An Introduction - APICS Vancouver · 2018-11-02 · Roberta McPhail, CPIM,CIRM,CSCP, DDPP, CDDL, PMP, CLTD •25 years of direct industry experience mostly metals and plastics industries

An Introduction

All contents © copyright 2018 Demand Driven Institute, all rights reserved.

Partners with

Introduction Roberta McPhail, CPIM,CIRM,CSCP, DDPP, CDDL, PMP, CLTD

• 25 years of direct industry experience mostly metals and plastics industries. Up to level of Director of Supply Chain Planning.

• 8 years of training\consulting experience in supply chain

• Director of Corporate Training\Biz Development for APICS Vancouver

• APICS Master Instructor teaching thru out BC (BCIT and Camosun)

• Demand Driven Instructor(only one in Canada)

• Fresh Connections Instructor

• Associate Consultant for CMG- contraints mgt group (demand driven consultants)


Lets Review - How do we plan and managing inventories in Supply Chain – What methods and tools do we use?


Who is doing this ddmrp thingy?


Is there software? YES!


https://www.demanddriveninstitute.com/copy-of-compliant-software








Material Requirements Planning “As this book goes into print, there are some 700 manufacturing

companies or plants that have implemented, or are committed to

implementing, MRP systems. Material requirements planning has

become a new way of life in production and inventory management,

displacing older methods in general and statistical inventory control in

particular. I, for one, have no doubt whatever that it will be the way of life

in the future.” Orlicky 1975 Joe Orlicky

Features: • Time Phased Planning • Level by level BOM explosion • Dependent demand planning Benefits: • Component synchronization • Reduction in inventory • Improved priorities

• MRP did become THE way of life for planning. • It was conceived in the 1950s with the

prevalence of computers. • It was codified in the 1960s by a small group of

practitioners. • It was commercialized in the 1970s • By 1990 most manufacturers of even modest

scale had an MRP system


But Something is Terribly Wrong

Companies Using Spreadsheets for Demand Management

84

71

63

0 20 40 60 80 100

Laggards

Industry Average

Best-in-Class

Aberdeen Group (Demand Management, November, 2009)

Spreadsheet use is rampant and often unmonitored.

Close to 90% of spreadsheet documents contain errors, a 2008 analysis of multiple studies suggests. “Spreadsheets, even after careful development, contain errors in 1% or more of all formula cells,” writes Ray Panko, a professor of IT management at the University of Hawaii and an authority on bad spreadsheet practices. “In large spreadsheets with thousands of formulas, there will be dozens of undetected errors.”

Wall Street Journal’s MarketWatch, April 20, 2013,

Jeremy Olshan

These spreadsheets have limited capability, scalability and transferability.

Most Planner and Buyers mistrust their planning tools.

They also are error prone.


The Father of S&OP Planning says “they got it wrong”


Supply Chain Characteristics 1965 Today

Supply Chain Complexity Low High

Product Life Cycles Long Short

Customer Tolerance Times Long Short

Product Complexity Low High

Product Customization Low High

Product Variety Low High

Long Lead Time Parts Few Many

Forecast Accuracy High Low

Pressure for Leaner Inventories Low High

Transactional Friction High Low

Complex and Volatile is the “New Normal”

Conventional planning rules have not appreciably changed since the 1960s. MRP still plans today the way it did 50 years ago!

Today’s supply chains look VERY different from 1960’s supply chains when conventional planning rules were formulated but…


The New Normal and Inventory Implications

Supply chains have elongated and fragmented while customer tolerance times have dropped dramatically.

This disparity means holding stock at some strategic point is a must to keep and/or grow sales.

Also, there are more products with shorter life spans to manage - many use common components and resources.

This means managing stock positions effectively is a must for effective capital and resource management.

This also means that planning horizons are more remote from actual demand realization (longer range forecast).

This also means that detailed item level forecasting is much more difficult.

How is the conventional approach faring with all of this?

The three rules of forecasts: 1. They start out wrong 2. The longer the range, the

more wrong they are 3. The more detailed, the

more wrong they are


Conventional Inventory Management Effects We know there are two universal points with regard to inventory.

