Demand Driven MRP: a key ingredient for an intelligent and ...

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Demand Driven MRP: a key ingredient for an intelligent and resilient Supply Chain

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Lorenzo Maggi

Enterprise Architect

SAP Services

Andrea Pagliari

Head of Business Development

SAP Services EMEA South

Andrea Pigozzi

Principal Business Process Architect

SAP Services


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Why Demand Driven MRP is needed and what is it?

▪ Typical customer statements and Value Proposition

▪ Supply Chain Challenges

▪ Decoupling the Supply Chain

▪ Demand Driven Approach and Methodology

Where customers can adopt DDMRP methodology

▪ SAP Solution Portfolio Coverage

▪ Possible Approaches and How to Choose

A DDMRP Showcase

▪ The demand-driven applications on SAP S/4HANA

How can SAP Services gives you a five and help

▪ First Touch Point Service

▪ Proof of Concept Service

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A DDMRP Showcase





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Motivation: Customers Struggle

AS-IS SITUATION

I HAVE TOO MUCH STOCK OF THE

PRODUCTS I DON’T NEED

I HAVE TOO LITTLE STOCK OF THE

PRODUCTS I NEED

I HAVE HIGH EXPEDITE OR OVER-TIME

EXPENSES

OVERALL I HAVE TOO MUCH STOCK.

NEVERTHELESS, I CANNOT FULFILL MY

CUSTOMER ORDERS (IN TIME AND

QUANTITY)


Motivation: Customers’ Goal

WHAT CUSTOMERS WANT

No Bullet Points required. One simple thing.

THE BEST POSSIBLE CUSTOMER

SERVICE LEVELS AT THE

LOWEST POSSIBLE COSTS


• BEST POSSIBLE CUSTOMER

SERVICE LEVELS…

• … AT LOWEST POSSIBLE (TOTAL

SUPPLY CHAIN) COSTS

I HAVE TOO MUCH STOCK OF THE

PRODUCTS I DON’T NEED

I HAVE TOO LITTLE STOCK OF THE

PRODUCTS I NEED

I HAVE HIGH EXPEDITE OR OVER-

TIME EXPENSES

OVERALL I HAVE TOO MUCH STOCK.

NEVERTHELESS, I CANNOT FULFILL

MY CUSTOMER ORDERS (IN TIME

AND QUANTITY)

Why do customers struggle? Inventory, Service & Expenses Challenges

TRADITIONAL PLANNING RESULTING IN A

BI-MODAL DISTRIBUTION DEMAND DRIVEN PLANNING RESULTING IN AN

OPTIMIZED DISTRIBUTION

WARNINGWARNINGOPTIMALLY

STOCKED SKUS

TOO MUCH CASH, CAPACITY AND

SPACE TIED UP IN INVENTORY

STOCK-OUTS, BACKORDERS,

MISSED SALES

UNDERSTOCKED SKUS OVERSTOCKED SKUS


Supply Chain Challenges

DEMAND IS

VOLATILE

SUPPLY CHAIN

IS RIGID

BY DAMPENING

THE EFFECT OF

VARIATION BY

DECOUPLING

BY DRIVING

REPLENISHMENT ON

ACTUAL DEMAND

BY ACHIEVING

VISIBILITY AND

PRIORITIZATION

THE FLOW IS KEY! But

how can I obtain a better flow?

Driven by promotions,

innovation, shortening

product life cycles,

competition..

Due to long lead-

times, large batches,

capacity constraints..

Material Requirement Planning was born in 1965, when supply chain complexity was

low, product life times were long, customer tolerance time were long, the forecast

accuracy was high and product complexity and variety were very low. The time has

changed.

