The Death of DRP- an eyewitness’ account
I simply loved reading Lora Cecere’s blog titled The Death of DRP. I loved it, because it brought me a feeling of déjà vu. You see, for the past few years, I was part accomplice and part eyewitness to the slow murder, while working on a supply chain transformation program for a leading CPG.
There are a number of changes that I have seen companies add to the traditional DRP, in effect taking it from push based to being highly demand driven. These are just a few examples that build upon Lora’s points.
Like Lora points out, traditional DRP assumes that order is the true demand, and applies rules to consume forecast based on orders. However, demand sensing technologies are replacing the rule based forecast consumption logic with statistically re-calculated forecast considering downstream data. Of course, demand sensing is only effective in the near term and hence push logic needs to take over beyond that. In this instance demand sensing software is being integrated with DRP by taking away forecast allocation and consumption functionality out of DRP at least in the near term.
For large customers, shipment forecast out of the DCs are being replaced with requirements based on netting POS forecast with customer DC inventory using supply chain parameters and lead times. Once again, it is only effective when customer data is available and is useful only till a certain point in time beyond which DRP takes over. This is another instance where DRP’s forecasting functionality is being replaced by netted requirements from the customer.
Safety stock which was being calculated based on simple rules, without considering the network interaction, is now being optimized using multi echelon inventory optimization (IO) softwares. These tools look at a supply chain network holistically and arrive at a network optimized inventory target. While traditionally safety stocks are reviewed once a quarter or when there was a service issue, the IO tools recalculate safety stock every week. Here, DRP’s days of coverage rules and ad hoc safety stock targets are replaced by statistically calculated targets derived through a sophisticated process.
When you look at it closely, there are many more such instances where patch tools are being hooked onto DRP to make it demand driven. There are waves of transformation that are slowly taking shape in the industry that will slowly and surely bury DRP into oblivion if left on its own. I think it is time to reinvent DRP, to develop new comprehensive solution that does away with complex integration needs for sewing pull based patches onto the DRP workhorse. I think that can be facilitated through industry consolidation more than through traditional players developing new solutions. What do you think?