the FACTS #2
A Response to Stefan de Kok's October 9, 2017 Article About DDMRP
The author labels this article, “A balanced perspective on DDMRP. What it is and what it can and cannot do.” Unfortunately, the article is misinformed and poorly researched. There are three things wrong with this article:
Many conceptual misunderstandings/misrepresentations about DDMRP
A failure to do even basic levels of research regarding the wide spectrum of companies that are using and getting real results with DDMRP
Broad based (and erroneous) statements that are made without substantiation
DDI will address the article on a point by point basis:
Point 1: Remote Sourcing
The author says in reference to companies that have components sourced from remote areas:
“This means DDMRP will be useful to companies that source everything locally, or could change their sourcing to do so. For all others, there is a big gap that must be addressed.”
This simplistic conclusion and statement shows that the ultimate purpose for DDMRP has eluded the author. DDMRP is advocating better flow to the actual customer. That is the ONLY way to really drive return on shareholder equity. The better the flow the more revenue potential and the lower the cost. DDMRP accomplishes this by establishing decoupling points at strategic points in a supply chain. Are these investments? Of course! Do they return? If placed and managed properly they return huge dividends. Isn’t that what we expect from any working capital investment? DDMRP wants flow with LEVERAGED inventory (working capital). Basic research about how DDMRP locates these strategic decoupling points would yield six factors that should considered in the supply chain design.
Does the author really think that the companies that have gone on record about their results from DDMRP only source locally? These case studies are freely available here: https://www.demanddriveninstitute.com/case-studies and here: https://www.demanddrivenworld.com/demand-driven-world-2017
Does British Telecom source only from the UK? No. Does Michelin have rubber trees in Europe and the United State? No. FACT: most companies will have at least some components from remote sources. DDMRP assumes this and has specific rules about these components that have proven to be effective.
Point 2: Naïve Forecast
The author claims, “Safety buffers are determined backward looking, using archaic logic with wet-finger parameter values,” concluding that this makes DDMRP buffers based on “nothing more than a naïve forecast.”
A cursory level of research on DDMRP should immediately sink this assertion. In the book Demand Driven Material Requirements Planning (Ptak and Smith, Industrial Press, 2016) we clearly explain that the usage rate that is a cornerstone of the buffer equation can be formulated from “past, forward or blended” looking demand. In fact we have an entire section on it in Chapter 7 complete with different examples. Additionally, the Demand Driven Institute has freely available videos online that also explain this attribute. Furthermore the third component of DDMRP (there are five) called “Dynamic Adjustments” is about allowing for advanced buffer adjustment based planned or anticipated events. That is the entire subject of Chapter 8 Demand Driven Material Requirements Planning.
But DDMRP is not about precision of input. In fact, it assumes most things will NOT go according to plan. The point of DDMRP is to be approximately right and then dial in the performance based on actual performance and known and anticipated relevant future events. The key understanding is that approximation (naïve or not) does not tie directly to the order generation process. Only actual orders tell us whether we should actually replenish the position (launch a supply order). This is not naïve – it is practical, proven and common sense. Chapter 12 “DDMRP Metrics and Analytics” and a section of Chapter 13 “Demand Driven Sales and Operations Planning” is dedicated to this topic.
Point 3: Exaggeration, Contradictions, and Outrageous Claims
The author then goes on to say that DDMRP has been marketed with “lots of exaggeration, contradictions, and outrageous claims.” What specifically are these exaggerations, contradictions and outrageous claims? The author then follows with, “I will not hash out all the faulty claims, since that would fill another few articles. But I would highlight one that has practical implications.” This seems to be a rather unbalanced explanation for an article that purports to be “a balanced perspective.” Let’s address the one aspect he call a falsehood:
“This claim, still maintained today, is that with DDMRP you do not need a demand forecast. This claim has been nuanced more recently in that you still need forecasts for long-term planning and capacity planning, but not for replenishment. From the above it should be clear this is only true for a small subset of companies that can make ALL their lead times so short to become effectively a make-to-order business.”
For the record from the Demand Driven Institute:
Companies SHOULD forecast
Companies SHOULD NOT tie that forecast directly to supply order generation
This DOES NOT relegate a business to the make-to-order space
To comprehend the simultaneous existence of these three points you have to have an understanding about basic MRP logic, what is really constraining it and why we have fooled ourselves for so many decades. Here is a video from the Senior Supply Chain Manager at British Telecom talking about a “lightbulb” moment: https://vimeo.com/218701507. Once again, look at the companies that have gone on record about the benefits of DDMRP. Is PZ Cussons a make-to-order company? Does the author think consumer products companies, automotive suppliers or chemical companies are make-to-order?
Furthermore, when DDI reached out to the author in sincere attempt to understand what particular exaggerated, contradictory and outrageous claims the author was referring to the following exchange occurred:
Also - when you say marketing "over the top", how so? Should we not document and share case studies and make them freely available? I can you tell this much - it is not free for us to offer this. Should we not publish papers? Should we not share that software companies have come on board with DDMRP? Should we not share that we have new affiliates around the world? Should we not share pictures of people taking our educational programs around the world? I'm not trying to be combative, I want to understand what you think we are doing that is over the top. We have tried to make a lot of stuff freely available for people that want to explore a new way. So please give me your thoughts here.
