How to Become Truly
Demand Driven
Using Accurate Customer Orders …
…rather then Inaccurate Forecasts
Ken Titmuss, CFPIM, CSCP, SCOR-P, CPF, PLS, CDDP, CS&OP, CSCA, CDDL
Agenda
• The SA Demand Driven Journey
• Trouble with Traditional Planning
• Flow as the 1st Law Manufacturing/SCM
• Demand Driven Adaptive System (DDAS)
• Demand Driven S&OP (DDS&OP)
• Demand Driven Operating Model (DDOM)
• Demand Driven Certification Programs
• Conclusions
SA’s Demand Driven Journey
• 5 years ago DDMRP Introduced to APICS
• 2 years ago Carol Ptak comes to SAPICS
• Carol runs first CDDP course
• 1 year ago Chad Smith comes to SAPICS
• 5 months ago Carol runs first CDDL in SA
• Now DDAS introduced to SAPICS
4
First Law of Manufacturing / SCM
All benefits will be directly related to the speed of
FLOW of materials and information.
Materials
Information
Caveat:
Both Materials and Information must be RELEVANT
George W. Plossl
5
The Demand Driven
Adaptive System Pyramid
FLOW
Position, Protect & Pull
Cash
Flow
Sales
Orders
Lower
Inventory
High
Service
Fundamental Principal
New Operating Model
New Operational
Considerations
Bottom Line Benefits
Without Tradeoffs
Fewer Expedites
Buffer
Status
ROI
6
Today’s Reality – The Bullwhip Effect
Bull-Whip Effect: “An extreme change in the supply position upstream in a supply
chain generated by a small change in demand downstream in the supply chain.
Inventory can quickly move from being backordered to being excess. This is caused by
the serial nature of communicating orders up the chain with the inherent
transportation delays of moving product down the chain.” (APICS Dictionary, 12th
Edition)
The more parts – the worse the effect!
OEMFoundry Component
Sub-
Assembler
Distortions to relevant information
Distortions to relevant materials
7
DISTORTIONS TO RELEVANT
INFORMATION
DISTORTIONS TO RELEVANT
MATERIALS
Weekly buckets
are used
BOMs are
flattened
Material is not ready at
needed time
MRP treats everything
as dependent
Adjustments must occur as actual
demand becomes known
MRP is loaded with
forecasts
Signals with known
error are used
Latent signals
are used
Oversimplified
signals are used
Changing and
conflicting signals
Nervousness
MRP Plans (timing and
quantity requirements) are
built using all dependencies
Delays
accumulate
WHY?
WHY? WHY?
WHY? WHY?
WHY?
WHY?
WHY?
WHY?
WHY?
Cumulative Manufacturing and
Procurement Times are much longer
than customer tolerance times
WHY?
WHY?
WHY?
Supply continuity variability
transference occurs
between nodes in
dependent networks
WHY?
8
The Demand Driven Operating Model Formula
∆Flow → ∆Cash Velocity → ∆
Net Profit
Investment
( ) → ∆ROI
Plossl’s First Law of Manufacturing and the Demand Driven Model
Flow is the rate at which a system converts material to product
required by a customer.
Cash velocity is the rate of net cash generation; sales dollars minus
truly variable costs (aka contribution margin) minus period operating
expense.
Net profit/investment the equation for ROI
What are we Missing?
9
The Demand Driven Adaptive System Formula
∆Flow → ∆Cash Velocity → ∆
Net Profit
Investment
( ) → ∆ROI
Plossl’s First Law of Manufacturing and the Demand Driven ModelCore Conflict Area
∆Visibility → ∆Variability →
Flow is the rate at which a system converts material to product
required by a customer.
Cash velocity is the rate of net cash generation; sales revenue minus
truly variable costs (aka contribution margin) minus period operating
expense.
Net profit/investment the equation for ROI
Visibility is defined as relevant information for
decision making.
Variability is defined as the summation of the
differences between our plan and what happens.
Visibility
10
New Demand Supply Financial
Product
Where have most companies focused
planning?
11
What area has the most change?
New Demand Supply Financial
Product
12
Demand Driven Adaptive System
• A Demand Driven Adaptive System is a
management …
• … and operational system designed for …
• … complex and volatile manufacturers and supply
chains.
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13
Demand Driven Adaptive System
• A Demand Driven Adaptive System uses a …
• … constant system of feedback that …
• … connects the business strategy to the settings
and …
• … the performance of a Demand Driven Operating
Model …
• … through a Demand Driven Sales and Operations
Planning Process (DDS&OP).
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14
Demand Driven Adaptive System
• A Demand Driven Adaptive System focuses on …
• … the protection and promotion of the flow …
• … of relevant information and materials …
• … in both the strategic (annual, quarterly and
monthly) …
• … and tactical (hourly, daily and weekly) relevant
ranges …
• … of decision making in order to optimize return on
equity performance as change occurs.
