Glossary and FAQ

Frequently Asked Questions (FAQ)

What is the difference between a DDMRP buffer and a safety stock?

When you make a plan with MRP and you have some components with safety stock, MRP will try to not use them. In technical words, MRP nets to zero which means it always attempts to bring your stock levels to zero, or to safety stock. This is good in theory but a disaster in practice, because every time you re-run your MRP the demand will have changed, maybe even slightly. MRP will nevertheless recalculate all the plans in order to achieve its net-zero result. So the safety stock is actually never intended to be used and the plan changes all the time creating a lot of instability. DDMRP does exactly the opposite. All the stock in the DDMRP buffer is intended to be consumed to absorb the variability and thus create stability in the plan. A small change in demand will not affect the plans on the other side of a DDMRP buffer.

Can I use DDMRP to manage long lead time components?

Absolutely yes. The yellow zone of the buffer is there just for that. It represents the stock that will be depleted while waiting for your deliveries to arrive. When the buffer triggers a replenishment order it considers the yellow zone and thus places the order considering the appropriate lead time.

How do I apply DDMRP when my demand is intermittent?

This is an issue that many companies will need to deal with. You calculate your buffers using your ADU (average daily usage) but you have many days where you are not actually selling (using) anything. The trick is that you need to calculate your buffer zones as if these days with 0 sales weren’t present. After that you will need some additional adaptations to your buffer.

I am a pure MTO company, therefore DDMRP doesn’t work for me, right?

As a matter of fact, DDMRP will be beneficial especially for a MTO environment. The reason is that in most cases you will not be a pure MTO unless you are in an Engineering to Order business (and even there DDMRP works very well, but that is for another day). Most MTO companies will store either raw materials or intermediate components that allow them to supply their customers within the lead time that the customers require. And this is where DDMRP can help, primarily for deciding which raw materials and components need to be stock (and which not), and then what is the right levels of those stock buffers.

If DDMRP doesn’t use forecasts, how can I plan for the long term?

DDMRP in a narrow sense is an operational tool that only manages orders. But you can apply projected demand (in the form of projected ADU) to your buffers and thus simulate how they will generate supply orders in the future. You can also simulate how the buffers themselves will adapt to different demand (e.g. if demand is increasing the buffer will increase accordingly). This allows you to calculate capacity, labour and storage space requirements as well as estimate your future inventory level and the number of supply orders you will have in the future. In short you can get all what you need to make your tactical plans.

I need to send a forecast to my suppliers so they can plan their capacity. Can I do that with DDMRP?

Yes. This is where there is a lot of confusion about the methodology. DDMRP in a narrow sense only deals with orders and so it is blind to the future. But the methodology allows you to simulate how your buffers will generate supply order in the future based on projected demand. These simulated supply orders can be given to your suppliers as a forecast. It is important that they are clearly identified for what they are: non binding forecasts. The actual orders will be generated by the net flow equation within the agreed lead time.

I am managing products with a short shelf life. Can DDMRP deal with these products?

Yes. You can do that at two levels, the S&OP level and Operational level. At the S&OP level you simply convert the buffer zones from units to days. To do that you just divide the units by the ADU. Now you can compare your calculated buffer with the time you can keep the product in storage before they expire. For instance you know that on average you will have Red + 50% of Green in stock. If that calculated value is more than the time you can keep your stock in storage you know you will have a problem. So the solution will be to reduce the replenishment lead time, reduce the lot size (Green Zone), and better control variability (Red Zone). Operationally you want to make sure that you will always have sellable products in your buffer. This can be done if your DDMRP software can manage the stock at batch level with sell-by date. The trick is simply that if the system projects that there will still be some batch quantity still remaining at the sell-by date, it will “sell” that quantity. If it’s a small quantity then the buffer will calculate through it just normally. If it is a big quantity then the buffer will see it as a spike and potentially trigger a replenishment order to replace it with fresh stock.

My products are highly seasonal. How can DDMRP help me manage them?

Yes, DDMRP makes managing seasonal products very easy. You can do that by adapting the parameters of your buffer stocks and there are many ways you can do that. Typically you will increase your buffer some time in advance of the start of the high season. How much in advance will depend on the lead time to procure and build the stock. The system will react by generating supply orders that will build the stock necessary to support the sales for the high season. Then, when you are at the top of the season, you bring your buffer down to its nominal value. Now the products in stock will be sold and will not trigger any new replenishment until the stock reaches the off-season level.

How is it possible that DDMRP inventories go down to 20-40% as reported by many companies and consultants, when DDMRP is literally about creating buffer stocks that weren’t there before?

Indeed this is counterintuitive but it can be explained. There are three elements of this. Firstly, in a traditional MRP planning there should be no stock in theory except for the safety stocks. In practice there is stock everywhere. So the statement ”that wasn't there before” is not true. The difference is that MRP is not built to manage stock: according to the MRP plan all positions are netted to zero so there should be no stock but we know that this isn’t true. When you implement DDMRP you will actually manage those stocks and thus make them very visible. Secondly, in DDMRP you decide which materials will be buffered (= will be stocked) and which will not be in your end-to-end supply chain. This is a critical decision making process that will impact the overall inventory investment. For instance, you can calculate that by buffering an intermediate component that is common to many MTS finished products you will reduce the stock requirements for those finished products and thus the total inventory goes down. Thirdly, in a traditional environment we observe what is commonly known as bimodal inventory distribution. This means that we have several products that are understocked and several other products that are overstocked at the same time. With DDMRP you will create a more balanced inventory, where all products are stocked at the right level. So some products you will actually increase the stock, while others you will reduce. Now, this bimodal distribution is not symmetrical: you generally have many more products with too much stock than products with not enough, so when you rebalance those stocks the total inventory will go down.

I would like to try DDMRP but my planning team is not quite ready as we are still failing to properly apply the basics of planning. Don’t we need to be proficient with basic planning methods before moving to these advanced approaches?

As a matter of fact: NO. DDMRP is an advanced method but not in the sense that it builds on top of traditional planning. It is just a different approach to planning. Thus, becoming proficient in traditional planning is a waste of time and may actually be counterproductive because a big deal of DDMRP is about un-learning some traditional planning and learning something completely novel. In a sense when you implement DDMRP you are taking two steps back in order to be able to make a huge leap forward on a different road.