Position
protecT
pull
aDAPT
the BASICS
Learn About the Entire Demand Driven Methodology (It's Not Just DDMRP)
Sensing changing customer demand, then adapting planning and production while pulling from suppliers – all in real time!
We literally wrote the books on the Demand Driven method. Becoming Demand Driven requires a fundamental shift from the centrality of supply and cost based operational methods (commonly referred to as “push and promote”) to a centrality of actual demand and flow based methods (commonly referred to as “position, protect and pull”). The term “actual demand” is extremely important in distinguishing it from a re-branded and somehow superior forecasting approach.
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The Demand Driven Adaptive Enterprise (DDAE) Model now 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.
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The Demand Driven Adaptive Enterprise
By Chad Smith, Carol Ptak and Dick Ling
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.
what does the term "demand driven" really mean?
WATCH
These are highlights of Carol Ptak talking about the various aspects of the Demand Driven Adaptive Enterprise Model. This video will give you a good feel for the breadth of what becoming Demand Driven really means.
Three questions to Carol Ptak about the progression of Demand Driven methods from DDMRP through to the articulation of the Demand Driven Adaptive Enterprise (DDAE) Model.
what the term "demand driven" does NOT mean
Better Forecasting
Forecast error is on the rise despite the proliferation of advanced and more powerful algorithms as supply chain complexity and volatility is increasing faster than we can compensate for it. Decoupling supply order generation from demand signals with known and significant error is a must as the penalties for guessing wrong are harsher than ever.
Whether we want to admit it or not we live in a “to-stock” world as supply chains have elongated and customer tolerance times have shrunk dramatically. Supply chains have to hold stock at some points. The supply order generation engine of the Demand Driven Operating Model is Demand Driven Material Requirements Planning (DDMRP). DDMRP relies on strategic stocking points at various levels in the product structure and supply chains.
Make to Order Everything
A Demand Driven Operating model uses strategically placed and managed points of stocking in order to dampen demand and supply variability, compress lead times and leverage common materials and components. Inventory is not simply spread everywhere – it is strategically positioned, appropriately sized and carefully monitored for replenishment.
Inventory Everywhere
Most MRP implementations represent a dramatic over-complication; signals are constantly changing and conflicting. Most Lean implementations represent an over-simplification as visibility is extremely limited in the overall environment. Both do not handle volatility well. The Demand Driven method was designed with all of this in mind. It successfully allows an environment to absorb variability, plan and schedule at the enterprise level and pace to actual demand.
Simple Pull
why do companies need to become demand driven?
FACT 1: Conventional supply chain management practices trace their roots back to the first true MRP systems in the mid 1960s.
FACT 2: Today's supply chains look nothing like the supply chains of the mid 1960s. They are much more complex and volatile. See the chart to the right for a point by point summary.
Fact 3: Despite this obvious difference in circumstances conventional MRP systems still plan precisely the same way today as they did 50 years ago!
The obvious questions:
With our more powerful technology and the changing circumstances, are we now doing the wrong things faster?
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Have we reached a point of diminishing returns where continuing to optimize outdated and inappropriate rules is a recipe for failure?
Consider this astonishing data from the Harvard Business Review:
“We investigated the longevity of more than 30,000 public firms in the United States over a 50-year span. The results are stark: Businesses are disappearing faster than ever before. Public companies have a one in three chance of being delisted in the next five years, whether because of bankruptcy, liquidation, M&A, or other causes. That’s six times the delisting rate of companies 40 years ago. Although we may perceive corporations as enduring institutions, they now die, on average, at a younger age than their employees. And the rise in mortality applies regardless of size, age, or sector. Neither scale nor experience guards against an early demise.
We believe that companies are dying younger because they are failing to adapt to the growing complexity of their environment. Many misread the environment, select the wrong approach to strategy, or fail to support a viable approach with the right behaviors and capabilities.”
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(Martin Reeves, Simon Levin, and Daichi Ueda, Harvard Business Review, January-February 2016)
Or this graphic from Deloitte University Press:
The United States led the adoption of manufacturing information systems starting with MRP in the 1960s. These systems are expensive to purchase, to implement and to maintain. The value of these formal planning systems has always been based on the ability to better leverage the assets of a business. Did the widespread adoption of MRP and subsequent information systems enable the US economy to better manage assets?
There is a steady decrease on return on assets for the US economy from 1965 to 2012. Furthermore, during this time period the same report shows that labor productivity (as measured by Tornqvist aggregation) more than doubled!
Obviously there are many factors at play with this return on asset decrease but this report would certainly lead one to realize that the impact of widespread adoption of MRP, MRP II and ERP systems (at least in the US) has not significantly helped companies manage themselves to better return on asset performance. Indeed, when this decline is taken in combination with the increase in labor productivity, it actually suggests that companies are accelerating their mistakes.
it's time for a new way to manage organizations
Today's environment along with basic physics, mathematics and economic principles undeniably require a change in approach. Companies must adapt and change or their very existence is threatened. But what to change to? How to change and drive adaptation? Is there a safe and effective path to transform a company from an operating strategy developed in the 1950’s measured by accounting principles developed in the 1930’s to an agile demand driven enterprise capable of keeping pace with today’s hyper-competitive market? The Demand Driven Adaptive Enterprise (DDAE) Model is the answer. Learn more on the DDAE page.
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If you want to better understand the compelling need for change consider consider the following educational offerings from the Demand Driven Institute:
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Precisely Wrong Workshop - this program goes into depth on the breakdown of conventional planning approaches dominated by MPS and MRP systems.
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Adaptive Enterprise Foundations - this program provides a broad holistic view of the organization, the breakdown of conventional management approaches and establishes the foundation of flow for organizational management.