Why is demand-driven MRP becoming more popular?

A new kind of MRP -- demand-driven MRP, or DDMRP -- is gaining traction among manufacturers. The reason? In today's volatile markets with their ever-changing demands and expectations of lightning-speed adaptability, traditional material requirements planning (MRP) is often criticized as outdated, largely because of its "push" orientation. With a push system, inventory needs are determined in advance, and product is developed to meet that forecast. However, forecasts are notoriously inaccurate, and the result is often wild swings between too much inventory and not enough, along with subsequent disrupted schedules and poor customer service.

In contrast to MRP, lean manufacturing is based on a "pull" philosophy where nothing is bought or made until there is demand. Lean relies on inventory; traditionally, replacements are produced according to Kanbans, the physical signals that trigger the replenishment cycle. Lean environments are characterized by low work-in-process inventory and short lead times.

Because a lean approach is inherently reactive, it works best in high-volume, low-variety situations, where a steady stream of product can be counted on. On the other hand, MRP is the best planning and control approach for low-volume, high-variety manufacturing. Today's manufacturers need not choose between lean's agile qualities and MRP's emphasis on planning. Instead, they can choose demand-driven MRP. DDMRP -- an innovative mix of ideas from lean manufacturing, theory of constraints (TOC) and Six Sigma -- brings simple, visual material planning and control into the MRP structure to better balance inventory swings between too much and too little inventory.

There are five elements of the DDMRP approach:

1. a different view of what inventory is strategic and where it should be positioned,
2. a new inventory control approach using level profiles,
3. dynamic inventory adjustments,
4. demand-driven planning, and
5. visible collaborative execution.

DDMRP lives within the MRP/ERP environment but substitutes a true "pull" control system for the traditional "push" approach. Visual inventory pull signals (based on lean) combined with strategic inventory positioning (borrowing ideas from TOC) result in fewer shortages or surprises with lower overall inventory and work-in-process.

DDMRP can be implemented manually with spreadsheets, outside of an existing ERP system. That is actually the recommended way to get started with DDMRP. Software is commercially available to add DDMRP to major ERP packages. The Demand Driven Institute certifies compliance of these add-on software products with DDMRP principles and practice, and maintains a list of certified products on its website.