Are you institutionalizing forecast errors?

Key Issue

DRP Process

O8 DDMRPII™ Process

Selection of appropriate replenishment control technique

• 2 basic techniques set manually (Call-off or Make to order (MTO), & MRP.)
• Reliance on forecast results in a focus on selecting the correct forecast algorithm – the algorithms can be highly complex & are often augmented by a specialist forecasting system.

• (MTO, RoP, Poisson distribution planning, Re-order cycle, Multiple level Re-order Point (kanban), rate based, promotions & event management).
• Use of VVA (Volume & variability analysis ) to determine appropriate control technique by SKU.
• Inventory control techniques re-assessed formally every month.

Correct safety stock in system

• Inventory safety stock is manually set using specific volumes or number of days cover. Parameters often not maintained.

• Safety stock built into calculation via customer service parameter. Stock is appropriate to each SKU and is recalculated monthly.

Calculation of inventory targets accounting for demand variability & forecast volume

• Forecast algorithms attempt to predict time based fluctuations from history and build result into the plan.

• Stock levels set for overall expected volumes and additional inventory added to cater for demand variability.
• Selective use of volume forecasts based on historic accuracy.

Account for batch & delivery constraints when planning inventory targets

• Inventory requirement accurate on day MRP is executed.
• Exception messages created to encourage rules to be broken to restore plan
• No formal ability to cater for delivery schedules or planning schedules in inventory target setting.

• Targets are amended during calculation to account for lead-time & batch constraints.
• Additional tools support multiple planning and execution business cycles. eg Fixed planning & ordering schedules.
• Ability to link planning process and SKU level inventory targets to ABC analysis.

Support for financial and business planning

• Inventory plan changes each time MRP is run.
• Main driver of plan is the forecast – operational constraints hidden.
• Individual planners alter plan with ‘gut-feel’ or off-system calculations that take into account recent business drivers, eg reduce stock levels. No ability to link these day to day decisions with an overall plan.

• Separation of planning from daily ordering process results in inventory targets which are approved by business at S&OP meeting.
• Inventory is attributed to operational constraints and the effect of altering those constraints can be seen in real time simulation tools.
• Key decision parameters are service and inventory positions – supports clear link between policy setting & business mgt.

Rigorous & robust process

• Substantial part of planners’ role undertaken ‘off-system’ on spreadsheets.
• No in-built mechanism for reviewing appropriateness of safety stock numbers or current plan.

Minimization of time delay and cost in running the planning process

• MRP usually run on a fixed schedule. Output is a revised plan driving re-work and alterations to the plan on a regular basis.
• Management of plan outputs is a manual and time consuming process.

• Inventory plan fixed through operating period.
• Replenishment signals produced automatically.
• Plan & execution success constantly monitored & alerts produced ahead of issues occurring.