institute DDMRP Implementation Support Pack 19

To be relevant both the information and materials

Having the right information is a prerequisite to having

Demand Driven Institute DDMRP Implementation Support Pack 20

All benefits will be directly related to the

Demand Driven Institute DDMRP Implementation Support Pack 21

Protect and Promote the flow of relevant

Is this reality in business today?

Demand Driven Institute DDMRP Implementation Support Pack 22

Distortions to relevant materials

Demand Driven Institute DDMRP Implementation Support Pack 23

Demand Driven Institute DDMRP Implementation Support Pack 24

Demand Driven Institute DDMRP Implementation Support Pack 25

Demand Driven Institute DDMRP Implementation Support Pack 26

Demand Driven Institute DDMRP Implementation Support Pack 27

• If manufacturing is at the heart of supply chains

Demand Driven Institute DDMRP Implementation Support Pack 28

• Does not mean

Demand Driven Institute DDMRP Implementation Support Pack 29

Demand Driven MRP (DDMRP)

Position, Protect and Pull

Demand Driven Operating Model – A Demand Driven Operating Model is a

Demand Driven Institute DDMRP Implementation Support Pack 31

MODEL AND PART