Original Research Article

International Journal of Engineering

Business Management
The scope of demand-driven material Volume 16: 1–21
© The Author(s) 2024
requirements planning in operative Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/18479790241293890
purchasing of a multi-national company: A journals.sagepub.com/home/enb

case study

Ahm Shamsuzzoha1,2  and Tuomas Jaakkola3

Abstract
The objective of this study is to address existing study gaps by defining what materials are demand-driven material re-
quirements planning (DDMRP) suitable and building a tool that helps to identify such materials. The research problems are
approached with three different questions about suitability, features of the identification tool, and financial impact. The
research methodology consists of a mixed method case study approach, where semi-structured interviews were con-
ducted with supply chain professionals from the case company, and quantitative data related to the case company’s
operations was analyzed. The data consisted of the relevant data of over 10,000 purchased materials. The findings of this
study suggest that there are no certain characteristics that materials suitable for DDMRP have, but the potential must be
defined individually in the case of every purchased material. The tool initially developed in this study helps to identify
materials that meet the requirement of providing potential positive financial impact if brought into DDMRP scope by
analyzing historical demand data, lead times, and inventory carrying costs.

Keywords
Material requirements planning (MRP), supply chain management, supply chains, inventory management, order
management

Date received: 9 February 2024; accepted: 8 October 2024

Introduction business environment. Material requirements planning

(MRP) is a widely used planning and control system for
In today’s fast-paced business environment, effective ma- managing production and inventory (Butturi et al.,
terial planning is crucial for companies with manufacturing 2021),1 which involves forecasting demand (Lee &
activities to improve their operations, or even remain
competitive. Demand-driven MRP (DDMRP) is an ap-
proach to material planning that emphasizes responsiveness 1
Digital Economy Research Platform, School of Technology and
to customer demand, allegedly resulting in the improvement Innovations, University of Vaasa, Vaasa, Finland
of material flow. The structure of the theoretical framework 2
Faculty of Graduate Studies (FGS), Daffodil International University,
is formed on the themes of DDMRP, suitability identifi- Dhaka, Bangladesh
3
cation tools, and profitability. School of Technology and Innovations, University of Vaasa, Vaasa, Finland

Corresponding author:
Study background and research gaps Ahm Shamsuzzoha, Digital Economy Research Platform, School of
Technology and Innovations, University of Vaasa, PO Box 700, Vaasa FI-
Effective planning of operations and materials is crucial for 65101, Finland.
companies to remain competitive in today’s fast-paced Email: ahsh@uwasa.fi

Creative Commons CC BY: This article is distributed under the terms of the Creative Commons Attribution 4.0 License
(https://creativecommons.org/licenses/by/4.0/) which permits any use, reproduction and distribution of the work without
further permission provided the original work is attributed as specified on the SAGE and Open Access pages (https://us.sagepub.com/
en-us/nam/open-access-at-sage).
2 International Journal of Engineering Business Management

Adam, 1986),2 planning production (Thevevin et al., Study aims and research questions
2020),3 and managing inventory levels (Thürer et al.,
2022).4 However, despite its popularity, traditional MRP The aim of this research is to determine which proportion of
systems have limitations. The limitations can be de- purchased materials could be beneficial to purchase with
meaning for profitability in the business environment of planning done in a demand-driven way in a complex
today’s world, which has been depicted as volatile, un- manufacturing environment, and what the financial impact
certain, complex, and ambiguous (VUCA-world). To of implementing DDMRP would be. This research study
address the shortcomings of conventional MRP, profes- presents an extensive overview of the topic DDMRP ap-
sionals and academic literature have invented many new plicable to operative purchasing. It outlines the larger
approaches to material planning across decades.5–8 One context of the research and provides readers with both
of them, demand driven MRP (DDMRP), is a relatively orientation and a solid basis. The significance of the
new approach that aims to improve material planning by research area is established, and the study gaps in the current
emphasizing responsiveness to customer demand and understanding on DDMRP are emphasized to underscore
reducing the risk of overstocking or stockouts.6 The core the necessity for more investigation.
intention of the planning method is to “position, protect Moreover, this study provides insights for supply
and pull” (Ptak & Smith, 2019),9 which has been iden- chain professionals on how to identify materials suitable
tified as a crucial element in different segments of for DDMRP and contribute to the field of supply chain
business. management by providing a practical tool for a case
Even while MRP is a useful tool for managing in- company to implement DDMRP and improve their ma-
ventories and production, any negative effects on oper- terial requirements planning. Consequently, the research
ations must be minimized by being aware of the risks and problem is the lack of knowledge about what purchased
vulnerabilities it may present.9 To put it in a broader materials could be procured with the DDMRP method. As
perspective, Li and Disney (2017)10 claim that using mentioned, the research problem consists of the lack of
MRP as a planning tool causes supply chain anxiety, knowledge on general characteristics of materials suit-
which in turn causes inventories and decreased produc- able for DDMRP and a lack of tools available to help
tivity as well as operational confusion. The increasing companies identify such materials. Nevertheless, the fi-
inaccuracy of material and information as one move nancial impact of DDMRP as a planning method must not
towards the ends of supply chains exacerbates the anx- be neglected. Based on such study aims, this study
iety. The bullwhip effect, which leads to unfeasibly identifies three research questions (RQs), which are stated
changing production and procurement plans, capacity as follows:
loss, and rising inventories, is what is known as the
previously mentioned inaccuracy.10 To put it plainly, the RQ1: What conditions must be met for a purchased item
unpredictability increases the requirement for active to be purchased with the DDMRP method?
operative purchasing and purchase order rescheduling, RQ2: What features should a tool designed to identify
which may not be long-term viable. It has been suggested DDMRP-suitable materials include?
that the bullwhip effect increases and transfers unpre- RQ3: What are the consequences of deploying the
dictability across the supply chain.1,51 DDMRP method with respect to a financial
Many hybrids push-pull systems have been developed perspective?
over the years because MRP, along with other more
sophisticated material planning techniques, such as MRP Research questions 1 and 2 are exploratory by nature,
II, Lean, Theory of Constraints, etc., have limitations and and RQ3 can be defined as an explanatory question. The
room for improvement.7 Conversely, it has been sug- research questions are addressed in a separate way in this
gested that combining push and pull systems is chal- study. The first research question is addressed to find the
lenging since it may result in conflicts.11 This study appropriate breakdown of the purchased materials from the
focuses to identifying materials from all purchased goods point of view of DDMRP-suitability with the help of
that are now active in the case production facility (CPF), DDMRP buffer levels and protected inventories. The sec-
which might be useful if incorporated in the DDMRP ond research question, on the other hand, is centered around
scope. The emphasis is on the replenishing parts because the identification of features that are required from an
the primary goal of this study is to define the range of identification tool that aids in dividing stock keeping units
materials that should be purchased using a demand- (SKUs) of the case production facility (CPF) into DDMRP-
driven planning method. Additionally, the research suitable and unsuitable items. Thus, the second question is
findings regarding each material’s suitability should only subject to contributing to the development of the objective
be used as a guide for decision-making; in actual situa- of developing the tool to identify DDMRP-suitable mate-
tions, their suitability may vary. rials. The third research question is addressed by calculating
Shamsuzzoha and Jaakkola 3