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15
Strategic Planning
(market intelligence,
business objectives,
strategic decisions)
Business Plan
(financial expectations)
Demand Driven Adaptive System Schema
Demand Driven
Operating Model
(DDMRP, DDDRP,
Demand Driven
Scheduling & Execution)
Actual orders
Plan Parameters
Strategic
Direction
Model and part
parameters
Demand Driven
Variance Analysis
Demand Driven
Model Projections
Strategic Options &
Recommendations
DDS&OP
Strategic Relevant Range
(Annually, Quarterly, Monthly)
Strategic Business Management
Tactical Relevant Range
(Hourly, Daily, Weekly)
Tactical Flow Management
Model Parameter Management
Control, Measure, Adapt & Project
16
Strategic Planning
(market intelligence,
business objectives,
strategic decisions)
Business Plan
(financial expectations)
Demand Driven Adaptive System Schema
Demand Driven
Operating Model
(DDMRP, DDDRP,
Demand Driven
Scheduling & Execution)
Actual orders
Model and part
parameters
• Working Capital Projections
• Lead Time Projections
• Capacity Projections
• Volume Opportunity Identification
Demand Driven
Model Projections
Demand Driven
Variance Analysis
• Model Stability
• Model Reliability
• Model Velocity/Speed
Strategic Options &
Recommendations
• Identify and prioritize lost ROI opportunities
• Spend minimization to capture the market
opportunity
• Maximize system return according to relevant
model factors (volume and rate)
Plan Parameters
Strategic
Direction
• Buffer Profiles (stock, time, capacity)
• Profile Assignment
• Part Planning Properties
• Part & Resource Scheduling Properties
• Resource Assignment
Strategic Business ManagementTactical Flow Management
Tactical Relevant Range
(Hourly, Daily, Weekly)
Strategic Relevant Range
(Annually, Quarterly, Monthly)DDS&OP
17All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
Dick Ling
Andy Coldrick
18
Left to Right Traditional S&OP
Senior
Management
Business
Review
6
New
Product
Planning
1
Demand
Planning
2
Supply
Planning
3
Integrated
Reconciliation
of Business
Plans
5
Financial
Planning
4
19
2. Integrated
Reconciliation
Right to Left Ling Coldrick Model
Senior
Management
Business
Review
1
3. Managing
the portfolio
and New
Activities
4. Managing
Demand
5. Managing
Supply
4
20
Demand Driven S&OP
• DDS&OP is a bi-directional integration point …
• … in a Demand Driven Adaptive System …
• … between the strategic (annual, quarterly and
monthly) and …..
• … tactical (hourly, daily and weekly) relevant ranges
of decision making.
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21
Demand Driven S&OP
• DDS&OP sets key parameters of a Demand Driven
Operating Model …
• … based on business strategy, market intelligence
and key business objectives (strategic information
and requirements).
• DDS&OP also projects the model performance based
on the strategic information and requirements and
various model settings.
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22
Demand Driven S&OP
• Additionally, DDS&OP uses variance analysis based
on past model performance (reliability, stability and
velocity) …
• … to adapt the key parameters of a Demand Driven
Operating Model and/or …
• … recommend strategic alterations to the model and
• … project their respective impact on the business.
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23
PORTFOLIO
MODEL AND PART
PARAMETERS
DEMAND
NEW
ACTIVITIES
Demand Driven S&OP Schema
CAPABILITIES
Plan Parameters
PERFORMANCE
TARGETS
• Buffer Profiles (stock, time,
capacity)
• Profile Assignment
• Part Planning Properties
• Part & Resource Scheduling
Properties
• Resource Assignment
Control,Measure,Adapt&Project
ModelParameterManagement
Demand Driven
Operating Model
Demand Driven
Variance Analysis
Demand Driven
Model Projections
24
Which Portfolio Model?
25
Capacity Load
Impact
Working
Capital
Impact
Space Impact
Projected
ADU
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Demand Driven
Model Projections
PORTFOLIO
MODEL AND PART
PARAMETERS
DEMAND
NEW
ACTIVITIES
CAPABILITIES
Plan Parameters
PERFORMANCE
TARGETS
Projected
Capabilities
Projecting Demand Driven Operating Model Performance
26
Example
• This company makes four products.
• They have forecasted ADU at the SKU level 6 months from
now.
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Part # Current
ADU
Projected ADU
(6 mos)
Lead Time Desired
Order Cycle
MOQ Variability
XYZ 100 150 5 (low – 75%) 3 500 Medium (50%)
ZYX 50 75 7 (medium – 50%) 3 250 Medium (50%)
ABG 25 10 5 (low – 75%) 3 250 Low (25%)
GJK 20 200 5 (low – 75%) 3 250 High (70%)
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Certified Demand Driven Planner (CDDP) is a trademark of the ISCEA
XYZ (now) XYZ (projected)
Green 500 563
Yellow 500 750
Red 563 845
Average OH 813 1126.5
0
500
1000
1500
2000
2500
Projected Change to XYZ
Red Yellow Green Average OH
ZYX (now) ZYX (projected)
Green 250 263
Yellow 350 525
Red 263 395
Average OH 388 526.5
0
200
400
600
800
1000
1200
1400
Projected Change to ZYX
Red Yellow Green Average OH
ABG (now) ABG (projected)
Green 250 250
Yellow 125 50
Red 118 48
Average OH 243 173
0
100
200
300
400
500
600
Projected Change to ABG
Red Yellow Green Average OH
GJK (now) GJK (projected)
Green 250 750
Yellow 100 1000
Red 128 1275
Average OH 253 1650
0
500
1000
1500
2000
2500
3000
3500
Projected Change to GJK
Red Yellow Green Average OH
28
Working Capital
Converting targeted on-hand inventory to capital required.
Part # Dollars per
units
Current Target
Inventory Level
Targeted working
capital in inventory
Projected Target
Inventory Level
Projected working
capital in inventory
XYZ $100 813 $81,300 1127 $112,700
ZYX $90 388 $34,920 527 $47,430
ABG $80 243 $19,440 173 $13,840
GJK $50 253 $12,650 1650 $82,500
Total $148,310 Total $256,470
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$0
$20 000
$40 000
$60 000
$80 000
$100 000
$120 000
XYZ ZYX ABG GJK
Average OH Inventory Dollars
Current OH Target Projected OH Target
29
Projecting Capacity Load
Establish an average daily load on a critical resource (ADUs x capacity units/SKU)
Critical Resource: Lathes
Lathes available = 5
Minutes available per lathe per day = 1200 (6,000 total per day)
Part # Minutes/unit
on lathe
Current
ADU
Current Average
Daily Load
Projected
ADU
Projected Average
Daily Load
XYZ 30 100 3000 minutes 150 4500 minutes
ZYX 25 50 1250 minutes 75 1875 minutes
ABG 20 25 500 minutes 10 200 minutes
GJK 10 20 200 minutes 200 2000 minutes
Total 4950 minutes Total 8575 minutes
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0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
Current Load Projected Load
XYZ ZYX ABG GJK
30
Critical Success Factors
1. Leadership
2. Education
3. Map the DDS&OP
process
4. Learn by doing
5. “Roughly right”
6. Select marketing
families
7. Identify new activities
8. Financial integration
9. Collaboration
10.Make better
decisions
11.Critique the process
12.Strategy driven
13.Business planning
14.Advisor/Coach
15.Software support
31
DDS&OP compare/contrast
• DDS&OP
– Aligns strategy to capability
– Employs a dynamic demand driven operating model
– Has a bi-directional effect on strategy
– Direction is coming from roughly right through relevant ranges
• Compared to other S&OP models
– APICS – supply focused rather than demand focused
– Ollie Wight – common plan rather than flexible capability
– Gartner – trade-offs rather than flexible capability
– Sales and Ops planning institute – one way linkage to
operation. Disaggregate strategy to operations only.
