Demand Driven Material Requirements Planning (DDMRP), Version 2. Carol Ptak
to thank his partner and coauthor Carol Ptak for a very rewarding and fulfilling partnership.
Carol Ptak would like to thank her husband, Jim, for the understanding and the support to keep going and to thank her parents, Dorothy and Bud, who taught her from the youngest age that she was limited only by her imagination. Carol would especially like to thank Chad Smith for an incredible experience and partnership—far beyond any imagination. Chad opened all our eyes to the deeper truth of a new world of planning. It has been an honor and a once-in-a-lifetime experience.
Demand Driven Material
Requirements Planning
(DDMRP)
To truly understand where industry is today, it is necessary to discuss the history behind conventional planning. Where did it come from? What did it replace? What circumstances was it developed for? Is it still relevant and appropriate for the environment of today?
The Material Requirements Planning Revolution
Today most midrange and large manufacturing enterprises throughout the world use a planning method and tool called Material Requirements Planning (MRP). This method and tool was conceived in the 1950s with the increasing availability, promise, and power of computers. Computers allowed for rapid and complex calculations about what and how much was needed to be bought and made given a demand input.
The more complex the products, the more powerful the promise of MRP. The APICS Dictionary1 defines MRP as:
A set of techniques that uses bill of material data, inventory data, and the master production schedule to calculate requirements for materials. It makes recommendations to release replenishment orders for material. Further, because it is time-phased, it makes recommendations to reschedule open orders when due dates and need dates are not in phase. Time-phased MRP begins with the items listed on the MPS and determines (1) the quantity of all components and materials required to fabricate those items and (2) the date that the components and material are required. Time-phased MRP is accomplished by exploding the bill of material, adjusting for inventory quantities on hand or on order, and offsetting the net requirements by the appropriate lead times. (p. 103)
By 1965 the modern acronym “MRP” was in existence. Then in 1972 capacity reconciliation was incorporated into MRP. This was called closed-loop MRP. The year 1980 saw the significant incorporation of cost accounting into MRP, transforming it into a system known as Manufacturing Resources Planning (MRP II). Finally, by 1990, as client-server architecture became available, MRP II had evolved into Enterprise Resources Planning (ERP). Throughout this progression the definition of the MRP portion of the information system has remained unchanged.
While this is not a book about MRP, a basic level of understanding of MRP will be helpful to the reader. This basic explanation, and even a demonstration of MRP, is included in Chapter 3 and Appendix A, respectively.
Perhaps the most recognized leader of the MRP charge was Joe Orlicky. His 1975 seminal work Material Requirements Planning: The New Way of Life in Production and Inventory Management provided the blueprint and codification of MRP that is still the standard today. Consider that when this book was written, only 700 companies or plants in the world had implemented MRP, almost all located in the United States:
As this book goes into print, there are some 700 manufacturing companies or plants that have implemented, or are committed to implementing, MRP systems. Material requirements planning has become a new way of life in production and inventory management, displacing older methods in general and statistical inventory control in particular. I, for one, have no doubt whatever that it will be the way of life in the future. (p. ix)
MRP did become the way of life in manufacturing. The codification and subsequent commercialization of MRP fundamentally changed the industrial world, and it did so relatively quickly. Orlicky, along with others at the time, recognized the opportunity presented by changing manufacturing circumstances and the invention of the computer that enabled a planning approach never before possible:
Traditional inventory management approaches, in pre-computer days, could obviously not go beyond the limits imposed by the information processing tools available at the time. Because of this almost all of those approaches and techniques suffered from imperfection. They simply represented the best that could be done under the circumstances. They acted as a crutch and incorporated summary, shortcut and approximation methods, often based on tenuous or quite unrealistic assumptions, sometimes force-fitting concepts to reality so as to permit the use of a technique.
The breakthrough, in this area, lies in the simple fact that once a computer becomes available, the use of such methods and systems is no longer obligatory. It becomes feasible to sort out, revise, or discard previously used techniques and to institute new ones that heretofore it would have been impractical or impossible to implement. It is now a matter of record that among manufacturing companies that pioneered inventory management computer applications in the 1960s, the most significant results were achieved not by those who chose to improve, refine, and speed up existing procedures, but by those who undertook a fundamental overhaul of their systems. (p. 4)
In his book, Orlicky made the case for a fundamental reexamination of how companies planned and managed inventory and resources. This case was so compelling that the concepts that he brought to the table proliferated throughout the industrial world within two decades. That proliferation remains largely unchanged in the present. Today we know that nearly 80 percent of manufacturing companies that buy an ERP system also buy and implement the MRP module associated with that system.
Perhaps the most interesting and compelling part of the passage from the original Orlicky book is the sentence that is italicized. This was simply common sense that was easily demonstrable with the results of precomputer inventory management systems. Yet could this same description be applied to the widespread use of MRP today? Could it be that conventional planning approaches and tools are:
In the authors’ 60+ years of combined manufacturing experience across a wide array of industries, the answer is a resounding yes to all these points. By the end of this book, the reader will also be able to understand why the answer is yes to all these points. Indeed if the answer is yes to these points, there should be evidence to support the assertion that MRP systems are not living up to their billing—that they are in fact guilty as charged in the previous three bullet points.
Before we review the evidence, let’s start with two basic observations about rules: