Demand Driven MRP is a planning system that only responds to firm demand originating from current sales orders. Item lead time, order policy, and supply pipeline settings combine to generate consistent and reliable times to shipment with efficient utilization of inventory.
To ensure your success with Demand Driven MRP, replace your traditional planning methods with the settings and processes prescribed by these guidelines.
1. All P items require a standard Lead Days for procurement time
Without exception, all P items require a standard Lead Days for expected procurement time. The standard Lead Days establishes PO due dates, lead time contribution to higher-level items, and item planning periods, and also enables late PO tracking. For all these reasons, a realistic value is required that is not padded or artificially inflated.
Never pad or inflate standard Lead Days
Never pad or inflate the standard Lead Days because whenever an item has a To Order policy, its Lead Days contributes to the lead times of higher level items and progressively magnifies lead times at each higher level, resulting in severely distorted Time to Shipment targets and elevated inventory levels.
2. All M items require a standard Job Days for production time
Without exception, all M items require a standard Job Days for expected production time. The standard Job Days establishes job start and finish dates, lead time contribution to higher level items and time to shipment, and item planning periods, and also enables late job tracking. For all these reasons, a realistic value is required that is not padded or artificially inflated.
Never pad or inflate standard Job Days
Never pad or inflate the standard Job Days because whenever an item has a To Order policy, its Job Days contributes to the lead times of higher level items or to its own Time to Shipment target.
3. All items require a standard Order Policy based on lead day contribution
Without exception, all items require a clear and consistent Order Policy to determine planning intent and lead time contribution. When you assign an item a To Order policy, your intent is to always buy or make the item to order. You do not expect stock to be on hand and therefore the item's lead time contributes to the lead times of higher-level items or to its own time to shipment target. When you assign an item a Demand Driven or Manual Reorder Point order policy, your intent is to maintain stock on hand for immediate use. You expect stock to be available for the majority of potential demand scenarios and therefore the item is not a lead time contributor.
Avoid CTO job linking with standard items
When a top level M item is flagged for CTO job linking it is assigned a To Order policy and jobs are linked to and generated directly from sales order lines for the exact quantity ordered. CTO linking is ideally suited for one-off, custom items that are made to order and never stocked. For standard items, however, CTO linking is counter-productive and should be avoided because such items are interchangeable from order to order and subject to strategic stocking. There is no ability to adjust CTO jobs to account for stock on hand or to consolidate demand into more efficient job sizes. Furthermore, CTO linking forces items to be made to order, even in cases where items with frequent orders could be planned with a Demand Driven stocking order policy to enable immediate shipment from stock.
4. Refine Time to Shipment targets to reflect your marketing objectives
Time to Shipment targets are calculated for all top level M items to establish sales order required dates. Each item's Time to Shipment target is derived from the standard lead times and order policies of the item itself and lower level lead time contributors. All Time to Shipment targets must be refined as needed until they reflect your marketing objectives. Time to Shipment can be eliminated altogether by assigning the top level item a Demand Driven order policy. Time to Shipment can be reduced with strategic Demand Driven order policy assignment to key components to remove them as contributors to the manufactured item's pre-job Lead Days.
5. Use the Demand Driven order policy for strategic inventory
“Strategic inventory” is a plan for reducing times to shipment using the least amount of inventory to do so. Strategic inventory is achieved by applying a Demand Driven order policy against any item you wish to have on hand to meet a high probability of your demand scenarios, accompanied by a Monthly Potential Demand value and Supply Days target.
Replace blanket POs with a supply pipeline
If you are using blanket POs with a set of scheduled deliveries, each such item should be assigned the Demand Driven order policy and the blanket purchase order should be replaced with a supply pipeline so that future POs are generated by MRP. Blanket POs are counter-productive because they require constant adjustments to avoid shortages and over-stocking when scheduled supply inevitably differs from actual demand. By contrast, MRP generates demand-driven purchase orders at self-adjusting intervals.
6. Purchase long lead time items with a supply pipeline
Assign the Demand Driven order policy to P items with long lead times. Enter a Monthly Potential Demand rate and a Supply Days interval target and the system will auto-calculate your Reorder Point and Min Order values that generate a supply pipeline of overlapping POs, each due to arrive at staggered intervals. A demand-driven PO pipeline is far more efficient than large and infrequent POs because more frequent replenishment eliminates the risk of lengthy shortages and excessive stock on hand.
