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The demand-driven adaptive enterprise model and flow-based operating model

By Chad Smith and Carol Ptak, co-founders of the Demand Driven Institute

The demand driven adaptive enterprise (DDAE) model is a complete management model designed to enable enterprises to sense market changes and adapt to complex and volatile environments.

This model utilizes a constant system of innovation and feedback between three primary components: a demand driven operating model (DDOM), demand driven sales & operations planning (DDS&OP), and adaptive sales and operations planning (adaptive S&OP).

A demand driven adaptive enterprise focuses on the protection and promotion of the flow of relevant information and materials across the operational, tactical, and relevant ranges to drive sustained return on equity performance. 

ddi illustration 1

A demand driven operating model is a supply order generation, operational scheduling, and execution model using actual demand in combination with strategic decoupling and control points.

Stock, time, and capacity buffers creates a predictable and agile system that promotes and protects the optimal flow.

The DDOM’s key parameters are set through the DDS&OP process to meet the stated business and market objectives while minimizing working capital and expedite-related expenses.

DDS&OP is a bidirectional tactical reconciliation hub in a DDAE model between the strategic (annual, quarterly, and monthly) and operational (hourly, daily, and weekly) decision-making relevant ranges.

DDS&OP projects the DDOM performance based on the strategic information and requirement inputs and various settings.

Additionally, DDS&OP uses variance analysis based on past DDOM performance against critical systems matrix (reliability, stability, and velocity) generating recommended strategic changes to the business plan.

Flow-based operating model

The DDAE model incorporates a flow-based operating approach – the DDOM. The heart of the DDOM is the innovative method of supply order generation and execution known as demand driven material requirements planning (DDMRP).

Variance analysis return loop (supply order generation and stock management)

ddi illustration 2

DDMRP utilizes actual demand as part of its unique net flow equation to generate supply order signals.

Manufacturing orders (MOs) with request dates are sent to demand driven scheduling, while purchase orders (POs) and stock transfer orders (STOs) are sent directly to demand driven execution. Real-time status signals are then returned from each.

From demand driven scheduling comes manufacturing promise dates, and from demand driven execution comes on-hand and synchronization alerts.

Detailed resource scheduling is accomplished through demand driven scheduling. Scheduling sequences manufacturing orders in execution, and execution returns order progression against the schedule.

Demand driven execution is where stock, time, and capacity buffers are actively managed in relation to all open orders/scheduled activity.

One unique feature about the demand driven operating model is that there is no master production schedule in use. The conventional MPS is replaced by the master settings input.

Now it is possible for a company to build what can and will be sold because the operational capacity will match the strategic requirement now and in the future.

The settings and configurations for the entire DDOM (including DDMRP) are managed through DDS&OP. Feedback loops are connected to DDS&OP providing valuable variance analysis.

The demand driven operating model uses only actual demand rather than a forecast for supply order generation. There are no planned orders in the DDOM, and there is no master production schedule.

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Author profiles

Carol Ptak, CFPIM, CIRM, DDPP, DDLP, is a co-founder and partner with the Demand Driven Institute. Ms Ptak spent decades in supply chain management first as a practitioner and then as a consultant and software executive. She is also a past president of APICS, and has authored several books on demand driven methods, MRP, enterprise resource planning, lean, and the theory of constraints (TOC).

Chad Smith, DDPP, DDLP, is a co-founder of the Demand Driven Institute. Mr Smith spent 20 years in supply chain and management consulting and software co-founding industry innovator Constraints Management Group and working personally with Dr Eli Goldratt. He has co-authored and contributed to several books on demand driven methods, MRP and the Theory of Constraints (TOC).