Much of Industry Has Lost its Way Regarding MRP

3 minute read

Upland Admin

Last week I shared the insights of a CEO using Demand Driven Supply Chain methodologies profiled Chad Smith in Demand Driven Performance – Using Smart Metrics (Smith and Smith, McGraw-Hill, 2013). Smith is a co-founder and Partner at the Demand Driven Institute, an organization dedicated to proliferating demand driven methods globally. Smith serves as the Program Director of the International Supply Chain Education Alliance’s Certified Demand Driven Planner (CDDP) Program. Two months ago Chad Smith and I (Ultriva founder, Narayan Laksham) discussed the five components of DDMRP (Demand Driven Materials Resource Planning) at a well-attended webinar.

In the preface of the aforementioned book, Smith insisted, “Much of industry has lost its way in this more complex and volatile world.”  Smith suggested that what is needed is a different way to think, design, operated, and measure a system in a rapidly changing and unpredictable world; a way that is both simpler and smarter.

Smith goes on to make his case that metrics tell us how we are doing based on what we want to achieve. Yet it seems that most companies struggle to define what they really want to achieve. In the for-profit world, Smith opined, it should be relatively simple – the maximization of shareholder equity. This insidious problem referred to above is the route most organizations assume is the way to get there – a route that is totally and unequivocally wrong. The fact is that most industries believe that way is right and does not make it any less wrong.

Smith goes on to share the definition of smart metrics and spends the final chapters of the text offering a new direction to allow companies to design and operate the new demand driven systems required to remain competitive in today’s more complex, integrated, and volatile world. Ultriva is an example of the complex adaptive system Smith discusses along with the introduction of a new suite of objectives and metrics in or to keep a complex system balanced….Smith names that coherence.

While not a panacea, a well-thought Demand Driven Supply Chain sets out a path for the journey and challenges ahead. Having relied on a black box (MRP II) which has been guiding what planners, buyers and materials people do on a day to day basis, it takes quite a bit of inertia to redirect towards a new methodology. However it is not as difficult as it sounds.  Each of the department silos – Planning, procurement, purchasing, materials management and supply chain have been holding on to their spreadsheets and reports to ensure that customers are being serviced well.  The Demand Driven supply chain approach empowers the department to do the right thing without constantly correcting the course or managing the exceptions.

People who manage Finished Goods (FG) distribution can focus on right sizing the mix of inventory without worrying about raw material availability. Production can get steady signals to manufacture instead of constant pull and push of customer orders, Suppliers can get orders based on usage without the bull whip effects of forecasts. Chad Smith preaches Position and Pull. Ultriva’s supply chain loop driven architecture allows manufacturers to position based on their business model while seamlessly implementing a pull process upstream and downstream.

Some of the key metrics to keep in mind through a demand driven supply chain include inventory velocity, inventory aging and scorecard at each loop.  Perhaps the most important metric will be missing: the forecasting error.

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