The typical FMCG environment is make-to-stock (MTS) oriented and is planned at SKU levels. It relies on the demand planning of the end product, which is mass-produced that ultimately depends upon the MRP. However, MRP never intended to manage stocks, and it only gives realistic results provided the following three assumptions are valid:
We understand that these assumptions can never be 100% true in all cases, and thus results are unexpected in many cases.
The current FMCG model also uses long Freeze Durations to stabilize the supply and capacity scheduling. The model leads to goods manufacturing by predicting the demand over a long period. which results in the following problems:
So, what can be the alternative to solve these problems?
We can tweak some set of rules of MRP to tackle the problem at a different, more fundamental level. From this, the DDMRP or Demand Driven MRP comes into play.
Demand Driven MRP is a strategy for modeling, planning, and managing supply chains to safeguard and enhance the flow of essential data and resources. To drive supply order development and management throughout a supply chain, DDMRP uses strategic decoupling points. Critical planning demands merged with mainstream improvement disciplines based on the flow via innovation.
While planning the model for your company, you should consider the following DDMRP production planning rules for maximizing your revenue:
At critical points in the supply chain, strategic buffer stocks are crucial. DDMRP is true in this regard; however, how those buffer stocks are determined should be based on the variation of actual demand from the demand plan rather than overall demand variability.
Efficient Demand Management at the SKU level is critical if a company wants to prevent large cash outlays on safety stocks and avoid high levels of obsolescence. Keeping enough buffer stocks to deal with the entire variability will result in a lot of stock holding and obsolescence.Active monitoring of stocks through continuous adjustment of zones, and execution alerts to protect the availability of buffers also helps.
EOQ is commonly used in FMCG to establish a consistent batch size across all SKUs. Given specific cost drivers, this standard number should be designed to optimize the facility. This batching method is that not all SKUs have the same demand pattern or volume. Producing enormous batches for low runners would result in capacity being occupied for an extended period, causing schedule disruptions. Demand-driven batching may be able to overcome this problem because:
The premise behind Demand Driven Batching is that the organization should batch for flow rather than unit cost. The following are the features of a batch for flow in the DDMRP model:
The benefits of flow in batching are that the service is consistent and reliable when a system flows well, thus maximizing revenue. Thus the DDMRP model in the supply chain adds value for enterprises.
The pull flow must be smooth and compliant with the limits of your industrial model to be efficient. During the design phase, identify these constraints. Be aware that actual restrictions may not be where you believe they are — for example; they could be in your quality analysis and release process rather than in manufacturing—place time buffers in your flow where they’re needed. Controlled queues are time buffers.
Seasonality also affects space and stock plans. Through Demand adjustment factor DDMRP FMCG model could intentionally flex the buffer up or down according to season or planned campaign.
Many FMCG Facilities were designed for cost performance and fewer SKUs, but in today’s world, marketing and the market don’t care about facility cost considerations. SKUs are increasing tremendously, and product life cycles are getting shorter. FMCG should have a more flexible capability to keep pace with the market while minimizing working capital commitments.
The visual and collaborative execution component of DDMRP considerably aids this reoccurring challenge. Items with an execution alert and those with the lowest execution % of downstream buffers are given priority. Stock and time buffer statuses balance priorities throughout the supply chain.
CCBA is the world’s seventh-largest Coca-Cola bottling partner. It is the first large corporation in Africa to push Demand Driven Materials Requirement Planning (DDMRP) beyond the borders of South Africa. The team in charge explains their journey and the lessons learned.Despite working continuously on improvements, the add on stocks was critical, they were unable to manage it so they decided to implement DDMRP to manage their work and for a better forecast. The benefit they saw after implementing DDMRP was that the workload of their workers was reduced and the add on stocks were reduced, on-time deliveries increased from 70% to 85 to 90%.
FastPack is a Ukrainian company that supplies fasteners to 83 DIY retail store brands. They implemented the DDMRP strategy in three stages; In the first stage, they tried to learn about the methodology and the management of different departments of procurement and production. This helps you understand the system and the parameters are given to each SKU. In the second stage, they implemented the corrections in databases; every working staff had to know how to calculate the buffers. Third, they optimized, made the entire assortment rollout, figured out the optimal production size, and understood how to work with the calculation department. And the result was that they had to cut inventory by 20% while improving fill rates by 6%, all while seeing a 30% increase in supplier lead time.
Monomakh Company, founded in 1991, produces and packages over 1,500 tea and coffee goods. During a meeting, Vladimir, Supply Chain Director at
The Monomakh company said that: “While retaining the same inventory stock level over the DDMRP implementation period, sales climbed by 60%. Looking at the comparative data, we may conclude that the sales-to-purchase ratio is increasing, allowing us to approach the season more comfortably because sales can increase twice as much according to the seasonality of the tea business. For example, it is 100 tonnes in the summer, and in the winter, it is 200 tonnes. We started stockpiling in the summer, and sometimes we overestimated, resulting in overstocks. We are still collecting goods, and there are still overstocks, but the monetary value has decreased significantly”.
Some of the benefits that the FMCG industries get from the DDMRP model are:
The DDMRP is revolutionizing the FMCG sector whether it be from reducing cumulative lead time to producing constantly and thus managing inventory more accurately. Reach out to Demand Driven expert Patrick Rigoni to learn more about what DDMRP can do for you and your team!