Between these points there is an optimal range to maintain.

Too Much Too Little

A B

0

Optimal Range Warning Warning


Conventional Inventory Management Effects Most companies exhibit a “bi-modal distribution” – most of the inventory is either too low or too high

90% of companies report this issue!

Too Much Too Little

# o

f p

art

s o

r S

KU

0

With every MRP run an oscillation effect often occurs in which inventory quickly moves from one distribution to the other.

Optimal Range Warning Warning

A B


Three Bottom Line Effects to Companies:

1. Chronic Shortages

2. Excessive Inventory

3. High Expedite Expenses & Waste

But the real problem is at a higher level!


The Collective SCM Problem Bull-Whip Effect: “An extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in the supply chain. Inventory can quickly move from being backordered to being excess. This is caused by the serial nature of communicating orders up the chain with the inherent transportation delays of moving product down the chain.” (APICS Dictionary, 14th Edition)

End Item

Assembler Foundry Component

Sub-

Assembler

Demand Signal Distortion

Supply Continuity Variability

Transference AND amplification of variability in BOTH directions.

A true solution must deal with demand AND supply distortion together.

The more parts to the supply chain – the worse the effect!


DEMAND SIGNAL DISTORTION

SUPPLY CONTINUITY VARIABILITY

Material is not ready at needed time

Signals with known error are used

Latent signals are used

Oversimplified signals are used

Changing and conflicting signals

MRP Plans never properly

synchronize

WHY?

WHY?


So, if we fix the demand signal distortion the bullwhip is solved?

NO!

Demand Driven MRP A method to model, plan and manage supply chains to protect and promote the flow of relevant information and materials. DDMRP uses strategic decoupling points to drive supply order generation and management throughout a supply chain.

Position, Protect and Pull

Material

Requirements

Planning

(MRP)

Distribution

Requirements

Planning

(DRP)

Lean Theory of

Constraints Innovation Six Sigma

First articulated in 2011 by the Demand Driven Institute after 15 years of research and extensive application.

Through innovation critical planning needs are fused with mainstream improvement disciplines based on FLOW.


The Five Components of DDMRP

Strategic Decoupling Buffer Profiles and

Levels

Demand Driven

Planning

Position

1

Protect

2 3

Pull

4 5

Dynamic

Adjustments

Visible and

Collaborative

Execution


DISTORTIONS TO RELEVANT INFORMATION

DISTORTIONS TO RELEVANT MATERIALS

Weekly buckets are used

BOMs are flattened

Material is not ready at needed time

MRP treats everything as dependent

Adjustments must occur as actual demand becomes known

MRP is loaded with forecasts

Signals with known error are used

Latent signals are used

Oversimplified signals are used

Changing and conflicting signals

Nervousness

MRP Plans (timing and quantity requirements) are built using all dependencies

MRP Plans never properly

synchronize WHY? WHY?

WHY? WHY?

WHY?

WHY?

WHY?

WHY?

WHY?

Cumulative Manufacturing and Procurement Times are much longer

than customer tolerance times

WHY?

WHY?

Supply variability transference causes delay

accumulation across dependent networks

WHY?


1 A Core Problem?

Position – Strategic Decoupling

Strategically places decoupling points of inventory within the product structure and supply chain.

1

This stops the transfer and amplification of variability in BOTH directions where it matters most.

End Item

Assembler Foundry Component

Sub-

Assembler

Demand Signal Distortion

Supply Continuity Variability

Planning horizons shorten AND lead times compress.


Decoupling Placement Criteria 1


Decoupling Point Placement Considerations

Customer Tolerance Time The time the typical customer is willing to wait before seeking an alternative source.

Market Potential Lead Time This lead time will allow an increase of price or the capture of additional business either through existing or new customer channels.

Sales Order Visibility Horizon The time frame in which we typically become aware of sales orders or actual dependent demand.

External Variability

Demand Variability: The potential for swings and spikes in demand that could overwhelm resources (capacity, stock, cash, etc.). Supply Variability: The potential for and severity of disruptions in sources of supply and/or specific suppliers.

