Demand Driven Adaptive Systems
A disruptive element in a Volatile World
Frankfurt, March 14th 2017
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
What is Demand Driven SCM?
Definition: Sensing changing customer demand, then adapting planning and production
while pulling from suppliers – all in real time!
It does not mean:
Better forecasting
Make to order everything
Simple pull
Inventory everywhere
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| © Camelot 2017 | Demand Driven Adaptive Systems
Do we really need to
be Demand Driven?
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Are we just doing the wrong things faster?
MRP
MRP II
ERP
Development and proliferation of planning
systems has not enabled better ROA
performance despite labour productivity
doubling in the same period!
APS
Deloitte University Press DUPress.com
Slide 3
| © Camelot 2017 | Demand Driven Adaptive Systems
What is driving the
need to change?
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Our VUCA world is making supply chain management ever more challenging
Volatile
Uncertain
Complex
Ambiguous
Supply Chain
Characteristics
1965
Today
Supply Chain Complexity
Low
High
Product Life Cycles
Long
Short
Customer Tolerance Times
Long
Short
Product Complexity
Low
High
Product Customization
Low
High
Product Variety
Low
High
Long Lead Time Parts
Few
Many
Forecast Accuracy
High
Low
Pressure for Leaner Inventories
Low
High
Transactional Friction
High
Low
COMPLES & VOLATILE IS THE NEW NORMAL
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| © Camelot 2017 | Demand Driven Adaptive Systems
Toda s suppl hai s look VERY
differe t fro
9 s suppl hai s
when conventional planning rules
were formulated
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
How do we run our supply chains?
Conventional planning rules have
not appreciably changed since the
1960s. MRP still plans today the
way it did 50 years ago!
We use a simple MPS/MRP calculation for every stock item:
a. What do e fore ast e re goi g to sell i additio to the orders e e alread re ei ed?
b. Our forecasts will be wrong so we add some safety stock
d. What stock have we already got in the warehouse(s)?
e. What stock is already on order and when will it arrive?
What we need to order: (a+b) – (d+e)
MPS/MRP
A d if our proje ted sto k ala e, at a ti e, is a o e or elo the le el of safet sto k, e ll re ei e a e eptio
message telling us to expedite or push back a supply delivery
MPS / MRP:
 CONCEIVED IN THE
 CODED IN THE
s,
s,
 COMMERCIALISED IN THE
s
 AND STILL THE FOUNDATION OF TODAY S ERP s & APS
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| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
MPS / MRP seems to make a lot of sense but the trouble with forecasts is that they are:
 Always wrong!
 World class portfolio mix accuracy is c80%, if 80% is achieved c80% of your sku s (those of lower volume / higher
variability) will be achieving forecast accuracies of below c60%
 Inaccurate short term forecasts, when used for directly driving replenishment, drive the sourcing / production /
movement of the wrong stock in the wrong quantities at the wrong time to the wrong places causing unbalanced
i e tories ith ser i e isses a d the eed to re-s hedule through exception messages to prevent back-orders
Traditio al approa hes to suppl
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| © Camelot 2017 | Demand Driven Adaptive Systems
hai
a age e t are a tuall destru ti e i toda s e iro
e t
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
A d…
 Current supply chain trends are not going to allow meaningful improvements in forecast accuracy
Longer lead-times
SKU proliferation
Increasing demand volatility
 Promotions, channel proliferation, new competitors
Emerging markets
Shorter life-cycles
 Does t safet sto k help?
How sophisticated are our safety stock calculations?
How often are they reviewed?
Can they really deal with forecast errors of 40% + ?
Should they be trying to deal with forecast errors of 40% + ?
Do safety stocks actually help or hinder supply chain management ?
