Time and again we are asked about how DDMRP is different than Multi Echelon Inventory Optimisation (MEIO). At first sight it may seem that the two are aiming for the same objectives, namely to achieve an optimal inventory distribution in the end-to-end supply network. But this is not so. In this contribution I would like to highlight the differences between the two and try to convince you that there is almost nothing in common between them.
Despite the fact that the implementation of DDMRP typically results in overall inventory reduction of 30% to 50% across the entire supply chain, this is not the primary objective of DDMRP. We can almost say that the reduction in inventory in DDMRP is a positive side effect. In fact, DDMRP’s main objective is to stop the propagation of variability and increase responsiveness to market changes by decoupling the supply chain. DDMRP addresses the supply chain performance as a whole, while MEIO by contrast is only focusing on inventory optimisation.
Operating model and inventory definitions
MEIO is aiming at optimising safety stock levels. DDMRP is aiming at moving away from a broken operating model, which we will call “MRP forecast push” and replacing it with a new operating model: Position and Pull. In this new operating model the notion of safety stocks disappear and is replaced by the notion of strategic inventory buffers, which have completely different functions. Safety stocks are supplementary positions designed to compensate for the differences between planned orders, actual demand and supply orders. Due to the mechanics of MRP, safety stocks are contributing to increase the bullwhip effect. The DDMRP strategic inventory are primary and dynamic inventory positions designed to decouple the supply chain, compress lead times, stop the propagation of variability and act as a trigger for supply order generation (Pull).
Planning and operating the supply network
DDMRP looks at all levels of planning and execution (define inventory positions and levels, generate supply orders and managing open orders) in a coherent system. MEIO is looking primarily at defining and sizing the safety stocks. But once the stock levels are set and it comes to operating the supply chain, the traditional MRP forecast push model is applied with all the negative consequences associated to it. Given that MEIO is now moving the goalpost constantly, the impact on the bullwhip will be amplified. These facts should account for the differences in inventory performance between the two approaches. When defining the optimal inventory sizing both systems are likely to give the same results. But when operating the supply chain, one system (MEIO) operates under high variability and increased bullwhip while the other (DDMRP) operates under low variability and no bullwhip. The result is that MEIO claims planned safety stock benefits of 20%-30%, while DDMRP consistently achieves 30%-50% aggregate inventory reductions.
DDMRP addresses the root causes of poor inventory performance and solves them by redesigning the operating model. MEIO is trying to fighting the symptoms by throwing money and computer power at the problem and trying to optimise a broken process.