I noted in a previous post that language can be confusing when it comes to planning, and I have to say that we don’t do ourselves any favours. From time to time I come across discussions that pit DDMRP (Demand Driven Material Requirements Planning) and traditional Demand Planning against one another and judging by the naming conventions it might seem like the right thing to do.
But I don’t think that it is. In fact, I believe that Demand Planning and DDMRP go together quite nicely.
For those who may not be familiar with DDMRP, it is “an innovative multi-echelon pull methodology to plan inventories and materials”. In my parlance, it’s an approach to supply planning. Many of the techniques and approaches in DDMRP have been around for a while and I believe make a lot of sense. I was myself part of an initiative to implement something similar many years ago.
Things seem to get a bit contentious, however, when we define the D in DDMRP. We can think of demand as either being actual (hard customer orders) or planned (expected customer orders). DDMRP establishes inventory buffers and sizes them based on average daily usage (ADU), which is calculated based on actual demand. I believe that many people get caught thinking that it’s as simple as that, and with DDMRP we can free ourselves from having to plan demand. That’s just not true – and even if it was for supply chain, we would still have to plan demand for sales, marketing, finance, and all of the other stakeholders in the business.
With DDMRP, the ADU is proactively adjusted (in other words planned) to account for seasonality or known events in the future that will drive changes in demand patterns. This is very similar to traditional demand planning with a baseline and adding events and intelligence, and where I believe there is a lot of opportunity to connect the demand plan to planned adjustments to the ADU. Done well, it will preserve ownership and accountability with Sales & Marketing. Done poorly, it will lead to excess inventories and service challenges.
Taking this one step further – one of the things that we struggle with in traditional planning processes is expressing ranges of outcomes. Very often plans are expressed as a single number without confidence intervals. But we all know there is uncertainty in planning, and the better we can express the level of uncertainty, the better we can plan for it. Buffers in DDMRP act as shock absorbers. Just like we might adjust the suspension in our car if we plan to take it off-road, I believe we can adjust our supply chain buffers based on the relative (un)certainty of the demand plan.
Greg Spira 