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32
Strategic Planning
(market intelligence,
business objectives,
strategic decisions)
Business Plan
(financial expectations)
Demand Driven Adaptive System Schema
Demand Driven
Operating Model
(DDMRP, DDDRP,
Demand Driven
Scheduling & Execution)
Actual orders
Plan Parameters
Strategic
Direction
Model and part
parameters
Demand Driven
Variance Analysis
Demand Driven
Model Projections
Strategic Options &
Recommendations
DDS&OP
Strategic Relevant Range
(Annually, Quarterly, Monthly)
Strategic Business Management
Tactical Relevant Range
(Hourly, Daily, Weekly)
Tactical Flow Management
Model Parameter Management
Control, Measure, Adapt & Project
33
Demand Driven Operating Model
• A Demand Driven Operating Model is a …
• … supply order generation, …
• … operational scheduling and …
• … execution model.
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34
Demand Driven Operating Model
• It utilizes actual demand in combination with …
• … strategic decoupling and control points and …
• … stock, time and capacity buffers in order …
• … to create a predictable and agile system …
• … that promotes and protects the flow of relevant …
• … information and materials within …
• … the tactical relevant operational range (hourly,
daily and weekly).
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35
Demand Driven Operating Model
• A Demand Driven Operating Model’s key parameters
are …
• … set through the Demand Driven Sales and
Operations Planning process …
• … to meet the stated business and market
objectives …
• … while minimizing working capital and …
• … expedite related expenses.
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36
The Demand Driven Operating Model
MODEL AND PART
PARAMETERS
Demand
Driven MRP
Demand Driven
Capacity Scheduling
Demand Driven
Execution
Actual
Demand
37
Demand Driven Operating Model
MODEL AND PART
PARAMETERS
Demand
Driven MRP
Demand Driven
Capacity Scheduling
Demand Driven
Execution
Supply Orders (PO, MO, STO)
with Net Flow Priority
• Part Buffer Profiles (time
and capacity)
• Part Profile Assignment
• Part & Resource
Scheduling Properties
• Resource Assignment
Work Order Releases
Demand Driven
Variance Analysis
• Model Stability
• Model Reliability
• Model Velocity/Speed
Sales
Orders
• Part Buffer Profiles (stock)
• Part Profile Assignment
• Part Planning Properties
Promise Dates
38
PORTFOLIO
MODEL AND PART
PARAMETERS
DEMAND
NEW
ACTIVITIES
Demand Driven S&OP Schema
CAPABILITIES
Plan Parameters
PERFORMANCE
TARGETS
Control,Measure,Adapt&Project
ModelParameterManagement
Demand Driven
Operating Model
Demand Driven
Variance Analysis
Demand Driven
Model Projections
39
DDS&OP output to the Demand Driven
Operating Model = “Master Settings”
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MODEL AND PART
PARAMETERS
Demand
Driven MRP
Demand Driven
Capacity Scheduling
Demand Driven
Execution
Supply Orders (PO, MO, STO)
with Net Flow Priority
• Part Buffer Profiles (time and
capacity)
• Part Profile Assignment
• Part & Resource Scheduling
Properties
• Resource Assignment
Work Order Releases
Sales
Orders
• Part Buffer Profiles (stock)
• Part Profile Assignment
• Part Planning Properties
Promise Dates
40
DDMRP “Master Settings” Schema
External Orders
for Components
(Sales Orders)
Planned
Adjustment
Factors
Part Demand Data
Inventory
Record File
DDMRP
(Supply Order
Generation and
Execution Alerts)
Product
Structure file
Demand Driven
Execution
Buffer Profiles
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Part ADU
Model and Part Parameter
Management (Part of
Demand Driven S&OP)
Part Profile
Assignment
Demand Driven
Capacity
Scheduling
41
Explaining Each Component
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Buffer Profiles
Planned
Adjustment
Factors
Part ADU
Part Profile
Assignment
The groupings and settings for replenished parts (part
type, variability and lead time)
The adjustment factors to be applied to ADU to parts or
groups of parts
The average rate of use for each replenished part (past,
forward or blended)
The assignment of each replenished part to particular
buffer profile
42
Demand Driven Scheduling “Master Settings”
Schema
Manufacturing
Orders with request
dates (from DDMRP)
Resource
Assignment
Resource
Management
Demand
Driven
Scheduling
Time Buffer
Profiles
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Certified Demand Driven Leader (CDDL) is a trademark of the ISCEA
Model and Part Parameter
Management (Part of
Demand Driven S&OP)
Time Buffer
Profile
Assignment
Part Management
Resource
Properties
Part
Properties
43
Explaining Each Component
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Certified Demand Driven Leader (CDDL) is a trademark of the ISCEA
Time Buffer
Profiles
Resource
Assignment
Resource Management
Resource
Properties
The time buffer groupings and settings for scheduled parts
The assignment of a resource to a resource type (control
point, resource, buffered resource)
Applicable scheduling properties for each resource
(calendar, shifts, operators, etc.)
