12/15/13 Buffer Profile and Buffer level Determination for Demand Driven MRP

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Demand Driven MRP
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Demand Driven MRP
Transforming Parts and Materials Availability for ERP, Lean and TOC implementations
Buffer Profiles and Buffer Level Determination
A DDMRP Recap:
There are 5 major elements to Demand Driven MRP (DDMRP):
1. Strategic Inventory Positioning
2. This pages focus: Buffer Profile and Buffer Level determination
3. Dynamic Buffers
4. Demand Driven Planning
5. Highly Visible and Collaborative Execution
So weve decided Where now we have to determine How
Many so Buffer Profiles enter the picture
Before we talk profiles, its important to understand the basic Buffer concept for Demand Driven MRP.
We view an inventory buffer in terms of 5 zones:
At the core are the intuitive 3 zones
Green (plenty), Red (Problem) and Yellow (Build or buy more).
Youre familiar with the typical inventory sawtooth pattern of inventory being consumed then replenished
well, were looking for that pattern superimposed on the zones.
So for example, Inventory at TOG (Top of Green) is consumed until it reaches Yellow which means its
entering the rebuild zone and any time after that, an order should be placed. If the inventory reaches Red,
thats the expedite zone and someone needs to move heaven and earth if necessary to get inventory in before
theres a stock-out.
Above the top of green (TOG) is the blue too much zone. And below the red is, sadly, Out.
Now, in the original form of this Replenishment model, the Green, Red and Yellow zones were equal.
12/15/13 Buffer Profile and Buffer level Determination for Demand Driven MRP
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But in fact, it makes much more sense to consider the elements that have an effect on the size of the 3 zones;
for example, if a part has high variability it probably makes sense to have a larger Red zone than just 33%.
So we have two things in play here: the relative proportion of the zones, and the actual quantity
(stock levels) involved.
Its the relative proportion of the zones that is considered to be the Buffer Profile.
Now, its neither practical not necessary to have unique profiles for every part; we group them into
common profile characteristics.
The elements involved here are:
1. The type purchased, manufactured, or distributed.
2. Variability of supply and variability of demand. (We use categories of low, medium, high.)
3. Lead time. (We use categories of short, medium, long.)
4. Whether the Minimum Order Quantity (MOQ) is significant.
Now, one group might be (for example) Purchased parts with long lead times and high variability.
Another, Manufactured parts with medium lead times and low variability.
The parts within a Group might have no other connection with each other beyond the common characteristics
that place them within the Group.
And, the actual quantities associated with one parts Buffer in contrast to anothers can be very different.
For example, this is a single profile being applied to 3 different parts:
To determine the levels, we can apply both Group Traits traits related to
the Group as a whole and Individual Traits.
Group Traits include the order cycle, demand variability and supply variability.
Individual traits include average daily usage (ADU), which is a smoothed calculation over a carefully chosen
12/15/13 Buffer Profile and Buffer level Determination for Demand Driven MRP
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time horizon; fixed and cumulative lead times; minimum order quantity and etc.
The average daily usage is a key data point. For example, the standard Yellow zone calculation is often
based on the ADU over the lead time, and the Green and a portion of the Red zone (the Red Base) are
similarly calculated with reference to the ADU.
The other portion of the Red zone addresses safety stock, and is influenced by variability.
Now, the initial set-up isnt necessarily a forever set-up; lead times change, variability changes, new
markets and products emerge, others fade. There can be causes for parts to change Groups. And causes for
the Buffers to be re-determined. We deal with these in the next section, Dynamic Buffers.


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