ddmrp%simulaon%game%...

DDMRP Simula,on Game Free Version Notes

Kevin Kohls Kohls Consul,ng 248.931.1959

1

Free Version Notes

•  This free version is for demonstra,on and teaching use only. Please do not use it in any sales material or for any sales presenta,ons without wriKen permission for Kohls Consul,ng.

•  Much of this documenta,on is from the Advanced Demand Driven class material and is not a User’s Guide, per se.

•  Contact kkohls@kohls-‐consul,ng.com for the Pro Version that allows up to 5 DDMRP buffers.

2

Assump,ons

•  You have been exposed to DDMRP concepts or you are a CDDP.

•  You know where to buy Chad and Carol’s books (referred to as “The Book” henceforth) –  In other words, I will not spend

much ,me on the basics of MRP or go in-‐depth on the concepts and calcula,ons of the process.

•  Please contact the Demand Driven Ins,tute for detailed ques,ons or to take a class:

•  www.demanddrivenins,tute.com

3

A Simple Bill of Material (BOM) •  Part “P”

–  Made by taking raw material RM1 and performing a process, which results in a Part P. •  The BOM just consists of P <-‐ RM1

–  RM1 comes from a supplier, and must be purchased using a Purchase Order (PO)

–  It takes 26 days from the ,me a PO is issued un,l delivery. –  It takes one day to delivery the P part to the customer. –  Note that the resources used to make P have not been specified.

P RM1

4

The First Buffer Placement •  If we wish to reduce the lead ,me to the customer, we can add a buffer (in our case, a DDMRP buffer) to the layout.

•  We’ll reduce the lead ,me in this case to 1 ,me unit (days, in this case) – the ,me it takes to deliver the part from the buffer to the customer.

•  Thus, we have had a drama,c improvement in Lead ,me – from 25 days to one day, just by adding buffer in the right place.

P RM1

5

DDMRP Terms •  “On-‐Hand” refers to the amount of product in the DDMRP Buffer.

•  “Available Stock” – A planning calcula,on to determine the planning status of a stocked item. –  The equa,on is on-‐hand + on-‐order stock – unfulfilled qualified actual demand.

–  Available Stock levels trigger a Purchase Order •  Average Daily Usage (ADU) is the amount, on average, that is removed from the P On-‐Hand Buffer.

P RM1 PO RM1

On-‐Hand Available Stock

ADU

6

Resources •  Nothing is free – in order to turn RM1 into a P, it will have

to use one or more Resources. –  Resources can be machine, people, processes, etc.

•  Using a resource will cost money – it is part of our Opera,ng Expense.

•  Resources Costs do not vary with the number of P’s produced.

•  Our generic resource of our case is referred to as “A” •  A is directed to work on the crea,on of P by a Work Order.

P RM1 PO RM1

On-‐Hand Available Stock

A

WO

7

Buffer Profiles

•  Buffer Profiles are one of the most important features of DDMRP.

•  Understanding how they work, how they are calculated, and the factors that drive those calcula,ons will lead to greater understanding of the func,onally of DDMRP.

•  This Guide will not go into the details of Buffer Profiles – the user should refer to Orlicky’s 3rd Edi,on for more informa,on.

8

Buffer Zones

•  The Green Zone is used for Order Quan,ty –  It determines average order frequency and typical order size.

–  It is sized either by the part’s minimum order quan,ty (MOQ) or a % of the calculated average daily usage (ADU) mul,plied by the lead ,me. (Use whichever is larger.)

9

Buffer Zones

•  The Yellow zone is the Reorder Zone – The heart of the coverage and shock absorp,on.

–  It is set to 100% of ADU over lead ,me.

10

Buffer Zones

•  Red Zone is for Risk Protec,on and is made up of two parts – The Red Base level that uses a percentage of the Yellow zone. •  It provides protec,on for Lead Time Varia,on •  Usually matches Green Zone

– The Red Safety establishes a safety factor which is determined by the amount of demand varia,on.