Part Management
Time Buffer
Profile
Assignment
Part
Properties
Applicable scheduling properties for each part (routings
and run rates)
Applicable scheduling properties for each part (routings
and run rates)
44
PORTFOLIO
MODEL AND PART
PARAMETERS
DEMAND
NEW
ACTIVITIES
Demand Driven S&OP Schema
CAPABILITIES
Plan Parameters
PERFORMANCE
TARGETS
Control,Measure,Adapt&Project
ModelParameterManagement
Demand Driven
Operating Model
Demand Driven
Variance Analysis
Demand Driven
Model Projections
45
Focusing on Outliers
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Certified Demand Driven Planner (CDDP) is a trademark of the ISCEA
Dark RedDark Red
0
Optimal Range
Warning
YR
Warning
Y R
Too Little Too Much
Optimal
Warning (High)
Warning (Low)
Extreme High
Extreme Low
Too Much
Too Little
46
Capacity Load
Impact
Working
Capital
Impact
Space Impact
Projected
ADU
Demand Driven
Model Projections
PORTFOLIO
MODEL AND PART
PARAMETERS
DEMAND
NEW
ACTIVITIES
CAPABILITIES
Plan Parameters
PERFORMANCE
TARGETS
Projected
Capabilities
Projecting Demand Driven Operating Model Performance
Demand Driven
Operating Model
Demand Driven
Variance Analysis
47All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
Certified Demand Driven Planner (CDDP) is a trademark of the ISCEA
XYZ (now) XYZ (projected)
Green 500 563
Yellow 500 750
Red 563 845
Average OH 813 1126.5
0
500
1000
1500
2000
2500
Projected Change to XYZ
Red Yellow Green Average OH
ZYX (now) ZYX (projected)
Green 250 263
Yellow 350 525
Red 263 395
Average OH 388 526.5
0
200
400
600
800
1000
1200
1400
Projected Change to ZYX
Red Yellow Green Average OH
ABG (now) ABG (projected)
Green 250 250
Yellow 125 50
Red 118 48
Average OH 243 173
0
100
200
300
400
500
600
Projected Change to ABG
Red Yellow Green Average OH
GJK (now) GJK (projected)
Green 250 750
Yellow 100 1000
Red 128 1275
Average OH 253 1650
0
500
1000
1500
2000
2500
3000
3500
Projected Change to GJK
Red Yellow Green Average OH
48
Strategic Planning
(market intelligence,
business objectives,
strategic decisions)
Business Plan
(financial expectations)
Demand Driven Adaptive System Schema
Demand Driven
Operating Model
(DDMRP, DDDRP,
Demand Driven
Scheduling & Execution)
Actual orders
Plan Parameters
Strategic
Direction
Model and part
parameters
Demand Driven
Variance Analysis
Demand Driven
Model Projections
Strategic Options &
Recommendations
DDS&OP
Strategic Relevant Range
(Annually, Quarterly, Monthly)
Strategic Business Management
Tactical Relevant Range
(Hourly, Daily, Weekly)
Tactical Flow Management
Model Parameter Management
Control, Measure, Adapt & Project
49
CDDL and CDDL Positions in the DDOM Schema
MODEL AND PART
PARAMETERS
Demand
Driven MRP
Demand Driven
Capacity Scheduling
Demand Driven
Execution
Sales
Orders
50
Certified Demand Driven Planner (CDDP)
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51
Certified Demand Driven Planner (CDDP)
• The purpose of the CDDP Program is to …
• … educate operations and supply chain personnel …
• … on the methods and applications of …
• … Demand Driven Material Requirements Planning
(DDMRP).
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52
CDDP Agenda
• Module 1: MRP in the Modern World – the materials
challenge in the 21st Century
• Module 2: Demand Driven Material Requirements
Planning Introduction
• Module 3: Strategic Inventory Positioning
• Module 4: Distribution Network Positioning
• Module 5: Buffer Profile and Level Determination
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53
CDDP Agenda
• Module 6: Dynamic Buffers
• Module 7: Demand Driven Planning – Stocked Parts
• Module 8: Highly Visible and Collaborative Execution
• Module 9: DDMRP and Master Scheduling
• Module 10: DDMRP Performance Reporting and
Analytics
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54
Certified Demand Driven Leader (CDDL)
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55
Certified Demand Driven Leader (CDDL)
• The Certified Demand Driven Leader (CDDL) Program
equips …
• … senior and mid-level operations and supply chain
managers …
• … with the ability to design, implement and
sustain …
• … a Demand Driven supply chain.
• The program spans Planning, Operations,
Distribution and Finance.
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56
CDDL Agenda
• Module 1: The Need for Change
• Module 2: An Overview of Designing and Operating
for Flow
• Module 3: Demand Driven Material Requirements
Planning
• Module 4: Demand Driven Scheduling and Shop Floor
Execution
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57
CDDL Agenda
• Module 5: Tactical Smart Metrics for Operations
• Module 6: Demand Driven Sales and Operations
Planning
• Module 7: Demand Driven Strategic Control,
Measurement and Adaptation
All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
Conclusion
• No doubt that DDMRP and DDAS are
bringing huge benefits to many
companies, in many different industries,
globally.
• Destined to quickly replace 50 year old
techniques as companies ‘see-the-light’.
Conclusion
• Make sure you are not last to adopt this
methodology, just to keep up with your
competitors.
• Start your Demand Driven journey now,
attend a CDDP / CDDL course.
Warning ……. “Make sure your Competitor
doesn’t get hold of this before you do!”
We are here to help you win the
battle, find out more …….