an estimate of the possible monetary effects of im- companies need to identify the materials that can be pur-
plementing DDMRP on a larger scale in the use of the CPF. chased using DDMRP as a planning method. The case
The structure of the study is as follows: Section 2 briefly company desires to identify what scope of purchased ma-
describes the studied case company while Section 3 pro- terials could be reasonable to include in the procurement
vides a literature review of existing literature on the topics of system dictated by the demand-driven planning method.
conventional MRP, DDMRP, the general characteristics of The topic areas are reviewed from the perspective of the
materials suitable for this approach, and tools for identifying operative purchasing department located in the case
DDMRP-suitable materials. Section 4 describes the company.
research methodology, including the research design,
sampling and data collection, data analysis, and quality of
the research. Section 5 presents the case study results, in- Literature review
cluding the identification of characteristics of materials for
The intention of materials requirements planning is to de-
DDMRP, the development of the tool for identifying such
termine the needs of materials beforehand based on the
materials, and the financial impacts of different im-
overall demands of a production facility.12 Addressing the
plementation scenarios. Finally, Section 6 provides a
need for a way to determine the requirement schedule ahead
summary of the study, its contributions, practical implica-
of time has generated a demand for a planning tool. MRP
tions, and recommendations for future research.
was first conceived in the late 1950s and was widely in-
troduced in 1975 when it transformed material planning
Description of the case company (Miclo et al., 2019)7–9 and the overall manufacturing world
profoundly.17,
This research is conducted in cooperation with a case
MRP is often integrated into an enterprise resource
company that has piloted a procurement system that im-
planning (ERP)18 system when it comes to the practical
plements DDMRP as the planning methodology. The case
world (Butturi et al., 2021; Thevenin et al., 2020),1,19 be-
company is a multinational company with production ac-
cause of the numerous limitations of a plain MRP system.7
tivity in an important business sector.12 This study con-
MRP as a planning method has been referred to as one of
centrates on the portion of the case company’s operations
the industry’s most extensively utilized systems for pro-
that are conducted in one of its production facilities in
duction control and planning by e.g., Butturi et al. (2021)1
Finland. Furthermore, the scope of this study is the case
and Ptak and Smith (2019).9 This might be due to simple
company’s operative purchasing department, the objective
mathematics in the core of the model, as well as easy in-
of which is to ensure with the help of logistics, that all
tegration. MRP uses simple mathematical formulas in the
material needed by production is available at the needed
calculation of purchase requisitions based on the bills-of-
time and in the needed quantity. As a part of continuous
materials (BOM).19 The date on which the purchase req-
improvement in the case company, development of material
uisition is released is equal to the date of demand minus the
planning has led to initiating the project of developing some
effective lead time (LT).20 The demand for a specific day is
practices, including procurement. Some changes have
calculated in MRP from the requirements of components
originated from the volatility and uncertainty of the business
that are on a higher level of the BOM.21 Because the levels
sector, and major amendments in the production facilities
of the BOM are interlinked, the MRP material requirements
and information systems utilized. According to the case
are referred to as dependent.
company, the uncertainty has led to increasing excess in-
ventory levels in some portions of the purchased material
portfolio, and to material shortages in other sectors. DDMRP and its implementation in supply
While the piloting of the DDMRP method has provided
the case company with some results, there is a gap in
chain management
knowledge about what the restrictive characteristics of DDMRP is a relatively new method, introduced by Ptak and
purchased materials are that would exclude them from the Smith (2009)9 in the third edition of the book Orlicky’s
DDMRP scope.5,12,13 Furthermore, the financial impact of Material Requirements Planning (2011) that has been
implementing DDMRP is unknown. Consequently, if the proposed as a hybrid push-pull solution (Butturi et al.,
case company had all the needed information about the 2021)1 to overcome MRP nervousness and uncertainties
implementation of DDMRP, the presumed benefits of caused by the bullwhip effect. DDMRP has been argued to
DDMRP could be exploited in a way that the whole process solve the problems caused by volatile markets, fluctuating
of procurement would face improvements. While there have demand, and the great variety of products.9,14,22,23 At the
been some promising results from the implementation of core of DDMRP is the intent to control material flow ef-
DDMRP in the industrial sector, it might be that not all fectively (Ptak and Smith, 2019),9 and the main difference
materials are suitable for DDMRP.14–16 Consequently, from MRP is the focus of DDMRP toward the pull method,
4 International Journal of Engineering Business Management

