Demand-Driven Supply Chain Management leads to exponential improvement in business performance
Media, PA. January 23, 2018 – In a comparison with traditional supply chain management approaches, the new concept of “Demand-Driven MRP” (material requirements planning) leads to up to 50% lower stock with continually high service levels of over 97% and lead time reduced by 85%. For modern companies in which many processes are already optimized to a high degree, these kinds of increases in performance mean a quantum leap. The findings are the result of a current study by consulting specialist CAMELOT Management Consultants.
In contrast to classic supply chain management concepts, the Demand-Driven MRP approach is not dependent on very precise forecasts of customer demand. Aggregated and thus more robust forecasts are used exclusively for the configuration and parametrization of the supply chain parameters of capacity and stock levels. Planning and execution in the supply chain is based on actual customer orders. This strict separation of uncertain forecasts in parametrization and actual customer demand resolves the problem of nervousness in the supply chain. The key element is system-intrinsic capacity and stock buffers. The “bullwhip effect” typical for supply chains, which was described by Jay Forrester as early as the 1960s, is thus finally being countered with an effective concept.
“The study and various experiences in practice clearly show the immense potential of the Demand-Driven MRP approach for business performance. This is a clear signal to organizations to dedicate themselves to new approaches, since they are clearly the future”, says Dr. Josef Packowski, Managing Partner of CAMELOT, commenting on the results of the study.
For the comparison of the two concepts, the supply chain experts at CAMELOT examined three representative supply chains with one producing factory, one central warehouse and between seven and 20 distribution centers distributed across the world. Using framework data from real company situations as a basis, the classic supply chain planning approach of “Material Requirements Planning” (MRP) achieved service levels of more than 95%. The Demand-Driven concept, on the other hand, achieved service levels of between 97 and 99% for the exact same framework data – and this was with material stock levels that were between 23 and 53% lower and without active control interventions by planners. Given the fact that companies’ supply chain planning is basically very strongly optimized already, the results mean a quantum leap. Dr. Ulrich Wetterauer, DDMRP expert at CAMELOT, traces this back to the adaptability of the Demand-Driven MRP concept: “A Demand-Driven system reacts independently to changes in customer demand and adapts stock levels accordingly without any user intervention.”
The CAMELOT Consulting Group is one of the global pioneers for the approaches of Demand-Driven Supply Chain Management. The service portfolio of the CAMELOT Group comprises not only conceptual advice and further education offerings in Demand-Driven Supply Chain Management, but also software solutions on the basis of SAP SCM, SAP IBP and SAP S/4HANA for the implementation of these concepts in companies. Furthermore, interested customers can have the effectiveness of Demand-Driven MRP reviewed for their companies with the help of simulations.