What Is Demand Driven MRP?

1. What Is Demand Driven MRP? Demand Driven MRP is a realistic response to the new demand posed by technological change; time has come for a more advanced solution to emerge in order for industries to fulfill their demand, and a more realistic alternative to the conventional management approach. This new paradigm addresses not only the challenges of supply but demand as well and thus offers far better opportunities to both industrial and commercial clients. The concept is highly complex yet has the potential to become the most important global business tool. MRP is directly related to how raw materials are procured and used in production. It deals with all the material aspects of production such as the purchase of raw materials, purchasing machinery to make the manufacturing process efficient and the training of personnel involved in the various stages of production. There are two main concepts that drive demand-driven planning; these are demand and supply. The demand-driven planning method focuses on meeting customer demand by providing the most optimal use of available materials. Supply-driven material planning (SDMP) on the other hand, is about anticipating future requirements based on the evaluation of the demand for materials, with enough supplies are available to meet current demand and future demand. This latter concept is more oriented towards providing an inventory that is adequate to meet customer demand but does not deplete the available stocks. There are many benefits inherent in demand driven mrp which makes it a viable option to implement in any organization. First, this methodology can effectively improve company profitability by reducing the cost of production. Second, since it addresses all the factors affecting supply and demand, it enables companies to make timely adjustments in their operations and in their products to respond to changing market conditions. Third, since it streamlines material management operations, companies can effectively reduce inventory management costs. Fourth, this methodology allows companies to control material costs, thereby allowing them to realize significant long- term savings on material costs. A key advantage of demand-driven mrp is its inherent flexibility. The inventories must be replenished quickly to prevent lead times from exceeding one to two weeks. To accommodate sudden fluctuations in the demand for particular raw materials, manufacturers may establish stock buffers to be held in reserve, which can be reevaluated on a monthly basis. In addition, since raw materials purchased in large quantities at fixed prices have long lead times, the buffers can also be used to service these purchases quickly. To make up for temporary shortfall in materials, manufacturers establish buffer buying programs. On the other hand, supply-driven MRP involves the allocation of inventory based on anticipated demand for specific product categories. This is accomplished by establishing inventories of essential raw materials and parts used to manufacture

2. finished products. To meet planned demand, manufacturers buy at the lowest possible prices and establish a series of buffer strategies, which are periodically reviewed to determine if the level of demand is still adequate to support the prices established. Once demand for a product category falls below a critical level, manufacturers sell their products to meet market demand until the demand level begins to increase again. Although demand driven MRP has many advantages over supply-driven MRP when it comes to meeting predetermined demands, both systems have limitations that should be considered. Although demand driven MRP offers immediate benefits by allowing manufacturers to meet anticipated demand earlier than with supply-driven MRP methods, this strategy has significant limitations when it comes to changing customer requirements or stabilizing market prices. On the other hand, supply chain execution techniques, such as demand planning, offer significant advantages over demand driven MRP. To address problems associated with fluctuating inventory levels, for example, manufacturers use material planning procedures to establish an inventory mix that is sufficient to meet upcoming demand, but not enough to erode profitability in the short term.