which shifts the control on qualified demand signals.24,28,29 area, the presence of tools in another facet signifies a step
According to Miclo et al. (2019),7 basic MRP logic forms towards a more holistic understanding and application of the
the foundation of DDMRP, which has been built with the DDMRP framework.32–34
intention of combining the best practices from former Another research gap that was identified during the
planning models. While DDMRP has been widely studied literature review is the clear generalized boundaries between
in the field of SCM, the lack of generalizable literature which the characteristics of purchased materials could be
related to the implementation of the system in a real-world put when implementing the demand-driven replenishment
context is clear, apart from studies conducted by e.g., method.1,28,39 This might be because the preparatory steps
Kortabarria et al. (2018),25 and Ihme and Stratton (2015).26 of implementing DDMRP were found to not be general-
This deficiency27 has been also acknowledged by Orue et al. izable to different companies, but that every integration of
(2020),6 and by Azzamouri et al. (2021).14 The scarcity of the method must be done individually with the specific
concrete DDMRP applications reported in academic liter- nature of the case company in mind. Table 1 visualizes the
ature limits the validation of its implementation and inte- summary of identified research gaps through the survey of
gration strategies.1,31 This paucity underscores the need for various literature.
more empirical studies to confirm the purported benefits of
DDMRP and furnish concrete guidelines for its im-
plementation and integration. Furthermore, no established Research methodology
calculation method or tool using historical data has been
developed thus far (Duhem et al. 2023),30 indicating a
Research design
significant gap in DDMRP methodology that needs ad- The empirical methodology of this study was carried out
dressing to facilitate more widespread and effective using a single-case study and a mixed method, which
implementation. created the research strategy. According to Chumney
Supply chain management and methodical operations (2015),43 mixed methods as a research methodology is
inside an organization are prerequisites for creating a long- defined using both qualitative and quantitative methods in
lasting competitive advantage over rival businesses.32,52 the research process. The use of this methodology was
Nevertheless, achieving this objective has grown more justified by the nature of the study’s research questions as
challenging in the current economic climate since con- presented in Figure 1. From Figure 1, it is seen that the
ventional planning and control techniques were not made to research question 1 can be specified to be exploratory by
handle such challenges, which has led to the supply chain’s nature, and the research method chosen to address the
extreme complexity.46 In response to such circumstances, question was picked to be mixed method, which is incor-
planners are moving away from the conventional push- porated with semi-structured interviews and quantitative
based, deterministic MRP methodology and towards the data analysis.
more methodical pull-based demand-driven material re- Likewise, RQ2 is exploratory by nature, proposing the
quirement planning (DDMRP) approach, which is un- use of qualitative methods. The objective of building a tool
matched in its ability to maintain flow stability in the to identify the DDMRP-suitable materials dictates the di-
manufacturing process and operates in a more complex and rection of the methodology to be qualitative since an in-
unstable business environment.46,47 The primary goal of depth review of the subjective need for the features of the
DDMRP’s establishment is to keep the flow of work tool was seen as beneficial. RQ3 is yet again explanatory by
properly while keeping an eye on inventory levels and nature, which led to conducting the research with mainly
related expenses.32 The practitioners’ inability to execute quantitative research methods.
the concept correctly and attain the intended outcome is a According to Chumney (2015)43 and Mitchell (2018),44
result of their inadequate comprehension of the DDMRP the research method of a study is usually determined more
approach.47,48 by the nature of individual research questions, and the
expected outcomes. Additionally, the choice of research
methods is case-sensitive and thus requires analysis of the
Identified research gaps
nature of the research questions. As for the RQ2, the ob-
A conspicuous gap in current research revolves around the jective of finding needed features for the tool requested by
absence of tools to adeptly identify materials that would be the case company shifted the methodology toward the usage
beneficial to be replenished using the DDMRP model. of qualitative methods, since the needed features were
However, it is worth noting that certain tools pertaining to somewhat subjective opinions, rather than numerical facts
the parametrization of DDMRP have been created.2,21,35 that could have been extracted from quantitative data.
This suggests a relatively more well-addressed dimension of Alternatively, research questions 1 and 3 intended to find
the model’s implementation. Consequently, while there out specific characteristics of materials and financial effects,
remains a pronounced need for comprehensive tools in one which both relied on numerical data. For the RQ1 however,
Shamsuzzoha and Jaakkola 5

Table 1. Identified research gaps through the survey of existing literature.

Serial
no Identified research gap Contributed authors

1 Conventional inventory planning systems are not designed to operate in Johansen and Euchner32; Lee and Adam2; Jiang and
volatile, uncertain, complex, and ambiguous business worlds Rim33; Miclo et al.7; Panigrahi et al.34
2 Leading companies are facing increasing issues in material requirement Lee and Adam2; Cooper and Zmud21; Favaretto
planning and management et al.19; Werth et al.35
3 Finding the location of inventory decoupling points is a critical exercise Louly et al.20; Van Kampen et al.36; Olhager37;
Dessevre et al.38; Dessevre et al.15
4 The advantages of DDMRP can be shaded by adopting faulty strategic Azzamouri et al.39; Butturi et al.1; Uzun et al.40
position in inventory management
5 There is absence of appropriate tools to adeptly identify materials for the Butturi et al.1; Azzamouri et al.39; Benavente et al.28;
DDMRP model Thurer et al.41
6 A comprehensive DDMRP framework is missing for holistic Bayard et al.42; Azzamouri et al.39
understanding and application of the materials planning
7 Lack of clear boundaries between the purchased materials and the Chunawalla12; Ghrayeb et al.11; Jiang and Rim33;
demand-driven replenishment method Kortabarria et al.25

