A New Way to Manage an Organization in Today's Complex Environment
The Demand Driven Adaptive Enterprise (DDAE) model is a management model enabling enterprises to sense market changes, adapt to complex and volatile environments, and develop market driven innovation strategies. Fundamental principles of flow management are combined with the emerging science of complex adaptive systems (CAS). The DDAE model spans the organization’s operational, tactical, and strategic ranges through its three primary components: The Demand Driven Operating Model, Demand Driven Sales & Operations Planning, and Adaptive Sales & Operations Planning. The model utilizes a process of emergence, feedback and selection through adaptive cycles to continuously respond and adapt to the complex, changing, and volatile supply chain circumstances in existence today.
A new way To Manage
Carol Ptak and Dick Ling discuss the basic philosophy and excitement around the Demand Driven Adpative Enterprise (DDAE) model in this quick hitting video produced by DDI affiliate Camelot Management Consultants.
Carol Ptak and Chad Smith discuss the framework to convert an organization to a Demand Driven Adaptive Enterprise. The Demand Driven Adaptive Enterprise model is a management and operational model designed to enable enterprises to adapt to complex and volatile environments. The model utilizes a constant system of innovation and feedback between three primary components; a Demand Driven Operating Model, Demand Driven S&OP and Adaptive S&OP. Video recorded April 1, 2020.
The three ddae MODEL COMPONENTS
the demand driven operating model
A Demand Driven Operating Model (DDOM) is a supply order generation, operational scheduling and execution model utilizing actual demand in combination with strategic decoupling and control points and stock, time and capacity buffers in order to create a predictable and agile system that promotes and protects the flow of relevant information and materials within the operational relevant range (hourly, daily and weekly). A DDOM’s key parameters are set through the Demand Driven Sales & Operations Planning (DDS&OP) process to meet the stated business and market objectives while minimizing working capital and expedite-related expenses.
demand driven sales & operations Planning
The tactical component of the Demand Driven Adaptive Enterprise (DDAE) Model managing the tactical adaptive cycle. Demand Driven S&OP is a tactical bi-directional integration point in a Demand Driven Adaptive Enterprise between the strategic and operational relevant ranges of decision making. Operating primarily in the tactical relevant range, DDS&OP maintains and updates the parameters of the DDOM based on current and emerging business strategy supplied by Adaptive S&OP and the systematic review of past and projected DDOM performance. DDS&OP evaluates scenarios proposed in the Adaptive S&OP process in order to provide relevant DDOM projections. Additionally, DDS&OP recommends strategic alterations and/or internal innovations to leadership involving DDOM future capability and performance.
adaptive sales & operations Planning
Adaptive Sales and Operations Planning is the integrated business process that provides management the ability to strategically define, direct and manage relevant information in the strategic relevant range and across the enterprise. Market Driven Innovation is combined with Operations Strategy, Go-to-Market Strategy and Financial Strategy to create strategic information and requirements for tactical reconciliation and strategic projection to effectively create and drive adaptation
The DDAE Model Development path
The DDAE model has a defined development path for companies to achieve increasing levels of success by maturing their demand driven transformation. This path has five distinct stages. The entire path is depicted below. Each stage is explained in more detail below the picture.
stage 1: Operational efficiency (cost)
The development path starts where most companies find themselves today - locked in a constant struggle trying to drive operational efficiency by controlling or minimizing cost. It's not that flow goes unrecognized in these systems but any flow-based metrics such as on-time delivery constantly struggle against directly competitive cost-based metrics and objectives. This is a recipe for failure in today's hyper-competitive and volatile markets. The characteristics of these companies are listed below.
Read this informative article from the Institute of Management Accountants' magazine Strategic Finance Magazine about the basic fallacy of using unit cost for operational decision making.
What’s Wrong with Supply Chain Metrics?