• Contact us at PSQ:-
• Ken Titmuss
• 083-700-4354
• ktitmuss@mweb.co.za
• Or, visit our Demand Driven Tech stand, join
in the DDMRP simulation with a chance to
win the flat screen TV at our Tech Talk at
14H45 Tuesday afternoon – Hawk Room

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How to become truly demand driven based on accurate customer orders rather than inaccurate forecasts

  • 1. How to Become Truly Demand Driven Using Accurate Customer Orders … …rather then Inaccurate Forecasts Ken Titmuss, CFPIM, CSCP, SCOR-P, CPF, PLS, CDDP, CS&OP, CSCA, CDDL
  • 2. Agenda • The SA Demand Driven Journey • Trouble with Traditional Planning • Flow as the 1st Law Manufacturing/SCM • Demand Driven Adaptive System (DDAS) • Demand Driven S&OP (DDS&OP) • Demand Driven Operating Model (DDOM) • Demand Driven Certification Programs • Conclusions
  • 3. SA’s Demand Driven Journey • 5 years ago DDMRP Introduced to APICS • 2 years ago Carol Ptak comes to SAPICS • Carol runs first CDDP course • 1 year ago Chad Smith comes to SAPICS • 5 months ago Carol runs first CDDL in SA • Now DDAS introduced to SAPICS
  • 4. 4 First Law of Manufacturing / SCM All benefits will be directly related to the speed of FLOW of materials and information. Materials Information Caveat: Both Materials and Information must be RELEVANT George W. Plossl
  • 5. 5 The Demand Driven Adaptive System Pyramid FLOW Position, Protect & Pull Cash Flow Sales Orders Lower Inventory High Service Fundamental Principal New Operating Model New Operational Considerations Bottom Line Benefits Without Tradeoffs Fewer Expedites Buffer Status ROI
  • 6. 6 Today’s Reality – The Bullwhip Effect Bull-Whip Effect: “An extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in the supply chain. Inventory can quickly move from being backordered to being excess. This is caused by the serial nature of communicating orders up the chain with the inherent transportation delays of moving product down the chain.” (APICS Dictionary, 12th Edition) The more parts – the worse the effect! OEMFoundry Component Sub- Assembler Distortions to relevant information Distortions to relevant materials
  • 7. 7 DISTORTIONS TO RELEVANT INFORMATION DISTORTIONS TO RELEVANT MATERIALS Weekly buckets are used BOMs are flattened Material is not ready at needed time MRP treats everything as dependent Adjustments must occur as actual demand becomes known MRP is loaded with forecasts Signals with known error are used Latent signals are used Oversimplified signals are used Changing and conflicting signals Nervousness MRP Plans (timing and quantity requirements) are built using all dependencies Delays accumulate WHY? WHY? WHY? WHY? WHY? WHY? WHY? WHY? WHY? WHY? Cumulative Manufacturing and Procurement Times are much longer than customer tolerance times WHY? WHY? WHY? Supply continuity variability transference occurs between nodes in dependent networks WHY?
  • 8. 8 The Demand Driven Operating Model Formula ∆Flow → ∆Cash Velocity → ∆ Net Profit Investment ( ) → ∆ROI Plossl’s First Law of Manufacturing and the Demand Driven Model Flow is the rate at which a system converts material to product required by a customer. Cash velocity is the rate of net cash generation; sales dollars minus truly variable costs (aka contribution margin) minus period operating expense. Net profit/investment the equation for ROI What are we Missing?
  • 9. 9 The Demand Driven Adaptive System Formula ∆Flow → ∆Cash Velocity → ∆ Net Profit Investment ( ) → ∆ROI Plossl’s First Law of Manufacturing and the Demand Driven ModelCore Conflict Area ∆Visibility → ∆Variability → Flow is the rate at which a system converts material to product required by a customer. Cash velocity is the rate of net cash generation; sales revenue minus truly variable costs (aka contribution margin) minus period operating expense. Net profit/investment the equation for ROI Visibility is defined as relevant information for decision making. Variability is defined as the summation of the differences between our plan and what happens. Visibility
  • 10. 10 New Demand Supply Financial Product Where have most companies focused planning?
  • 11. 11 What area has the most change? New Demand Supply Financial Product
  • 12. 12 Demand Driven Adaptive System • A Demand Driven Adaptive System is a management … • … and operational system designed for … • … complex and volatile manufacturers and supply chains. All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 13. 13 Demand Driven Adaptive System • A Demand Driven Adaptive System uses a … • … constant system of feedback that … • … connects the business strategy to the settings and … • … the performance of a Demand Driven Operating Model … • … through a Demand Driven Sales and Operations Planning Process (DDS&OP). All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 14. 14 Demand Driven Adaptive System • A Demand Driven Adaptive System focuses on … • … the protection and promotion of the flow … • … of relevant information and materials … • … in both the strategic (annual, quarterly and monthly) … • … and tactical (hourly, daily and weekly) relevant ranges … • … of decision making in order to optimize return on equity performance as change occurs. All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 15. 15 Strategic Planning (market intelligence, business objectives, strategic decisions) Business Plan (financial expectations) Demand Driven Adaptive System Schema Demand Driven Operating Model (DDMRP, DDDRP, Demand Driven Scheduling & Execution) Actual orders Plan Parameters Strategic Direction Model and part parameters Demand Driven Variance Analysis Demand Driven Model Projections Strategic Options & Recommendations DDS&OP Strategic Relevant Range (Annually, Quarterly, Monthly) Strategic Business Management Tactical Relevant Range (Hourly, Daily, Weekly) Tactical Flow Management Model Parameter Management Control, Measure, Adapt & Project
