Real-Time Supply Chain Planning with Demand-Driven MRP in SAP S/4HANA

  • by Caetano Almeida, Senior Support Engineer, SAP
  • December 21, 2017
Learn how to use the new demand-driven material requirements planning (DDMRP) method to decouple the lead time. It minimizes the bullwhip effect to achieve real-time supply chain planning in SAP S/4HANA.
Learning Objectives

Reading this article, you’ll learn:

  • An overview of the demand-driven material requirements planning (DDMRP) concepts, such as the bullwhip effect, decoupled lead times, and buffers
  • How to use the DDMRP SAP Fiori apps for mass maintenance of products and product classification
  • The buffer level proposal calculation and buffer level management
  • How to get MRP results with demand-driven replenishment
  • How to monitor replenishment according to the buffer levels
Key Concept
The demand-driven material requirements planning (DDMRP) concept was introduced in SAP S/4 HANA 1709. DDMRP is a new planning method introduced by Carol Ptak and Chad Smith that is explained in their book Demand Driven Material Requirements Planning.

What Is Demand-Driven Material Requirements Planning (DDMRP)?

The latest SAP S/4 HANA on-premise release 1709 includes the new demand-driven material requirements planning (DDMRP) SAP Fiori apps. These apps were developed based on this planning method and drive the MRP calculation.

Before analyzing how the DDMRP SAP Fiori Apps work, I first define exactly what DDMRP is and the main problems it can help you resolve.

A very common side effect of the traditional MRP model is called the bullwhip effect. The American Production and Inventory Control Society (APICS) dictionary defines the bullwhip effect as “an extreme change in the supply position upstream in a supply chain generated by small change in the demand downstream in the supply chain. Inventory can quickly move from being backordered to being excess.” This effect is basically the natural inventory characteristic to periodically move from a shortage position to an inventory excess. This effect can be amplified by an MRP characteristic called nervousness, which is caused when a small change in a demand of the parent material is reflected in many changes in the lower-level components during the planning situation.

DDMRP tries to establish buffers in the intermediate level to absorb the demand variability and add a protection to the lower-level components planning. Adding these buffers decouples the product lead time because the finished product total lead time no longer depends on the entire product structure lead time. Instead, the demand is absorbed by the buffer.

In the following sections, I analyze how to use the DDMRP SAP Fiori apps to set up a material to run DDMRP, classify products, calculate the buffers, plan, and execute replenishment.

Set Up the Material and Classify the Products

The first step when using DDMRP is to select for which materials the buffer will be established. You should not use DDMRP for all the materials; otherwise, the stock levels will rise too much. On the other hand, if you choose only a few materials to be planned according to the DDMRP logic, you won’t have enough buffer protection and you won’t have the benefits of a decoupled lead time. The process of choosing which materials will be planned with the DDMRP buffer is called positioning, and usually materials with a lot of variability and long lead times are chosen.

You need to define that a material will be planned with the DDMRP logic by choosing the new MRP types D1 or DX. The main difference between both MRP types is that D1 is set with automatic firming and order proposals rescheduled out in customizing. That means, with MRP type D1, all the order proposals within the time fence are firmed and MRP does not change them, while new order proposals are rescheduled outside the time fence. There is no time fence with MRP type DX. SAP also recommends that you use lot-sizing procedure H1 so that the replenishment proposals can be created to cover the entire buffer until the top of the maximum stock level. Figure 1 shows those settings in the material master tab MRP1. To display the screen in Figure 1, execute transaction code MM02. Note that the maximum stock level defined at the material master is only used until the buffer is calculated and the new maximum stock level is also calculated.

Figure 1
DDMRP settings in the material master

Caetano Almeida

Caetano Almeida is a computer engineer with an MBA in IT management. He has more than nine years of experience in production planning, with the last six years working at SAP Support, where he supports SAP customers and writes documentation and correction notes.

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