Inventory Leverage and Flexibility The places in the integrated bill of material (BOM) structure (matrix bill of material) or the distribution network that enables a company with the most available options as well as the best lead time compression to meet the business needs.

Critical Operation Protection These types of operations include areas that have limited capacity or where quality can be compromised by disruptions or where variability tends to be accumulated and/or amplified.

Position – MRP versus DDMRP

MRP (Everything Coupled) DDMRP (Strategically Decoupled)

1

MRP was never designed to decouple! It makes everything dependent forcing longer planning horizons and variability accumulation.

Critical Difference:


Protect – Buffer Profiles and Levels 2


= Order frequency and size

Safety

Primary coverage

Group Settings (Buffer Profiles) x Individual Part Properties =

Zone and Buffer Levels for Each Part

Item Type

Lead Time Category

Variability Category

Lead Time

Minimum Order Quantity (MOQ)

Location (Distributed parts only)

Average Daily Usage (ADU)

Part Demand Information

(Forecast and/or

Historical Usage) Average Daily Usage (ADU)

Buffer Levels at Chosen

Decoupling Points

Buffer Profile Assignment

Part/SKU Lead Time

Part/SKU Order Multiple

DDMRP Part Settings

Demand Adjustment Factors

21

300

PLH

17

None

Protect – Buffer Profiles and Levels 2

MRP was NOT designed to manage stock positions – it was designed to be the perfect make to order calculator.

233

357 300

MRP nets to zero. DDMRP NEVER nets to zero!


Safety Stock


Protect – Dynamic Buffer Adjustment 3

Most conventional safety stock and reorder point positions are static NOT dynamic. Critical Difference:

Buffer levels flex as Average Daily Usage (ADU) is updated.

0

20

40

60

80

0

200

400

600

800

1000

1200

Recalculated Adjustments

Buffers are intentionally flexed up or down in anticipation of planned events or seasons.

0

20

40

60

80

100

0

200

400

600

800

1000

Demand Adjustment Factors


Pull – Demand Driven Planning

Planned orders create supply orders in anticipation of need over a longer planning horizon

Conventional MPS-MRP Planning

?

Plant

Planning

Suppliers

Logistics Forecast

4

A sales order is HIGHLY ACCURATE. A planned order is HIGHLY INACCURATE

Critical Difference: Sales Order

Plant

Planning

Suppliers

Logistics

Only qualified sales orders within a short range horizon qualify as demand allocations

DDMRP Supply Order Generation

Versus


It Starts With a More Relevant Demand Signal

It Continues With a More Relevant Supply Order Generation Equation…

4 The Net Flow Equation


Questions every planner cares about each day.

What do I have? What is coming to me?

What demand do I need to fulfill immediately?

What future demand is relevant?

Buffer Status and Supply Order Generation occurs through a DAILY

application of the “Net Flow Equation”.

Supply order issued for up to the top of the buffer

Net Flow Position

Qualified Sales Order Demand On-Hand + Open Supply -

Part/SKU Info

35 units

70 units

52 units

Replenishment Lead Time = 7 days Lead time = 7 days (Medium – 50%)

ADU = 10

Medium Variability (50%)

Order Spike Horizon = 7 days

Order Spike Threshold = 26 (50% Red)

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

Order Spike Threshold (50% of red)

Order Spike

Horizon

▼

1 2 3 4 5 6 7

Sales Order Demand

Supply Orders

-4 -3 -2 -1

As time progresses Sales Orders and Supply Orders advance toward the buffer


Order Spike

Horizon

▼

Order Spike Threshold

35

Sales Order Demand Supply Orders

1 2 3 4 5 6 7

Net Flow Today:

On Hand

On Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

65

72

10

37

127 Today’s Order Recommendation: NONE

▪

▪

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 1

On Hand

Net Flow

10 18 17 6 5

9 10



35


2 3 4 5 6 7 -7 -6 -5 -4 -3 -2 -1

37

Net Flow Today:

On Hand

On Order

Sales Order Demand

55

72

48

79 Today’s Order Recommendation: 78

SP

IKE

8

▪

▪

▪ ▪

◄SPIKE!

