Material Planning: How to Respond to the Challenges of the New Normal?

In the Supply Chain Management and supply chain management sector, does a possible solution exist today to manage a modern material planning process?

Is it possible to act on the critical issues that the tool still most widely used by companies today, the so-called MRP (Material Requirement Planning), shows in the current context?

Makeitalia’s answer is “Yes,” a solution exists. Let’s discover it together in this new article.

A VUCA World: What Is It?

We live in times where the only certainty is represented by uncertainty and by the continuous change of the context in which companies operate. On one hand, there are the opportunities that digital innovation, globalization, and emerging technologies have brought to the markets. On the other hand, there are increasingly more discontinuities along supply chains generated by so-called “black swans,” such as the pandemic, geopolitical imbalances, and so on.

A scenario of this type corresponds precisely to what Burt Nanus (University Professor at the University of Southern California) and Warren Bennis (management consultant) back in 1987 defined as a V.U.C.A. scenario, a model characterized by:

• V – Volatility. Meaning a high variability of phenomena, both from the point of view of their extreme values (more catastrophic events) and the frequency of occurrence.
• U – Uncertainty. Meaning the scarcity or complete absence of useful information for managing phenomena.
• C – Complexity. Meaning the greater interrelation between the elements of the system (think, for example, of a modern supply chain).
• A – Ambiguity. Meaning the difficulty of interpreting the continuous evolution of the scenario due to its unpredictability.

MRP: Can a Tool from the 60s Still Be Effective?

It is difficult to think that, in a scenario like the one painted by the VUCA model (unfortunately more than confirmed in the recent past), tools conceived over 50 years ago can still exist and be widely used today.

Yet, if we look at material planning processes, it is so: Material Requirement Planning, better known as MRP, is still the most widely used planning tool in companies today.

Credit must be given to Joseph Orlicky, the IBM engineer who developed MRP in the 60s, for having designed a system that, at the time, revolutionized industrial production thanks to its solidity and precision.

Unfortunately, the strengths of MRP (rigidity and precision) are destined to show their weakness in a VUCA-type context, characterized by poor reliability of information and the need for flexibility, with effects such as:

• Perfect incorrectness. The need for MRP to have forecasts as input to generate material requirements clashes with the poor reliability of the forecasts themselves. The result is that MRP generates plans and requirements precise to the single piece, but based on data that is wrong by definition—an unreliable forecast.
• Amplification of the bullwhip effect. The continuous need to update the forecast (to have the least “dirty” data possible available) then involves a continuous revision of orders toward the supply chain. The relative distortion of demand perceived by upstream actors triggers the so-called “bullwhip effect,” whereby a minimum variation in downstream demand propagates upstream with amplified variations.
• High manual rework. The continuous modifications of plans and orders generated by MRP (due to the updating of forecast data) usually determine the need for manual corrections by the planner. This high manual rework (already risky in itself) sometimes leads to rejection by the planner: in the long term, in fact, it is not uncommon to see other parallel “home-made” tools and/or “safety” stocks arise to cope with this significant operational workload.

An immediate consequence of these effects is experienced in inventory turnover, finding oneself in a situation of bimodal inventory distribution: excessively high quantities of little-used components and a lack of availability of frequently requested components.

Returning to the initial question: how is it, then, possible to manage a modern material planning process that acts on the critical issues that MRP shows in the current context?

DDMRP: A Possible Solution

One answer to this complex problem is provided by the DDMRP (Demand Driven MRP) system, which was created precisely with the intent of overcoming traditional MRP, providing a package of tools designed to plan in a VUCA context.

Let’s look at some principles and tools of this solution:

• Demand Driven. Producing and ordering only in response to requirements triggered by real sales orders, without therefore having to rely on demand forecasting to trigger orders.
• Decoupling buffers. Exploiting decoupling stocks to manage all cases in which there is not enough time for procurement or production, shortening lead time and protecting the rest of the supply chain from demand nervousness.
• Dynamic adaptation. Managing buffer sizing in an adaptive manner, so as to react to changes in the context without the need for human intervention.
• Transparent execution. Increasing visibility on the supply chain through simple-to-interpret “visual” indicators and alerts, which give visibility over the entire system and allow for the timely management of critical issues according to an objective priority.

A correct implementation of DDMRP allows for several concrete benefits.

Which ones?

• Reduces forecasting errors, which often lead to stock shortages or excesses.
• Shortens lead time, thanks to the exploitation of the decoupling buffer concept.
• Optimizes inventory, guaranteeing the right level of stock based on the parameters used to manage the system’s adaptivity.
• Brings ease of use and visibility regarding critical issues.
• Makes the planning process solid, eliminating those drifts that lead planners to use Excel and adopt “lateral” solutions.

Do You Want to Learn More About DDMRP Methodology and Tools?

Makeitalia provides you with several options for further study:

• White paper. Download our white paper to delve into the fundamental concepts of the method.
• The opportunity to experience DDMRP firsthand: an introductory day in which we will combine basic training with the possibility to use the method and concretely appreciate its strengths, comparing it with traditional planning. For information, contact us, without obligation, by clicking here.
• Curious to understand what the benefits of introducing DDMRP in your company could be? Makeitalia provides you with a simulation to calculate the potential impacts in terms of service level and inventory turnover. For information, contact us, without obligation, by clicking here.
• DDPP^TM training course and exam. Participate in the official course developed by the Demand Driven Institute^TM to acquire skills on DDMRP and obtain the Demand Driven Planner Professional^TM certification. Discover the course program and request registration by clicking here.

Furthermore, if your company needs to analyze its processes and evaluate possible alternative solutions to the current planning systems used, contact us, without obligation, through the contact form at the following link: Contact us for information.

We will be happy to listen to your needs and discuss new planning solutions for your company together.