Demand-Driven Material Requirements Planning

Today's logistics chain, with greater volatility and complexity, needs planning functions that proactively respond to requirement fluctuations in real time. This is where demand-driven material requirements planning comes into play.

Traditional material requirements planning in SAP ERP is essentially based on forecasts. However, we know that forecasts cannot always accurately predict the future because they are based on past activities.

Even though we can limit the fluctuation margin through procedural discipline, robust quality processes, reliable sales partners and other factors, some uncertainties will remain. There will always be surprises and bottlenecks in material planning.

With the transition to SAP S/4HANA, which companies will inevitably make when SAP ceases support for SAP ERP 6.0 in 2027, both the classic MRP capability and optimized DDMRP function will be available in S/4HANA CORE.

Optimized demand-driven material requirements planning (DDMRP) serves to minimize the damage caused by unpredictable fluctuations in demand within the supply chain. Unlike traditional MRP approaches, DDMRP improves material control and replenishment by acting on demand, thereby making it more sensitive and responsive to supply and demand fluctuations that could lead to bottlenecks, production disruption, and chaos in production facilities.

Sound Familiar?

  • Corporate supply chains are characterized by increasing volatility and uncertainty.
  • Companies want to minimize the risk associated with fluctuations in demand.
  • They wish to reduce fluctuations within the supply chain and stabilize the material flow.
  • They also wish to stabilize the production environment to prevent missing parts and incomplete orders.

The solution to these challenges lies in the implementation of SAP S/4HANA. Integrating SAP DDMRP on HANA eliminates the need for an additional demand-driven MRP system.

What Is DDMRP?

DDMRP is a demand-driven material requirements planning approach that aims to achieve high deliverability and short lead times through the use of one or more buffer zones along the entire supply chain. These buffers are intended to cushion possible fluctuations in demand and compensate for forecasting errors.
DDMRP is based on actual orders placed, supplemented by buffers. It follows the pull principle whereby each station within the supply chain is supplied with the exact quantity required. The software ensures that the inventory of goods is adjusted to demand. If the inventory falls below the critical quantity, reorders are automatically placed to ensure the deliverability of future orders.

DDMRP comprises the following five stages:
1. Strategic inventory positioning
2. Buffer profiles and levels
3. Dynamic adjustments
4. Demand-driven planning
5. Visible and collaborative execution

Limitations of Classical MRP

The limitations of traditional MRP led to the development of DDMRP. The classic MRP approach from the 1980s is based on the analysis of lead times and identifies the longest path in the BOM graph as a bottleneck in the manufacturing process of the end product. This approach uses two numerical methods to calculate static lead times, which are often inaccurate and can lead to a stock surplus or stock shortage:

  • Highly optimistic manufacturing lead times where inventory is available everywhere at all times. These lead times depend only on the throughput of the manufacturing processes.
  • Cumulative lead times where it is assumed that inventory is never available. These lead times depend only on the time to produce the first unit from "empty" (in other words, zero raw materials and zero semi-finished products).

These two methods have the same advantage: They are easily implemented in a relational database and represent the architectural core between the MRP of the 1980s and the MRP of the 2010s.

However, both methods are oversimplified and usually provide meaningless lead times. The developers of DDMRP stress that calculating purchase orders or production orders based on highly incorrect lead times results in a mixture of stock surplus and shortage, depending on whether the lead times are greatly overestimated or underestimated.

Availability of DDMRP

DDMRP is available in SAP S/4HANA and is typically offered as part of a cloud-based supply chain planning solution. It is important to use modern systems that can integrate with the ERP system and provide other aspects of planning such as sales and operations planning, demand forecasting and inventory planning.
Companies should ensure that DDMRP and supply chain capabilities use real-time information, visualizations, alerts, and machine learning to help them respond more quickly to unexpected market and business occurrences.

Set-Up of DDMRP

The capabilities of the DDMRP process are fully embedded in SAP Fiori. Once SAP Fiori has been configured and the necessary applications selected, the settings for DDMRP-relevant materials are made in the material master.

There are many benefits to supply chain planning based on DDMRP. This approach minimizes fluctuations within the supply chain and stabilizes the material flow. The use of the pull approach whereby goods or materials are only ordered when they are actually accepted results in lower procurement and warehousing costs. Reduced inventories, improved deliverability, and shortened lead times provide a more efficient, cost-effective supply chain that is better able to respond to market demands.

XEPTUM is happy to help you develop your own conceptual design to implement DDMRP as well as classic MRP.