Stefan de Kok:
You are clearly doing something right. You are exploding onto the scene. I am sure it was a long uphill battle before it got this way. Any criticism on my part on how you achieved this should be taken with a grain of salt. I only wish I could reach this many people. Like yourself I see fundamental flaws so deeply embedded and want to open people's eyes. I am genuinely happy you are making it happen. And certainly picking up some pointers of how the parties I have been part of have been doing it wrong. When I say "over the top" it is perception. Some claims made by the larger DDMRP crowd if taken at face value are just too black-and-white, too magical. In the past more so than today, but perception has a tendency to linger. The DDI materials are certainly not over the top. I will have to reconsider if you are still over the top today and adjust my perception. Maybe part of my problem is I follow all of you, and my feed is 50% DDMRP and has been for a long time. Sometimes I feel that I'm being drowned in it.
Point 4: More Functional Silos
Next the author talks about DDMRP dooming a company to additional functional silos. Why? In fact, companies that have implemented DDMRP report just the opposite. Please go and look for yourself at what is happening inside these companies. See what planners, sales people and executives are saying. They are actually agreeing! Functions are working better together. Why? When flow is promoted and protected each function is better to meet their primary objectives.
Point 5: DDMRP’s Name
Finally in this article the author calls the name DDMRP “both a misnomer and misleading.” He says:
“The term DDMRP itself is both a misnomer and misleading. Without going into all detail, again I wish to highlight only one issue of this. DDMRP is not a flavor of MRP. It is again clear why the term was chosen: existing MRP implementations are the primary target to rip and replace. And again DDI cannot be faulted for picking this name for this reason.”
To make a broad statement like this and not go into “all the detail” is once again not very “balanced.”
The Demand Driven Institute, however, is more than happy to go into the detail. The basic nature of MRP is to perform a calculation of dependencies (called a requirements explosion) based on three basic inputs:
A source of demand
A product structure file
DDMRP has these same requirements. So what it different? DDMRP utilizes something called a “decoupled explosion”. What that means is that in a DDMRP system a requirements explosion will stop at any decoupled/buffered position. That position will then initiate its own explosion based on the DDMRP “net flow” equation which determines replenishment timing and quantity. The net flow equation is run DAILY for all buffered positions and, remember, the buffered positions are not everywhere – they are strategically located. What that means is that between these strategically located independent points DDMRP and MRP behave EXACTLY the same way. That is why it is called Demand Driven MATERIAL REQUIREMENTS PLANNING. This is also the reason that when many experienced planners finally get it they get extremely excited! It just makes common sense.
Carol Ptak and Chad Smith talk about this extensively in Chapter 9 of Demand Driven Material Requirements Planning. From page 183:
DDMRP utilizes a “decoupled explosion” depicted in the right hand illustration on the right in Figure 9-46. Decoupled explosion is a critical distinguishing characteristic of a DDMRP system. The term itself is an oxymoron. It literally means “independent dependence.” Yet that is exactly what is occurring. This concept is crucial in preventing nervousness because most changes at high level parents will not be big enough to pass through the buffers at the decoupling points. This means that flow is largely protected against the system nervousness that is transferred and amplified in conventional MRP. This is especially true for decoupling points placed at common components (a common strategy) as the smoothing benefit of aggregation against a bigger calculated buffer level is realized.
And from page 184:
Yet MRP and DDMRP are not always different. Within certain parameters MRP and DDMRP are identical. Figure 9-47 depicts an area in the example in which MRP and DDMRP behave exactly the same way. This area is highlighted within the box on both figures. Thus the concept of decoupled explosion illustrates how DDMRP successfully combines both the dependence of MRP and independence of strategic decoupling required for an effective solution for today’s volatile and uncertain environments. There is independence at the decoupling points but between decoupling points there is dependence. That dependence between decoupling points is no different than conventional MRP. That is why there is still MRP in DDMRP.
Ultimately results speak much louder than “balanced perspectives” or “outrageous claims.” If you want to learn how and why the rules are changing go to www.demanddriveninstitute.com. We have over 35 hours of freely available videos on these concepts as well as dozens of case studies from a wide array of industries and personal stories. Have a look and decide for yourself.
Official DDI Response
On October 9, 2017 Stefan de Kok published an article titled "DDMRP: The Good, the Bad, and the Ugly" If you have not read the article the link is here: www.linkedin.com/pulse/ddmrp-good-bad-ugly-stefan-de-kok/.
It is the policy of the Demand Driven Institute to officially respond to articles that (intentionally or unintentionally) distort or materially misrepresent DDI or DDMRP or bring into question our ethical standards or integrity in how we conduct our business. Unfortunately Mr. de Kok's article does both of these things.