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April 23, 2024 - by Synoptek
Material requirement planning (MRP) is a critical aspect of manufacturing, allowing organizations to determine the materials and components required to manufacture a product. However, today’s highly volatile supply chains render traditional approaches to MRP ineffective. With lead times fluctuating due to several economic and political factors, many companies end up with stockouts or overstocks. Read how the Demand-driven Material Requirement Planning (DDMRP) module in Dynamics 365 Supply Chain overcomes inventory problems and transforms supply chain efficiency.
Today’s dynamic business landscape makes it extremely challenging for businesses to forecast demand accurately. Fluctuating oil prices, tensions between nations, and economic uncertainty impact the ability of enterprises to meet the ever-changing needs of today’s customers. Without accurate insight into demand, businesses do not know how much inventory to stock. At the same time, market fluctuations and increasing customer expectations lead to supply chain shortages globally.
Demand-driven Material Requirement Planning (DDMRP) is aimed at effectively managing and planning inventory based on actual demand signals. It decouples supply and demand and maintains buffers to ensure an accurate level of inventory while also helping cover demand spikes. Such decoupling ensures small fluctuations in demand at the retail level do not translate into large variability at the wholesale, distribution, or manufacturing levels. It also helps cover the average use of a part and can also be adjusted to cover demand spikes.
DDMRP allows organizations to streamline inventory management, reduce lead times, and increase overall supply chain agility and resilience. By making traditional MRP sensitive to real-time fluctuations in demand, DDMRP allows organizations to keep up with the volatility, uncertainty, complexity, and ambiguity of modern supply chains.
The DDMRP feature is built into Dynamics 365 Supply Chain. Let’s look at the five essential components of the demand-driven material requirement planning model, spanning requirements analysis to day-to-day operations:
Strategic inventory positioning helps organizations compress lead times and absorb shocks to the supply chain, restricting variability from passing down. It requires them to identify decoupling points in their supply chain. These can include external variability, inventory flexibility, customer tolerance time, sales order visibility, market lead time, etc.
For instance, a garden furniture retailer with geographically dispersed distribution and retail centers can set up customer tolerance time as a decoupling point for each store, accommodating different buffer levels based on lead times, demand patterns, and more.
After identifying decoupling points, organizations must move on to determine the buffer for each of these points. These include the minimum quantity, the maximum quantity, and the reorder quantity. In Dynamics 365 Supply Chain, these values can be established across three different zones:
The furniture retailer can factor in values such as average daily usage, decoupled lead time, minimum order size, order cycle, and variability to calculate values for each of the three zones.
To optimize inventory levels during periods of high or low demand, organizations can apply demand adjustment factors and fine-tune buffer values in response to changing conditions.
For instance, right before summer begins, the outdoor furniture retailer is sure to witness higher sales. To keep up with the demand increase, the retailer can change the demand adjustment factor value and review planned orders to refill the buffers.
To generate planned orders for items that are set up as decoupling points, Dynamics 365 Supply Chain applies the concept of net flow to establish the effective on-hand quantity. This is based on the actual on-hand inventory plus inventory that is on order minus qualified upcoming sales. When determining which buffer zone an item belongs in and what the ordered quantity should be, the system evaluates the net flow, not the actual on-hand inventory.
The furniture retailer can use the Demand-driven Material Requirement Planning (DDMRP) feature to assign the priority of a planned order based on the ordered quantity as a percentage of the maximum inventory. Depending on the threshold value, Dynamics 365 will generate a planned order when the net flow drops below the reorder point.
Dynamics 365 Supply Chain also allows organizations to visually track buffers, on-hand quantities, and net-flow levels for any item. With the help of charts, they can study how on-hand quantities change over time and make informed strategic decisions.
For instance, the furniture retailer can get insight into the value of the on-hand level that was recorded for a specific period every time that master planning is run. It can also understand the category each recorded on-hand level falls into, from critically low, low, average, or higher than average.
Material requirement planning underpins the successful operations of any manufacturing unit. By specifying which materials and parts to order, how many, and when, it ensures timely production to meet the forecasted demand. However, traditional Materials Requirement Planning (MRP) systems struggle with the volatility, variability, and uncertainty of modern supply chains.
DDMRP seeks to tackle these challenges by integrating various principles to ensure that the right inventory is available at the right place and time. Instead of relying on forecast accuracy, it buffers for fluctuations in demand and supply. Since it is more sensitive and responsive to supply chain variations, it helps overcome inventory issues by minimizing excess inventory and avoiding stockouts.
Make the most of DMRP with Microsoft Dynamics 365 Supply Chain today!
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