DBA Demand Driven MRP

The software industry is wrong

The software industry gives you the false impression that you can use only the software pieces you need to run your manufacturing company.  Most companies offer module pricing and a grab bag of isolated planning tools and shortage reports.   Solutions and tools are targeted to the individual user at the expense of the overall organization.

Using pieces leads to planning silos

Using a piecemeal approach to manufacturing inevitably leads to planning silos.   Isolated planning tools can work for one individual or department but have an adverse affect on the company as a whole.

We have seen the classic silo scenario play out in many companies over the years.   A planner comes up with their isolated production plan.  Purchasing agents utilize a variety of their own planning tools with their own rationale for their quantities and dates.   The sales department needs to quote shipment dates and order progress, so they develop their own procedures.   Production workers tend to sequester and horde materials and often fall back on job linking to manage their jobs workflow.   Accountants implement costing procedures that often conflict with operations.   The end result are multiple planning silos that are very hard, if not impossible, to coordinate.

Silos lead to increased employee count and overhead

No amount of training or custom programming can make up for the inherent flaws of isolated planning methods.   We have seen company after company throw employees and money at their planning silos to try to improve their business.

There is an easier way

We see a lot of talented people making heroic efforts to improve their various planning silos in their companies.   There is a strong resistance to change and people do not want to give up their silos.   This is understandable, because each individual is pretty happy with their part of the equation.   The path forward is to commit to the DBA demand driven system that provides a proven solution that works across all departments.

DBA unifies your organization with the goal of increasing throughput

All activities in every department in your company will be focused on the common goal of reducing time to shipment and increasing throughput and cash flow.

• Time to Shipment Targets are agreed upon by your entire company
• Selling products you manufacture auto-calculates your line item requirement dates that drive MRP
• MRP generates Jobs and POs in response to firm demand, eliminating the “bull whip” effect
• Job Release ensures you have materials to start production and auto-adjusts your schedule
• Priority based activities ensures you meet your requirement dates and ship on time
• Late Supply and Picking Manager screens improve customer service and communications
• Inventory and WIP is auto-adjusting and does not require month end procedures or counts

Avoid the “bull whip” effect

When you introduce tentative demand into your planning profile small errors in your forecasts and projections get amplified through all levels of production and become very large errors in your inventory levels. This “bull whip” effect is seen in nearly every traditional planning method and is why the industry is learning that demand driven planning is a superior approach for manufacturing.

DBA replaces forecasts, BOM explosions, blanket orders, shortage reports, and long term planning projections because all of these methods introduce tentative demand and errors that get multiplied through all levels of production    DBA has a better path forward that has safety built into the item settings instead of relying on the accuracy of forecasts and long term tentative projections.

Over-reliance on job linking destroys efficiency

A common planning mistake we see in support is the attempt to manage production with linked Job chains and POs.  Hard linking of jobs, subassemblies and components is very unforgiving when your actual demand changes.   If the job chains are planned in a long-term fashion, the “bull whip” effect is especially severe.

Job linking also leads to very poor time to shipment performance and reduces the very important benefits of stocking key subassemblies and components. It is essential that you retain your flexibility to put a demand driven stocking order policy on key items if you have any hope to improve your shop throughput.

Use strategic stocking (decoupling) to increase throughput

The intent of a Stocking order policy is to have an item on hand for immediate use in Sales Orders and Jobs thus removing it as a lead day contributor.  The term for this in the demand driven literature is a decoupling point.   Stocking key items (decoupling) can dramatically decrease your time to shipment, and improve your shop throughput and cash flow.

Lead Day Inquiry helps you to determine strategic stocking decoupling points

The DBA Lead Days Inquiry in MRP Settings provides a multi-level view of the lead day contributor components in your manufactured items.   This will allow you to strategically plan which critical subassemblies and components to stock in order to reduce your overall manufacturing lead days and time to shipment.  Once you choose to stock a component, the lead days for your manufactured items will dynamically adjust through all levels of production and automatically be reflected throughout your organization.

Stock has earned a bad reputation in the software industry

Many companies are reluctant to carry stock citing the expense and difficulty managing their stocking levels. The truth is that software industry has a terrible track record on providing solutions that handle inventory efficiently.  Forecast based planning, BOM explosions, blanket orders, shortage reports, and excessive Job linking are all seriously flawed approaches and lead to an inefficient use of inventory.  The industry even markets the notion that stock is bad and should be avoided.   This is nonsense.   You should aspire to using stocking decoupling points efficiently and you can experience dramatic improvements throughout your entire organization.