attributes that were used in the simulation process are listed

with relevant definition in Table 2.
To address RQ2, qualitative data was collected with
semi-structured interviews. The interviews were conducted
with respondents from the purchasing department of the
CPF. The invitation was sent to a portion of the members of
the purchasing department all of which had some prior
knowledge about DDMRP. Following the sampling, an
individual timeslot of about 15 min was booked with each
Figure 1. Methodological design of the research based on the respondent. The interviews were conducted in a hybrid
research questions.
form, using both live interviews and remote video calls
using Microsoft Teams as software. The interviews were
conducted fully in Finnish to ensure perfect understanding
the case-specific attributes for suitable materials were
since all respondents had Finnish as their native language.
mapped out with aid of qualitative methods, shifting the
All interviews were recorded.
methodology toward mixed methods.
According to George (2022),45 the sampling of semi-
structured interviews can be done with convenience sam-
pling, which refers to picking a specific set of participants
Data collection and sampling
that are easily accessed. The sample size for the interviews
Data was collected first as a part of the semi-structured was formed with the convenience sampling method, which
interview, and the answers were compared to data collected resulted in a total of 13 respondents from the sample uni-
from the ERP of the CPF. After the initial material selection, verse of members of the operative purchasing (OP) of the
the subsequent step involved the extraction of consumption CPF who have some knowledge about DDMRP. As 13 is
data from the ERP system of the CPF. This dataset formed the total quantity of personnel in the operative purchasing
the foundation for the analysis and comprises records of department of the CPF that have some degree of experience
material consumption over the review period from in the topic of DDMRP, it was justified as a sample size.
1.1.2023 to 30.6.2023. After the consumption data was Table 3 shows the descriptions of the interview respondents,
fetched, the data collection process extended to the ex- including the designation, experience, and DDMRP
traction of monthly inventory levels from the ERP system. knowledge of each interviewee.
Specifically focusing on the end of each month in the review Furthermore, the semi-structured interviews had a
period, this dataset provided data on inventory levels at package of seven predetermined questions that formed the
predefined intervals. This approach was motivated by the basis of the interview, leaving room for follow-up questions
constraints within the ERP system. All mandatory master and discussion. The questions of the interviews are listed
data attributes of the sample materials are calculated using below in Table 4. First, the prior knowledge of each re-
the AnyLogic simulation tool. The required master data spondent about the topic was mapped out with a question
6 International Journal of Engineering Business Management

Table 2. Required master data attributes that were used in the calculations.

Name of the study attribute Definition

Material number A number that specifies a purchase item (PI), crucial for part identification
Effective lead time Purchasing LT + transportation time
Fixed lot size Proportions that must be when ordering
Minimum order quantity (MOQ) Minimum quantity of a material in a purchase order (PO)
Delivery reliability of supplier What percentage of deliveries during the review period were delivered on time
Annual quality notifications The number of rejective quality notifications issued for a material during the past year
Consumption rate How much a material was used for production during the time frame?
Average inventory level How much stock were there during the time frame?

Table 3. Semi-structured interview respondents.

Respondent Designation Level of expertise with DDMRP

Respondent 1 Purchaser 1 Low

Respondent 2 Manager 1 Advanced
Respondent 3 Manager 2 Advanced
Respondent 4 Manager 3 Advanced
Respondent 5 Development engineer Medium
Respondent 6 Material availability manager Low
Respondent 7 Purchaser 2 Low
Respondent 8 Purchaser 3 Medium
Respondent 9 Purchaser 4 Medium
Respondent 10 Supply chain expert Low
Respondent 11 Purchaser 5 Low
Respondent 12 Purchaser 6 Medium
Respondent 13 Purchaser 7 Medium

Table 4. Semi-structured interview questions.

Index Questions Questions in Finnish

1 What is your level of knowledge and previous experience Mikä on tietotasosi ja aiempi kokemuksesi DDMRP:stä?
with DDMRP?
2 Could you describe the features you would expect in a Kuvailisitko yleisiä ominaisuuksia, joita odottaisit DDMRP:hen
tool for identifying DDMRP-suitable materials? soveltuvien materiaalien tunnistamiseen tarkoitetulta työkalulta?
3 For whom should the tool on DDMRP suitability of Kenen käyttöön työkalu materiaalien sopivuudesta pitäisi olla
materials be designed? suunniteltu?
4 How important would it be to have the tool integrated Kuinka tärkeää olisi saada työkalu integroitua osaksi jotain jo käytössä
into an existing system? olevaa järjestelmää?
5 What type of user interface would you find most helpful Minkälainen käyttöliittymä olisi mielestäsi hyödyllisin tässä työkalussa?
in this tool?
6 How would you see yourself using such a tool? Miten näkisit itse hyödyntäväsi tällaista työkalua?
7 Is there anything else you would like to share on this Onko sinulla jotain muuta aiheeseen liittyvää mitä haluaisit kertoa tässä
topic? yhteydessä?

about previous experience with DDMRP. Secondly, a total say to contribute for the cause. Depending on the respon-
of five questions was asked regarding the design, target dents’ answers and viewpoints, some follow-up questions
audience, and functionalities of the identification tool. To were asked. In addition, the topic of DDMRP or an inter-
sum up and end the interview, a vast open-ended question view question was explained in more detail if a respondent
was asked to figure if the respondent had anything more to was not able to understand an individual question. However,
Shamsuzzoha and Jaakkola 7

