Why traditional manufacturing theories don't work

Using a demand driven approach to meeting supply chain complexity.

Complexity and variability are the new norm in modern business. Changing customer behaviour, shorter product lifecycles and a rising complexity in global supply chains is making life increasingly difficult for production planners. Here, Roger Fleury, Managing Director of resource management software specialist Ardent Solutions, explains why the traditional theories of manufacturing are outdated and how taking a demand-driven approach is the answer.

Today’s business customer is a very different creature to one that existed ten years ago. From order to fulfilment, today’s customer demands speed and flexibility. Whether it’s a smartphone giant that needs to launch the latest device every 12 months, or a fast-moving consumer goods (FMCG) company that needs to deliver seasonally relevant and customised soft drinks, meeting market demand is a challenge.

If manufacturers fail to meet this demand, their customers will simply go elsewhere, which is why companies have spent the last fifty years honing and refining their global supply chain and manufacturing models.

With the advent of computerised systems in the sixties and seventies, companies began using a variety of formal planning methodologies to improve the flow of materials and information through the supply chain.

Traditional manufacturing theories such as Material Requirements Planning (MRP), Lean manufacturing, the Theory of Constraints (TOC) and Six Sigma were used to try and improve lead times, reduce inventory and reduce waste. However, since they were codified over 40 years ago, these theories have not adapted to meet modern demands.

Supply chains have elongated and fragmented, while customer tolerance times have dropped drastically and there are now more products with shorter life spans. This disparity means that manufacturers have to plan much further in advance, which involves initiating supply orders using forecasted sales demand. The problem is that forecasted sales are highly inaccurate, especially when made so far in advance.

The result is distortion being created in the demand and supply signals travelling up and down the supply chain, which means that manufacturers are left with either too much inventory or too little.

The answer is to use a demand-driven approach such as DDMRP. This methodology takes the best aspects of the traditional theories — namely the focus on eliminating bottlenecks, improving throughput and reducing inventory and waste — and improves them by giving production planners an accurate way of modelling, planning and managing supply chains to protect and promote the flow of relevant information and materials.

DDMRP achieves this by using a three step process: position, protect and pull. The optimal balance of stock positioning is created by using decoupling points at strategic locations in the supply chain where inventory is held. Buffers are used at these points to protect the supply chain from shocks and these are dynamically updated daily to allow businesses to plan and execute order fulfilment in accordance with actual demand.

Because DDMRP uses qualified sales orders, the system is much more accurate and manufacturers can reduce a typical eight week lead time down to one week. This visibility gives planners the ability to prioritise orders based on buffer status rather than an arbitrary due date.

The result is that, by using a demand-driven approach, businesses can compress lead times, hold just the right amount of stock and improve customer service by increasing order fulfilment rates. With DDMRP, business leaders can forego the nervousness associated with using traditional manufacturing theories and dedicate their time to meeting customer demands, whether that's creating the next best smartphone or soft drink.