Study shows that DDMRP outperforms MRP both before and during the COVID-19 pandemic; there is just a minor but expected downside

DDMRP: a novel approach to MRP

Demand-driven material requirements planning (DDMRP) is a novel approach to the traditional planning concept material requirements planning (MRP). MRP was developed in the 1960s, and today, it is used by most major manufacturing companies worldwide. 

However, over the years, several issues with MRP have been evident. Among others, several companies are struggling to achieve a high forecast accuracy, which is a significant factor to be able to succeed with MRP. Often, inaccurate forecasts generate a bullwhip effect that causes inefficient supply chains. Moreover, several companies are also challenged by what has become known as nervousness. Nervousness is a result of frequent updates of MRP where a minor change in one part of the bill of materials (BOM) can have major consequences in another part of the BOM. Overall, credibility is under severe pressure when it comes to the results that MRP generates, often resulting in manual adjustments.

The MRP issues are primarily a result of MRP not being built to handle today’s supply chains being characterised by high complexity and uncertainty. Moreover, with the COVID-19 pandemic, these characteristics have been amplified, which has made the challenges even greater. With several MRP issues in mind, DDMRP was introduced in 2011, and several studies show that DDMRP is better than MRP. A recent study confirms this but also reveals a yet unnoticed but expected downside of DDMRP.

DDMRP superiority prevails despite expected DDMRP downside 

One of the latest studies based on data from one of Denmark’s largest beverage manufacturers examines how DDMRP and MRP performed before and during the COVID-19 pandemic. The study was conducted on the basis of DDMRP and MRP simulations based on data for six products from one year before the COVID-19 pandemic and from one year during the pandemic. Performance was measured by average inventory, variation in inventory and service level.

From a holistic point of view, the study reveals that DDMRP performs better than MRP both before and during the COVID-19 pandemic. By using DDMRP over MRP, it is possible to reduce average inventory by about 42 per cent, while keeping the service level at 100 per cent. These results are achieved both before and during the pandemic and emphasise the superiority of DDMRP. At the same time, the study reveals that the use of DDMRP over MRP increases the variation in inventory by approximately 13 per cent before the pandemic and 19 per cent during the pandemic. This is a yet unnoticed downside of DDMRP and can be explained by the fact that DDMRP is more dynamic as the concept is demand-driven. Therefore, similar fluctuations in inventory must also be expected, especially during the COVID-19 pandemic.

Variation is usually something most companies try to avoid. Therefore, elements that can reduce variation have also been incorporated into DDMRP, although it is important to keep in mind that the purpose of DDMRP is to respond dynamically to changes in demand. In addition, in the vast majority of cases, the increased variation will be offset by the many benefits associated with DDMRP. These include reduction in inventory, shorter lead times, improved service level and prioritisation of planned orders.

Curious to find out more about DDMRP?
Are you interested in finding out more about DDMRP and what the concept can do for your company? Then we have several options for you.

We recommend that you start by getting a basic understanding of DDMRP. Our DDMRP webinars are obvious for this purpose as you will get familiar with the concept and its characteristics in a short time. We are also happy to facilitate the DDMRP game, which will also give you and your colleagues a great insight into DDMRP.

If you have already gained a basic understanding of DDMRP and are up for more, we recommend that you embark on a DDMRP simulation journey. A simulation provides you with insight into how DDMRP will work in your company. We are happy to help you in the process with our simulation tool. Using historical data, the tool can quickly and easily estimate how DDMRP will affect inventory and service levels in your company.

The opportunities to get a greater insight into DDMRP are many, and we are happy to guide you to find the solution that best suits you and your company. Therefore, you are very welcome to contact us for a non-committal talk about DDMRP and the related opportunities we offer.