How Did DDMRP Convert So Many Vendors?

Executive Summary

• The Demand Driven Institute has been very successful in getting vendors to adopt DDMRP.
• What does this mean for the validity of DDMRP?

Introduction

We analyzed DDMRP in the article Repackaged Lean as DDMRP and concluded that it is not an improvement on MRP and is just repackaged Lean with a few tweaks. DDMRP proponents are inconsistent in that they explain DDMRP, and then when you observe the consistencies between DDMRP and Lean, they say that you do not understand DDMRP. DDMRP proponents, much like Six Sigma proponents, assume that they know more than those who critique DDMRP — and that there is only one right conclusion on DDMRP, which is that it is highly desirable.

Our References for This Article

If you want to see our references for this article and related Brightwork articles, see this link.

I have to state that I have had aggressive debates with Chad Smith and Carol Patak – the Demand Driven Institute or DDI leaders, and various DDMRP devotees. I have also been on the receiving end of a large number of personal attacks from DDMRP proponents. The intent appears to be to censor those that oppose DDMRP or that are unconvinced by DDMRP. This is somewhat similar to debates with Six Sigma proponents but dialed up a few notches. However, in this article, I analyze each web page on DDMRP vendors and consulting firms on their own merits and based on what they publish on the topic of DDMRP.

Getting Vendor Buy-In on DDMRP

What is undoubtedly true is that the Demand Driven Institute, the organization that promotes DDMRP, has obtained significant buy-in from DDMRP vendors and also consulting firms.

Let us review a few of the vendors that have incorporated DDMRP into their software and consulting companies that now promote DDMRP and what they say about DDMRP.

SCM Connections

SCM Connections is a supply chain consulting firm.

It is a composite that takes the best aspects of MRP, DRP, Lean, TOC (Theory of Constraints), Pull, Six Sigma, along with additional innovation by the Demand Driven Institute, to create a supply planning process that encourages and promotes Flow in your supply chain. – SCM Connections

This is amusing because if an entity is friendly towards DDMRP, it is acceptable to point out that it borrows from Lean. The pull is basically Lean, so that is a second reference to Lean. DDI uses the same description on their website, where SCM Connections received this quote’s information.

DDMRP combines some of the still relevant aspects of Material Requirements Planning (MRP) and Distribution Requirements Planning (DRP) with the pull and visibility emphases found in Lean and the Theory of Constraints and the variability reduction emphasis of Six Sigma. – DDI

It is not based upon the theory of constraints, as like MRP, DDMRP cannot constrain. Six Sigma, as we cover in the article Will GE’s Decline Impact the Cult of Six Sigma?, Six Sigma is not a valid method of improvement. Therefore if any process is partially based on Six Sigma, it means that method is somewhat invalid. Furthermore, how one method can be an amalgamation of so many approaches quite odd. And the following quotation pushes the merger a step further.

Multi echelon safety stock planning in IO will look at demand and supply variability for each point in your supply chain that you stock material.  This can be finished goods at customer facing DCs, regional hubs, global hubs or manufacturing sites.  It further considers components of bill of materials.  It calculates the least amount of inventory to maintain the required service levels for a customer.  The calculated amount is treated as the zero threshold for MRP.  Meaning, that MRP will always plan to take inventory down to this amount as the next replenishment is due to arrive. – SCM Connections

MEIO systems do that, but that is just the safety stock portion of MEIO. Overall, this is a feeble explanation of how MEIO functions — and it is not clear the author understands who MEIO works. Furthermore, DDMRP does not have multi-echelon math and cannot set stock at some locations based upon the stock at surrounding areas or have the concept of sufficient lead time. This topic we cover in the article How to Understand Multiechelon Planning. It isn’t easy to see why DDI even chooses to invoke the name multi-echelon.