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 2

On Hand

Net Flow

18 17 6 5

9 10 30




3 4 5 6 7

Net Flow Today:

On Hand

On Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

72

115

47

37

140

▪

8

Today’s Order Recommendation: NONE

▪

▪ ▪

78

9

▪

▪

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 3

On Hand

Net Flow

SP

IKE

17 6 5

9 10 30 5



4 5 6 7

Net Flow Today:

On Hand

On Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

55

115

36

37

134

8

Today’s Order Recommendation: NONE

78

9

▪

▪

10


▪

▪

▪ ▪

▪

▪

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 4

On Hand

Net Flow

SP

IKE

6 5 9 10 30

5 6



Net Flow Today:

On Hand

On Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

49

115

35

37


78

▪

▪

5 6 7 8 9 10


11

▪

▪

▪

▪

▪ ▪

▪

▪

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 5

On Hand

Net Flow

SP

IKE

5 9 10 30

5 6 9



Net Flow Today:

On Hand

On Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

44

115

39

37


78

6 7 8 9 10


11

▪

▪

12

▪

▪

▪

▪

▪

▪

▪ ▪

▪

▪

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 6

On Hand

Net Flow

SP

IKE

9 10 30 5 6

9 10



Net Flow Today:

On Hand

On Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

72

115

40


78

7 8 9 10


11 12 13

37

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪ ▪

▪

▪

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 7

On Hand

Net Flow

SP

IKE

10 30 5 6

9 10 20



Net Flow Today:

On Hand

On Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

62

115

30


78

8 9 10


11 12 13 14

37

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪ ▪

▪

▪

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 8

On Hand

Net Flow

SP

IKE

30 5 6

9 10 20 6



Net Flow Today:

On Hand

On-Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

32

115

5


78

9 10


11 12 13 14

37

15

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪ ▪

▪

▪

▪

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 9

On Hand

Net Flow

5 6 9 10 20

6 11



Net Flow Today:

On Hand

On Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

105

37

6


10


11 12 13 14

37

15 16

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪ ▪

▪

▪

▪

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 10

On Hand

Net Flow

6 9 10 20

6 11 10



Net Flow Today:

On Hand

On Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

99

37

9



11 12 13 14

37

15 16 17

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪ ▪

▪

▪

▪

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 11

On Hand

Net Flow

9 10 20 6

11 10 20



Net Flow Today:

On Hand

On Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

90

37

10



12 13 14

37

15 16 17

▪

▪

18

▪

▪

▪

▪

▪ ▪

▪

▪

▪

▪

▪

▪

▪

▪

▪ ▪

▪

▪

▪

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 12

On Hand

Net Flow

10 20 6

11 10 20



Net Flow Today:

On Hand

On Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

80

77

20



13 14

37

15 16 17 18 19

40

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪ ▪

▪

▪

▪

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 13

On Hand

Net Flow

20 6

11 10 20



Net Flow Today:

On Hand

On Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

97

40

6

131 Today’s Order Recommendation: None


14 15 16 17 18 19

40

20

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪ ▪

▪

▪

▪

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 14

On Hand

Net Flow

6 11 10 20



Net Flow Today:

On Hand

On Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

91

40

11



15 16 17 18 19

40

20 21

▪

▪ ▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪ ▪

▪

▪

▪

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 15

On Hand

Net Flow

11 10 20

▪



Net Flow Today:

On Hand

On Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

80

77

10

147 Today’s Order Recommendation: None


16 17 18 19

40

20 21

37

▪

22

▪ ▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪

▪ ▪

▪

▪

▪

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 16

On Hand

Net Flow

10 20

▪



Net Flow Today:

On Hand

On Order

Sales Order Demand

-7 -6 -5 -4 -3 -2 -1

70

77

20



17 18 19

40

20 21

37

22 23

▪

▪ ▪

▪

▪

▪

▪

▪

▪

▪

▪ ▪

▪

▪

▪

▪

▪

▪

▪

▪

▪ ▪

▪

▪

▪

Order Spike

Horizon

▼

TOG = 157 ►

TOY = 122 ►

TOR = 52 ►

DAY 17

On Hand

Net Flow

20

▪ ▪ ▪

▪


0

20

40

60

80

100

120

140

160

180

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Demand Net Flow On Hand Open Supply

