Increase Service Levels and Lower Inventory with SAP DDMRP
Create a World Class Demand Driven Supply Chain
Meet the Authors
⇨ DDMRP improves on the functionality of traditional MRP.
⇨ DDMRP works better in a volatile environment like we have today.
⇨ Through SAP IBP, DDMRP can calculate variability to eliminate manual tasks.
Demand-driven material requirements planning (DDMRP) is a solution to plan materials and inventories. While traditional MRP does a respectable job of planning, DDMRP improves on that functionality to work better in a volatile environment. It enables companies to get closer to customers’ requirements, promoting faster decisions at the planning and execution level.
Why can’t sales, marketing and planners just forecast more accurately? The volatility of demand throughout the supply chain network has increased creating a more complex operating environment. Customer tolerance levels have decreased as product lead times have increased. The goal is to balance the customers’ needs by optimizing inventory levels and driving overall business performance.
For organizations to adopt an innovative technology, they need a compelling reason to assure they can achieve tangible, sustainable improvements. Simply stated, DDMRP can maintain or improve customer service levels, while lowering inventory levels. The main feature is the strategic inventory buffer that breaks up long or complex production sequences in long lead-time cycles. The planner employs DDMRP and determines where to disconnect sequential lead times for the strategic buffer. While it will not solve every problem, DDMRP will provide supply chain performance improvements in an environment where mitigating against risk is important. Innovators are embracing this next-generation technology, with many following to make their supply chains more resilient and efficient.
The difference between SAP MRP and SAP DDMRP
- Traditional MRP has been a staple software for years, using a push method that relies on a historical forecast. MRP specifies what and when to order, what quantity to order, and when activities must be completed to meet the completion date. But safety stock from inventory optimization (IO) is still vulnerable to a bullwhip effect that can snowball through the supply chain.
- DDMRP uses market demand signals in real-time (a pull method) and promotes inventory flow in the supply chain. Users pull controlled inventory at strategic positions to protect the production schedule and avoid shortages. It requires less inventory because the strategic items are buffered, then the pull technique ensures the right inventory level is maintained for those items. Inventory can become an asset when it is right sized, effectively managed, and smartly positioned. A significant level of ROI can be achieved when reducing on-hand inventory, lead times, and inventory turns.
DDMRP is offered by ERP system providers, typically available in the cloud as a supply chain planning solution. Other vendors offer it as an add-on application. It works with all types of manufacturing strategies such as made to stock, made to order, or engineer to order. Some key components to consider are inventory positioning, buffer profiles, dynamic buffer adjustments, demand driven planning, and visible collaborative execution.
DDMRP was introduced in SAP S/4HANA version 1709 with Fiori apps, but from version 1905 it comes as a separate model with a separate license required. DDMRP combines the advantages of pull-methods based on Lean, Six Sigma, and Theory of Constrains. In SAP S/4HANA IBP (Integrated Business Planning) it is an optional extension of MRP, not a replacement. IBP can automatically calculate variability of the supply chain for the user, eliminating manual tasks.
SAP DDMRP is structured by a methodology to position, protect and pull, with the following focus:
- Identify the strategic items to manage through DDRMP.
- Establish the target inventory (buffer) level and parameters.
- Replenish using the pull signals.
- Plan using functions within DDMRP.
- Collaborate with the supply chain parameters using replenishment zones or triggers to execute the plan.
Benefits of SAP DDMRP include:
- Improved lead time
- Improved cycle times
- Optimized inventory levels
- Improved customer retention
- Improved margins
A key feature of DDMRP is its ability to tailor plans to new challenges. Such as larger product assortments, smaller lot and batch sizes, and more complex production operations. Today the planning and execution of the entire supply chain must be aligned and synchronized to the needs of the changing market.
What Does This Mean for SAPinsiders?
- Consider the options. Are you at the tipping point that makes the DDMRP approach worth your investment? Evaluate what vendors and solutions can offer and if that functionality best aligns with your all of your organizational objectives. Review the end-to-end methodology and evaluate if your organization is ready for this supply chain transformation.
- Elevate customer service. An elevated level of customer service can be obtained through better inventory availability. Dynamic buffer zones are defined that will automatically establish the optimal levels of inventory based on the current market conditions. These buffer zones support inventory optimization and reduce stock outs, so customers are better serviced by increased fill rates and on time deliveries.
- Educate the planners. DDMRP is significantly different from more traditional planning methods, requiring buy in from stakeholders. Source experts that support both an implementation and education transformation on the tool. Provide value by offering simulations and training, then incorporate change leadership. Adopt the most suitable solution and roadmap based on your unique company’s needs. Create KPI’s to track the implementation roadmap and user adoption.