Every planning system plans multi-echelon networks, but that does not mean the method is multi-echelon. When software is called multi-echelon, it means something specific. For example, MRP and cost optimization software plans networks that are multi-echelon, but the software is also not multi-echelon. For more, see my book Inventory Optimization and Multi-Echelon Planning Software.

DDI uses this same terminology.

Demand Driven Material Requirements Planning is a formal multi-echelon planning and execution method to protect and promote the flow of relevant information through the establishment and management of strategically placed decoupling point stock buffers. – DDI

It is difficult not to see this usage as misleading. Again DDMRP is not multi-echelon software.

Sounds a little like DDMRP strategic decoupling, right?  Yes, and no.  Safety stock from IO is still more vulnerable to the bullwhip effect that snowballs through the supply chain.  It uses upcoming forecast as the trigger to replenish, may be subject to lumpy demand from weekly or monthly buckets, component safety stocks are replenished (based on forecast) even if the demand for finished goods never materializes. – SCM Connections

When a person writes “yes and no” and then phrases a statement as a question in this way — it is a giveaway the person does not understand the subject matter. This is equivocation and not at all clear writing. I don’t interact with anyone who speaks like this, as it is imprecise. This is a good point for the author to list the dimension in which it is not true, and then a second bullet to describe where it is true. Like this…

1. Conditions where it is like strategic decoupling: A, B, C
2. Conditions where it is not like strategic decoupling: Z, Y, Z

Instead, the author makes the reader figure out which sentence in the paragraph is where the similarity applies — and which sentence or sentences in the article are where the similarity does not apply.

And this is made particularly problematic because the author follows up with sentences that are not true.

Forecasted Product Locations Are More Susceptible to the Bullwhip Effect?

There is also no reason to say that MEIO is more vulnerable to the bullwhip effect. And to address the more general point, using forecasts does not make the system “more susceptible” and non-forecast-based planning “less susceptible.” Secondly, MRP does not have to use 100% forecast-based planning. MRP can be set to reorder point for items with a high forecast error where there is little benefit from forecasting, as we cover in the article How to Access Forecast Forecastability Measurement.

If a product location has a low error, not using forecasting increases the bullwhip effect.

Let us take a simple example.

If a forecast has a seasonal pattern that is highly forecastable — would using a reorder point or other Pull technique reduce the bullwhip effect?

Clearly not.

Using Pull or Lean, the system does not anticipate the rise in demand that could have been predicted with a forecast — and the same is true on the downside of the seasonal peak. Secondly, even if the forecast has a high error — the high error builds a higher safety stock. So again, the variability is accounted for in stock. This is the same thing that DDMRP is doing with its “buffer” stock setting. A level forecast emulates a Pull or Lean consumptive setting in the supply planning system.

Overstatement of the Bullwhip Effect and Supply Chain Consultants

The bullwhip effect comes from observations of supply chains but was popularized by the Bullwhip Game. This game is essentially rigged to try to prove a point about the bullwhip effect, and the game exaggerates the impact of the effect in real-life situations. The term is frequently used by consultants but is rarely used by planners. That should be a concern in terms of setting one’s strategy around mitigating this effect.

Consultants often have several proposals designed to create a “burning platform” to hire their services. Six Sigma, for instance, proposed that any manufacturing quality level below 1 in 3.4 million was a serious problem. Yet this is not true by merely calculating the trade-offs in terms of the cost of the defect versus the cost of attempting to achieve absurdly low-quality levels — which are not achievable when one includes the errors created at the beginning of production runs.

Let us move on to the next quote from SCM Connections.

DDMRP requires an all-in approach.  If planners, suppliers or manufacturing are not willing to follow the DDMRP supply plan, you will sub optimize and likely end up with the same over stock and under stock problems inherent in an MRP system.  This can be overcome with change management.  DDMRP is set up in a way to make it clear and understandable to users on how and why the plan is suggesting what it does.  DDMRP will not fix your problems for you, you need to embrace and trust the outcomes. – SCM Connections

This is typical of dogmatic initiatives that propose the method requires full commitment (once again, much like Six Sigma) and entirely skips the part where the validity of the process is evaluated.

