DDMRP Applications in Furniture Industry Supply Chain

Supply chain management in the furniture business is mostly concerned with logistics transporting physical commodities (raw and finished goods) from one site to another. Shipping expenses from wholesalers to retailers and the distance traveled from supplier hub to manufacturer have a significant impact on the final price of the product.

The furniture industry is similar to a place where clients demand and dictate. As a result, the manufacturing cycle is not as straightforward. In addition, consumer expectations in the furniture sector vary according to their preferences. As a result, bulk furniture product design and construction grow more intricate, and supply chain management becomes more problematic.

The manufacturing sector is based on the concept that a quality product almost always sells itself, and customer satisfaction is the highest priority. The furniture sector benefits from this by selling real things that customers can touch and feel.

Challenges in the Furniture Supply Chain Management

The way inventories are and aren’t used is perhaps the most significant distinction faced by individuals in the furniture sector when getting their items from point A to point B. The strange shapes and overall heft of many products make inventories’ considerable quantities of stock tough to achieve in a space-efficient manner—but this is nothing compared to the high wire act that many furniture makers regularly undertake: no inventory utilization at all.

Rather than maintaining a buffer stock of products and transporting them from factories to inventories and distribution hubs, some furniture manufacturers move their products directly from manufacturing lines to trucks. As you can expect, this raises significant issues for transportation planners within these organizations. Why? Because there is no room for flexibility when it comes to synchronizing production planning with transportation availability.

The furniture supply chain runs the danger of collapsing the entire production plan if there is a minor delay on either end. The easiest method to avoid this is to begin your planning processes with a high level of visibility, but even this only prevents a limited number of disruptions.

So what could be the best method for the furniture supply chain industries to manage the inventories? The answer to this question is Demand Driven Material Requirement Planning(DDMRP).

What is DDMRP?

Demand Driven Material Requirements Planning(DDMRP) is a cutting-edge formal planning technique that links resources, working capital, and supply chain planning and execution with actual demand. DDMRP eliminates compromises and greatly improves the efficacy of a company’s planning organization through creative and intuitive methodologies and fundamental planning reforms. The DDMRP has five components. They are as follows:

• Strategic inventory position
• Determination of the level of buffer profiles
• Dynamic buffers
• Demand-Driven Planning
• Highly collaborative execution.

How can DDMRP Help the Furniture Supply Chain Industries?

The furniture supply chain industry mainly faces the issue of inventory. DDMRP helps the company manage their inventories efficiently as it shifts the traditional method of forecasting based on past sales with the new method of producing based on the actual demand of the market. This can alone solve many other problems, some of which are:

1. Increased Agility: As production and materials costs are decreased, you will have more time and resources to respond to client needs. Because of the notions of inventory reduction and being more just-in-time focused, agility is key in lean and DDMRP operations. Agility will eliminate waste by allowing you to respond to consumers much more quickly and without accumulating mountains of inventory.
2. Raised Service Levels: Service levels can be considerably increased as a result of both decreased lead times and higher performance on commitment dates. This is especially vital if you want to expand your business and attract additional clients.
3. Overtime Reduction: It is frequent in furniture manufacturing plants for production changes to result in overtime and employees being held over owing to hustling to adjust. The production plant issues a red alert and requires everyone to be on standby, resulting in overtime and staying late to complete runs. DDMRP can help with this concept by buffering important resources and not blocking production with unnecessary work. You can adjust to fluctuations in demand.
4. Larger Margins: The final advantage of DDMRP is higher margins. When manufacturers decrease their prices to acquire the business or when overhead costs rise, margins drop. DDMRP will allow the furniture supply chain manufacturers to significantly reduce lead times, which means they will not be obliged to drop costs to compete. Higher profit margins are incredibly useful to your organization.

Case Study 1: How BSH applied DDMRP

BSH had no overall supply chain management responsibility. The roles were inappropriately distributed among the C-suite executives. The company was struggling and faced many problems like supplier problems, disruptions and force majeure, bottlenecks and capacity restrictions, long lead time, and quality issues. It was necessary to bring improvements in the end-to-end supply chain process to balance the availability and the stocks and increase the opportunity that the digital solutions were bringing.

BSH decided to implement DDMRP in their supply chain management. They focused on the actual demand of the market and analyzed the fluctuations that arise due to seasonality and short time demand. They stopped their production from being dependent on inaccurate forecasts of the traditional MRP. They also started a new D2C distribution channel and focussed on customers’ needs.

Earlier, the supply chain had suboptimal planning and execution mixing, resulting in volatilities and bullwhip. After shifting to the pull method that separated the planning and execution based on segmentation, the material flow improved, and the supply chain became stable. BSH, while transforming into the demand-driven adaptive supply chain, followed the five-step maturity generation model that included:

• Inspire and mobilize
• Understand and engage
• Validate and convince
• Demonstrate and align
• Deliver and harvest.

The Demand Driven Operating Model resulted in impressive performance improvements. The inaccurate forecast issue was resolved as the current model did not depend on any forecast. BSH achieved the service levels that they had planned while implementing DDMRP. They were also able to reduce their long lead times and successfully reduce the inventory significantly.

Case Study 2: How HACEB Applied DDMRP

Furniture company, HACEB, has been in the market for over 78 years. It has a production capacity of 4.5 million units, and the total plant area is 250,000 meters square. HACEB has over 4000 employees, with a total sales of $250M. It has different products like refrigerators, washing machines, stoves, built-in devices, gas water heaters, and air conditioners. With a big production capacity, HACEB faced high inventories, working capital excess, large business operating cycle, bad service level, high lost sales, rising logistic expenses, and high stockout of finished goods.

In 2017 HACEB decided to implement DDMRP. Before the DDMRP implementation, the forecast accuracy was divided into two parts: first, make a product with an accuracy of about 40% and second, the commercialized product with an accuracy of about 30%. The service level was around 88%, and the business operating cycle was about 124 days. The inventory level cost for HACEB was USD 57,000,000. During the DDMRP execution, HACEB decided to manufacture the goods according to the demand of the market.

The DDMRP model followed HACEB had 7 steps:

• Aggregated demand planning
• Aggregate production planning
• Production wheel
• Planning priorities based on DDMRP/R+
• Follow up of execution alerts based on DDMRP/R+
• procurement, production and distribution, that is, stock deployment processes.

The DDMRP implementation began with developing a portfolio management strategy, which included categorizing items based on their variability in amount and frequency of sale (four categories). Approximately 57 SKUs (manufactured and marketed) were removed from the portfolio. Each of these groups necessitates a unique DDMRP buffer design.

Results:

After the DDMRP implementation, HACEB saw a 27% increase in sales and a 28% reduction in the NWC. It successfully reduced the inventory size by 12%, and the business operating cycle saw a major drop of about 40%. The service level increased to 96.2% compared to 88%, which was before the implementation of DDMRP. The stockout problem was also solved as it was reduced by 80%. The future goal of HCEB is to reduce the lead time of raw materials and commercialized products purchased from overseas suppliers.

“No decision should affect the service’s level”, says Santiago Gómez, the Logistic director of HACEB, about the future steps taken in the DDMRP implementation in HACEB.

Final Thoughts

The furniture supply chain industry faces major issues of stockouts and the size of inventory.

From the above case studies discussed in this article, it is evident that DDMRP has an immense impact on the companies’ problems mentioned above. Thus, DDMRP is a better method than the traditional MRP that will help the furniture supply chain management companies solve these problems, increase their sales and thus increase profit.

To know more about DDMRP from Patrick Rigoni, get the latest information in our DDMRP Page.