FLOW IS KEY


DDMRP Effect

POSITIONING

STRATEGIC

BUFFERS

DECOUPLE THE

SUPPLY CHAIN

DAMPEN THE

BULLWHIP EFFECT

Purchased

Components or

Raw materials

Critical sub-

assemblies

Critical finished

goods

DE

MA

ND

VA

RIA

BIL

ITY

SU

PP

LY

VA

RIA

BIL

ITY


REDUCTION OF

USERS TIME TO PLAN

AND EXECUTE

DDMRP Proposition

DEMAND

DRIVEN MRP

STOCK ON-HAND

REDUCTION

HIGHER TURNOVER RATE

REDUCED ORDER

FULFILLMENT LEAD TIME

(OFLT)

HIGHER ON TIME DELIVERY TO

REQUEST (OTD-R)

HIGHER ON TIME

DELIVERY TO

COMMIT (OTD-C)

IMPACT ON INVENTORY COST

AROUND -30%

BENEFITS TO BUSINESS

Detailed view by industry


DDMRP: Demand Driven Approach

SAP is recognized as one of the compliant softwares to implement Demand Driven Material

Requirement Planning in its suite S/4HANA (On-premise and cloud) and SAP Integrated

Business Planning. For further information: https://www.demanddriveninstitute.com/ddmrp-

compliant-software

Founded

by

Demand Driven Institute

(https://www.demanddriveninstit

ute.com/)

When 2013/2014

Covered

processes

• Sales and Operations

Planning

• Material Requirement

Planning

• Production Scheduling

“IT IS BETTER

TO BE

ROUGHLY

RIGHT THAN

PRECISELY

WRONG”cit. John Maynard Keynes

https://www.demanddriveninstitute.com/ddmrp-compliant-software

https://www.demanddriveninstitute.com/


5STEPS

DDMRP Methodology Steps

1 2 3 4 5BUFFER

POSITIONING

BUFFER

PROFILING

DYNAMIC

ADJUSTMENT

ORDER

RELEASEEXECUTION &

MONITORING

POSITIONING PROTECTING PULLING

YEARLY

QUARTERLY MONTHLY

Determine where

in supply network

to place buffers.

Set up Buffer

Profiles (master

data) and

determine sizing

of each buffer

according to lead

times,

demand, variability.

Adjust buffer

sizes based on

actual lead times

and actual/

projected

demand.

Generate

replenishment

orders at decoupling

points based on

actual demand

(consumption-based).

Generate orders

between decoupling

points using classic

MRP dependent

demand logic.

Prioritize orders in

real time according to

actual buffer

penetration, and

leverage order

priorities in executing

replenishments

(distribution,

production,

procurement).

DAILY


Step 1: Buffer Positioning

1 2 3 4 5BUFFER

POSITIONING

BUFFER

PROFILING

DYNAMIC

ADJUSTMENTORDER

RELEASEEXECUTION &

MONITORING


BUFFER

POSITION

«It has to be decided where inventory buffers should be positioned. This is a primary

question to be answered before sizing the inventory»

MARKET POTENTIAL

LEAD TIME

SALES ORDER

VISIBILITY HORIZON

CRITICAL OPERATION

PROTECTION

CUSTOMER

TOLERANCE TIME

INVENTORY LEVERAGE

AND FLEXIBILITY

EXTERNAL & INTERNAL

VARIABILITY


BUFFER

POSITIONING

Step 2: Buffer Profiling

1 2 3 4 5BUFFER

PROFILING

DYNAMIC

ADJUSTMENTORDER

RELEASEEXECUTION &

MONITORING


Min Saf. Stock

Safety Stock

Reorder Point

Maximum Stock

[MARC-EISLO]

[MARC-EISBE]

[MARC-MINBE]

[MARC-MABST]

Fields

RED

SAFETY

RED

BASE

YELLOW

GREEN

BLUE

OTOG – Over Top of

Green

TOG – Top of Green

TOY – Top of Yellow

TOR – Top of Red

Demand Driven Institute

= Average Daily Usage x

Decoupled Lead Time

= Yellow x Lead Time Factor2

= Red Base x Variability Factor1

= Yellow x Lead Time Factor2 OR

= Min Order Quantity OR

= Average Demand x Cycle Time

(select the greatest one)

1

2

3

4

How am I suppose to calculate them?