  • 16. 16 Strategic Planning (market intelligence, business objectives, strategic decisions) Business Plan (financial expectations) Demand Driven Adaptive System Schema Demand Driven Operating Model (DDMRP, DDDRP, Demand Driven Scheduling & Execution) Actual orders Model and part parameters • Working Capital Projections • Lead Time Projections • Capacity Projections • Volume Opportunity Identification Demand Driven Model Projections Demand Driven Variance Analysis • Model Stability • Model Reliability • Model Velocity/Speed Strategic Options & Recommendations • Identify and prioritize lost ROI opportunities • Spend minimization to capture the market opportunity • Maximize system return according to relevant model factors (volume and rate) Plan Parameters Strategic Direction • Buffer Profiles (stock, time, capacity) • Profile Assignment • Part Planning Properties • Part & Resource Scheduling Properties • Resource Assignment Strategic Business ManagementTactical Flow Management Tactical Relevant Range (Hourly, Daily, Weekly) Strategic Relevant Range (Annually, Quarterly, Monthly)DDS&OP
  • 17. 17All material and content © copyright 2015 Demand Driven Institute. All rights reserved. Dick Ling Andy Coldrick
  • 18. 18 Left to Right Traditional S&OP Senior Management Business Review 6 New Product Planning 1 Demand Planning 2 Supply Planning 3 Integrated Reconciliation of Business Plans 5 Financial Planning 4
  • 19. 19 2. Integrated Reconciliation Right to Left Ling Coldrick Model Senior Management Business Review 1 3. Managing the portfolio and New Activities 4. Managing Demand 5. Managing Supply 4
  • 20. 20 Demand Driven S&OP • DDS&OP is a bi-directional integration point … • … in a Demand Driven Adaptive System … • … between the strategic (annual, quarterly and monthly) and ….. • … tactical (hourly, daily and weekly) relevant ranges of decision making. All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 21. 21 Demand Driven S&OP • DDS&OP sets key parameters of a Demand Driven Operating Model … • … based on business strategy, market intelligence and key business objectives (strategic information and requirements). • DDS&OP also projects the model performance based on the strategic information and requirements and various model settings. All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 22. 22 Demand Driven S&OP • Additionally, DDS&OP uses variance analysis based on past model performance (reliability, stability and velocity) … • … to adapt the key parameters of a Demand Driven Operating Model and/or … • … recommend strategic alterations to the model and • … project their respective impact on the business. All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 23. 23 PORTFOLIO MODEL AND PART PARAMETERS DEMAND NEW ACTIVITIES Demand Driven S&OP Schema CAPABILITIES Plan Parameters PERFORMANCE TARGETS • Buffer Profiles (stock, time, capacity) • Profile Assignment • Part Planning Properties • Part & Resource Scheduling Properties • Resource Assignment Control,Measure,Adapt&Project ModelParameterManagement Demand Driven Operating Model Demand Driven Variance Analysis Demand Driven Model Projections
  • 25. 25 Capacity Load Impact Working Capital Impact Space Impact Projected ADU All material and content © copyright 2015 Demand Driven Institute. All rights reserved. Certified Demand Driven Planner (CDDP) is a trademark of the ISCEA Demand Driven Model Projections PORTFOLIO MODEL AND PART PARAMETERS DEMAND NEW ACTIVITIES CAPABILITIES Plan Parameters PERFORMANCE TARGETS Projected Capabilities Projecting Demand Driven Operating Model Performance
  • 26. 26 Example • This company makes four products. • They have forecasted ADU at the SKU level 6 months from now. All material and content © copyright 2015 Demand Driven Institute. All rights reserved. Certified Demand Driven Planner (CDDP) is a trademark of the ISCEA Part # Current ADU Projected ADU (6 mos) Lead Time Desired Order Cycle MOQ Variability XYZ 100 150 5 (low – 75%) 3 500 Medium (50%) ZYX 50 75 7 (medium – 50%) 3 250 Medium (50%) ABG 25 10 5 (low – 75%) 3 250 Low (25%) GJK 20 200 5 (low – 75%) 3 250 High (70%)
  • 27. 27All material and content © copyright 2015 Demand Driven Institute. All rights reserved. Certified Demand Driven Planner (CDDP) is a trademark of the ISCEA XYZ (now) XYZ (projected) Green 500 563 Yellow 500 750 Red 563 845 Average OH 813 1126.5 0 500 1000 1500 2000 2500 Projected Change to XYZ Red Yellow Green Average OH ZYX (now) ZYX (projected) Green 250 263 Yellow 350 525 Red 263 395 Average OH 388 526.5 0 200 400 600 800 1000 1200 1400 Projected Change to ZYX Red Yellow Green Average OH ABG (now) ABG (projected) Green 250 250 Yellow 125 50 Red 118 48 Average OH 243 173 0 100 200 300 400 500 600 Projected Change to ABG Red Yellow Green Average OH GJK (now) GJK (projected) Green 250 750 Yellow 100 1000 Red 128 1275 Average OH 253 1650 0 500 1000 1500 2000 2500 3000 3500 Projected Change to GJK Red Yellow Green Average OH
  • 28. 28 Working Capital Converting targeted on-hand inventory to capital required. Part # Dollars per units Current Target Inventory Level Targeted working capital in inventory Projected Target Inventory Level Projected working capital in inventory XYZ $100 813 $81,300 1127 $112,700 ZYX $90 388 $34,920 527 $47,430 ABG $80 243 $19,440 173 $13,840 GJK $50 253 $12,650 1650 $82,500 Total $148,310 Total $256,470 All material and content © copyright 2015 Demand Driven Institute. All rights reserved. Certified Demand Driven Planner (CDDP) is a trademark of the ISCEA $0 $20 000 $40 000 $60 000 $80 000 $100 000 $120 000 XYZ ZYX ABG GJK Average OH Inventory Dollars Current OH Target Projected OH Target
  • 29. 29 Projecting Capacity Load Establish an average daily load on a critical resource (ADUs x capacity units/SKU) Critical Resource: Lathes Lathes available = 5 Minutes available per lathe per day = 1200 (6,000 total per day) Part # Minutes/unit on lathe Current ADU Current Average Daily Load Projected ADU Projected Average Daily Load XYZ 30 100 3000 minutes 150 4500 minutes ZYX 25 50 1250 minutes 75 1875 minutes ABG 20 25 500 minutes 10 200 minutes GJK 10 20 200 minutes 200 2000 minutes Total 4950 minutes Total 8575 minutes All material and content © copyright 2015 Demand Driven Institute. All rights reserved. Certified Demand Driven Planner (CDDP) is a trademark of the ISCEA 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 Current Load Projected Load XYZ ZYX ABG GJK
