"The MRP calculation is often disabled without the managers knowing" - Interview with a DDMRP expert

Despite relative obscurity in a supply chain universe dominated by the MRP methodology – Material Requirement Planning – the DDMRP methodology – Demand Driven Material Requirement Planning – particularly derived from 'lean management' is beginning to make its mark ten years after its introduction in France. Beyond better industrial performances, the advocates of the solution highlight its remarkable suitability with an era dominated by uncertainty and the quest for resilience at all industrial levels. Meeting with Jérémy Catteloin, expert engineer in supply chain management at BEVOLTA.

The Demand Driven methodology remains relatively unknown in France. What barriers do you encounter with industrial and distribution companies that you meet?

To begin with, many top managers and even supply chain directors are unaware of the flaws of the MRP method – Material Requirement Planning – which remains the most widely used within industrial companies to manage flows. Identifying the barriers of a flow management method like MRP requires a fine understanding of the functioning of a supply chain and the ERP (of which the MRP is the core of the flow calculations), which is not always the case for top management, far from it. Consequently, since many decision-makers do not clearly see the limitations of the MRP calculation, they do not necessarily perceive the need for an alternative solution.

What are these limitations?

MRP – Material Requirement Planning – is excellent in theory but accommodates quite poorly to field reality, various variability and notably forecast errors, where DDMRP has a much richer adaptability. Indeed, in the demand driven methodology, and especially in systems that have integrated it like BEVOLTA, there is a wide range of possibilities in terms of configurations that natively allows addressing almost all issues without needing to develop Excel add-ons or misuse the existing ERP system.

Yet we often hear supply chain managers say that their supply chain is already linked to demand – 'Demand Driven' in the DDMRP acronym – even though they operate according to the classic MRP methodology. How can it be explained?

They already consider themselves demand-oriented as they organise and optimise their supply chain based on demand forecasts. They think they are operating in a pull flow. Therefore, when they see 'Demand Driven', they assume 'we are already there'. However, there are two fundamental differences between the MRP methodology and DDMRP. Let me explain:

Manage stocks as close as possible to the need

In DDMRP calculation, we truly have the ability to decouple multi-level stock management from finished product forecasts, while in MRP calculation, regardless of the level within the bill of materials, all calculations are based on a single assumption: finished product forecasts.

Thus, the further and more detailed we look into the bill of materials, the more forecast errors amplify. Therefore, where the forecast error is acceptable for managing finished product stocks in a distribution network, it is much less so in managing an industrial supply chain with much deeper bill of materials levels and lead times of several weeks or even months for certain references.

One can see clearly: using a finished product's sales forecast over an 8 months horizon to plan tomorrow the quantity of component X we need to manufacture is very risky. This means that in many supply chains, the result of the daily running MRP calculation is not used to manage those levels of the bill of materials. It is the scheduler's or workshop manager's experience that determines the quantities to manufacture, in other words, the MRP calculation is very often bypassed in a significant part of the industrial supply chain. Often without even the managers being aware!

Field users observe that if they applied the MRP calculation, it would lead them to make inefficient or even counterproductive decisions in terms of customer service, productivity, and ultimately industrial efficiency. They must thus develop interpretation techniques in parallel with the MRP calculation. Often for a random result...

In DDMRP calculation, on the other hand, one can configure at each level regarding finished product forecasts and position a slider on the level of independence desired at each point of the bill of materials, with the possibility to decouple dependence on finished product forecasts or conversely remain connected because it is considered trustworthy. Thus, we have a tool perfectly suited for industrial supply chains at various bill of materials levels from raw materials to finished products. Also adaptable to distribution supply chains as it facilitates the management of stocks and flows in a distribution network.

Visual management of stocks

The other essential differentiating element is that DDMRP tools were designed with key lean management ingredients, notably visual performance management and user empowerment.

This concretely translates into colour codes according to different stock layers – called buffers – allowing users to immediately visualise if they are at the right buffer level or at risk, especially concerning the safety stock. Safety stock, which in the MRP system, resembles a real black box since very few people manage to master them. Some groups or industries have developed specific tools alongside MRP to manage these safety stocks. These tools precisely use the best practices that are those of DDMRP, to compensate for the shortcomings of classic MRP.

In sum, two essential things should be noted about DDMRP:

1. Requirement calculations can be decoupled from forecasts

2. We have a visual tool for managing flows and stocks that serves as a decision aid for users who can work more easily by exception and thus be very reactive.

DDMRP tools like BEVOLTA allow benefiting from these best practices for managing and securing stocks, at a lower cost, while retaining one's ERP for the transversal and financial vision it offers.

Words collected by Ghislain Journé