11

Basics of the Buffer Profile

1.  Our ASRLT for T is 25, and our ADU is 25. Yellow is the usage over lead-‐,me. Thus, 25x 25= 625

2.  Red Base is Yellow (625) x LT Adjust(.5). LT Adjust is the “Usage over LT” in the DDI slides. LT Adjust is larger in Short LT situa,ons, and smaller in Long LT situa,ons.

3.  Green is the same as Red Base (313), and represents the size of the order once Available Stock levels fall below Top of Yellow (TOY is 1408). If the MOQ is larger than Red Base, then Green becomes the MOQ.

4.  Red Safety is Red Base (313) x Var. Adjust. (.5) and provides for varia,on in demand. Larger allows for higher varia,on, smaller reduces inventory. The Red Zone is Red Safety + Red Base.

The Average Buffer Posi,on (627) represents the Average Amount of On Hand Stock in the system.

13

Geqng Started

•  Double Click the DDMRP simula,on Excel file from the Desktop. –  The password is “Orlicky” – Open the file as “Read Only” –  Be sure to “Enable Macros”

•  This is just a very complicated Excel spreadsheet that has been programmed using Visual Basic. The controls are Excel controls.

•  Its easy to break, so don’t get too adventurous.

14

The Main Screen

•  A Blue Screen the looks like the one on the ler should appear.

•  Note the many tabs on the boKom

•  Since this is Excel, we can click on on them to look at different input screens.

15

The Basic Sheet

You should note that the number of resources that are available are currently 0, so if you aKempt to run the game now, you will run out of material.

The Basic Sheet is where you will be spending the most of your ,me. It is the farthest tab to the ler, so hit that tab if you get “lost” on another sheet.

16

Seqngs Screen •  Let’s go to the Seqngs Screen.

•  Note that P is selected as a Buffer to use and that it is an Output – where end products are stored as Finished Goods.

•  Note all the other buffers are not checked – they are not needed for our first example.

•  Make sure the No Varia,on box is checked as well.

Later we’ll use Update Seqngs if we choose to change ADU or ASRLT.

17

“BOM”

•  Go to the “OrderCreateP” tab and make sure the informa,on above is looks like what is shown above. This matches BOM with a bit of VSM tossed in.

•  This is where Chad or Carol will say this is not really a BOM. Yep, but it works for the simula,on.

18

Do We Have Enough Resources?

•  We also have to determine the right number of resources to ensure we can meet produc,on demand with minimal Opera,ng Expense. – Too few resources can cause Shortages

•  A late order to a customer is very expensive. •  Per the contract, we sell the Product at the Raw Material Cost (Throughput Dollars = $0)

– Too many resources increases Opera,ng Expense and increases inventory.

19

Demand From Seqngs Sheet

•  We must be able to minimally meet the Average Daily Usage every day with our A Resource.

•  The A Resource can work only 8 hours per day – 480 minutes.

•  How many A Resources do we need to make demand?

20

Resource Calcula,ons

•  Going Back to OrderCreateP, our BOM, we see that it takes 40 minutes to make a P.

•  We can make 12 parts in a 480 minute shir. •  With our ADU at 60 parts, we’ll need 5 resources, minimally.

•  We may need to periodically add a resource if varia,on becomes a problem, or just use 6.

21

Running the Game Go back to the Basic Sheet. Find the Clear/Run buKons on the top right. The Run Box is where the number of days to run (7 in this case) for the next period. Hit Clear every ,me you want to start over with the same seqngs. Do that now.

Then let’s hit the Run buKon – let’s see what happens.

22

•  The Available Stock and On-‐Hand lines are updated every day un,l the ,me period you specified ends.

•  When complete, Your P Buffer should look something like this.

•  Available Stock has fallen into the Yellow Zone, triggering an order and causing Available Stock to go back to the TOG.

Go ahead an Run for five more weeks.

