DDMRP and DDSCM - Revolution after 60 years

Demand-driven supply chain management (DDSCM) and its centerpiece Demand-driven material requirements planning (DDMRP) are considered a revolution and paradigm shift in supply chain management.

The fact that SAP is increasingly providing DDMRP functionalities in its products shows that this is a serious trend with great future potential.

For many SAP users, this topic is still new. What exactly is behind the magic word "demand-driven"?

Demand-driven versus demand-driven

Supply chain management has always been demand-driven. So what is new?

Traditional supply chain planning approaches use forecasts of future customer demand to tell suppliers and factories what to deliver, produce and move, when and how. This only works well if the demand forecasts very accurately match actual customer demand.

However, given the complexity and volatility of today's customer markets, an ever-increasing number of sales products, and ever-shorter product life cycles, accurate demand forecasting is simply no longer possible.

In fact, forecasts for most products are off by over 40 percent - either too high or too low. The consequence: the wrong quantities are procured, produced and sent to the wrong places at the wrong time.

As a result, inventories are either too high or too low, production capacities are poorly utilized or overutilized, and delivery promises to customers cannot be kept.

The core of the problem is that today's supply chains are managed using methods that date back to the 1960s - a time when supply chains looked completely different and much simpler.

Modern requirements - traditional methods

Material Requirements Planning (MRP) is the most widely used planning method in all industries. Today, every ERP and SCM/APS system is subject to MRP processing logic that is more than half a century old.

As a consequence, we still chain end-to-end supply chains across all MRP nodes with zero netting of demand and supply, unknowingly but inevitably lengthening overall product replenishment times (lead times).

If the increasing variability of demand as input now meets a multi-level planning chain connected with a "zero netting logic", the variability increases from MRP level to MRP level.

We counter this effect - almost instinctively - with even larger inventory, time and capacity buffers, rather than addressing the root cause of the problem - actively reducing and managing variability in supply chain planning.

Variability and volatility

The Demand-driven SCM concept first addresses the "root cause" of supply chain problems - namely, how we process and pass on variability and volatility in ERP/APS systems.

Demand-driven SCM, with its centerpiece, demand-driven MRP, is a new, innovative approach to better manage variability in today's digital supply chains.

Demand-driven MRP uses strategic decoupling points to set optimal inventory buffers along the entire supply chain. These act as "shock absorbers" to minimize volatility at the respective distribution or manufacturing stage.

DDMRP ensures that only what is actually demanded or sold is produced - in contrast to the traditional approach, in which companies produce or procure what was planned by means of - erroneous - forecasts.

If the variability in the supply chain is reduced, the key figures that depend on it are automatically positively influenced.

The de facto realizable results for companies are disruptive: reduction of inventories by up to 60 percent, shorter lead times by up to 85 percent, decreasing production costs by "calming" production (leveling effect) while constantly achieving the targeted customer service level.

A calmed end-to-end supply chain with smaller "buffers" favors product throughput (flow) and consequently results in a better return on investment in the value chain.

Thoughtware and software

However, the most brilliant concepts are useless if they cannot be implemented, i.e.: the corresponding software is also required for the "thoughtware".

The SAP partner Camelot, which specializes in digital value chain management, started early to deal with the implementation of demand-driven concepts in SAP software and developed the Demand-driven Lean Planning Suite, an SAP-based software suite for demand-driven SCM, several years ago.

Together with SAP, Camelot developed the DDMRP extension solution for SAP Integrated Business Planning (IBP)-the first extension solution for SAP IBP ever.

This makes Camelot one of the global pioneers in SAP-based DDSCM solutions. Today, the company also officially has the largest number of certified consultants and trainers for Demand-driven Supply Chain Management.

Demand-driven has now arrived in the SAP world. DDMRP functionalities are currently available in S/4, SAP IBP, SAP SCM and SAP ECC.

So today, there is no reason for companies not to embark on the demand-driven journey - and turn their supply chain into a real competitive advantage.