By Debra Smith, CPA, and Chad Smith
The idea that ROI is maximized through the minimization of unit cost is a flawed concept at the foundation of most operational decision making and behavior. Challenging this long-held belief can be difficult, but it’s necessary in order to truly drive ROI. Part one of a three-part series defines the problem and outlines how to approach a Deep Truth.
stage 2: Operational efficiency (FLOW)
Stage 2 begins a company's transformation into a Demand Driven Adaptive Enterprise. Moving from Stage 1 to Stage 2 takes a dramatic philosophical shift in thinking and understanding about what is truly “efficient” from a system perspective. This shift is not trivial as it requires a fundamental break from the conventional emphasis on cost. The graphic below illustrates this disparity in perceptions. Stage 1 connects ROI improvement to better cost performance while Stage 2 connects ROI improvement to better flow performance. These two views are not compatible with each other – they are, in fact, antithetical to each other.
The initial shift to Stage 2 typically occurs at a relatively local level (plant) and is led by a local champion implementing Demand Driven Material Requirements Planning (DDMRP) principles in a limited fashion. The results, however, are significant and quickly realized. Planners and buyers, once skeptical of another new “improvement” method quickly take to DDMRP because it is intuitive, appeals to their common sense and promotes better visibility than the conventional approach of MRP with disjointed, disconnected and inconsistent spreadsheets.
Additionally DDMRP represents the least amount of system “shock” in beginning to prove the beneficial difference of the Stage 2 flow emphasis over the Stage 1 cost emphasis. The benefits come quickly and are tangible in terms of service, working capital and expedite expenses; all of which are easily connected to ROI improvement. This allows the organization the confidence to proceed further by expanding DDMRP implementation and eventually moving to the next stage of the DDAE Development Path. Learn more about DDMRP.
stage 3: ddae lEVEL i
Stage 3 is the first level in which an organization can really begin to describe itself as “Demand Driven.” Thus the name of the stage is “DDAE Level I”. It features a fully implemented Demand Driven Operating Model (DDMRP, Demand Driven Capacity Scheduling and Demand Driven Execution methods in use). The movement from DDAE Stage 2 to DDAE Stage 3 can take years in larger organizations with multiple facilities and vertical integration. This represents an extensive (but hugely beneficial) overhaul of operating tactics impacting supply order generation, resource scheduling, operational execution and metrics. This Stage is thoroughly described in Demand Driven Performance – Using Smart Metrics (Smith and Smith, McGraw-Hill, 2013). A maturing Stage 3 company will eventually become constrained by a lack of alignment from other functions in the organization.
stage 4: ddae lEVEL ii
Stage 4 (DDAE Level II) describes the expansion of the Demand Driven concepts throughout the organization. Tactical reconciliation is in place and the organization as a whole understands how to leverage the mature DDOM capability into the market and throughout the organization for better financial performance. Its personnel understand and see the company as a system. Finance, Engineering, IT, Marketing, Sales and Strategic Planning understand how to use the DDOM as a competitive weapon and can communicate through a common flow-based language.
stage 5: ddae lEVEL iiI
Stage 5 (DDAE Level III) describes how the organization can become a valuable and strategic supply chain partner facilitating flow with its suppliers and customers in mutually beneficial ways. Its personnel understand and see the supply chain as a complete interconnected network identifying opportunities for better flow creation and protection. Management has the capability to define current and/or impending strategic conflicts and reconcile them through adaptive and innovative solutions. These organizations are capable of mentoring new generations of management through the DDAE model in order to sustain and even accelerate momentum.
demand driven adaptive enterprise Introduction
The Demand Driven Adaptive Enterprise (DDAE) Model spans the operational, tactical and strategic ranges of an organization allowing it to continuously and successfully adapt to the complex and volatile supply chains we see today. It combines the fundamental principles of flow management with the emerging new science of complex adaptive systems (CAS). It is the way that successful businesses will work in the 21st Century. This day long workshop will prove a compelling need for change, demonstrate fundamental solution principles and reveal a blueprint to transform the entire enterprise.