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What KPIs can assess demand-driven MRP when using SAP ERP?

Setting up demand-driven metrics and using analytics to monitor them can provide benefits such as helping to reduce working capital commitments and improving service levels
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Setting up demand-driven metrics and using analytics to monitor them can provide benefits such as helping to reduce working capital commitments and improving service levels

Assessing the impact of implementing demand-driven materials resource planning requires defining important key performance indicators, then using analytics to monitor them.

SAP now offers demand-driven MRP — also known as DDMRP or a replenishment solution — for SAP S/4HANA Cloud and on-premises editions. SAP will be offering the same capabilities in SAP ERP Central Component (ECC) in early 2018. For now, only third-party add-ons are available to handle the analytics function for S/4HANA Cloud, On-premises, ECC, Advance Planning and Optimization and Integrated Business Planning.

Before delving into the three key performance indicators (KPIs) a company can monitor to evaluate the impact of its demand-driven MRP initiatives, it’s important to first gain a quick understanding of how demand-driven materials planning actually works.

Demand-driven materials planning requires setting up inventory buffers at strategic points in the supply chain — known as inventory positioning — so as to independently plan, schedule and execute materials supply based on actual demand. Not only is the inventory position critical, but so is how much inventory is placed, known as sizing, so as to bring harmony between materials’ demand and supply.

Effective inventory positioning and sizing immediately lead to business benefits such as reduction in working capital, storage costs and expedited material costs, all while increasing production efficiencies through effective machine capacity and resource utilization. Analytics can play an important role in a closed-loop approach to materials planning; supply order management; the regular, timely feedback on information and material flows; and in identifying areas for improvement.

Here are three demand-driven KPIs or metrics to monitor with analytics.

Signal integrity

Signal integrity in the supply chain monitors if there’s a complete, correct and timely communication of requisite data and information to ensure replenishment. This replenishment should not only be timely but should also meet the recommended quantity using the demand-driven approach.

A delayed placement of a replenishment order or a quantity mismatch can contribute to supply chain disruptions. Analytics can help look into the root causes of these disruptions, so as to improve the information flow and maintain signal integrity.

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Article Credit: Search SAP. Tech Target

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