Long Overdue: Paradigm Shift in Supply Chain Management
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Long Overdue: Paradigm Shift in Supply Chain Management

At Sapphire, SAP presented its development strategy for Demand-Driven MRP. SAP is thus supporting a concept which finally adapts supply chain planning to the reality of today's business. This is still new territory for many SAP users.

At the latest since Saphhire, the term “Demand-Driven MRP” has been heard more and more frequently. Behind this is a paradigm shift in supply chain management which is not only ripping up traditional approaches to planning, but also enables increases in performance which had hardly been considered possible.

The fact that SAP has taken up the “Demand-Driven Material Requirements Planning (DDMRP)” concept, and is now also implementing this in its software solutions, is long overdue. Traditional supply chain planning approaches still stem from the middle of last century and are dependent on extremely precise forecasts. In today’s volatile business world, exact predictions of demand, however, are simply impossible, which is why forecasts for most products are more than 50% wrong. The consequences are dramatic: incorrect quantities are bought, produced or sent to the wrong locations. This in turn leads to high stocks while providing a poor service to the customer.

The DDMRP concept takes account of the new volatile normality of global supply chains. The supply chain planning is no longer based purely on a forecast, but instead oriented towards actual customer demand (and thus “Demand-Driven”).

The concept aims at uncoupling the supply chain and positioning stock buffers just where they are needed. The buffers are filled up in a steady and repetitive sequence over the course of their consumption. Since the replenishment management is driven by demand rather than (incorrect) forecasts, the stock quantities are always correct. Hectic and expensive rescheduling in order to adhere to service levels is no longer necessary, deliveries are steady and the stocks are optimal and balanced.

DDMRP is the future of supply chain planning. The fact that SAP has been sharing this assessment for some time and is therefore implementing DDMRP together with its partners in their solutions is a welcome and positive sign for users. After all, the best concept is absolutely no use if it cannot be implemented or only by a third-party provider solution – and what SAP user would want that?

What is currently most interesting is the solution presented for the first time at this year’s Sapphire, Demand-Driven MRP for SAP Integrated Business Planning (SAP IBP), which enables the implementation of the DDMRP concept in the new SAP cloud solution for real-time supply chain planning. It’s interesting because it is not just the first expansion app for SAP IBP, therefore setting standards for the expandability of SAP IBP. It is also a central milestone in the SAP strategy, providing an open and expandable infrastructure for its fast-growing, modern supply chain planning platform.

From a technical point of view, Demand-Driven MRP for SAP Integrated Business Planning consists of two large blocks. The first block is provided as an SAP IBP microservice and uses the strengths of the SAP cloud platform. It covers the DDMRP elements of “strategic inventory positioning” and “buffer levels & profiles”. The second block is based on SAP IBP and comprises the remaining three DDMRP components of “dynamic adjustment”, “demand-driven planning” and “visible and collaborative execution”. The Demand-Driven DMRP for SAP Integrated Business Planning configuration is supplied as a rapid deployment solution (RDS) that users can implement a pilot of within 10 weeks.

DDRMP is also available for SAP SCM and S/4. The SAP community is therefore open to the “Demand-Driven world”. Another reason to finally say goodbye to the traditional supply chain planning concepts.

E-3 Magazine (German) - October 2017

About the author

Steffen Joswig, Camelot IT Lab

Steffen Joswig is Managing Partner at Camelot IT Lab.

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