Note the lines are drawn all the way to the right – that’s just to make it a liKle easier to read.

0"

100"

200"

300"

400"

500"

600"

700"

800"

1" 5" 9" 13"

17"

21"

25"

29"

33"

37"

41"

45"

49"

53"

57"

P"Buffer"DDMRP"Levels"

23

Other Info

•  You have 5 of the A resources, which make these parts. •  The actual Lead Time to make these parts was 5.0 days and the

actual ADU was 60. •  Without going through all the accoun,ng, you brought in $86k, but

had $15k in expenses (mostly Resource A). •  Thus, you made $71k. Not a bad start. •  You sold 480 units, making Demand without losing any parts.

24

Purchase Orders & Work Orders

The tab under WorkOrders shows the status of Purchase Orders and Work Orders. It’s important to understand that PO’s and WO’s will be executed in this simula,on, but it’s a bit too detailed for this session. We’ll come back to it if we have ,me.

25

Overall Internal Input Input Input Pred.

Product Type WC Part5# Part51 Part52 Part53 CT

P WO A P RM1 40

P WO A P RM1 40

P PO S RM1 RMS

P PO S RM1 RMS

Work Product Number Total Day Time Day

Order Priority to5Make Time In Left Out

WO001HP 36% 193 5809

WO005HP 36% 232 9225

PO001HRM1 36% 193 1 0 1

PO005HRM1 36% 232 5 0 5

Material

Available

TRUETRUEFALSE

FALSE

Buffer Status

•  The Buffer Status sheet shows details about each buffer. Since we only are worried about one buffer, we will not use it much.

•  The buffer priority .68, is useful for doing a rela%ve comparison of the priori,es of each buffer.

•  The value of the inventory (Raw Material Cost) is also included, as well as the Throughput Margin of each part. –  Important for financial analysis of performance.

Buffer AmountBuffer+Priority Sheet

Time+to+Make+(d)

On+Hand+Before SP:RM+$ Inventory

P 287 0.68 P+Buffer 4.00++++++++ 300 200$+++++++++++ 117,400$+++++++Q :++++++++++ 0 300$+++++++++++ :$+++++++++++++++R :++++++++++ 0 500$+++++++++++ :$+++++++++++++++

RM1 0 1.00++++++++ 20$+++++++++++++ :$+++++++++++++++RM10 :++++++++++ 30$+++++++++++++ :$+++++++++++++++RM2 :++++++++++ 50$+++++++++++++ :$+++++++++++++++RM3 :++++++++++ 70$+++++++++++++ :$+++++++++++++++RM4 :++++++++++ 110$+++++++++++ :$+++++++++++++++RM5 :++++++++++ 130$+++++++++++ :$+++++++++++++++RM6 :++++++++++ 170$+++++++++++ :$+++++++++++++++RM7 :++++++++++ 190$+++++++++++ :$+++++++++++++++RM8 :++++++++++ 230$+++++++++++ :$+++++++++++++++RM9 :++++++++++ 290$+++++++++++ :$+++++++++++++++RMS 999999566 :++++++++++ :$++++++++++++ :$+++++++++++++++

Buffer AmountBuffer+Priority Sheet

Time+to+Make+(d)

On+Hand+Before SP:RM+$ Inventory

P 287 0.68 P+Buffer 4.00++++++++ 300 200$+++++++++++ 117,400$+++++++Q :++++++++++ 0 300$+++++++++++ :$+++++++++++++++R :++++++++++ 0 500$+++++++++++ :$+++++++++++++++

RM1 0 1.00++++++++ 20$+++++++++++++ :$+++++++++++++++RM10 :++++++++++ 30$+++++++++++++ :$+++++++++++++++RM2 :++++++++++ 50$+++++++++++++ :$+++++++++++++++RM3 :++++++++++ 70$+++++++++++++ :$+++++++++++++++RM4 :++++++++++ 110$+++++++++++ :$+++++++++++++++RM5 :++++++++++ 130$+++++++++++ :$+++++++++++++++RM6 :++++++++++ 170$+++++++++++ :$+++++++++++++++RM7 :++++++++++ 190$+++++++++++ :$+++++++++++++++RM8 :++++++++++ 230$+++++++++++ :$+++++++++++++++RM9 :++++++++++ 290$+++++++++++ :$+++++++++++++++RMS 999999566 :++++++++++ :$++++++++++++ :$+++++++++++++++

26

Your results should look something like this.