  • 30. 30 Critical Success Factors 1. Leadership 2. Education 3. Map the DDS&OP process 4. Learn by doing 5. “Roughly right” 6. Select marketing families 7. Identify new activities 8. Financial integration 9. Collaboration 10.Make better decisions 11.Critique the process 12.Strategy driven 13.Business planning 14.Advisor/Coach 15.Software support
  • 31. 31 DDS&OP compare/contrast • DDS&OP – Aligns strategy to capability – Employs a dynamic demand driven operating model – Has a bi-directional effect on strategy – Direction is coming from roughly right through relevant ranges • Compared to other S&OP models – APICS – supply focused rather than demand focused – Ollie Wight – common plan rather than flexible capability – Gartner – trade-offs rather than flexible capability – Sales and Ops planning institute – one way linkage to operation. Disaggregate strategy to operations only. All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 32. 32 Strategic Planning (market intelligence, business objectives, strategic decisions) Business Plan (financial expectations) Demand Driven Adaptive System Schema Demand Driven Operating Model (DDMRP, DDDRP, Demand Driven Scheduling & Execution) Actual orders Plan Parameters Strategic Direction Model and part parameters Demand Driven Variance Analysis Demand Driven Model Projections Strategic Options & Recommendations DDS&OP Strategic Relevant Range (Annually, Quarterly, Monthly) Strategic Business Management Tactical Relevant Range (Hourly, Daily, Weekly) Tactical Flow Management Model Parameter Management Control, Measure, Adapt & Project
  • 33. 33 Demand Driven Operating Model • A Demand Driven Operating Model is a … • … supply order generation, … • … operational scheduling and … • … execution model. All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 34. 34 Demand Driven Operating Model • It utilizes actual demand in combination with … • … strategic decoupling and control points and … • … stock, time and capacity buffers in order … • … to create a predictable and agile system … • … that promotes and protects the flow of relevant … • … information and materials within … • … the tactical relevant operational range (hourly, daily and weekly). All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 35. 35 Demand Driven Operating Model • A Demand Driven Operating Model’s key parameters are … • … set through the Demand Driven Sales and Operations Planning process … • … to meet the stated business and market objectives … • … while minimizing working capital and … • … expedite related expenses. All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 36. 36 The Demand Driven Operating Model MODEL AND PART PARAMETERS Demand Driven MRP Demand Driven Capacity Scheduling Demand Driven Execution Actual Demand
  • 37. 37 Demand Driven Operating Model MODEL AND PART PARAMETERS Demand Driven MRP Demand Driven Capacity Scheduling Demand Driven Execution Supply Orders (PO, MO, STO) with Net Flow Priority • Part Buffer Profiles (time and capacity) • Part Profile Assignment • Part & Resource Scheduling Properties • Resource Assignment Work Order Releases Demand Driven Variance Analysis • Model Stability • Model Reliability • Model Velocity/Speed Sales Orders • Part Buffer Profiles (stock) • Part Profile Assignment • Part Planning Properties Promise Dates
  • 38. 38 PORTFOLIO MODEL AND PART PARAMETERS DEMAND NEW ACTIVITIES Demand Driven S&OP Schema CAPABILITIES Plan Parameters PERFORMANCE TARGETS Control,Measure,Adapt&Project ModelParameterManagement Demand Driven Operating Model Demand Driven Variance Analysis Demand Driven Model Projections
  • 39. 39 DDS&OP output to the Demand Driven Operating Model = “Master Settings” All material and content © copyright 2015 Demand Driven Institute. All rights reserved. Certified Demand Driven Leader (CDDL) is a trademark of the ISCEA MODEL AND PART PARAMETERS Demand Driven MRP Demand Driven Capacity Scheduling Demand Driven Execution Supply Orders (PO, MO, STO) with Net Flow Priority • Part Buffer Profiles (time and capacity) • Part Profile Assignment • Part & Resource Scheduling Properties • Resource Assignment Work Order Releases Sales Orders • Part Buffer Profiles (stock) • Part Profile Assignment • Part Planning Properties Promise Dates
  • 40. 40 DDMRP “Master Settings” Schema External Orders for Components (Sales Orders) Planned Adjustment Factors Part Demand Data Inventory Record File DDMRP (Supply Order Generation and Execution Alerts) Product Structure file Demand Driven Execution Buffer Profiles All material and content © copyright 2015 Demand Driven Institute. All rights reserved. Certified Demand Driven Leader (CDDL) is a trademark of the ISCEA Part ADU Model and Part Parameter Management (Part of Demand Driven S&OP) Part Profile Assignment Demand Driven Capacity Scheduling
  • 41. 41 Explaining Each Component All material and content © copyright 2015 Demand Driven Institute. All rights reserved. Certified Demand Driven Leader (CDDL) is a trademark of the ISCEA Buffer Profiles Planned Adjustment Factors Part ADU Part Profile Assignment The groupings and settings for replenished parts (part type, variability and lead time) The adjustment factors to be applied to ADU to parts or groups of parts The average rate of use for each replenished part (past, forward or blended) The assignment of each replenished part to particular buffer profile
  • 42. 42 Demand Driven Scheduling “Master Settings” Schema Manufacturing Orders with request dates (from DDMRP) Resource Assignment Resource Management Demand Driven Scheduling Time Buffer Profiles All material and content © copyright 2015 Demand Driven Institute. All rights reserved. Certified Demand Driven Leader (CDDL) is a trademark of the ISCEA Model and Part Parameter Management (Part of Demand Driven S&OP) Time Buffer Profile Assignment Part Management Resource Properties Part Properties