Chad Smith, one of the leaders of DDMRP, has repeatedly overstated the degree to which DDMRP is proven to improve outcomes. He will state that the DDMRP has documented evidence of improvement — without pointing out the DDI’s ability to exclude bad data points. The one study the DDI shared did little to prove the case for DDMRP, as the control group had no extra effort made to improve the planning, while the DDMRP product locations did receive effort. And even with this rigging, the improvement was minimal.

However, when DDMRP consultants or followers propose DDMRP benefits, they routinely quote between 30 and 70% inventory reductions — with service level improvement. The study I read had improvements far below this. This is typical in the consulting space. Consultants routinely take either negative benefits or marginal benefits and explode them out to huge benefits to promote selling consulting services.

Conclusion on SCM Connection DDMRP Coverage

The author for the SCM Connections coverage jumped to the benefits of DDMRP without worrying about providing evidence for these benefits. They also misexplained MEIO and made incorrect statements around the relationship between using a forecast and the bullwhip effect. The author finished off with a highly doctrinal paragraph that said the users of DDMRP have to “ride or die” with DDMRP.

This is not encouraging. It looks like a pretext for shutting down criticism of DDMRP after it fails to deliver what it promises. Naturally, once you convert everything over to DDMRP, it will be tough to switch back — therefore, proposing this way of thinking seeks to lock the customer in. SAP uses a very similar tactic — they state that because their software contains 100% best practices, any problems with the implementation are due to the customer because they are not accepting these best practices. We cover this in the article How SAP Uses Best Practices to Control the Implementation. Other ERP vendors and consulting firms do the same thing — but SAP has pushed the practice to the most extreme degree.

Shea

Shea is a company that has incorporated the use of DDMRP but which primarily implements Microsoft Dynamics or Syspro. It should be noted that neither of these applications has good MRP engines, and neither company has much expertise in supply planning. These ERP applications are sold based on their integrated nature — not because they are good at supply planning. While I have never tested Syspro — I have extensively tested Microsoft Dynamics. And supply planning should not be performed in Dynamics.

Shea’s quotes.

Demand Driven MRP removes the overhead of perpetually adjusting order recommendations while dispelling the myth that you just need more inventory to maintain higher service levels.

Is the fact that you need more inventory for higher service levels a myth? This is probably one of the best-known facts in inventory management. There are distinctions where inventory can be better deployed, but the relationship between more inventory and higher service levels is quite reliable.

Planning in an uncertain world requires a radically different approach to traditional MRP methods that institutionalize forecast errors and order volatility. The simplicity of the Buffer Zone concept underlies a strong analytical and rigorous approach to material planning. – Shea

Why is that true, and where is the evidence for this? How did MRP become inappropriate? Is the author aware that many methods have come across over the past few decades and have promised massive improvements (such as cost optimization) and that most of those promised improvements have failed?

Strategically positioned inventory is designed to decouple supply and demand in order to reduce variability whilst at the same time compressing lead times. DDMRP answers the question all finance and operations managers want to know: How to get the right stock in the right place at the right time – Shea

This term “decoupled” is used frequently with DDMRP, but it only means that there is extra stock. That is the “decoupling.”

This is a constant issue with DDMRP. It takes very well-known approaches – and then renames them — and expects to be given some innovation award.

The last part of the sentence in this paragraph is not worth analyzing.

Conclusion on Shea DDMRP Coverage

This is just a copy and paste of material published by DDI without much addition.

Implementation Consulting Group

This is another consulting firm. They do several things, and supply chain consulting is one of them.

Amongst other things, they argue that no forecast should be used for operational planning, and only confirmed orders should be considered in the operational planning. – Implementation Consulting Group

This is true in that it reflects what DDMRP says — but does not make sense. If only confirmed sales orders are used, a large amount of demand will be missed because, in most cases, the sales order further out than the total lead time. The case where the opposite is true is called made-to-order — which is usually estimated to be roughly 10% of situations.

