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An Intro to DDMRP in SAP IBP: Is it Right for Me?

DDMRP (Demand Driven Material Requirements Planning) is a new offering from SAP available in S4/Hana and IBP (Integrated Business Planning). 

 

I’m not going to do a deep dive on DDMRP, but I do hope to provide enough insight for you to determine if you want to know more. In this blog, I’ll briefly answer the following questions and provide some links to help you decide if you’d like to dig deeper.

 

  • What is DDMRP?
  • How is it different than the multi echelon functionality of IO (Inventory Optimization) in IBP?
  • What’s the difference between S4 DDMRP and IBP DDMRP?
  • Is it right for me?
  • If it’s right for me, what do I need to buy or configure from SAP to make it work?

What is DDMRP?

DDMRP in S4 and IBP is a systematic approach to planning that reduces the bullwhip effect that is an unavoidable outcome of running MRP.  It is a composite that takes the best aspects of MRP, DRP, Lean, TOC (Theory of Constraints), Pull, Six Sigma, along with additional innovation by the Demand Driven Institute, to create a supply planning process that encourages and promotes Flow in your supply chain.

ddmrp explanation

Changes in demand upstream have an increasing ripple effect downstream.  Excess (under forecasted) sales trigger replenishment of a DC (often with minimum lot sizes), replenishment orders trigger other replenishment orders, which trigger production or procurement.  Adding the lot sizes, periodic order quantities, etc., can snowball into very big changes for manufacturing and your vendors.  This leads to constant move in and move out requests to try to balance your supply chain.

ddmrp in supply chain

DDMRP has 5 stages:

  1. Strategic Decoupling–  Determines where, in your network, to position inventory as a buffer to absorb uncertainty. 
  2. Buffer Profiles and Levels–  Dynamically calculates how big the decoupling buffers should be and begins to really differentiate DDMRP from other solutions. 
  3. Dynamic Adjustments–  Allows for user intelligence to provide increases or decreases based on information that cannot be gleaned from an algorithm. 
  4. Demand Driven Planning–  Triggers and creates the supply orders for replenishment of the buffer.
  5. Visible and Collaborative Execution–  Monitors the created orders as well as dynamically prioritizing orders so that the most critical (not necessarily the orders with the earliest due date) are executed next.
ddmrp planning stages

The power of DDMRP comes from the application of flow principles. Flow is a topic in itself and I encourage you to familiarize yourself if you haven’t already.  In a nutshell, it means that you keep product moving steadily and predictably and avoid starts and stops.  You do this by trying to never starve a bottleneck resource.  DDMRP sets flexible buffers that are sized based on a forecast but only react to real sales orders.  It places those buffers on critical path points.  It anticipates sales orders and keeps things steady and only course corrects if it sees a spike in sales.  The tool from SAP allows you to monitor the health of your products and supply chain with easily interpreted green, yellow and red zones.  The final piece that DDMRP provides is the real priority of an order to a supplier or manufacturing.  The supplier or manufacturer sees a list of what to produce next with easily understood rankings based on how far into the yellow or red zone an item is.  The overall effect is a reduction in variability through the supply chain with a compression of lead times.

chart showing how ddmrp works

There is a lot more to DDMRP but I hope this gives you an idea of some of the key points. Now, on to the next question!

How is DDMRP different from multi echelon safety stock planning in IO?

Multi echelon safety stock planning in IO will look at demand and supply variability for each point in your supply chain that you stock material.  This can be finished goods at customer facing DCs, regional hubs, global hubs or manufacturing sites.  It further considers components of bill of materials.  It calculates the least amount of inventory to maintain the required service levels for a customer.  The calculated amount is treated as the zero threshold for MRP.  Meaning, that MRP will always plan to take inventory down to this amount as the next replenishment is due to arrive. 

Sounds a little like DDMRP strategic decoupling, right?  Yes, and no.  Safety stock from IO is still more vulnerable to the bullwhip effect that snowballs through the supply chain.  It uses upcoming forecast as the trigger to replenish, may be subject to lumpy demand from weekly or monthly buckets, component safety stocks are replenished (based on forecast) even if the demand for finished goods never materializes. 

While they aren’t the same, you could say IO and DDMRP are similar when compared to stage 1 and stage 2.  Not identical as the buffer size has very different calculations. Where DDMRP takes the baton and sprints to added value is in the remaining steps.

What’s the difference between S4 DDMRP and IBP DDMRP?

S4 DDMRP (before release 1905 of IBP) was the only solution to contain all 5 stages.  In S4 the user was required to choose the decoupling point and classify materials as high, medium, low variability, etc. as an input to the job that would calculate buffer size.  As of version 1905 for IBP, IBP contains all 5 stages.  Further, IBP can automatically calculate variability of supply and demand for the user.  I don’t believe there is intent to enhance the S4 DDMRP capabilities to match IBP.  IBP will receive further DDMRP enhancements on quarterly releases.

Is DDMRP right for me?

Subjective question, but I’ll try to walk through some points that may help.  DDMRP is more beneficial to those companies who have opportunity to decouple. If you have manufacturing with one or more levels in your bill of material, you would benefit more than a company who buys and resells a product.  If you have multiple DCs that stock the same product (DC, regional hub, global hub, etc.) you will benefit more that a company with one major DC that holds all of their stock. 

I’ve worked with companies that have massive opportunities to reduce their inventory levels but are locked into an ultra-conservative days on hand or months on hand by executive management.  These companies would benefit from DDMRP but the culture is not there to make it successful.  DDMRP requires an all-in approach.  If planners, suppliers or manufacturing are not willing to follow the DDMRP supply plan, you will sub optimize and likely end up with the same over stock and under stock problems inherent in an MRP system.  This can be overcome with change management.  DDMRP is set up in a way to make it clear and understandable to users on how and why the plan is suggesting what it does.  DDMRP will not fix your problems for you, you need to embrace and trust the outcomes.  It will show you where to focus your efforts to improve your process so that you can maximize your potential gain.

If your company has implemented Lean, Theory of Constraints, or Six Sigma in manufacturing or supply chain, DDMRP is worth looking into. If you haven’t implemented but you’d like to realize benefits that would come from the concepts of those philosophies, it’s worth looking into DDMRP.

If it’s right for me, what do I need to buy or configure from SAP to make it work?

Version 1902 of IBP offered the first 3 stages of DDMRP as part of the IO license.  DDMRP is a separate license within IBP as of 1905. For those products you run DDMRP on, it can take the place of IO and Supply (with the exception of response allocation).  Here are the possible scenarios for implementation.

ddmrp scenarios

Hopefully this helps shed some light on this new and potentially game changing way of operating your supply chain.

Please find below some helpful links.

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