Traditio al approa hes to suppl
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| © Camelot 2017 | Demand Driven Adaptive Systems
hai
a age e t are a tuall destru ti e i toda s e iro
e t
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
The problem with forecast push DRP/MPS/MRP/APS
Demand
Forecast accuracy v 100%
Safety stock
Production
Forecast Push - production is driven by inaccurate forecasts resulting in expediting and schedule changes as planners
inevitably respond to exception messages to protect service levels
Bullwhip - the inaccuracy of the net forecasts, and consequent supply schedules, is amplified as they cascade up the supply
chain due to batching, dependent demand and the accumulation of delays and errors
Traditio al approa hes to suppl
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| © Camelot 2017 | Demand Driven Adaptive Systems
hai
a age e t are a tuall destru ti e i toda s e iro
e t
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
MRP s other fatal fla s
MRP assumes fixed lead-times
 But lead-times are sensitive to capacity utilisation and natural
process variation, all of which consequently cause service risk
 Interrupting supply schedules increases lead-times & uses capacity
MRP uses dependent demand
 Any over-ru i a a ti it s lead-time will ripple out across the supply chain affecting other lead-times
 Delays accumulate – ou a t at h a k ithout additio al apa it
 Increasing MRP lead-ti es or ti e fe es to o pe sate i reases load…….a d lead-times
 Responding to exception messages (ie. expedites, unplanned change-overs) to resolve service risks use up capacity and
further increase lead-times
 Variable & increasing lead-times, service issues, use of unplanned capacity and inventory growth are the inevitable
consequence as variability is amplified and propagated up the supply chain
Traditio al approa hes to suppl
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| © Camelot 2017 | Demand Driven Adaptive Systems
hai
a age e t are a tuall destru ti e i toda s e iro
e t
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Which 4 letter word best describes how we want our supply chains to behave?
F___
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| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Which 4 letter word best describes how we want our supply chains to behave?
FLOW
Why Flow?
Perfect Flow = Value Add Time / Lead-time = 100%
Net Profit
→ ∆ROI
∆Flo → ∆Cash Velo it → ∆
Investment
(
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| © Camelot 2017 | Demand Driven Adaptive Systems
)
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Re-orienting to Flow
When flow is occurring:
All benefits will be directly related to the speed of FLOW of
materials and information.
George W. Plossl
Information
Materials
Protection and Promotion Flow =
ROI Maximization
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| © Camelot 2017 | Demand Driven Adaptive Systems
 Service is consistent and
reliable when a system
flows well.
 Revenue is maximized and
protected.
 Inventories are minimized.
 Expenses ancillary and/or
unnecessary are
minimized.
 Cash flow follows the rate
of product flow to market
demand.
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Which 6 letter word better describes what supply chains actually are?
A series of
Q - - - --
Slide 13
| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Which 6 letter word better describes how supply chains actually behave?
A series of
QUEUES
of inventory waiting to be processed or sold
Slide 14
| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
So what is supply chain management?
Flow is the rate at which a
system converts material to
product required by a
customer.
 Its all about encouraging and supporting the FLOW of
materials through value- add conversion processes
from source to customer
Cash velocity is the rate of
 Its all about minimising QUEUES
Net Profit
→ ∆ROI
∆Flo → ∆Cash Velo it → ∆
Investment
(
)
The less time it takes products to move through the system,
the less the total inventory investment
Demand Driven Adaptive Systems
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| © Camelot 2017 | Demand Driven Adaptive Systems
net cash generation; sales
dollars minus truly variable
costs (aka contribution margin)
minus period operating
expense.
Net profit/investment the
equation for ROI
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Why do we get queues?
ot enough capacity
...but if that was right the queues would grow without limit –
a d ost do t
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| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
The real reason for queues
Variability
in
the rate of arrivals at constraints and the rate of
processing by that constraint
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| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
How does variability create queues
 When the rate of arrivals is greater than the capacity available in the same period, a backlog inevitably forms
 When the rate of processing declines or stops, or there are no arrivals to process, capacity is permanently lost
 The interaction of these 2 forms of variability is what generates queues of a finite average length
Sources of variability:
machine unreliability, quality rejections, service saving expedites & schedule interruptions, excessively large batches
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| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Queue behaviour
Shows that
 as Variability increases (and the
curves move from right to left)
the queues get longer & start at
lower levels of capacity
utilization, and
 as capacity utilization grows so
the queues grow exponentially at
higher levels of utilization
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| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Queues in practice
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| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Queues in practice
https://www.newscientist.com/
article/dn13402-shockwavetraffic-jam-recreated-for-firsttime/
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| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Queue management in practice
Slide 22
| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Queues can be reduced through use of extra (expensive) capacity
Q. Time
Variability
buffers
Inventory Qs
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| © Camelot 2017 | Demand Driven Adaptive Systems
Capacity
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Queues can also be minimised by reducing variability
Lea is fu da e tall a out
(Hopp & Spear a
i i izi g the ost of ufferi g aria ilit
To Pull or Not to Pull, What is the Questio ? 1
)
Lean Tools: TPM, TQM, Poke Yoke, Standard Work, DFM, 5S, SMED – smaller batches,
Muda (waste) created by Mura (un-eveness), Muri (over-burden)
Flexibility & Reliability
Slide 24
| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Particularly by not driving replenishment execution with inaccurate forecasts through a dependent
demand network
Forecast error induced variability
Suppl.
