Bullwhip effects and WIP problems? Demand-driven ERP for SME manufacturers
In the 1950s, a work framework was conceived that would change the manufacturing industry: material requirements planning (MRP).
But times have changed – as you would expect in 60 years! Customers in business and consumer spaces are more demanding, product variety and complexity have increased, and supply chains are spread around the world.
As such, MRP is no longer a sufficient method to support a strong production plan. Instead, we are seeing a shift to a demand-driven method which allows an organization to successfully adapt to the complex and volatile supply chains necessary as industry becomes globalized.
Known as demand-driven materials requirement planning (DDMRP), this emerging method for supply chain planning and execution brings the 1950s concept into the era of Industry 4.0 – where even the most traditional organization undergoes a change towards digitization at scale.
MRP focused on anticipated supply generation, but the foundation of DDMRP is the basis for actual demand-driven allocations.
With this emerging method, a company can decouple forecast error from supply order generation and plan in line to actual market requirements. As a result, decisions can be made quicker with more confidence.
How DDMRP works
DDMRP methodology works with existing enterprise resource planning (ERP) systems and can be summarized as a multi-echelon “position, protect, and pull” planning and execution method.
In the past, the manufacturing industry relied on unreliable stock forecasting which either resulted in a disgruntled customer due to delays to orders, or an unhappy financial controller because of over-stocking un-needed inventory.
DDMRP creates a supply chain driven by customer demand by deploying the ultimate weapon; buffers.
Positioning buffers in the right places across your supply chain will give you real-time information on how much stock you really need and when to re-order a replenishment.
You can adjust your buffer size according to your requirements at any time. As a result, you are able to control replenishment rates, creating optimum control over inventory. Too much of the wrong stock and too little of the right stock results in wasted time and money.
With DDMRP, you can throw away your crystal ball and base forecasts on real data from the supply chain.
DDMRP can be easily understood by all, and everyone in the team can be given the same vision of priorities. It’s a complete planning and execution methodology set out in five sustained steps:
- Strategic Inventory Positioning: This determines where decoupling points are placed.
- Buffer profiles and levels: This will ultimately determine the degree of protection at those decoupling points.
- Dynamic adjustments: Buffers that respond to variations in demand patterns or variables, including seasonality.
- Demand-driven planning: This involves the process by which supply orders (e. purchase, manufacturing, and stock transfer orders) are generated.
- Visible and collaborative execution: Lastly, this is the process by which a DDMRP system manages open supply orders.
These key steps of DDMRP are derived from the best industrial practices and theories developed by leading manufacturers including distribution requirements planning (DRP), Lean manufacturing, Theory of Constraints, and the six sigma process
By combining these key elements, DDMRP helps to avoid production errors, delays in delivery, and additional costs involved in labor and transportation. Plus, it maximizes worker productivity.
Benefits for SME manufacturers
DDMRP can be especially beneficial to small to medium-sized manufacturers who are sometimes unable to leverage the resources available to larger competitors.
Unfortunately, SMBs often view the automating of processes as a daunting task, instead relying on outdated, manual processes such as the classic Excel spreadsheet.
While spreadsheets are widely-accepted and work for smaller tasks, they are inadequate for managing more complex order fulfillment, inventory, and supply chain management processes. In fact, according to a one report, 88 percent of spreadsheets contained errors.
On top of this, manual processes lack the power to provide valuable insights. According to Sapio Research, 65 percent of manufacturers do not possess real-time data about their suppliers’ manufacturing schedules; 68 percent do not possess real-time data about manufacturing volume across their organization; and only 30 percent have end-to-end visibility of their supply chain.
But with the help of an effective Enterprise Resource Planning (ERP) system and DDMRP methodologies, businesses can have full visibility into the manufacturing process.
The combination allows organizations to plan and execute using real-time data, answering questions like:
- What do I have?
- What do I have in the pipeline?
- What demand is required to be fulfilled immediately?
- What future demand is relevant?
Monitor ERP’s software suite is designed specifically for the manufacturing industry. The software enables SMBs to get a full grasp of their operations right across the supply chain.
The Swedish company’s long history has led to an understanding of the difficulties in today’s manufacturing industry, and as such, has developed a system which is capable of managing and optimizing even the most complex of operations.
Its system covers a range of business areas including manufacturing, inventory, purchasing, sales, and accounts.
What makes Monitor ERP’s system so pertinent is the ability to add computing muscle to a number of specific areas, according to the type of organization and its present and future requirements. Its six integrated modules give a full supply chain view, which allows identification and remediation of problem points.
This includes back-end functions such as document management and the automation of tasks; financial extensions; advanced inventory management, and more. They key here is digitization to decrease human error, lower repetitive tasks workloads and drive efficiency across the manufacturing organization.
Monitor’s revolutionary ERP software – which has been developed over 40 years – allows manufacturers to identify dependencies in the current manufacturing process, and in the case of disruptions, plan for the deployment of alternative procedures.
Data is a great leveler – by providing demand-driven ERP for the SMB, Monitor ERP show the expertise and experience to help even the smallest manufacturer thrive in a demand-driven economy, where faulty supply forecasts will no longer suffice.
Make WIP inventory a thing of the past, and reduce the dread bullwhip effect – get in touch with a Monitor ERP representative in your area, today.
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