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

10 18 17 6 5 9 10 30 5 6 9 10 20 6 11 10 18

127 79 140 134 129 120 147 147 142 136 127 117 137 131 120 147 127

65 55 72 55 49 44 72 62 32 105 99 90 80 97 91 80 70

72 72 115 115 115 115 115 115 115 37 37 37 77 40 76 76 76

DAY

Demand

Net Flow

On Hand

On Order

Average Daily Usage over 17 day period = 11.8 Average On Hand Inventory = 71.6


Average On Hand

Inventory = 71.6

On Hand Inventory Distribution

0

1

2

3

4

5

0 20 40 60 80 100

120

140

160


0

20

40

60

80

100

120

140

160

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Net Flow On Hand

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

127 79 140 134 129 120 147 147 142 136 127 117 137 131 120 147 127

65 55 72 55 49 44 72 62 32 105 99 90 80 97 91 80 70

DAY

Net Flow

On Hand

Average On

Hand

Inventory =

71.6

Net Flow vs. On Hand


Decoupled Explosion • The explosion starts when a part’s

Net Flow position enters the rebuild zone

• The explosion stops at each stock position – No Matter What!!

101

201 203 204

302 303P

403P 404P

301

401P 402

304P

501P 501P

301

404P

304P

203

101

Dependence Within Independence

MRP Explosion DDMRP Decoupled Explosion

• In DDMRP parent demand passes through non-buffered components just the same as with MRP

• That demand will stop at stocked points no matter what


Pull – DDMRP Execution

Easy to Interpret Signals on Open

Supply Priorities

Order # On-Hand Status Order Type Due Date Customer

MO 12379 MTO May - 12 Super Tech

MO 12401 12% RED MTS May - 14 Internal

MO 12465 27% RED MTS May - 12 Internal

MO 12367 53% YELLOW MTS May - 12 Internal

MO 12411 61% YELLOW MTS May - 16 Internal

Order # Order Type Due Date Customer

MO 12367 MTS May - 12 Internal

MO 12379 MTO May - 12 Super Tech




Order # On-Hand Buffer Status

PO 819-87 27% (RED)

WO 832-41 42% (RED)

WO 211-72 88% (YELLOW)

5

MRP = Priority by due date DDMRP = Priority by buffer status


vs.


Say Goodbye to the Bi-Modal Distribution

DDMRP is proven to allow companies to plan and execute in the optimal range at strategically chosen points!

Too Much Too Little Optimal Range

# o

f p

art

s o

r S

KU

Warning Warning

0

A B


Enterprise Wide Process for Flow


DDMRP’s Proven Benefits

Benefit Typical improvements

Improved Customer Service Users consistently achieve 97-100% on time fill rate performance

Lead Time Compression

Lead time reductions in excess of 80% have been achieved in several industry segments

Right-sizes Inventory

Typical inventory reductions of 30-45% are achieved while improving customer service

Lowest total supply chain cost Costs related to expedite activity and false signals are largely eliminated (fast freight, partial ships, cross-ships, schedule break-ins)

Easy and Intuitive Planners see priorities instead of constantly fighting the conflicting messages of MRP


Case Studies Available at: https://www.demanddriveninstitute.com/case-studies

https://www.demanddriveninstitute.com/case-studies




RESULTS


THE authoritative book on Demand Driven Material Requirements Planning

THE authoritative education on Demand Driven Material Requirements Planning

www.demanddriveninstitute.com [email protected]


http://www.demanddriveninstitute.com/

mailto:[email protected]

Learn More – Demand Driven Planner Training class registration via www.apics-fraservalley.org


• Two day class • Dec 5-6 , 2018 • RCAB - Building (South Boardroom)

9734 201st Street Langley, BC V1M 3E8 http://www.rcabc.org

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Documents

An Introduction - APICS Vancouver · 2018-11-02 · Roberta McPhail, CPIM,CIRM,CSCP, DDPP, CDDL, PMP, CLTD •25 years of direct industry experience mostly metals and plastics industries