RM
forecast
Suppl.
RM
Mfg
Mfg
Suppl.
RM
Suppl.
RM
Mfg
Pack
FG DC1
FG DC2
Cust.
Sources of variability:
machine unreliability, quality rejections, service saving expedites & schedule interruptions, excessively large batches
Slide 25
| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Demand Driven SCM is the correct way to manage supply chain execution
Suppl.
Demand variability
RM
sales orders
Mfg
Suppl.
Mfg
R
M
Suppl.
Mfg
Pack.
FG DC1
SF
G
FG
DC2
Suppl.
R
M
R
M
DECOUPLED AND DEMAND DRIVEN
Slide 26
Cust.
FG DC2
| © Camelot 2017 | Demand Driven Adaptive Systems
Planned but independent stock
buffers
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Demand Driven SCM minimises variability and thereby enables achievement of:
 Your planned ex-stock service levels, from
 Between 30% to 50% less average inventory, using
 Significantly less capacity / higher OEEs leading to cost reductions and capex delay
 Without expediting and fire-fighting or focus upon achieving high levels of sku level forecast accuracy (NB. forecasts are
used for S&OP and event management)
Net Profit
→ ∆ROI
∆Flo → ∆Cash Velo it → ∆
Investment
(
Slide 27
| © Camelot 2017 | Demand Driven Adaptive Systems
)
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Demand Driven SCM succeeds because:
 It eliminates the greatest source of supply chain variability and bullwhip:
the use of highly inaccurate sku level forecasts for driving supply execution.
 It positions right sized, and regularly maintained, de-coupled and variability absorbing inventory positions within the
supply chain, that are all replenished in line with demand, in their own stable and predictable sequence
 It is effe ti el e terprise s - ide pull usi g push for e eptio al a d e tre e e e t
successfully implemented across global and complex supply chain networks.
14000
60000
12000
10000
50000
a age e t a d is o
40000
8000
30000
6000
20000
4000
10000
2000
0
0
1
2
3
4
5
6
7
8
9 10 11 12 13 14
Period
A volatile demand pattern that can be serviced by
DDSCM without intervention
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| © Camelot 2017 | Demand Driven Adaptive Systems
1
2
3
4
5
6
7
8
9 10 11 12 13 14
Period
An extreme and exceptional demand spike that
requires active event management
ei g
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Demand Driven = End To End Lean Pull = FLOW
Demand
Production: level loaded
and highly utilised
Stock variability buffer
too little
warning
optimal
0
Slide 29
Consistently high availability
SKU s
SKU s
Poor product availability
| © Camelot 2017 | Demand Driven Adaptive Systems
warning
too much
ROI 
too little
warning
Inventory
0
optimal
warning
too much
Inventory
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Possible future state: demand driven collaboration
 2 way visibility
Demand Driven
 Collaborative inventory
target & event
management
 Lower inventories for
both parties
 Best in class service & no
missed sales
 Smoother demand and
lower costs
 No expediting,
firefighting
Distribution
or sales
Orchestr8
SaaS
Inventory & sales forecast
(for target setting)
& live POs
Customer
ERP
Stock target plus events
less inventory & live POs =
recommended new orders
Shared buffer status alerts
Stock Target & Event
Management
Collaboration
Calculates inventory
targets, generates new
order recommendations
Orders reviewed / placed by
Customer or use VMI
Supplier
ERP
Shipments
Stock or ATO
Slide 30
| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
DDMRP provides a framework for a multi-echelon Inventory Management and Replenishment
Planning approach that consists of five major building blocks
Modeling/Re-modeling the Environment
Position
Protect
1
Strategic Decoupling
Slide 31
Plan
2
Buffer Profiles and
Levels
| © Camelot 2017 | Demand Driven Adaptive Systems
Execute
Pull
3
Dynamic Adjustments
4
Demand Driven
Planning
5
Visible and
Collaborative
Execution
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Demand Driven MRP is based on Proven concepts and is being implemented across complex & global
networks with robust IT systems
Proven Approach
DDMRP Innovations
 Demand Driven MRP (DDMRP) is the CORRECT
pla i g a d e e utio
ethod for toda s o ple
and volatile supply chains
 Consumption-based replenishment is a major pillar of
DDMRP
DDMRP
 CAMELOT LEAN Suite fully complies with the
requirements of the Demand Driven Institute and is
today the only available DDMRP compliant solution