  • 43. 43 Explaining Each Component All material and content © copyright 2015 Demand Driven Institute. All rights reserved. Certified Demand Driven Leader (CDDL) is a trademark of the ISCEA Time Buffer Profiles Resource Assignment Resource Management Resource Properties The time buffer groupings and settings for scheduled parts The assignment of a resource to a resource type (control point, resource, buffered resource) Applicable scheduling properties for each resource (calendar, shifts, operators, etc.) Part Management Time Buffer Profile Assignment Part Properties Applicable scheduling properties for each part (routings and run rates) Applicable scheduling properties for each part (routings and run rates)
  • 44. 44 PORTFOLIO MODEL AND PART PARAMETERS DEMAND NEW ACTIVITIES Demand Driven S&OP Schema CAPABILITIES Plan Parameters PERFORMANCE TARGETS Control,Measure,Adapt&Project ModelParameterManagement Demand Driven Operating Model Demand Driven Variance Analysis Demand Driven Model Projections
  • 45. 45 Focusing on Outliers All material and content © copyright 2015 Demand Driven Institute. All rights reserved. Certified Demand Driven Planner (CDDP) is a trademark of the ISCEA Dark RedDark Red 0 Optimal Range Warning YR Warning Y R Too Little Too Much Optimal Warning (High) Warning (Low) Extreme High Extreme Low Too Much Too Little
  • 46. 46 Capacity Load Impact Working Capital Impact Space Impact Projected ADU Demand Driven Model Projections PORTFOLIO MODEL AND PART PARAMETERS DEMAND NEW ACTIVITIES CAPABILITIES Plan Parameters PERFORMANCE TARGETS Projected Capabilities Projecting Demand Driven Operating Model Performance Demand Driven Operating Model Demand Driven Variance Analysis
  • 47. 47All material and content © copyright 2015 Demand Driven Institute. All rights reserved. Certified Demand Driven Planner (CDDP) is a trademark of the ISCEA XYZ (now) XYZ (projected) Green 500 563 Yellow 500 750 Red 563 845 Average OH 813 1126.5 0 500 1000 1500 2000 2500 Projected Change to XYZ Red Yellow Green Average OH ZYX (now) ZYX (projected) Green 250 263 Yellow 350 525 Red 263 395 Average OH 388 526.5 0 200 400 600 800 1000 1200 1400 Projected Change to ZYX Red Yellow Green Average OH ABG (now) ABG (projected) Green 250 250 Yellow 125 50 Red 118 48 Average OH 243 173 0 100 200 300 400 500 600 Projected Change to ABG Red Yellow Green Average OH GJK (now) GJK (projected) Green 250 750 Yellow 100 1000 Red 128 1275 Average OH 253 1650 0 500 1000 1500 2000 2500 3000 3500 Projected Change to GJK Red Yellow Green Average OH
  • 48. 48 Strategic Planning (market intelligence, business objectives, strategic decisions) Business Plan (financial expectations) Demand Driven Adaptive System Schema Demand Driven Operating Model (DDMRP, DDDRP, Demand Driven Scheduling & Execution) Actual orders Plan Parameters Strategic Direction Model and part parameters Demand Driven Variance Analysis Demand Driven Model Projections Strategic Options & Recommendations DDS&OP Strategic Relevant Range (Annually, Quarterly, Monthly) Strategic Business Management Tactical Relevant Range (Hourly, Daily, Weekly) Tactical Flow Management Model Parameter Management Control, Measure, Adapt & Project
  • 49. 49 CDDL and CDDL Positions in the DDOM Schema MODEL AND PART PARAMETERS Demand Driven MRP Demand Driven Capacity Scheduling Demand Driven Execution Sales Orders
  • 50. 50 Certified Demand Driven Planner (CDDP) All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 51. 51 Certified Demand Driven Planner (CDDP) • The purpose of the CDDP Program is to … • … educate operations and supply chain personnel … • … on the methods and applications of … • … Demand Driven Material Requirements Planning (DDMRP). All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 52. 52 CDDP Agenda • Module 1: MRP in the Modern World – the materials challenge in the 21st Century • Module 2: Demand Driven Material Requirements Planning Introduction • Module 3: Strategic Inventory Positioning • Module 4: Distribution Network Positioning • Module 5: Buffer Profile and Level Determination All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 53. 53 CDDP Agenda • Module 6: Dynamic Buffers • Module 7: Demand Driven Planning – Stocked Parts • Module 8: Highly Visible and Collaborative Execution • Module 9: DDMRP and Master Scheduling • Module 10: DDMRP Performance Reporting and Analytics All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 54. 54 Certified Demand Driven Leader (CDDL) All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 55. 55 Certified Demand Driven Leader (CDDL) • The Certified Demand Driven Leader (CDDL) Program equips … • … senior and mid-level operations and supply chain managers … • … with the ability to design, implement and sustain … • … a Demand Driven supply chain. • The program spans Planning, Operations, Distribution and Finance. All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 56. 56 CDDL Agenda • Module 1: The Need for Change • Module 2: An Overview of Designing and Operating for Flow • Module 3: Demand Driven Material Requirements Planning • Module 4: Demand Driven Scheduling and Shop Floor Execution All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 57. 57 CDDL Agenda • Module 5: Tactical Smart Metrics for Operations • Module 6: Demand Driven Sales and Operations Planning • Module 7: Demand Driven Strategic Control, Measurement and Adaptation All material and content © copyright 2015 Demand Driven Institute. All rights reserved.
  • 58. Conclusion • No doubt that DDMRP and DDAS are bringing huge benefits to many companies, in many different industries, globally. • Destined to quickly replace 50 year old techniques as companies ‘see-the-light’.
  • 59. Conclusion • Make sure you are not last to adopt this methodology, just to keep up with your competitors. • Start your Demand Driven journey now, attend a CDDP / CDDL course.
  • 60. Warning ……. “Make sure your Competitor doesn’t get hold of this before you do!”
  • 61. We are here to help you win the battle, find out more ……. • Contact us at PSQ:- • Ken Titmuss • 083-700-4354 • ktitmuss@mweb.co.za • Or, visit our Demand Driven Tech stand, join in the DDMRP simulation with a chance to win the flat screen TV at our Tech Talk at 14H45 Tuesday afternoon – Hawk Room