Last Tuesday, August 5, 2014 Chad Smith, a Supply Chain expert and co-founder of the Demand Driven Institute presented a webinar about consumption-based replenishment.
Smith argued that forecast error is on the rise and that supply chain complexity and volatility are increasing; he also noted that legacy planning tactics and tools are breaking down. Co-hosted with Narayan Laksham, founder of Ultriva, Smith noted during the webinar, “Worldwide there are more complex planning and supply scenarios than ever – the past is NOT a predictor for the future.”
The “New Normal” in the supply chain includes global sourcing and demand, shorter product life cycles, shorter customer tolerance times, and more product complexity and customization. Smith said, “Pressure for leaner inventories are on the rise and the cost of inaccurate forecasts combined with more product variety and long lead time for parts and components has changed the landscape of the supply chain.”
“The world is a much different place then when MRP was conceived and codified.” Smith insisted, “We have more complex planning and supply scenarios than ever and conventional planning can no longer handle it. We have reached the point of diminishing returns. Companies that keeping applying and optimizing old rules and tools, will put more in and get less back.”
Smith also shared that flow is the intersection of prevailing improvement methods, namely Lean, Six Sigma, and Theory of Constraints (ToC.) The primary objective of lean is to eliminate waste, where Six Sigma’s primary objective is reducing variability; ToC to improve throughput.
Throughout the world planners and buyers try to answer two questions on a daily basis – how much and when? These questions are necessary BUT they are secondary in nature. In fact, buyers and planners can never answer these questions with effectiveness if their organization cannot answer THE PRIMARY question about planning first, where? Where do we place strategic points of inventory in order to decouple dependencies.
The attendees of this webinar learned first-hand about DDMRP (Demand Driven Materials Resource Planning.) A supply chain is not a linear structure from supplier’s supplier to customer’s customer. A supply chain is a web-like structure with complex interdependence between the nodes. DDMRP is standing on the shoulders of giants that have gone before – including Joe Orlicky, Eli Goldratt, Jim Womack, John Constanza, George Plossl and many others.
Chad Smith is the co-author of the third edition of Orlicky’s Material Requirements Planning 3/E (Ptak and Smith, McGraw-Hill, 2011) and the co-author of Demand Driven Performance – Using Smart Metrics (Smith and Smith, McGraw-Hill, 2013). He is a co-founder and Partner at the Demand Driven Institute, an organization dedicated to proliferating demand driven methods globally. Smith serves as the Program Director of the International Supply Chain Education Alliance’s Certified Demand Driven Planner (CDDP) Program. Clients, past and present, include Unilever, LeTourneau Technologies, Boeing, Intel, Erickson Air-Crane, Siemens, IBM, The Charles Machine Works (Ditch Witch) and Oregon Freeze Dry. Chad is also a certified expert in all disciplines of the Theory of Constraints studying directly under the tutelage of the late Dr. Eli Goldratt.
Get the recorded webinar and let us know what you think.