7. Always leave the SO line Required Date as is for current orders
The sales order line item Required Date is established by the item's Time to Shipment target. Always leave the Required Date as is fpr current orders because it is an internal MRP date that is aligned with dependent job dates and provides consistent shipping priority relative to other orders. Never use the Required Date as a "wish date" by salespeople and never move the date out when it is past due. The only time the date should be manually changed is to enter a blanket order where the customer requests a set of future quantities and ship dates.
Use the Expected Ship date for customer communications
The line item Required Date is accompanied by the Expected Ship date, which is an external date used for customer communications. The Expected Ship date is updated directly in the Late Supply screen, which lists sales order line items that are likely to miss their target Required Date due to late supply from jobs or purchase orders or insufficient stock on hand.
8. Generate MRP on a daily basis to full completion
For demand driven manufacturing it is essential to generate MRP on a daily basis to full completion. Daily Job and PO generation enables MRP to respond immediately to new sales order demand or existing demand that falls into item planning period action windows. Daily generation also prevents misalignment of Job and PO dates with required dates. Complete each MRP session in full by converting all planned jobs at all levels and all planned POs to ensure complete demand profiles and date alignments. Always generate and convert jobs and POs in the same session, even when Jobs are converted by one person and POs by another.
9. Use MRP Action Windows to react to firm demand in Job and PO generation
Instead of reacting to tentative demand, MRP will only react to firm demand. Each item has its own “action window”, which covers the time it takes to make or buy the item. MRP only reacts to demand within the action window, which is firm demand. Any demand outside the action window is tentative demand that is incomplete and highly likely to change as it firms over time.
Reacting to the firm yields miraculous benefits. Planned supply is always aligned with firm demand, which eliminates the misalignments that are the root cause of shortages, overstocking, and the need for constant job and PO revisions. Each item is planned individually, which eliminates the bullwhip effect from BOM explosions and job linking that amplifies misalignments at lower levels.
Never create future jobs
All jobs are generated through MRP in response to current net demand within item planning period action windows. Never enter future jobs for any reason because they conflict with the demand-driven architecture of the master schedule. In contrast to current demand, which is firmly set, future demand is tentative and subject to date changes, quantity changes, cancellations, and specifications changes that adversely affect interdependent items at lower levels. Instead of future jobs, you can enter sales orders with future required dates, as with blanket orders, and then MRP will only respond to current demand when required dates eventually fall into item planning period action windows.
Never create future purchase orders
All purchase orders are generated through MRP in response to current net demand within item planning period action windows. MRP will always schedule due dates based on the creation date + the item's lead day allocation. This will keep your supply tightly aligned with your target release date for the Jobs where the material is needed. MRP does not miss any demand, because all system demand is firm and in the near term.
10. Verify and update supplier prices before PO conversion
To ensure the integrity of the costing system, always verify and update supplier prices before converting planned POs. The planned POs screen within MRP is optimized for pricing maintenance with the ability to create and update supplier price records and present review notes for special pricing instructions. The costing system depends on realistic PO prices because when a purchased item is received, its inventory cost is updated by the PO cost and is the cost basis for subsequent job issue transactions. The PO invoicing process often occurs well after actual receipt and has no retroactive effect on receipt costs or inventory costs.
11. Expedite late POs on a daily basis
Monitor late POs on a daily basis in the PO Schedule screen and contact suppliers to expedite delivery so that dependent jobs can be released to production without delays to planned start target dates. The dependency view in Job Release and PO Schedule view will provide feedback on material that is running late.
12. Release jobs only when materials are fully allocated
Release jobs to live production in the Release Jobs screen only when materials are fully allocated. The job release process is a vital MRP function that serves two purposes. First, materials are allocated to jobs in planned start date order so that jobs are started in the correct order of multi-level assembly. Second, released jobs are rescheduled with new finish dates relative to their actual release date, which automatically updates the system with a reliable supply date.
13. Run Work Centers by Job Priority
Each released job is given a calculated priority based on remaining production time relative to the job required date. Within work center queues, sequences are run in job priority order so that jobs trending behind schedule get priority over jobs trending ahead of schedule, which optimizes production flow and boosts shop throughput. Jobs with unusually large quantities get higher priority and thus experience less waiting time, which enables larger jobs to meet their target required dates
14. Late Supply screen helps you manage customer communications
The Sales > Late Supply screen provides feedback to your office staff to update the Expected Ship date for Jobs that are running behind schedule. Items will appear in the Late Supply screen when their Finish date is greater than the line item requirement date.
15. Picking Manager helps ensure that you are shipping on time and in priority order
The Sales > Picking Manager allocates your stock on hand in Required Date order to ensure that you are staying on time across all sales orders company wide. This eliminates material hording, excessive reliance on job linking, and the "Rob Peter to pay Paul" strategies that most planning systems experience.