Demand driven stocking is a breakthrough

DBA is a different kind of stocking that is always triggered be actual demand within an item’s replenishment planning period action window.  DBA can deliver on the decoupling benefits of stocking key items while maintaining a lean inventory quantity on hand.

Most companies in support think that in order to have more safety built into their profile that they need to expand their planning horizon further out in the future.

Long term planning and forecast based approaches are seriously flawed

It is reasonable to think that the more you plan out into the future the better you can predict your stocking needs.   In reality, the longer you plan out into the future, the more uncertainty and error you introduce into your system.   This uncertainty is compounded through each level of production and leads to what is known as the “bull whip” effect, where small errors in forecasts and projections are amplified at multiple levels and the end result is a very inefficient and expensive inventory.

Calculated replenishment time ensures you have enough time to make or procure the item before you run out of stock

Safety is built into your item settings.   DBA dynamically maintains your replenishment time planning periods for your items.  The replenishment time ensures that you have enough time to make or procure the item before you run out of stock.   The replenishment time also establishes the planning period action windows in MRP to ensure that you are acting only on firm demand. Eliminating tentative demand, removes the “bull whip” effect, and can dramatically improve the efficiency of your inventory.  Your inventory will have purpose and be more directly tied to your actual demand.

The Monthly Potential Demand setting covers volatility

Because DBA stocking is triggered by real SO and Job demand it will not miss items or demand.  If you have a very critical item that you absolutely cannot run out of stock, you can increase your monthly potential demand value.  As long as your overall settings and order policies are reasonable, the replenishment time of your planned item will give you the time to make or purchase your item to cover most reasonable scenarios.  In the event that you do run out of the item, the auto calculated priority in the Work Center schedule will get you back on track

The Supply Days interval provides safety for long lead day purchased items

The Supply Days interval is essential for long lead day purchases.  It creates an inbound pipeline of supply to help mitigate any potential shortages.

Follow the Support Golden Rule – Enter the big three MRP Settings for all of your items

Nearly all companies that fear that they do not have enough safety in their plan, have a problem in their 3 core MRP settings:  reasonable lead days on your purchased items, reasonable job days on your manufactured items, and a clear cut order policy based on lead day contribution.   If those values are correct on all of your items, you will have the time and safety you need to execute your plan.

Traditional scheduling and job linking does not work for small business

We see a lot of examples in support of customers trying to schedule their shop to the exact start and finish times.   Inevitably, this leads to them creating linked chains of Jobs to facilitate rescheduling.  This leads to a pile of coat hangers that needs to be constantly re-arranged.   The DBA demand driven approach with priority based activities blows traditional job scheduling out of the water.

Priority based activities provide superior results

DBA uses our system settings to dynamically calculate time to shipment targets.  Actual demand triggers action and priority based activities get you back on track when your actual demand exceeds your expectations.

Job linking is not required

DBA dynamically allocates material system-wide based on your demand driven targets without the need for Job linking.

Releasing jobs updates the schedule

Materials and subassemblies on hand are allocated to jobs in planned start date order so that jobs are released to production in the correct order of assembly and only when materials are fully available.   Each released job is given a new finish date relative to its actual release date, which automatically updates the job schedule.

Deploy Work Centers to manage bottlenecks

Work center queues, which are updated in real time as sequences are completed, are periodically examined to identify bottlenecks for deployment of workers and machines.

Run sequences in priority order and issue material and labor real-time for increased throughput

Each released job is prioritized based on remaining production time relative to the job’s required date.  Work center queues are run in job priority order so that jobs trending late get priority over jobs trending on time, which coordinates production flow throughout the shop.  Material issues and sequence completions are entered in real time to update stock status and work center queues.

Improve customer communications regarding order progress

The Late Supply screen provides feedback when job finish dates are later than their requirement dates. This helps you manage your customer communications and update your expected ship dates.

Manage shipments and deliver on time

The Picking Manager screen allocates supply in demand order to ensure that you are adhering to your time to shipment targets and company wide plan.

You are not as unique as you think

We have heard every excuse in the book as to why a company is not able to implement a demand driven system.   We are too big.  We are too small.  Our products are too custom.  We have unpredictable demand.  Our product line is too complex.  Our product line is to simple…..etc…etc.

History has proven that companies across a wide variety of industries and manufacturing styles have the same basic fundamentals at the item setting level. The DBA demand driven system can work for all types of manufacturing.  We have yet to see a company that could not benefit from the demand driven approach.