if a respondent did not answer a question during the in- in the study are presented as follows and in Tables 6 and 7
terview, no answer was forced out but rather considered as respectively.
an answer regardless. Lead time factors (LTFs) are considered as the factors
When collecting data with interviews, research ethics that can impact over lead time including shortage of raw
must be considered. While the interview questions were not materials, transportation problems, labor shortages, natural
sensitive by nature, the anonymity of the respondents was calamities, and human mistakes. LTF is calculated by
crucial regardless. To address the ethical point of view, a combining the number of days required to obtain supplies,
consent of recording was gotten from each respondent produce things, and deliver completed goods. While vari-
before starting the recording. Also, the recordings were not ability factors (VFs) are the factors that quantify the degree
stored longer than is needed for the research process, and the to which data points deviate from both the average and from
storing was done properly. RQ3 is also explanatory by one another. If used to gauge the fluctuation between in-
nature, and a quantitative method was required to form a vestment refunds, it is a helpful metric in financial services.
tangible answer. The sampling for resolving the problem When deciding on what ranges the lead time (LT) and
imposed by RQ3 was the same as the outcome of RQ1. This variability categories determined in Table 5 should be di-
was done since the sampling was already efficiently done by vided, the LTs of the purchased parts are divided into the
identifying PIs that were performing inventorially better three categories by multiplying ADU with decoupled lead
when the planning was done with the DDMRP method. time (DLT). The distribution is further explained in Table 6,
Consequently, the data collected was the same sample of PIs where long LT is formed over parts that have 20%–40% of
that are the outcome of RQ1. ADU × DLT, medium LT with 41%–60% of ADU × DLT,
and short LT with 61%–100% of ADU × DLT. These
calculations to distribute the parts and form the LTF (see
Data analysis Table 6) are recommended by Ptak and Smith (2019).9
The data analysis was done with the Excel sheet that cal- To address the variability factor (VF) that divides var-
culated the suitability of each sample material with the help iability into categories (see Table 7), some other factors
of formulas implied in Table 5. For each formula, the text must be examined. According to Ptak and Smith (2019),9
between the parenthesis refers to the data that was used to the variability of supply must be calculated based on
calculate the calculation implied in the second column. For sourcing, variance of delivery dates from actual dates of
example, in the calculation of standard deviation, the word delivery, and possible disruptions. The calculation of var-
consumption refers to all the numbers that were listed under iability can be expressed mathematically with standard
each PI in the consumption sheet. The rounding of the deviation for each material. The distribution of the VF and
values of the buffer zones was done due to the integer nature recommended segments can be referred to in Table 7. High
of variables regarding the matter.32 Finally, the Lead time variability is 61%–100% of the safety base, medium var-
factor (LTF), and Variability factor (VF) were calculated iability is 41%–60% of the safety base, and low variability is
with the parametrization used by the CPF. The formulas of 0%–40% of the safety base.
LTF and VF are not in Table 5 to avoid long chains of IF Both LTF and VF can have a value that is between 0 and
formulas. The definitions and ranges of LTF and VF implied 1. For the LTF, the smaller the value, the bigger the safety.

Table 5. Excel calculations.

Calculation Excel formula

Standard deviation =STDEV.P (consumption)

ADU =AVERAGE (consumption)
CoV =Standard deviation/ADU
Lead time factor (LTF)
Variability factor (VF)
Green zone =ROUND (MAX (LT*ADU*LTF; MOQ; DOC*ADU);0)
Yellow zone =ROUND ((LT*ADU) + (CDAF yellow*ADU);0)
Red base =ROUND (LT*ADU*LTF;0)
Red safety =ROUND (red base*VF;0)
Total red zone = (red base + red safety) + (ADU*CDAF red)
On-hand target =Red zone + 0.5*green zone
Average inventory from 1.1.2023 -30.6.2023 =AVERAGE (inventory levels)
DDMRP potentiality from 1.1.2023 -30.6.2023 =IF (on-hand target <average inventory; “YES”; “NO”)
8 International Journal of Engineering Business Management

Table 6. Recommended LTF ranges.9 Table 7. Variability factor ranges.9

LT category Definition Variability category Definition

Long LT 20%–40% ADU × DLT High variability 61%–100%+ of safety base

Medium LT 41%–60% ADU × DLT Medium variability 41%–60% of safety base
Short LT 61%–100% ADU × DLT Low variability 0%–40% of safety base

