The Demand Driven order policy and associated settings are entered within the MRP Settings Order Policy screen.
How to assign the correct Order Policy
To assign the correct Order Policy for inventory planning and lead time contribution, follow this simple guideline:
▪If you intend for the item to be on hand for the majority of demand scenarios, assign the Demand Driven order policy and plan for a Potential Demand rate and Supply Days interval.
▪If you intend to always buy or make the item prior to each parent job or sales order, assign the To Order policy.
NOTE: To verify that To Order items match your actual planning behavior, run the MRP - Order Policy Review.
Reducing lead times
A To Order policy item is removed as a lead time contributor by reassigning it to the Demand Driven order policy. You can reduce pre-job Lead Days for your manufactured items by selectively removing contributor components, which enables jobs to be started earlier. Reassigning top-level M items to the Demand Driven order policy eliminates Time to Shipment altogether.
Target dates sequence and prioritize system activities
The “Big 3” lead time settings and two dynamic settings for lead time contribution determine your PO, job, and SO dates, which are perfectly aligned in the correct order of assembly. Take note that these are target dates, not literal dates, that sequence and prioritize system activities.
When items have highly unpredictable demand:
The Demand Driven order policy does not require a reliable or consistent demand pattern to be effective. When unexpected demand causes a shortage, MRP immediately generates new supply and prioritizes dependent jobs to get them back on schedule. When an unusually large sales order necessitates making the item to order, the Late Supply screen provides feedback from production, which helps sales establish a realistic Estimated Ship date for communication to the customer.
How to get your inventory under control
All material planning methods incur inventory because it is not practical to buy and make everything to order. The best inventory planning method, by far, is demand driven MRP, which is the basis of the Demand Driven order policy, a unique DBA innovation for smaller manufacturers. This simple planning method provides efficient ordering, rapid response to shortages, and eliminates overstocking.
The root cause of inventory problems
Other planning methods drive lower-level requirements from sales forecasts using linked jobs or BOM explosions. Top-down explosions cause the “bullwhip effect” where forecast errors amplify exponentially at each lower level whenever component quantities are multiples of the parent. Like the power of a bullwhip, minor planning errors at the top quickly grow into major errors at the bottom and inventory easily gets out of control.
Breaking the bullwhip effect
Demand driven planning has no bullwhip effect because lower-level items are planned individually instead of from a top-down explosion. New supply for any given item is triggered by total net demand instead of being linked to specific jobs or sales orders.
Each item is planned for potential demand
Demand driven planning does not forecast or explode future requirements. Instead, each item is planned for a Potential Demand rate, aided by a monthly usage graph, which is simply a possible demand scenario, not a forecast or prediction. It is entered as a monthly amount that gets translated into a daily rate.
The Potential Demand rate is applied to the item’s Replenishment Time (Lead Days + Job Days + MRP Interval) to calculate a dynamic Reorder Point, and a Supply Days interval is specified to calculate a dynamic Min Order quantity.
NOTE: Make sure that item Lead Days and/or Job Days targets are realistic. Padded or inflated lead times cause high Reorder Points that trigger excessive inventory.
New supply is triggered by firm demand
Demand driven planning never takes action on tentative demand from forecasts or explosions, which constantly changes over time. Instead, new supply is triggered solely by firm demand from sales orders.
During each MRP session, items are evaluated in a multi-level progression so that new jobs generated at each level create demand for components at subsequent levels. Whenever net demand (on hand + inbound supply - planning period demand) falls below an item’s Reorder Point, MRP generates a new job or PO for the item’s Min Order quantity or actual demand amount, whichever is greater.
Reordering is timely and efficient
Demand driven planning solves the universal problems of when to order and in what quantity. New supply is ordered early enough so that remaining supply covers daily Potential Demand over the item’s Replenishment Time. The Min Order quantity ensures efficient order sizes at consistent intervals.
You are pre-ordering for the next Supply Days interval
Like to order planning, new supply is only triggered by firm demand from jobs or sales orders. Instead of ordering for the job or sales order, however, you are pre-ordering for the next Supply Days interval, which eliminates lead time with relatively little inventory.
The item’s Potential Demand rate does not require precision or constant adjustments. When actual demand is greater than the Potential Demand rate, the item will be reordered sooner than its planned Supply Days interval. Conversely, when actual demand is less than the Potential Demand rate, the item will be reordered later than its planned Supply Days interval.
Nothing can fall through the cracks
Because each item is planned individually, there is no need for SO/job linking or BOM explosions to ensure that material requirements are fully covered. Each item’s Reorder Point makes it impossible for any demand to somehow get missed or fall through the cracks.
Overstocking is eliminated
When inventory is “pushed” onto the system with top-down explosions or blanket POs, stock continues to accumulate unless constant adjustments are made to realign supply with actual demand. By contrast, demand driven planning “pulls” inventory into the system, triggered solely by firm demand from sales orders. Inventory for any given item can never exceed one Supply Days interval.
It’s the best way to plan P items with long lead times
Demand driven planning takes the risk and guesswork out of planning P items with extremely long lead times. Instead of less frequent, larger orders with high inventory cost and risk of lengthy shortages, the item Lead Days, Potential Demand, and Supply Days settings cause multiple POs to be triggered in demand driven intervals, which moderates inventory swings and minimizes the duration of any shortages.
It’s a lot easier!
Demand driven MRP replaces lengthy and intermittent planning sessions with daily job and PO generation for rapid response to new demand. With only three item settings – the Potential Demand rate, Supply Days interval, and Lead Days or Job Days target – demand driven planning is the easiest and most effective way to get your inventory under control.
