The Demand Driven

Operating Model Pyramid

ROI
Significant Bottom Line High Lower
Benefits Service Inventory
Fewer Expedites

New Operational Cash Buffer Sales

Considerations
Flow Status Orders

New Operating Model

Position, Protect & Pull

Fundamental Principle
FLOW
 The Demand Driven Operating Model Formula
Net Profit
∆Flow → ∆Cash Velocity → ∆ ( 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?

 The Demand Driven Adaptive System Formula

Net Profit
∆Visibility → ∆Variability → ∆Flow → ∆Cash Velocity → ∆ ( Investment ) → ∆ROI
Core Conflict Area 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 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
Demand Driven Operating Model
A Demand Driven Operating Model is a supply order generation,
operational scheduling and execution model utilizing 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). 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.
The Demand Driven Operating Model

MODEL AND PART

PARAMETERS

Demand Actual
Driven MRP Demand
Demand Driven
Capacity Scheduling

Demand Driven
Execution
CDDL and CDDL Positions in the DDOM Schema

MODEL AND PART

PARAMETERS

Demand Sales
Driven MRP Orders
Demand Driven
Capacity Scheduling

Demand Driven
Execution
Demand Driven S&OP (DDS&OP)
Definition
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. 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. 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.
 Demand Driven S&OP Schema
Demand Driven
Plan Parameters Model Projections
Model Parameter Management

Control, Measure, Adapt & Project

CAPABILITIES PERFORMANCE
TARGETS DEMAND

NEW
PORTFOLIO
ACTIVITIES

MODEL AND PART

PARAMETERS
Demand Driven
Variance Analysis
Demand Driven
Operating Model
 DDS&OP output to the Demand Driven
Operating Model = “Master Settings”
MODEL AND PART
PARAMETERS

• Part Buffer Profiles (time and

capacity)
• Part Profile Assignment • Part Buffer Profiles (stock)
• Part & Resource Scheduling • Part Profile Assignment
Properties • Part Planning Properties
• Resource Assignment

Demand Sales
Promise Dates Driven MRP Orders
Demand Driven
Capacity Scheduling
Supply Orders (PO, MO, STO)
with Net Flow Priority
Work Order Releases

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Driven Institute. All rights
reserved.
Certified Demand Driven
DDMRP “Master Settings” Schema
Model and Part Parameter Part Demand Data
Management (Part of
Demand Driven S&OP)

Planned
Part Profile
Buffer Profiles Adjustment Part ADU
Assignment
Factors

External Orders
for Components
(Sales Orders)
DDMRP
Inventory (Supply Order Product
Record File Generation and Structure file
Execution Alerts)

Demand Driven
Capacity
Scheduling Demand Driven
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Driven Institute. All rights
reserved.
Certified Demand Driven
Explaining Each Component
The groupings and settings for replenished parts (part type,
Buffer Profiles
variability and lead time)

Planned The adjustment factors to be applied to ADU to parts or groups

Adjustment
Factors of parts

The average rate of use for each replenished part (past,

Part ADU
forward or blended)

Part Profile The assignment of each replenished part to particular buffer

Assignment profile
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Driven Institute. All rights
reserved.
Certified Demand Driven
 Demand Driven Scheduling “Master
Settings” Schema
Model and Part Parameter Resource
Management (Part of Part Management
Management
Demand Driven S&OP)

Time Buffer
Time Buffer Resource Resource Part Profile
Profiles Assignment Properties Properties Assignment

Demand Manufacturing
Driven Orders with request
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Driven Institute. All rights
reserved.
Certified Demand Driven
Explaining Each Component
Time Buffer
Profiles The time buffer groupings and settings for scheduled parts

Resource Management

Resource The assignment of a resource to a resource type (control point,

Assignment resource, buffered resource)

Resource Applicable scheduling properties for each resource (calendar,

Properties shifts, operators, etc.)