Alternatively, the higher the value of VF, the higher the to Ptak and Smith (2019), buffer profiles are sets of pa-
variability. All the buffers and zone levels can be calculated rameters that can determine the behavioral characteristics of
with the factors visible in Table 7. From the factors visible in a buffer. In addition, at the top of each buffer zone is a
Table 7, at least when considering the situation of the CPF, certain level that is referred to as the top of green (TOG), the
the least change in the values is with LTs, LTFs, and MOQs. top of yellow (TOY), and the top of red (TOR). The top
Consequently, the variables behind the dynamism of the levels of each buffer are subject to required actions that are
safety stock are ADU and VF. This is another part of the taken to ensure that the inventory level stays in the optimal
DDMRP environment which is affected by the level of range.
material flow. The red buffer acts as the safety buffer of the entity and is
The cost effects addressed mainly the savings of in- designed to protect the inventory against supply variability.
ventory value. The analysis of the financial effects on the The yellow buffer on the other hand covers demand during
inventory values was done by inserting two additional rows the LT of the purchased item. Finally, the green buffer zone
to the calculations implied in Table 5, target inventory value, acts as a protector against unexpected demand surges. The
average inventory value during study period from buffer level, which is defined as the extra inventory kept on
1.1.2023 to 30.6.2023, and savings. Inventory values were hand in case of manufacturing delays or an unanticipated
calculated by multiplying the inventory quantities previ- spike in demand and is not fixed, and thus the top levels of
ously calculated by the unit price of each SKU. Conse- each (TOR, TOY & TOG) can alter based on demand,
quently, the savings were calculated by extracting the on- supply, and LT changes.9 The average inventory level The
hand target quantity from the average stock value in the equations used to determine the buffer levels are implied in
study period. Table 9.
Figure 6 displays the basic data model that is used to do
the necessary calculations behind to measure the user in-
terface of the identification tool. The basic logic is based on
Data validity and reliability
the master data of a purchased item that the tool fetches from Ensuring the correctness and credibility of the developed
the case company’s ERP system. The algorithm then pro- questionnaire is contingent upon the validity and reliability
vides an answer on whether the materials master data im- of a research technique. Appropriate sampling and the use of
plies potential benefits from demand-driven planning or not. current data ensure these two aspects. Because this study
The data model presented in Figure 6 can be used as the base uses a variety of approaches, its methodological validity and
of the study report. In Figure 6, the general logic and the reliability also depend on those approaches. The validity of
relations of the data are described. Also, a sum icon can be the interview questionnaire is not evaluated in the same way
found before every aspect that is calculated. Furthermore, as the validity of statistical analysis. In this context, validity
all attributes that can be excluded from the visible table are is evaluated first from the perspective of all research ap-
placed between parentheses. proaches, and reliability is then investigated in a similar
The concept of cost savings related to DDMRP were manner. Although validity is an issue of quality in research,
evaluated by comparing three different scenarios, that could research ethics also make validity a priority.
be the next steps for the CPF in implementing DDMRP up The validity and reliability of both the qualitative and
to some extent. These scenarios were S1, S2, and S3, which quantitative aspects of the study must be considered when
are defined below in Table 8. conducting mixed methods research. The validity and re-
liability of the quantitative data as well as the credibility,
transferability, dependability, and confirmability of the
Buffer level calculations and dynamic adjustments qualitative data must be guaranteed. Since the research’s
Buffers in DDMRP are certain points inside the overall flow data came straight from the case company’s systems, it can
of material in the supply chain that absorb variability in the be assumed to be reliable. It is important to remember that
form of a “dynamic safety stock”, that can be easily dis- there is a chance—albeit a small one in each instance—that
tinguished from a conventional safety stock, as it protects the relevant data obtained from the case company’s systems
and promotes flow better (Ptak & Smith, 2019). According was flawed in some way.
Shamsuzzoha and Jaakkola 9

Table 8. DDMRP implementation scenarios.

Scenario Definition

S1 Add PIs with most potential savings to DDMRP scope

S2 Add all PIs from a couple of reliable nearby suppliers with potential savings to DDMRP scope
S3 Add only PIs in strategically correct decoupling points to DDMRP scope

Table 9. Buffer equations.24 material would be beneficial to be purchased with the

DDMRP method. Altogether, the data was collected from
Buffer level Equation
the case company’s ERP, after which it was analyzed to find
Green The smallest of characteristics for materials that would not have been po-
• Order cycle × ADU tential for consideration of replenishing with DDMRP. To
• DLT × ADU × LTF answer RQ1, the data collected from the CPF’s ERP system
• MOQ was analyzed. The data was analyzed by simulating the
Yellow • DLT × ADU buffer levels and average inventory levels all CPF materials
Red Red zone base + red zone safety would have had at a specific point. The buffer levels were
• DLT × ADU × LTF (red zone Base)
simulated as if they would have been on July 1st, 2023, with
• LTF × red zone Base (red zone safety)
an average daily usage (ADU) calculated by data from the
preceding 6 months. The DDMRP suitability of all pur-
To sum up, the correctness and credibility of the study chased materials were assessed by determining conditions
findings are contingent upon the validity and reliability of under which materials would outperform conventional
the research technique. These elements were guaranteed MRP average inventories. During the assessment process of
using current data, adequate sampling, which is covered in the purchased materials both minimum and maximum in-
this questionnaire development process and meticulous ventory levels were considered as well as the condition of
design and implementation of the research techniques. The stock-out condition too. The findings included that about 57
research study yields valid and reliable research findings % of the sample materials could have been beneficial to be
that add to the body of knowledge in the field of inventory purchased with DDMRP in the review period. Figure 2
management by guaranteeing the validity and reliability of shows the distribution between materials with DDMRP
the research technique. potential and materials with no DDMRP potential. The
potential materials are marked with the color black and
account for 57.1% of all the sample materials, which was a
total of 4001 SKUs. Rest of the materials, a total of
Study results 3008 SKUs (42.9%) were outlined as not potential.
Materials suitable for demand-driven MRP List of conditions identified. After the values were calculated,
Introduction to RQ1 findings. The first objective of this study the materials that were beneficial to be purchased with the
was to address the question of what purchased materials DDMRP method were identified by assessing the ones with
could be beneficially purchased by incorporating the lower expected inventory than the actual average inventory
DDMRP methodology. The benefit is referred to in this text from the first half of 2023. This observation led to the fact
as “DDMRP-suitability”, and materials of which inventory that there are no categorical groups that can be excluded
levels would decrease if planned with DDMRP as from the DDMRP scope, but that the individual attributes of
“DDMRP-suitable”. The identification of DDMRP-suitable each material determine the suitability. If only the mass was
materials, which are considered as the materials that meet analyzed the result that can be drawn is that as ADU in-
the requirement of providing potential positive financial creases, so does the potential savings, which are calculated
impact if brought into DDMRP scope by analyzing his- using the equations presented in Table 5. This conclusion
torical demand data, lead times, and inventory carrying can be drawn from Figure 3, which shows a trendline that
costs was made with the help of quantitative data, obser- suggests just that when the sample materials are analyzed on
vations, and a calculation sheet. Identification of these a large scale.
materials provides insights for supply chain professionals However, this finding cannot be generalized because of
on how to identify materials that could have a positive effect another discovery. For example, PI1 (see Figure 4) could
from demand-driven planning. All purchased materials of only be beneficial to be purchased with DDMRP if the ADU
the CPF were analyzed with the help of the calculation sheet was below 0.037. However, when it is above that level, there
that used basic DDMRP equations to evaluate if a purchased are no savings, but the increasing buffer levels make the
10 International Journal of Engineering Business Management