0"

100"

200"

300"

400"

500"

600"

700"

800"1" 5" 9" 13"

17"

21"

25"

29"

33"

37"

41"

45"

49"

53"

57"


27

Basic Throughput Accoun,ng

•  Because there was no varia,on, the Act Lead + 1 (1 day shipping to Customer) Time matched the ASRLT, and the Actual Demand matched the ADU.

Act$LT

Act$A

DU

T$#(0

00)

Demand

Lost SoldP 5.0 60.0 464$#### 2580 0 2580Q ;$##### 0 0 0R ;$##### 0 0 0T ;$##### 0 0 0V ;$##### 0 0 0

464$#### 0$92 Operating#Expense372$$$$$ Net$Profit

28

Using Warnings

•  Demand Driven MRP is a very resilient tool for absorbing varia,on, but it will fail if you ignore the warning the system generates.

•  We’ll use high level warnings in the game to help you understand the problem and how to correct it.

LOW INVENTORY

29

Basic Screen Break Down Understanding Warnings

•  A High Inventory Warning happens when more product is made than

•  Expedite Warnings occurs when On Hand drops below the Top of Red x Expedite Factor (found on the Seqngs sheet). •  See next slide

•  Lost Parts occur when you fail to meet demand.

Today 43

High,Inv,Warning

Low,Inv,Warning

Expedite,Warning

Stock,Out

Parts,Lost

Average,OnHand

Average,Available,Stock ADU ASRLT

P 0 10 0 0 0 342 632 OK OKQ 0 0 0 0 0 0 0 N/A N/AR 0 0 0 0 0 0 0 N/A N/AT 0 0 0 0 0 0 0 N/A N/AV 0 0 0 0 0 0 0 N/A N/A

Normal,Flat

30

Expedite Level

•  For our game, the darker red zone is the Expedite Level, not the Red Base level.

•  Switch back to the Seqngs Screen.

0"

100"

200"

300"

400"

500"

600"

700"

800"

1" 5" 9" 13"

17"

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25"

29"

33"

37"

41"

45"

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53"

57"


31

Expedite Warnings on the P Buffer

•  You can have the game stop if a par,cular warning occurs. •  You can select “No Warnings”; “Low Warning” (TOR); or

“Expedite Warning” (Set as % of TOR). •  Should use “No Warnings” for now

–  Low Inventory Warning – the Top of Red – occurs very oren, and should not be used in this game.

Stop%on%Warnings Expedite%Level 50% TOR

Warnings%only%occur%on%the%P%Buffer

Expedite

32

Summary Screen Break Down

•  Average On Hand is average Finished Goods parts stored and ready to be shipped over the dura?on of the game – 42 days in this case (The number shown is always “today’s” date – before the Run buKon is pressed.

•  Average Available Stock is all the inventory in the system, WIP, and any unprocessed orders. This is the average over 36 days. •  See Orlickly for a more detailed explana,on.

•  The ADU and ASRLT can be High, Low, or OK. •  ADU High, for example, means more demand is higher than what was

entered. •  How would this impact your Seqngs?

Today 43

High,Inv,Warning

Low,Inv,Warning

Expedite,Warning

Stock,Out

Parts,Lost

Average,OnHand

Average,Available,Stock ADU ASRLT

P 0 10 0 0 0 342 632 OK OKQ 0 0 0 0 0 0 0 N/A N/AR 0 0 0 0 0 0 0 N/A N/AT 0 0 0 0 0 0 0 N/A N/AV 0 0 0 0 0 0 0 N/A N/A

Normal,Flat

33

Varia,on

•  OK, ,me to leave Oz and get closer to the real world. We are going to add varia,on by going to the Seqngs screen and unchecking the box that removes varia,on.

