Typhoo and sofco brew up a longer partnership
Are you unclear about the approach your organisation should be taking when it comes to understanding the short, medium, or long-term future demand you rely on?
Organisations now, more than ever, have a choice to make in terms of how they view and react to their demand; for example…
For large, long-established companies structured over multiple end user locations, distribution hubs, and extended and complex manufacturing capacity driven supply chains, traditional demand planning techniques which utilise statistical forecasting principles are normally a good fit. This is because, as an organisation, they find that a dedicated Demand Planning function is beneficial in providing an accurate baseline forecast on which they can build, with the help of their sales and marketing teams, activities going forward to provide a Collaborative Forecast, which allows the whole business to come together in supplying the right product in the right place at the right time.
In time, such a traditional forecasting approach may evolve into more complex approaches, such as probabilistic forecasting where many scenarios can be evaluated each with a clear understanding of the likelihood, risks, and opportunities allowing an informed decision to be made on the way forward.
However, especially in smaller / younger companies with a less stable demand pattern and less intense manufacturing processes, they may not be ready to fully embrace the above approaches, or simply are not ready to devote the time and resources necessary to achieve an acceptable demand plan.
This leads us to a wholly different approach called Demand Driven Materials Requirements Planning (DDMRP).
What is DDMRP?
This planning technique, rather than trying to predict future requirements, focuses more on the organisation of your supply chain in relation to average usage over the defined shorter term historical data.
Initially, supply chain bill of materials are analysed in terms of their average usage and individual lead times. This allows the overall supply chain to be grouped into various levels known as decoupled Bill of materials, where inventory can be stored and replenished (Kanban style) at critical points in the supply chain to reduce if not decouple the variable demand from the point and type of supply i.e., factory, department, machine cell, etc. As the resources in question no longer must react to short term fluctuations in bought-in and/or manufactured parts, capacity can be clearly planned, prioritised, executed and reported on in a structured and systemized manner, which can then be relayed throughout the external supply chain to aide your suppliers’ requirements as well.
With such an approach your organisation can be driven purely from firm demand, ideally customer orders on an agreed delivery lead time, which has already been built into your decoupled inventory management. This allows production facilities to concentrate on the final processes which make products unique knowing that semi-finished / long lead time components have already been secured in readiness. And because the factories are being driven by actual orders, capacity is available for exceptional demand as the resources are not making items to just sit in a warehouse waiting for an order to arrive.
In essence then, supply chains today are awash in demand volatility, uncertainty and complexity and need additional planning capabilities that are sensitive to real-time fluctuations in demand. DDMRP is an extension of Materials Requirements Planning (MRP), not a replacement. It is a modernised operational Supply Planning and Scheduling method that does not rely on forecast accuracy. DDMRP combines some of the still relevant aspects of traditional MRP and Distribution Requirements Planning to synchronise your entire supply chain with your actual customer demand and not with your forecasts, tracking actual usage and managing replenishment.