stock value higher than when purchased with conventional the data suggests that items with short lead times have
MRP. This is due to the long LT of the example material, slightly less potential to be included in the DDMRP scope
which increases the buffer when ADU increases. than materials with long lead times.
The savings act as implied in Figure 4 due to the Figure 5 shows that with most LT segments, that are
equations presented in Table 5 are used in demand-driven divided into 20-day ranges, the suitability is between around
planning to determine the buffer levels. To simplify, the 70 and 90% of the materials. The remaining amount is either
math behind the analysis comes down to limited attributes not suitable or the suitability is not able to be calculated. In
that make up the buffers in DDMRP. These are mainly DLT, addition, it was found that in the two LT segments that are
ADU, Lead time factor (LTF), and Variability factor (VF). under 40 days, the bigger portion of materials (over 50 %)
Furthermore, the assessment of whether the expected av- would not have provided any savings to the average in-
erage inventory is below the actual measured average is ventory value in the review period. Moreover, it must not be
based on the buffer zone calculations. One result that arose forgotten that although some of the materials are not de-
from the quantitative data was the distribution of percentual clared as “DDMRP-suitable” in this study, there are no
savings on materials with different lead times. For example, disincentives that would make the materials strictly un-
suitable. The materials just would not have provided po-
tential savings with demand-driven planning during the
review period.

Analysis and summary of RQ1 findings. As the idea is to

optimize the stock levels, the more the capital tied to in-
ventory would be reduced with demand-driven planning the
more beneficial it would be for the material to be purchased
with the DDMRP method. On the other hand, optimization
means that there should be no risk of the stock falling below
zero since that scenario is harmful to the overall business.
Thus, another condition that is evaluated is the average
coverage of the average stock level that would be with the
DDMRP method.
The evaluation of average coverage can be further jus-
tified by the fact that one of the fundamental features of
DDMRP is to make forecasts irrelevant, preventing the
information bullwhip effect. Consequently, this would mean
that if the average coverage of the inventory is below the
DLT, there would be no condition to use DDMRP in the
Figure 2. DDMRP potentiality of the sample materials. purchasing process of the material. However, as the yellow

Figure 3. ADU related to percentual savings.

Shamsuzzoha and Jaakkola 11

Figure 4. Percentual savings dependence on ADU of an example SKU.

Figure 5. Distribution of DDMRP-suitability on LT ranges.

zone in DDMRP buffer zones incorporates the lead time in Tool for identifying materials for demand-driven
the buffer, by multiplying LT with ADU, there should not be MRP
a situation where the inventory would go below zero during
the purchasing LT of an item. A case in which this could As stated in the preceding parts of this text, one objective of
happen would require a visible increase in ADU that would this research was to develop a tool that is used to identify
be easy to notice beforehand, by the demand spike evalu- DDMRP-suitable materials by the OP department of the
ation for instance. CPF. The development was done by first adapting the
Due to the dynamic nature of DDMRP, there are no clear calculation sheet used in the methodological phase of
limits to generalizing whether the materials they limit RQ1 and then by collecting qualitative data with semi-
should always be purchased with DDMRP or not. Rather, structured interviews. In this sub-section, the qualitative
each material purchased should be viewed individually and findings are first analyzed, after which the functionalities of
set the appropriate values for them. It was found that about the tool are described with the help of findings from
three out of four materials that are purchased by the CPF quantitative analysis of RQ1 results and the development of
have the potential to lower inventory levels by planning a logic that outputs the recommendation to act as a support
replenishments with DDMRP-software. for decision-making.
12 International Journal of Engineering Business Management

Qualitative findings. The semi-structured interviews as de-

speculation
fined in prior parts of this study were conducted with

Mass
13 respondents from the purchasing organization of the

x
x

3
CPF. Altogether, the sample consisted of six operative

Frequent
Utilization

usage
purchasers, three managers, and four employees with roles

x
x
x

4
in some development functionalities. Some of the respon-

No use
in own
dents had an advanced level of knowledge about DDMRP,

role

x
x
4
some a moderate level of knowledge, and the leavings a low

often
Not
level of knowledge. As the interviews included a question to

3
determine the level of expertise of the respondent in the field

dimensional
of the subject area, the answers were stressed accordingly.

Simplicity Report answer

One-
As a result, the interviews varied a little with the answers,

x
x

3
and some specific trends and findings were discovered. In

User interface
Table 10, the distribution of relevant factors discovered

2
from respondents’ answers based on seven questions pre-
sented in Table 4 is listed to form a clear picture of the
answers. From Table 10 it is seen that there are direct links

x
x

5
SAP PowerBI to SAP
between the seven questions and the respondents’ answers

Similar
related to the features of the developed tool. For instance,

2
question 2 is related to ‘Features’, question 3 is related to
‘Target audience’, question 4 is related to ‘Integrability’,

x
x

2
question 5 is related to ‘User interface’ and question 6 is
Integrability

x
x

x
x
x
8
related to ‘Utilization’. The respondents were free to give

must
Everyone Important have
their opinions based on various factors of the tool to be used Not

x
x

5
to identify the DDMRP suitable materials. For example,
respondents 1, 7, 8, 11, 12, and 13 emphasized the sim-
plicity of the tool when they were asked about desired x

x
x

x
x
7
features for it. Moreover, the variability of the answers was
moderate, even though some individual answers differed
x
x
x
x
x
x

x
x
8
clearly from others.
Individual
Grouping department department Production planner

From Table 9 it is also seen from the last row that

majority of the respondents support everyone as the target
x
x

x
x
x

x
x
7
Target audience

audience and integrating SAP to the tool. On the other hand,

it is also seen that grouping under features, production under
Table 10. Answers from the semi-structured interviews by topic.