Demand driven planning is ideal for custom manufacturing

Custom manufacturing companies are especially skeptical that demand driven planning can work for them.   Custom manufacturers over compensate with extensive job linking and an over use of To Order components.   We see planners that attempt to do long term planning and BOM explosions even with mostly custom items.   They suffer from a severe “bull whip” effect and their inventory efficiency is a disaster.

Custom manufacturing can actually benefit the most from strategic stocking of key components to reduce time to shipment.   Think of a company like Dell Computer where you can order a highly customized PC.   Dell makes sure that the have sufficient stock for all of the components for their custom options and this allows them to make a complete customized top level PC in a very fast time to shipment.    You can emulate this by having one off items as your parent BOM, but strategically stocking your key components.

Your strategy is completely under your control

As long as you have reasonable lead days on your purchased items, reasonable job days for your manufactured items, and a clear cut order policy based on lead day contribution, any company type will benefit from the demand driven approach.  If your settings are reasonably accurate, you will have sufficient time to replenish your items before you run out of stock.

You can start with most all components To Order and you can slowly start placing strategic stocking policies on commonly used subassemblies and purchased components.    You can use the Lead Days Inquiry in MRP Settings to choose which items to strategically stock and reduce our times to shipment.

Fear of change is your biggest obstacle

Most companies that we see fail are just reluctant to give up their status quo silo planning solutions.   All companies need to get a handle on the replenishment times for the item’s they manufacture or purchase.   DBA users discover that placing strategic stocking policies on some key items can have a profound impact on their throughput and cash flow.

DBA inventory costing meets GAAP standards and IRS requirements

Inventory costing in DBA meets GAAP standards and IRS requirements for manufacturing in which material, direct labor, manufacturing overhead, and subcontract service costs must be absorbed into inventory value and only realized as cost of sales expenses when items are sold.

Do not obsess over cost perfection

In support, we see a lot of companies that spend an inordinate time stressing over minutes and pennies of costs in the quest for actual cost perfection.    They track labor actual hours and spend a great deal of time and man hours on labor data collection.  There also is a tendency to over-emphasize job linking and individual job costing instead of focusing on overall inventory costing trends.

Cost perfection leads to an increased overhead employee count

Labor data collection and job costing emphasis is very difficult to manage and leads to costly mistakes.    We see many companies that add employees, consultants, cost accountants, and trainers to administer a data collection regime.  The overhead costs added in the quest for costing perfection dwarf any potential benefits.

We recommend standard hours for routing sequences

We recommend that you set up your routing sequences as standard hours and report completions in real time as you finish sequences in work centers.

Focus on throughput to reduce overhead costs 

Improved throughput is a healthier goal to your bottom line than the obsession with labor data collection and reporting actual hours.  Reporting completions real time as you finish sequences in the work center schedule will update your costs and your progress in real time.   This will lead to improved throughput and fewer errors than actual labor hour collection.

Periodic Shop Rates calculation keeps rates in line with reality

DBA has a Shop Rates screen that will periodically review your direct labor costs and manufacturing overhead costs from your financial accounting system versus the production hours reported in DBA for the same period of time.    Even if your routing standards do not perfectly match up with times in reality, the shop rates will adjust accordingly and your absorbed costs will be aligned with your direct payroll and overhead expenses.   You could make the argument from the data that standard hours with an adjustable calculated Shop Rate will more accurately align your absorbed costs with your direct costs than an elaborate labor data collection system would.

No disruption to your accounting processes

Keep using your accounting system for receivables, payables, banking, payroll, and financial reporting. DBA handles manufacturing accounting issues such as labor and manufacturing overhead costing and work in process tracking.

DBA remains the best in the business at manufacturing accounting.   You can choose what mainstream package works best for you for your banking, payroll and financial accounting needs.

No accounting conversion greatly simplifies system implementation

Keeping your financial general ledger intact significantly reduces the complexity of system startup and is a key reason that our program can be implemented without the need for outside assistance or consultancy.

All GL posting in DBA is determined by settings in the Account Assignments screen so that sales and manufacturing personnel are never exposed to accounting setup or posting decisions.

You can use a basic version of your accounting package

Because DBA does much of the heavy lifting with sales orders, detailed invoices, inventory, jobs, purchases and PO Invoices, you can use a basic version of your financial accounting (such as Quickbooks Pro) and save on costs.

No period end procedures required

WIP is tracked real time and reconciled automatically at Job Close.    There is not a need for any WIP stock counts or period end closing procedures.