Where DDMRP differs from traditional ROP is that it brings a concept for not only calculating the reorder levels, but adds elements such as:

1. A concept for where in your supply chain network and bill of materials hierarchy you should strategically put reorder point triggered buffer inventories.

2. A concept for how supply orders upstream the supply chain are triggered based on future orders, history and future spike orders.

3. Being very visually appealing, which in turn makes the planning a lot more transparent, allowing the planning tasks to become more simple and efficient.

4. A concept on execution of orders based on priorities and level of current “inventory” penetration, which increases the focus on where actions are most critical. – Implementation Consulting Group

These are all claims — but DDI is very short on explaining why these contentions are true. The idea that something is a concept does not make that concept true. One can notice that in each case, these authors assume the idea must be true and must be beneficial.

We believe that the intuitive colour coding in DDMRP (advanced ROP) allows for clear visualisation of the current state of your stock levels, which can easily be recreated to match whatever system your company is currently using, such as APO, IBP or Excel. Combine this with its easily implementable rules and you can enable a deeper understanding of the system and transparency of the processes. – Implementation Consulting Group 

The first part of this paragraph might be true about color-coding. MRP systems often do suffer from lacking transparency. However, the last part is conjecture. This is a matter of opinion as to whether it enables a “deeper understanding” of the system. Although MRP, mainly when run from ERP systems, does lack transparency. It is difficult to tell what is happening, and they force a focus on managing at the product location with little ability to see the overall network.

Conclusion on Implementation Consulting Group DDMRP Coverage

ICG did not seem to perform any verification of the claims made by the DDI. ICG said it could help — but did not give good reasons why.

Prophetic Technologies

For some reasons too numerous to mention here, accurate sales forecasting is becoming more difficult, consuming more effort and requiring more mature recesses and complex data sets than ever before. DDMRP could be the most effective option for some companies, as it can provide great value compare to Material Requirements Planning. (MRP).

The first part of this paragraph is true. However, it does not follow that MRP is not useful. I mean using more reorder points or using a level forecast. To supply planning, a level forecast emulates a reorder point.

Conclusion on Prophetic Technologies DDMRP Coverage

Prophetic Technologies is making claims that it does not appear to make much effort to substantiate. It simply asserts great value versus MRP, but without providing evidence as to why this is true.

QAD

QAD is a software vendor. They are an ERP system for smaller companies.

To understand DDMRP requires one to think differently about supply chain flows and the decoupling of specific points in the supply chain. This is easier said than done, but if this hurdle is overcome, then DDMRP becomes surprisingly uncomplicated to understand and simple to use. The challenge however lies within the “if.” – QAD

What is so different here? Safety stock already “decouples” demand from the supply. It does not require thinking differently about the supply chain — and what does that even mean?

DDMRP is not a buzzword, it is not a marketing spin on an existing concept. The buzz comes from the unique approach to modeling supply chains and the process of triggering a supply event from a demand signal. With DDMRP a supply chain is not a chain, but rather a network of networks. The networks within a network are decoupled, meaning there is no immediate and direct action and reaction between them. The flow of goods is buffered in strategically located positions with dynamically updated targets. The proverbial bullwhip impact is thereby controlled. – QAD

Well, it is a buzzword and a marketing spin on existing concepts. DDI lists the “existing concepts” on which it is based. The definition of DDMRP by DDI is that it is an amalgamation of different pre-existing methods.

Once again, safety stock already “decouples,” there is no benefit from obsessing over the fact that extra stock is carried to deal with unexpected demand. The assertion about a reduction of the bullwhip effect is repeated — but as I explained earlier, it depends upon the forecastability of the product location combination.