Part Management

Part Applicable scheduling properties for each part (routings and

Properties run rates)
Time Buffer The assignment of scheduled parts to time buffer groupings.
Profile
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Assignment
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Driven Institute. All rights
reserved.
Certified Demand Driven
 Demand Driven S&OP Schema
Demand Driven
Plan Parameters Model Projections
Model Parameter Management

Control, Measure, Adapt & Project

CAPABILITIES PERFORMANCE
TARGETS DEMAND

NEW
PORTFOLIO
ACTIVITIES

MODEL AND PART

PARAMETERS
Demand Driven
Variance Analysis
Demand Driven
Operating Model
 Too Much

Focusing on Outliers Extreme High

Warning (High)

Optimal

Warning (Low)

Extreme Low

Too Little

Dark Red R Y Optimal Range Y R Dark Red

Too Little Warning Warning Too Much
0
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Driven Institute. All rights
reserved.
Certified Demand Driven
Projecting Demand Driven Operating Model Performance

Demand Driven
Plan Parameters Model Projections

CAPABILITIES PERFORMANCE
TARGETS DEMAND

NEW
PORTFOLIO
ACTIVITIES

Projected Projected
Capabilities ADU
Capacity Load
Impact

Working
MODEL AND PART
Capital
PARAMETERS Impact
Demand Driven
Variance Analysis
Demand Driven Space Impact
Operating Model
 Projected Change to XYZ Projected Change to ZYX
2500 1400
2000 1200
1000
1500 800
1000 600
400
500 200
0 0
XYZ (now) XYZ (projected) ZYX (now) ZYX (projected)
Green 500 563 Green 250 263
Yellow 500 750 Yellow 350 525
Red 563 845 Red 263 395
Average OH 813 1126.5 Average OH 388 526.5
Red Yellow Green Average OH Red Yellow Green Average OH

Projected Change to ABG Projected Change to GJK

600 3500
500 3000
400 2500
300 2000
1500
200 1000
100 500
0 0
ABG (now) ABG (projected) GJK (now) GJK (projected)
Green 250 250 Green 250 750
Yellow 125 50 Yellow 100 1000
Red 118 48 Red 128 1275
Average OH 243 173 Average OH 253 1650
All material and content ©
Red2015 Demand
copyright Yellow Green Average OH Red Yellow Green Average OH
Driven Institute. All rights
reserved.
Certified Demand Driven
Demand Driven Adaptive System (DDAS)
– Completing the Picture
A Demand Driven Adaptive System is a management and operational
system designed for complex and volatile manufacturers and supply
chains. A Demand Driven Adaptive System uses a constant system of
feedback that connects the business strategy to the settings and
performance of a Demand Driven Operating Model through a Demand
Driven Sales and Operations Planning Process (DDS&OP). 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.
 Demand Driven Adaptive System Schema
Tactical Flow Management Strategic Business Management
Tactical Relevant Range Strategic Relevant Range
(Hourly, Daily, Weekly)
DDS&OP (Annually, Quarterly, Monthly)

Model Parameter Management

Model and part Strategic

Plan Parameters
parameters Direction

Demand Driven
Operating Model Strategic Planning
Actual orders
Business Plan (market intelligence,
(DDMRP, DDDRP, Demand
(financial expectations) business objectives,
Driven Scheduling &
Execution) strategic decisions)

Demand Driven Demand Driven Strategic Options &

Variance Analysis Model Projections Recommendations

Control, Measure, Adapt & Project

Bonus
 Today’s Reality – The Bullwhip
Effect The more parts – the worse the 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, 12 th
Edition)
Distortions to relevant information

Sub-
Foundry Component
Assembler
OEM

Distortions to relevant materials

 DISTORTIONS TO RELEVANT
MATERIALS

Material is not ready at WHY?

needed time

DISTORTIONS TO RELEVANT
WHY? INFORMATION

Signals with known Latent signals Oversimplified Changing and Delays

error are used are used signals are used conflicting signals accumulate
WHY? WHY? WHY? WHY? WHY?
Weekly buckets BOMs are
are used flattened
WHY? WHY?
WHY? Nervousness Supply continuity variability
transference occurs
Adjustments must occur as actual between nodes in
demand becomes known dependent networks

WHY? WHY?
MRP is loaded with
WHY?
forecasts
Cumulative Manufacturing and MRP Plans (timing and
Procurement Times are much longer quantity requirements) are
than customer tolerance times MRP treats everything built using all dependencies
as dependent
WHY?