For many supply chain managers, forecasting is a “thorn in the side”. Many companies are in fact investing large sums of money to improve forecasts, but often all these efforts translate into unsatisfactory results. This is because the future is uncertain and impossible to predict. In this article we reveal that there is an alternative way to improve the quality of planning, a method that requires less effort than the investments needed to improve forecasting.
Forecasting, a tool imposed by the system
In current ERP management systems, Material Requirements Planning (or MRP) is the basis of requirements planning. The problem with MRP is that this solution is too rigid for the times that characterize current productions. The MRP is useful for planning the deadlines and quantities needed but requires a very precise input signal in order to provide correct output results. As today’s customers do not accept long delivery times, all the responsibility lies with the forecasts.
The first rule that is taught in supply chain management courses is: “Forecasting is always wrong.” So, does it make sense to try to make predictions less wrong? In fact, every small error is amplified through all levels of execution of the MRP schedule, making the plan confusing. The results of this are: depletion of stocks, overproduction or even both at the same time.
The solution lies in redefining the environment, not forecasting
Everything changed with the introduction of the DDMRP methodology. DDMRP (or Demand Driven Manufacturing Requirements Planning) defines a resilient and robust system, which does not depend on the accuracy of the forecast. The forecast, on the other hand, is used to predict trends, which define the dynamic system and allow the planner to create the orders, extracted from the actual sales orders. It is therefore a different system compared to classic Demand planning.
How does DDMRP solve the long-standing forecasting problem?
- DDMRP reduces the planning horizon – DDMRP introduces the concept of decoupling points, which break the dependency between the finished product and its components. The buffers are placed in the decoupling points and ensure the constant availability of material in these positions. This introduces the innovation of decoupled lead time which corresponds to the longest path between the two decoupling points. The decoupled lead time is much shorter than the current cumulative lead time and allows you to make short-term predictions. This is important because the shorter the period considered, the more accurate the forecasts!
- DDMRP allows you to make plans based on actual demand – In DDMRP the forecast does not become the final plan. Based on the forecast, an average daily usage (also known as ADU, or Average Daily Usage) is calculated. Based on it, the necessary buffer quantities (or buffer quantities) are calculated. The forecast, therefore, is not translated into a single number, but into a range of numbers. Since we know that the forecast includes errors, it is therefore more likely that the forecast is in this range and it is better to be approximately correct, than exactly wrong. The DDMRP then provides for an innovative reordering procedure, which allows the user to issue production orders only on the basis of actual customer demand.
Don’t pull out your hair for marginal gains
The problem with production planning is not the forecast, but the system that is imposed. People have been focusing on improving the forecast and forecasts for some time, but the future is impossible to predict. Once you understand that the solution lies in adapting to the new reality, the results improve considerably. With DDMRP, your forecasts require less effort and the results are satisfactory, even with your old forecasting module.
Learn how to equip your company with a Demand Driven MRP
Get advice from supply chain experts about the possibility of adopting DDMRP (Demand Driven MRP) software in your company and its perfect integration with your SAP, Oracle, Zucchetti (and others) ERP and the benefits that it could bring you. Cybertec consultants are at your disposal to listen to your wishes and expectations and recommend the best solution for your company.
