Proponents of DDMRP proclaim this is a “new and revolutionary planning method.” In reality, pull-based replenishment has been around for many years. Basing near-term replenishment on demand signals like customer orders or POS data is common and has been supported by advanced planning and scheduling systems for some time. DDMRP proponents say that, “you don’t need forecasts for replenishment planning instead DDMRP bases replenishment on sales orders.” The reality is product lead-times for the majority of business environments are longer than customer replenishment lead-times so the math just doesn’t work out for most businesses. Proponents claim that, “DDMRP is the only approach that effectively synchronizes supply and demand across a complex and volatile supply network.” DDMRP can only determine where products should be stocked not how much to stock. Safety buffers are determined using simplistic backward looking logic that is equivalent to using a “naïve” approach. DDMRP tries to mask this fact by using multiple zones of inventory. In fact, DDMRP’s Average Daily Usage (ADU) is nothing more than a naïve forecast.
So “Where’s the Beef?” The value of DDMRP has been reported with a significant amount of exaggeration, contradictions, and outrageous claims with little in the way of third party validation. Most of the boasts of DDMRP value are in comparison to the value of MRP. That is setting the bar very, very low. It is like boasting to a college music performance major that you play better than a 5th grader. DDMRP can reduce finished goods lead-times and inventory if your product lead-times can be reduced to meet customer replenishment lead-times. However, Advanced Planning and Scheduling (APS) systems have been delivering similar if not greater value than DDMRP for years. It is no wonder that most DDMRP success stories document the value obtained from going from simple MRP capabilities enabled through spreadsheets or ERP systems to DDMRP. Companies that have successfully implemented advanced planning and optimization capabilities would find limited or no value from DDMRP type capabilities.
The real value for DDMRP could be appropriate for companies that run a make-to-order environment or can source everything locally and make their products in less than or equal to customer demand fulfillment lead-time. This describes a very small subset of company procurement and manufacturing environments. Maybe that is the reason Gartner believes the way to optimize a complex supply chain is through algorithmic planning. My advice: don’t pull out your MRP and APS solutions just yet. The question you need to ask, “Is it possible to reduce your longest production lead-times enough to meet current and projected customer order lead-times? If not, then the value you would receive from DDMRP may be very limited.”
To learn more about building the foundation for Algorithmic Planning read, “Planning Optimized – Building a Sustainable Competitive Advantage“.
Product Marketing Director Hank brings more than 25 years of experience building high performance supply chains. This experience includes evaluating, selecting, implementing, using and marketing supply chain technology. Hank’s graduate degree in SCM from Michigan State, numerous SCM certifications, diverse experience as a supply chain practitioner and experience in senior marketing roles with leading supply chain solution providers helps him to bring a unique perspective on supply chain best practices and supporting technology to the Voyager Blog.