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Supply Chains Were Challenged by Turbulence of the Pandemic, the Container Ship, and Microchip Crises

DDMRP vs MRP: Push and Pull Explained

War in Ukraine and sanctions against Russia increased volatility on the global market and reshaping global trade. Clients across the globe have claimed that average lead time from their overseas suppliers increased by 30% and order fulfillment rate decreased by 6% compared to 2019. Future is unknown, but one thing we are sure of is that the frequency and range of global challenges will only increase, resulting in growth of volatility,  uncertainty, complexity, and ambiguity in our supply chains.

Competitive market pressure tends to benefit consumers. They want to receive their goods faster (which short lead times), in greater assortment (which increase product variety) and with new features (which leads to more complex and shorter product life cycles) at a reasonable price. However, this last one puts a great pressure on internal processes, efficiency, and cost — and supply chain is no exception.

Something wrong with MRP?

white printing paper with numbersDespite the proliferation of MRP modules in ERP systems and Advanced Planning software, about 80% of companies use Excel and other Spreadsheets to manage their inventory. They know there’s something wrong with MRP; they don’t trust it, and they work around it.

Still, over the years, inventory-to-sales ratios keep deteriorating, with a simultaneous increase of stock outs. This is called bi-modal inventory distribution, when companies are having too little of the right, too much of the wrong and overall, too much stock.

Push Planning Method

yellow sedan parked near red concrete buildingThe idea behind is straightforward - it’s based on forecasts. First, you forecast the client’s orders and build a production plan, considering WIP, current inventories, equipment, and so on. When you know how much and when to start to produce, you can easily calculate your requirements for materials by exploding this demand through the Bill of Material (BOM). That is what MRP is all about.

Accuracy highly depends on how reliable suppliers you have, how accurate master data you have are, how precise your production schedule is, and how you forecast your client’s orders. If any of this is wrong  or unreliable, your production plan will not be able to be executed. This is why planners use spreadsheets - we do not live in a perfect world. There is lots of variability, complexity, and nonlinearity that MRP does not know how to handle.

The more stable and predictable the environment in which the co mpany operates, both internally and in product sales, the more efficient Push methods are. The problem is that uncertainty and volatility are increasing, hence derogating the efficiency of MRP, and spreading the bi-modal inventory distribution.

Pull Planning Method

blue and white metal toolClassical examples of Pull methods are Lean and ToC. Again, at the risk of oversimplification, I’ll try to describe the overall idea. Pull methods try to make the system operationally efficient and agile so that companies adjust to market fluctuations, by pulling only what the market requires. This approach is limiting agility. When market fluctuations are directly transferred to the shop floor, without mitigation, it reduces overall efficiency

Pull methods are reactive by their nature and the more complex and volatile the environment is, the less efficient they are. Therefore, companies go back to MRP after implementing Pull inventory planning methods. A common market situation, Sviatoslav Oliinyk met, is companies which use Lean and ToC to increase their operational performance, amplify the flow, etc., but plan their inventories by MRP.

What is DDMRP?

DDMRP is a new planning method which has strengths of both Push and Pull methods without their weaknesses. The DDMRP buffers depict both the operational environment in the company (lead times, MOQ, frequency of setups, reliability of suppliers, equipment, and so on) and the company’s business plan (strategically defined decoupling points, product portfolio, and sales expectations). This allows planners to easily manage the entire system through the S&OP process, typically close to how they used to with MRP at the beginning, making the transition from MRP to DDMRP quite easy.

On operational level, only actual client’s orders will launch production and purchasing orders. This paces the company’s operations and inventories to actual demand. Planners will build what the customer wants, but not what was in the forecast or Master Production Schedule. Sales now can fulfill more customers orders and even create new competitive advantages.

The more complex, volatile, and uncertain the environment, the better the results of DDMRP compared to conventional techniques.

source: DDMRP vs MRP: Push and Pull

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