As Debra Smith and Chad Smith state in their book, Demand Driven Performance: “Demand driven strategy is about dramatic lead-time compression and the alignment of efforts to respond to market requirements. This includes careful synchronization of planning, scheduling, and execution with actual consumption.” The idea is that organizations position themselves and their operations to be able to respond to customers and the environment in the most agile way possible, and with the least waste (of time, money, and other resources) possible.
This process involves a variety of steps, and often the best way to successfully create a demand driven operating model for your organization is working with a trained professional who understands the process deeply and can help guide you through it. This blog will discuss the big ideas behind the first step of the process, which is placing decoupling points, but if you’re interested in learning more or beginning the process, members of our team at Repathis, are certified as Demand Driven Leader Professionals, meaning we have resources certified to analyze and evaluate organizations using the demand driven operating model and demand driven S&OP principles. Contact us here if you’d like to learn more about designing a demand driven operating model and applying demand driven principles.
Let’s jump into this first topic: placing decoupling points.
What Are Decoupling Points?
Before placing decoupling points, one first must understand what decoupling points are.
Decoupling point: Placing inventory stock between two processes to create independence between processes. This way, demand can build up in one process, and can be fulfilled immediately in the next process without the lead time of the previous process affecting timing
Placing decoupling points shortens customer lead times and affects inventory investment. It’s important to note that decoupling is counter-intuitive to traditional MRP systems, as traditional MRP’s core purpose is to make everything directly dependent. Therefore, when becoming demand driven, it’s important to use modern software solutions that are built with demand driven principles in mind, like Revive.
Where Should I Place Decoupling Points?
Once you know what decoupling points are, the question becomes: where should we put them? There are multiple factors to consider when placing decoupling points, and it’s important to note that they should not be placed anywhere and everywhere. Using these factors, organizations can narrow down the places in their system that would benefit most from decoupling points.
The six decoupling point position factors, according to the book Demand Driven Performance by Debra Smith and Chad Smith:
Customer Tolerance Time
The amount of time potential customers are willing to wait for the delivery of a good or a service.
Market Potential Lead Time
The lead time that will allow an increase of price or the capture of additional business either through existing or new customer channels.
The potential for swings and spikes in demand that could overwhelm resources (capacity, stock, cash, etc.).
The potential for and severity of disruptions in sources of supply and/or specific suppliers. This can also be referred to as supply continuity variability.
Inventory Leverage & Flexibility
The places in the integrated BOM structure or the distribution network that leave a company with the most available options as well as the best lead-time compression to meet the business needs.
Critical Operation Protection
The minimization of disruption passed to control points, pacesetters or drums. It is the consideration and protection of resources that may be capacity constrained or that easily get knocked out of steady state when variability is passed to them.
With these factors in mind, organizations can begin to identify areas where decoupling points would benefit them most and reduce the lead time to customers, allowing for a market advantage, as well as reduced forecast error as a result of shorter planning lead times.
Interested in learning more about decoupling points, designing a demand driven operating model for your organization, or implementing software that compliments demand driven operations, like our manufacturing software, Revive? Contact our team at Repathis here.