•  Go back to the Summary screen and hit “Clear” to reset the simula,on.

•  Then type in 42 in the Run Box box and hit “Run”.

34

Varia,on Note the variability in the Available Stock and the On-‐Hand. If we had set the Warning Level to “Expedite” vs. “No Warnings” the run would have stopped at Day 38.

35

Reducing Inventory •  If you have higher throughput, lead ,me will drop and

inventory may increase. –  LiKle’s Law

•  In our game, adding resources will increase throughput. •  Clear the game, and then enter 10 in the number of

resources. •  Run 14 days

–  What does the sheet tell you? •  Reduce the ASRLT to 3, and the LT Adjust to .5 •  Hit “Update Seqngs.” •  Return to Basic and Run 14 more days. •  Can you reduce the ASRLT again?

36

!100$

0$

100$

200$

300$

400$

500$

600$

700$

800$

1$ 5$ 9$ 13$

17$

21$

25$

29$

33$

37$

41$

45$

49$

53$

57$


Reducing Inventory

•  Note all of your color bands have dropped. •  What was the overall reduc,on for the Averages?

•  Hold the cursor over one of the lines that look like the average – how much did you save?

37

ASRLT = 4

3 2

Capacity Issues

•  Close the Free Version without saving and then reopen the game to restore the original version.

•  Go to the Basic screen and enter 3 resources into the appropriate box.

•  Hit Run and watch what happens to the two lines.

38

!200$!100$

0$100$200$300$400$500$600$700$800$

1$ 5$ 9$ 13$

17$

21$

25$

29$

33$

37$

41$

45$

49$

53$

57$


A BoKleneck •  One of the things we’ll have

to be aware of is the boEleneck.

•  When there is a lack of capacity, a downward trend will become obvious.

•  We should realize this when inventory hit a Expedite level, but it depends on how unstable the system is to start.

•  How many days did it take for us to run out of parts?

•  When would you have taken ac,on to avoid this situa,on?

•  The trend will vary with the difference in Resource Capacity to Demand.

•  We also could reduce our ADU so that our resources could keep up, but that would have reduced our profits.

39

Work Overall Internal Input Input Input Pred.Order Product Type WC Part6# Part61 Part62 Part63 CT

22 P WO A P RM1 4026 P WO A P RM1 4031 P WO A P RM1 4035 P WO A P RM1 40

Work Product Number Total Day Time DayOrder Priority to6Make Time In Left OutWO022IP I25% 233 11110 33 8104WO026IP I25% 209 12475WO031IP I25% 206 9170WO035IP I25% 203 5883

MaterialAvailableTRUETRUETRUETRUE

Work Orders

•  Go back to the Main Sheet and Reload the Simple Scenario, then run the model for 35 days with 3 resources.

•  We can switch to the Work Order sheet to get a sense of what is happening.

•  If you are willing to do the math, you’ll see that there are 4 orders consis,ng of 594 hours (74 days) wai,ng in front of WC A. –  That’s worse than the Department of Motor Vehicles.

40

Scenario •  Your are making Part P, and you can any number of A resources.

•  Your P product has priority, so you can get the resources if you need them. If not, you can give them to other departments.

•  Your boss has asked you to maximize the profit on P’s in 70 days without any lost parts! –  Day 71 will be on the Screen arer 70 days have passed.

•  You only get 10m to do this – and no star,ng over! •  See if you can beat my score -‐-‐ $616k profit with no losses.

41

Seasonality

0"

100"

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300"

400"

500"

600"

700"

800"

900"

1000"

1"

P"Buffer"DDMRP"Levels"/"One"Year"

42

Shown here is one of the Planned Adjustments you can make – one based on Seasonality.