DDMRP offers a tangible reduction in obsolete and excess inventory (emphasis added) in addition to a proven track record of customer service improvements. Of course, reduced inventory and higher service levels are value claims not unique to DDMRP. For many QAD customers, these benefits are augmented with the unique value proposition of simplicity. Once one has embraced the demand driven basics and the strategic configuration components are in place, DDMRP is remarkably easy to plan with. The execution component is simple and intuitive. DDMRP borrows from the Theory of Constraints (TOC) approach of buffer level alerts using the colors of a traffic light. In caution of oversimplification, red is bad, yellow requires some replenishment action and green is ‘hold.’ Onboarding a new supply planner has never been easier. – QAD

There is no proven track record of this. The DDI asserts this, but every vendor says they have this. It is not independently verified information. I know of many SAP products that fail or deeply disappoint customers nearly every time they are implemented, and SAP keeps making the same claims about them for over a decade.

DDMRP may have beautiful graphics to identify stock — but DDMRP is a high-maintenance approach. It reduces the automation on MRP by breaking the BOM, so primarily the sub-components can be manually managed.

Conclusion on QAD DDMRP Coverage

QAD is an ERP company. I would never listen to an ERP company about what works for supply planning. How would they know? ERP companies provide sub-par supply planning functionality and pretend to their customers that it is a “leading edge.” Even the largest ERP vendors have weak MRP/DRP and supply planning functionality, as I cover in the article Understanding MRP & Why Use MRP in ERP?

Camelot

Camelot is a consulting firm specializing in SAP and has been one of the biggest proponents of DDMRP.

Increasing network complexity and enlarged product portfolios result in higher planning effort. Furthermore, shorter product lifecycles and higher customer expectations with respect to delivery periods lead to increasing volatility and uncertainty. In such an environment, demand forecasts are always wrong and often deviate by more than 50% from the actual demand. Consequently, the wrong quantities are sourced, made or shipped to the wrong places resulting in low customer service levels. In order to avoid such problems, companies often spend a lot of money and time moving products and materials through their factories and supply chains, resulting in high inventories. However, companies still often fail to meet the target service levels. – Camelot

This explanation of what has been happening is true. However, it makes it seem inevitable. These are decisions made by companies — my marketing, sales, etc.. that are insensitive to these changes’ impacts on operations.

Let us take the example of shorter life cycles.

Yes, marketing keeps introducing new products — shortening lifecycles. However, over 95% of these “new products” are just recycling previous products, and the forecast history of the old product can be superimposed on the “new product.” Not that companies do this sufficiently as they tend to be overwhelmed by the number of new products. This reduces forecast accuracy — but this does not mean that forecasting is not useful or value add — and the statement

“forecasts are always wrong”

..is the type of statement made by a person who is not familiar with forecasting. However, it is repeatedly stated by both Lean proponents and DDI proponents. Is a forecast with an accuracy of 95% “wrong?” Yes, by 5%. But it does not mean there was no value in creating the forecast.

This is actual company data that shows the assignment of forecasting methods to product location combinations. The sales history for this database is intermittent, meaning that they are pushed to more simply (except for Croston’s) forecasting methods — and of course, the error is higher. This decline in sales history quality is increasingly common. But this does not mean that one can dispense with forecasting. 

Forecasts have an error. A low error is good; a high error is bad. Not all products need to be forecasted — but the value is still obtained from forecasting those that can be forecasted at a reasonable error.

This setup by Camelot is illogical — because no supply planning method can be constructed to absorb these issues. Every supply planning method will have higher inefficiency if you design the business in a way that inherently maximizes waste. Within MRP systems already exist the mathematical methods to deal with this — they are called reorder points and safety stock.

Dynamic adjustments in the third step of the demand-driven operating model allow the previously calculated buffer zones to be modified. This allows the knowledge and experience of the planners to be considered as well as other changes and short-notice adjustments of input parameters. The planners’ input is especially relevant in order to react to dynamic market effects like trends, seasonality, or significant promotions. The first three steps of the DDMRP concept include the overall parameterization of the supply chain and, thus, set the framework for further operational planning and execution. Therefore, they are crucial for the successful application of the DDMRP methodology. – Camelot

Yes, that is fine, but it is not new.

