SAP - Demand-Driven Replenishment

 

Demand-Driven Replenishment

SAP Integrated Business Planning for demand-driven replenishment supports Demand Driven Materials Requirement Planning (DDMRP) as defined by the Demand-Driven Institute.

The five components of DDMRP are as follows:

  1. Buffer positioning

  2. Buffer sizing

  3. Dynamic adjustments

  4. Demand-driven planning

  5. Visible and collaborative execution.

The following figure illustrates the process:
The figure is a wheel, with the first step of DDMRP in the upper right, and the subsequent steps circling around to the last, which feeds back into the first step.
Five Components of DDMRP
Demand-driven replenishment supports DDMRP by performing the following:

  • Enabling strategic inventory positioning through the creation of decoupling point buffers (buffer positioning)

  • Creating buffer profiles and maintaining buffer levels (buffer sizing)

  • Allowing for dynamic adjustments to buffer profiles (dynamic adjustments)

  • Creating DDMRP order recommendations and order generation (demand-driven planning)

  • Reviewing priorities, inventory projections, and buffer and signal integrity status (visible and collaborative execution)

The main objective with DDMRP implementations is to enable material and information flow through a supply chain. In DDMRP, flow is achieved in the following three ways:

  • By dampening the effect of variation across the supply chain by decoupling lead times and identifying where to buffer quantities of inventory, and how much to buffer to ensure the shortest possible lead time and the optimum amount of inventory.

  • By driving replenishment based on actual demand, rather than forecasts.

  • By exposing downstream inventory and demand status to upstream sources to facilitate demand-driven prioritization of supply.

Decoupling point buffers are quantities of stock planned at a location that provide an aggregation point for demand by creating a more stable supply funnel. Buffers also compress lead time between the buffer and the customer, which can lead to better service percentages. That is, the lead time to the customer is decoupled from the supplier, as inventory is buffered at the decoupling point.

Placing decoupling points and their associated buffers is dependent on the supply chain and several factors, including the following:

  • Critical operation protection

  • Customer tolerance time

  • Inventory leverage and flexibility

  • Sales order visibility horizon

  • Potential lead time to market

  • Variable rate of demand and supply

Each factor should be taken into consideration when evaluating whether a node should become a decoupling point.

For example, a node that stocks multiple downstream customers that also has high variability in supply for items from upstream in the supply chain may be a good candidate for a decoupling point and a buffer. By making this location a decoupling point, that can protect a critical operation and mitigate against the variation in demand and supply.

Once you position the decoupling points, the decoupled lead time is calculated based on the longest unprotected path between two decoupling points, as illustrated in the following figure: The image illustrates a supply chain network with strategically placed decoupling points. The illustration shows how the decoupled lead time is calculated. For instance, one of the nodes in the supply chain has three locations, one of which has DDMRP buffer levels. Two locations are beneath this point. The individual lead time for the location with the buffers in 3. One of the locations below the buffer has an individual lead time of 4 and the other of 3. Therefore, the decoupled lead time is 7, as that's the longest unprotected path.

Individual lead time refers to transport or production lead times that are inputs from the ERP system.

For setting up buffers, DDMRP uses a dynamic, three-zone color-coded buffer for planning and execution. The levels are calculated both using individual item properties and group settings (the buffer profile) at a location. For more information, see Buffer Zones and Average Daily Usage (ADU).

In DDMRP, net flow position is used to decide whether to place a new replenishment order on a buffer and to decide the order size. Net flow position in DDMRP is calculated based on the following formula:

net flow position = on-hand stock + open supply - qualified demand

where:

  • On-hand stock is the quantity of stock physically present

  • Open supply is the total quantity of outstanding replenishment orders

  • Qualified demand is demand-driven (DD) relevant demand that is past-due or due today + qualified spikes

Qualified spikes represent the total DD-relevant demand in future periods that meet the following conditions:

  • Total DD-relevant demand is larger than the spike threshold

  • Future periods fall within the spike horizon

The following figure illustrates how qualified spikes are calculated: The image shows a graph where the horizontal axis is time and the vertical axis is Confirmed Demand Quantity, with three points, from lowest to highest: Safety Zone, Reorder Point, and Max Stock. The two axes converge at the time point of Today with stock orders being in the past and future. There are past due orders represented by bars. There are also future orders, represented by bars. In this image, the spike threshold is 50% of the Safety Zone. The spike horizon is in the future. Only one order bar is higher than the spike threshold within the spike horizon. This spike is the qualified spike.

When net flow position falls at or below the top of yellow zone, a new replenishment order is proposed to bring the net flow to the top of green, as illustrated in the following example: This image illustrates a ddmrp buffer, with the following zones: from the bottom of a bar to the top: Red base, then red safety. This is the safety zone, and is at 3,200. On top of that is the yellow zone, which extends to 7,500, the reorder point. Above that is the green zone, which goes to the max stock level of 10,000. The image shows that the net flow position is at 7,000, which is below the top of the yellow zone (which is 7,500, the reorder point) so the proposed replenishment order would be 3,000, to bring the net flow to the top of green, which is the max stock level of 10,000.

At decoupling points, replenishment supply elements are generated based on their order recommendation and are propagated upstream, creating dependent demand until the next decoupling point.

At non-decoupling points, demand elements are covered similarly to the local MRP, based on existing MRP setup.