(a mix approach considering ADU and

FORECAST is allowed)

1. Variability Factor – LOW (0.3), MEDIUM (0.5), HIGH (0.8) VARIABILITY

2. Lead Time Factor – SHORT (0.8), MEDIUM (0.5), LONG (0.3) LEAD TIME


BUFFER

POSITIONING

Step 3: Dynamic Adjustment

1 2 3 4 5BUFFER

PROFILING

DYNAMIC

ADJUSTMENTORDER

RELEASEEXECUTION &

MONITORING


Dynamic Buffer Adjustments are

automatically proposed by the system

based on Average Daily Usage (ADU)

of the material.

Dynamic Buffer Adjustments may be

driven by manual adjustment done by

the planner due to seasonality or

promotions.


BUFFER

POSITIONING

Step 4 & 5: Order Release, Execution & Monitoring

1 3 4 5BUFFER

PROFILING

DYNAMIC

ADJUSTMENTORDER

RELEASEEXECUTION &

MONITORING


TOG

TOY

TOR NFP

SUPPLY

ORDER

(ONLY IF

NFP < TOY)

NFP = STOCK ON HAND + RELEASED SUPPLY ORDERS – QUALIFIED DEMAND

NO ACTION,

RELAX!4. PLACE NEW ORDER by Planning Priority

(NFP/TOG)

2

5. EXPEDITE SUPPLY ORDERS by Execution

Priority (SoH/TOR)

Max Stock

Reorder Point

Safety Zone

time

Firm Demand

Quantity

Spike HorizonToday

Spike

Spike Threshold = (e.g.) 50% x Safety Stock

(Past) Due SO’s

Qualified Demand,

in particular Spikes










A DDMRP Showcase





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SAP considers DDMRP as a strategic topic in Supply Chain and offers two complementary solutions

SAP IS EMBRACING THE DEMAND-DRIVEN ADAPTIVE ENTERPRISE MODEL VIA:

DECIDING WHICH TO CHOOSE IS INFLUENCED BY

TWO CATEGORIES OF CONSIDERATION: LANDSCAPE

AND USE CASES

SAP INTEGRATED

BUSINESS PLANNING


Solutions Coverage

INTEGRATED BUSINESS PLANNING

SAP INTEGRATED

BUSINESS PLANNING

SAP ECC

ECC


How to choose the best approach? Some examples

..has a very large and complex

bills of material (e.g. Automotive,

Aerospace, etc.)

.. has a relatively short and

simple distribution network

which may or may not be

included in the DDMRP process

.. has a S/4HANA landscape

and/or intends to plan per

instance

..is moving to S/4HANA or has

plan to move shortly

S/4HANA ORIENTED

APPROACH


SAP S/4HANA Oriented Approach

Distribution

Center

Manufacturing

Warehouse

Warehouse

Supplier Customer

SAP S/4HANA

This approach applies where the

customer has

…any S/4HANA landscape

…any scale from flat BOM to very large

and deep bills of material and routings

(think Automotive and Aerospace)

…a relatively short and simple

distribution network which may or may

not be included in the DDMRP process.

Strategic Decoupling Buffer Profiles & Levels Dynamic Adjustments Demand Driven Planning Visible & Collaborative Execution

Manufacturing

SAP S/4HANA





Aerospace, etc.)







instance



…has a relatively flat bills of

material

..distribution is managed with

complex supply chains and

distribution networks

…has already IBP in use or is

planning to use it in an industry

where IBP is really relevant (e.g.

CPG, Chemicals, IM&C, etc.)