In the article Brightwork Explorer and Safety Stock Calculation, we cover that safety stock can and should be externally calculated and recalculated at the company’s frequency of choice. There is no reason to accept safety stock calculated inside of MRP or external supply planning systems that only calculate the safety stock in isolation at the product location combination.

The innovative DDMRP concept represents the biggest paradigm shift in supply chain planning in the last decades. In the solution “DDMRP for SAP IBP”, the concept has been implemented by Camelot using SAP’s latest and state-of-the art planning technology SAP IBP.

That is quite an exaggerated claim on both counts. And SAP IBP is not a particularly effective planning tool, as we cover in the article Is SAP IBP Good?

This solution is being continuously improved and enhanced by additional functionalities. Hence in addition to DDMRP, “Demand-Driven Supply Chain Management” (including Segment & Strategize, Flow Metrics, and DDS&OP, for example) will be available in future. Thus, Camelot offers an implementation of the DDMRP concept on all major SAP platforms (SAP SCM, S/4HANA, and SAP IBP) as part of its “Demand-Driven LEAN Planning Suite for SAP”. This combination of a revolutionary concept and state-of-the-art technologies offers considerable added value to the customers. They benefit from the conceptual advantages of the demand-driven planning approach, significant competitive advantages based on comprehensive efficiency enhancements, a trendsetting solution, and thus, from investment reliability.

Well, Camelot lies a lot.

This video is filled with the same claims almost always made about these projects that do not come true. They even worked in the term “paradigm” into the video. Bravo. 

The statement from one of the Camelot partners that…

All the SAP (inaudible) for all platforms IBP, S/4HANA, SCM, there is no excuse anymore.

This statement makes zero sense. First, neither IBP nor S/4HANA are platforms — they are applications. And what is the excuse that this man is speaking of? S/4HANA has already had a very problematic implementation history. This is just content-free boasting — it implies that because SAP has introduced an application, it must be good and must be used.

They are clearly in 100% promotion mode, and I am quite familiar with SAP consulting firms that are very comfortable lying. Nearly all SAP consulting companies provide zero critical thinking and serve to try to sell SAP projects. And they are very prone to exaggeration as they spend most of their time just repeating SAP marketing literature.

Look at this product list on the Camelot website. Many of these items Camelot guaranteed does not implement. SAP Leonardo is dead. As we cover in the article Our 2019 Observation: SAP Leonardo is Now Dead, SAP does not have AI. IoT is the same thing as Leonardo.

I could go on, but Camelot is saying it does things that it does not do. This is par for the course with SAP consulting firms. Consulting firms cannot do research. They are continually introducing “research,” which is in reality promotion. In the article Why PwC’s Research Fellows are Fake and Pretend to be Academic, we cover how PwC creates fake academic titles for people posing as researchers. It is well known that any audit results that one desire can be purchased from PwC. On the consulting side, PwC does not produce research — they produce marketing collateral. And they will rig the results whichever way allows them to sell more consulting projects.

Conclusion

There was not much quality of thought put into the web pages that cover DDMRP. Most of them were just repeats of information that is published on the DDI website. I could have reviewed more websites of vendors and consulting companies that covered DDMRP, but the others I read were about the same as those presented in this article.

The issue is that these software vendors and consulting companies don’t care what is true.

They think that DDMRP can help them sell software or consulting services, so they are “on board.” None of these entities can be trusted to evaluate DDMRP, and most do not qualify to do so. There may be implementers who disagree entirely with DDMRP, but the marketing departments that approve the web pages I read, will tell prospects it is excellent.

So while it seems impressive at first glance that DDMRP was able to onboard several vendors and consulting firms — it is not evidence that what DDMRP says is true.