We can also use Ramp Up, Ramp Down and Transi,on.

•  Close without Saving and then Reopen the Free version of the game.

•  Go the Main sheet and selected Seasonal, keeping the Demand Medium.

•  Go to the SeKng Screen and hit Update Seqngs.

•  Then go to Basic Sheet and hit Clear

Planned Adjustments

0"

50"

100"

150"

200"

250"

300"

350"

400"

450"

1" 5" 9" 13"

17"

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29"

33"

37"

41"

45"

49"

53"

57"

P"Buffer"DDMRP"Levels"In our simple case, we actually look an ASRLT forward (4 days, in our case) to look at Top of Green, and Order to that level if Available Stock fails into the Yellow area.

43

Puqng It All Together

•  Play with game with the Seasonal Planned Adjustment with Variability, and add and delete resources based upon the status of the P DDMRP buffer.

•  Run the game at increments of 7 days. We’ll either Stop at 350 or when ,me expiries.

•  Be a liKle paranoid, but not crazy paranoid – try not to lose any Sales.

44

Results

0"

100"

200"

300"

400"

500"

600"

700"

800"

900"

1000"

1" 5" 9" 13"

17"

21"

25"

29"

33"

37"

41"

45"

49"

53"

57"

61"

65"

69"

73"

77"

81"

85"

89"

93"

97"

101"

105"

109"

113"

117"

121"

125"

129"

133"

137"

141"

145"

149"

153"

157"

161"

165"

169"

173"

177"

181"

185"

189"

193"

197"

201"

205"

209"

213"

217"

221"

225"

229"

233"

237"

241"

245"

249"

253"

257"

261"

265"

269"

273"

277"

281"

285"

289"

293"

297"

301"

305"

309"

313"

317"

321"

325"

329"

333"

337"

341"

345"

349"

P"Buffer"DDMRP"Levels"/"One"Year"

$0.00$$

$5,000.00$$

$10,000.00$$

$15,000.00$$

$20,000.00$$

$25,000.00$$

1$ 9$ 17$

25$

33$

41$

49$

57$

65$

73$

81$

89$

97$

105$

113$

121$

129$

137$

145$

153$

161$

169$

177$

185$

193$

201$

209$

217$

225$

233$

241$

249$

257$

265$

273$

281$

289$

297$

305$

313$

321$

329$

337$

345$

Net$Profit$by$Day$-$Seaonal$Adjustment$

$0.00$$

$500.00$$

$1,000.00$$

$1,500.00$$

$2,000.00$$

$2,500.00$$

1$ 8$ 15$

22$

29$

36$

43$

50$

57$

64$

71$

78$

85$

92$

99$

106$

113$

120$

127$

134$

141$

148$

155$

162$

169$

176$

183$

190$

197$

204$

211$

218$

225$

232$

239$

246$

253$

260$

267$

274$

281$

288$

295$

302$

309$

316$

323$

330$

337$

344$

Opera&ng)Expense)-)Seasonality)

I was cau,ous at the beginning with resources, but cut more out at the end, based on buffer status.

Act$LT Act$ADU T$#(000) Dem Lost SoldP 3.1 64.1 4,048$#### 22491 0 22491Q <$######## 0 0 0R <$######## 0 0 0T <$######## 0 0 0V <$######## 0 0 0

4,048$#### 0

$620 Operating#Expense3,429$$$$ Net$Profit7.33% Return#on#Inventory

45

Summary

•  The purpose of this Free Version was to improve your knowledge of DDMRP.

•  Simula,ons allow you to make mistakes and learn while minimizing the poten,al nega,ve impact on future decisions.

•  If you have any ques,ons or feedback, please send your thoughts to kkohls@kohls-‐consul,ng.com

•  We may not be able to respond to all ques,ons about the simula,on if you email us.

•  Again, DDMRP ques,ons should be directed towards the Demand Driven Ins,tute.

46

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