The following figure illustrates how the DDMRP uses buffers to decouple supply generation across the network:

This image illustrates a supply chain with strategically placed buffers and decoupling points. The parts of the chain beneath a decoupling point are all labeled (Local) MRP.

Finally, supply elements are prioritized according to their target buffer status during the execution phase.

You perform supply planning based on DDMRP every day for one single date (at the end of decoupled lead time). However, there are cases where it's necessary to provide visibility into future supply plan beyond the decoupled lead time. To support this, demand-driven replenishment provides visibility to future supply plan depending on the target system for supply generation. For more information see DDMRP Supply Generation with SAP IBP Order-Based Planning.

Key Features

The key features of SAP IBP for demand-driven replenishment are as follows:

  • Recommends strategic positioning of decoupling point buffers simultaneously across the end-to-end supply chain

  • Enables creation of scenarios for decoupling point decisions

  • Calculates average demand as Average Daily Usage (ADU) and its variability using past, future or blended (past and future) flexible time horizons

  • Generates time-phased buffer levels simultaneously for the supply chain, including multiple-sourcing networks

  • Plans new supply elements across the end-to-end supply chain, based on DDMRP principles

  • Provides native integration to SAP S/4HANA demand-driven replenishment for the follow up execution processes, as well as to SAP ECC

Implementation in SAP Integrated Business Planning for Supply Chain

You can implement demand-driven replenishment with three different scenarios. These scenarios are distinguished by which solution you use in addition to SAP IBP to generate supply elements. These scenarios include the following:

  • DDMRP supply generation with SAP IBP using order-based planning

    You can implement SAP IBP for demand-driven replenishment to position, size, and adjust your decoupling point buffers. Replenishment orders are then generated with order-based planning. Lastly, you use an SAP ERP (ECC or SAP S/4HANA) system to manage replenishment orders and produce analytical reports. The following graphic illustrates this option:

    This image illustrates the 5 steps of DDMRP and groups them into different categories. Modeling/remodeling the environment encompasses the first three steps: strategic decoupling, buffer profiles and levels, and dynamic adjustments. These are all performed in time-series-based SAP IBP. Plan encompasses the demand driven planning phase (step 4), which is performed in order-based SAP IBP. Execute encompasses step 5, visible and collaborative execution, which is performed in SAP ERP.

    For more information, see DDMRP Supply Generation with SAP IBP Order-Based Planning.

  • DDMRP supply generation with SAP S/4HANA for demand-driven replenishment

    You can implement SAP IBP for demand-driven replenishment to position, size, and adjust your decoupling point buffers. Then, you can use SAP S/4HANA for demand-driven replenishment to generate supply elements and to review, manage, and carry out your supply plan. The following graphic illustrates this option:

    This image illustrates the 5 steps of DDMRP and groups them into different categories. Modeling/remodeling the environment encompasses the first three steps: strategic decoupling, buffer profiles and levels, and dynamic adjustments. These are all performed in time-series-based SAP IBP. Plan and Execute encompass step 4, demand driven planning, and step 5, visible and collaborative execution, both of which are performed in SAP S/4HANA.

    For more information, see DDMRP Supply Generation with SAP S/4HANA for Demand-Driven Replenishment.

  • DDMRP supply generation with SAP ERP, supply chain integration add-on for SAP Integrated Business Planning

    You can implement SAP IBP for demand-driven replenishment to position, size, and adjust your decoupling point buffers, as well as to recommend replenishment proposals. Then, you can use the heuristics and analytics provided by SAP ERP, supply chain integration add-on for SAP Integrated Business Planning to generate supply elements and to review, manage, and carry out your supply plan. The following graphic illustrates this option:

    This image illustrates the 5 steps of DDMRP and groups them into different categories. Modeling/remodeling the environment encompasses the first three steps: strategic decoupling, buffer profiles and levels, and dynamic adjustments. Plan and Execute encompasses step 4, demand driven planning, and step 5, visible collaborative execution. The first three steps plus part of step 4 are performed in time-series-based SAP IBP. Part of step 4 and all of step 5 are performed in SAP ECC.

    For more information, see DDMRP Supply Generation with SAP ERP, Supply Chain Integration Add-On for SAP IBP.

Additionally, there are several apps, planning operators, and planning areas that you can use in these scenarios to implement demand-driven replenishment, for both strategic planning and tactical response.

Implementation of DDMRP in SAP IBP for demand-driven replenishment can include the following:

  • SAP8 sample planning area for demand-driven replenishment

  • SAP7 sample planning area, if using OBP based on external master data for supply generation

  • SAP7F sample planning area, if using OBP based on flexible master data for supply generation

  • Demand-Driven Replenishment Profile app

  • SAP IBP for demand-driven replenishment planning operators (time-series-based): Calculate DDMRP Buffer Levels, Recommend Decoupling Points (Solve) , Map to Decoupling Points, and Calculate Average Daily Usage.

  • Demand-driven replenishment OBP planning operator: Order-Based Planning: DDR Run (when using OBP for supply generation)

  • DDMRP Buffer Analysis app

  • DDMRP Buffer Status Monitoring app

In addition, you can use the following apps to monitor and adjust DDMRP:

  • SAP Integrated Business Planning, add-in for Microsoft Excel

  • Analytics – Advanced app

  • Dashboard – Advanced app

  • Supply Chain Network app

  • Projected Stock app (when using OBP for supply generation)

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