…has an ECC landscape and is

not moving to S/4HANA at the

moment

S/4HANA ORIENTED

APPROACHSAP INTEGRATED

BUSINESS PLANNING

ORIENTED

APPROACH

SAP INTEGRATED

BUSINESS PLANNING

and SAP ERP

SAP INTEGRATED

BUSINESS PLANNING


SAP IBP & SAP ECC Combination Landscape Approach

EU

Warehouse

Distribution

Center

(local)

US

Warehouse

Distribution

Center

(regional)

Manufacturing

Warehouse

Manufacturing

Warehouse

Supplier Customer

SAP INTEGRATED BUSINESS PLANNING


customer

…has an ECC landscape

…is not a currently on S/4HANA and no

plans to move shortly

…has SAP IBP or is planning to use it

in an industry with relatively flat Bills of

Material but perhaps longer and

broader supply chains and distribution

networks (CPG, Chemicals, IM&C, etc.)


SAP ECCSAP IBP

Demand Driven Planning

SAP ECC





Aerospace, etc.)







instance



…has a relatively flat bills of

material

..distribution is managed with

complex supply chains and

distribution networks

…has already IBP in use or is

planning to use it in an industry

where IBP is really relevant (e.g.

CPG, Chemicals, IM&C, etc.)

…has an ECC landscape and is

not moving to S/4HANA at the

moment

…wants to run DDMRP

separately for manufacturing and

distribution

…has an S/4HANA landscape

and IBP in use

..has both complexity in

Manufacturing with multilevel

BOMs and in Supply Chain with

many DC levels

S/4HANA ORIENTED

APPROACHSAP INTEGRATED

BUSINESS PLANNING

ORIENTED

APPROACH

HYBRID

APPROACH

SAP INTEGRATED

BUSINESS PLANNING

and SAP ERPSAP INTEGRATED

BUSINESS PLANNING

SAP INTEGRATED

BUSINESS PLANNING

and

SAP INTEGRATED

BUSINESS PLANNING

Roadmap


SAP IBP & SAP S/4HANA Hybrid Landscape Approach

EU

Warehouse

Distribution

Center (local)

US

Warehouse

Distribution

Center

(regional)

Warehouse

Warehouse

Supplier Customer

SAP S/4HANA


customer

…has an S/4HANA landscape

…already has IBP or is planning to

adopt SAP IBP

…wants to run DDMRP separately

for manufacturing and distribution

Manufacturing

Manufacturing



SAP S/4HANASAP IBP

Manufacturing DDMRP

Distribution DDMRP

Demand Driven Planning

SAP INTEGRATED BUSINESS PLANNING

Roadmap










A DDMRP Showcase





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Demand Driven Planning - First

TouchPoint Service

Enablement Session (0.5 days) with following

main contents:

- Deep dive into DDMRP Methodology

- Demo on SAP S/4HANA or SAP IBP

System

- Brainstorming of possibile applications

within customer Supply Chain

Deliverables:

1. Demand Driven Documentation

2. Summary of Brainstorming and quotation of

Proof of Concept

Total elapsed time: 3 days

Demand Driven Planning – Proof

of Concept Service

POC Service is delivered in 4 phases:

- Envision (2 days): the aim is scoping the

plant and materials subjected to Demand

Driven planning. Also strategic position of

buffers and main parameters are discussed

and agreed.

- Design: realization of the Proof of Concept

in test system.

- Refine (0.5 day): the POC is shared and

refinement is done together with the

customer.

- Finalize (0.5 day): the final POC is

delivered to the customer with all

documentation.

Total elapsed time: 3-5 weeks

How can we move a step forward together?

https://webinars.sap.com/mea/sap-services-emea-south-intelligent-enterprise/en/home

Focus on the Intelligent Enterprise with SAP Services

Contact information:

Lorenzo Maggi

Enterprise Architect, SAP Services, EMEA South

[email protected]

Thank you.

Andrea Pigozzi

Business Process Principal Architect, SAP Services, Italy

[email protected]

https://webinars.sap.com/mea/sap-services-emea-south-intelligent-enterprise/en/home

mailto:[email protected]

mailto:[email protected]

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