worldwide based on SAP technologies (SAP APO,
S/4HANA and SAP IBP)
MRP
DRP*
Lean
Theory of
Constraints
*Distribution Requirement Planning
Slide 32
| © Camelot 2017 | Demand Driven Adaptive Systems
Six Sigma
Innovation
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
DDMRP provides a framework for a multi-echelon Inventory Management and Replenishment
Planning approach that consists of five major building blocks
Modeling/Re-modeling the Environment
Position
Protect
1
Strategic Decoupling
Slide 33
Plan
2
Buffer Profiles and
Levels
| © Camelot 2017 | Demand Driven Adaptive Systems
Execute
Pull
3
Dynamic Adjustments
4
Demand Driven
Planning
5
Visible and
Collaborative
Execution
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Demand Driven Adaptive Enterprise Model
Operational Relevant Range
Strategic Relevant Range
Business Plan
Parameters
Model
Configuration
Tactical
Reconciliation
Market
Driven
Innovation
Actual
Demand
Variance
Analysis
Slide 34
| © Camelot 2017 | Demand Driven Adaptive Systems
Model Projections and Innovation &
Strategic Recommendations
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Demand Driven Adaptive Enterprise Model (DDAEM)
RELEVANT RANGES
Operational
Tactical
Strategic
Tactical
Reconciliation
O
Market
Driven
Innovation
Actual
Demand
FLOW-BASED METRICS SUITE
Operational
Slide 35
| © Camelot 2017 | Demand Driven Adaptive Systems
Tactical
Strategic
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
The Message Behind the Objective
Operational
System Reliability
Execute to the model, plan, schedule and market expectation;
System Stability
Pass on as little variation as possible;
System Speed/Velocity
Pass the right work on as fast as possible;
System Improvement & Waste Reduction
(Opportunity $)
Identify and prioritize obstacles/conflicts to flow
Local Operating Expense Control
Spend minimization to capture the market opportunity
Strategic Contribution
Maximize system return according to relevant model factors
(volume and rate)
Contribution Margin (cash generation rate)
Drive innovation (internal and external) and growth to
increase cash generation capability (RATE)
Working Capital (inventory & cash & credit)
Ensure proper levels of working capital to protect and
promote flow in the short and long term
Customer Base (market share, sales & service
& quality)
Ensure and grow a solid base of business for the enterprise
(VOLUME)
Strategic
Metric Objectives
Tactical
Flow-Based Metrics in the DDAE Model
Slide 36
| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Leading Companies Throughout the World have started to embark on DDMRP
DDMRP is already in
use by major GLOBAL
1000 companies that
report consistently
very positive
experiences with the
new approach.
Slide 37
| © Camelot 2017 | Demand Driven Adaptive Systems
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
CAMELOT is the only consultancy that has a SAP & DDI endorsed
Demand Driven SCM solution from concept development to implementation
Proven approach
Easy to start with a pilot
End-to-end capability
 Project approach applied in many
successful organizational and
process redesign projects
building on industry best
practices
 Supply chain simulation with
professional CAMELOT simulation
toolset
 CAMELOT s ser i e offeri g
encompasses the entire value
chain
 Quick answer on feasibility of
Demand Driven SC planning
 Easy to start with SAP
 Organization, business process, IT
and data capabilities are
combined into one team
20 years collaboration with SAP
Innovation
Methods and tools
 CAMELOT LEAN SUITE is the only
available DDMRP compliant
solution worldwide based on SAP
technology
Slide 38
| © Camelot 2017 | Demand Driven Adaptive Systems
Proven value chain excellence
 Innovative planning concepts for
demand driven planning, pull
replenishment, inventory target
setting and capacity
levelling developed
and implemented
at industry leaders
Demand Driven Adaptive Systems – A disruptive element in a Volatile World
Further Resources
For achieving outstanding results
Find out more online
(downloads, cases, webinar,
presentations)
www.camelotleansuite.com
www.demanddriveninstitue.com
www.demanddrivenmrp.com
Slide 39
| © Camelot 2017 | Demand Driven Adaptive Systems
Contact
Simon Eagle
Associate Partner
CAMELOT Management Consultants
Theodor-Heuss-Anlage 12
D-68165 Mannheim, Germany
Tel: +49 621 86298-0
[email protected]
www.camelot-mc.com