2
target audience, PowerBI under integrability, similar to SAP
and report under user interface scores the lowest from the
respodents. The results interpreted from the qualitative data
SP

collected with the interviews include different aspects that

are considered when the tool for DDMRP suitability
identification is developed. To begin with, the tool should be
OP

x
x

x
x

available for everyone in the case organization to use, even

though the main target group that will be using it might
consist of only individual planners and line managers.
x

2
accuracy

Consequently, the nature of the tool can be defined as

Data

strategic, as the purpose is to identify materials that would

x

x
x

5
Features

potentially benefit from demand-driven planning.

identification
Data based

According to the responses, the integration of the tool

into the case company’s existing ERP solution SAP is
x
x
x

x
x

highly requested. However, based on timely constraints and

Simplicity/

observations made by the author, the tool would be better off

Respondent friendly
user

integrated with Microsoft PowerBI, which is also incor-

x

x
x

x
x
x
6

porated into the operations of the CPF. The tool is integrated

into a material planning report that lists all PIs that are
Total

defined in the CPF. PowerBI can best address the CPF’s

10
11
12
13
1
2
3
4
5
6
7
8
9
Shamsuzzoha and Jaakkola 13

needs when it comes to the identification tool of DDMRP- Consequently, this research does not include any configu-
suitable materials. This is because e.g., it is simple and rations with PowerBI.
highly user-friendly, and regularly used by the target au-
dience. Also, the report can provide one-dimensional an- Analysis and summary of RQ2 findings. To conclude,
swers with high accuracy, as identified as requirements for RQ2 delved into the accessibility and usability aspects of
the tool. the studied tool, as interpreted from the insights gathered
through semi-structured interviews. The findings promi-
Development of the tool. On top of the findings from the nently suggest that the tool in question has the potential to
interviews, this sub-section addresses the logic behind the act as a support tool for decision-making in the OP de-
calculations that tell the user of the tool whether the material partment of the case company. A notable consensus among
considered is beneficial to be replenished with the DDMRP the interviewees is the unanimous agreement that accessi-
method. The basic data model presented in Figure 6 is bility is a central consideration for the tool. This aligns with
behind the calculations. The calculation of savings for each the contemporary emphasis on democratizing data access
material during the last 6 months acts as a foundation for the within organizations, ensuring that tools are easily acces-
tool that identifies materials that would be beneficial to sible to all relevant personnel. The implications of this
purchase with the DDMRP method. In a nutshell, the tool is finding underscore the importance of user-centric design
integrated into a PowerBI report of the CPF that is regularly and the need for intuitive interfaces that facilitate ease
used by the OP department. The report includes all materials of use.
of the CPF, and every planner can use the tool to analyze Moreover, the study’s exploration of the tool’s usability
materials that are under their responsibility. In addition, the has revealed a relevant point of integration, which is the
supervisors can use the report to assess different develop- inclusion of the tool within a PowerBI report. This reve-
mental challenges on a larger scale. As found with the semi- lation carries valuable implications for streamlining the
structured interviews, this is the arrangement most suitable decision-making process, as PowerBI reports can serve as a
for the needs of the CPF. hub for data-driven insights. By integrating the tool in this
Table 11 shows the appearance of the identification tool context, the case company can harness the synergy between
as it can be in the PowerBI report in the future. For data visualization and practical decision-making. This in-
clearance, some irrelevant columns have been taken out of tegration takes advantage of the strengths of both the tool
the Table 11. The focus of the tool is highlighted with the and the PowerBI platform, leading to a collaborative and
last two columns. These two right-most columns consist of efficient solution.
DDMRP-potentiality and the level of benefit that would be It’s worth noting that the groundwork for the practical
possible to get if the PI was planned with DDMRP. This implementation of the tool has been laid out in the previous
research provides solely the general logic of the identifi- section through the implied data model. This serves as a
cation tool, as well as the calculations and selection of the foundation for the case company to effectively translate the
data, which can be deployed in any general organizations. conceptual framework into a working PowerBI tool. This

Figure 6. The data model of the identification tool.

14 International Journal of Engineering Business Management

Table 11. User interface of the identification tool.

Material Planned del. GR Effective Source list On-hand Average stock qty DDMRP potential based on
number Time time LT exists MOQ target 1-6.23 last 6 months

PI1 120 15 141 Yes 260 16.7 20.8 YES

P12 60 10 74 Yes 336 5.2 7.8 YES
P13 90 43 150 Yes 112 2.5 1.3 NO
PI4 120 41 177 Yes 2000 2.5 4.3 YES

shift from theoretical findings to practical development Effects on purchasing costs. When evaluating the potential
underscores the real-world applicability of the research savings and impact of DDMRP implementation on pur-
findings. Finally, the study’s culmination in the develop- chasing costs, the average stock level during the period was
ment of the PowerBI tool by the case company substantiates compared to the on-hand target value that was calculated
the research’s objective of providing a comprehensive tool with buffer levels created in the research process of RQ1.
to address the research problems. Simply put, this evaluation is the situation that would have
been with the buffers on 1.7.2023 in this case. The focus of
Change of purchasing costs when DDMRP is this research was on the inventory carrying costs, and
potential savings in inventory values to be more specific. An
implemented
example of the calculated savings is implied in Table 12,
Introduction to RQ3 findings. The change in overall pur- where the materials of CPF with the highest moving average
chasing costs is dependent on various factors such as market prices are listed. In Table 12 of the calculation sheet, the
volatility, the business environment of the CPF, and the savings in euros and in percent are listed in the last two
output level of the production facility. Thus, no absolute columns. The highlight color for positive savings is green
number caused by the improvements can be stated in this and red for negative ones.
study. However, the potential savings in average inventory Furthermore, this analysis was done for all sample
levels caused by demand-driven planning on a specific time materials to form a thorough picture of the potential savings,
range in the past can be calculated. Consequently, the and to form the final educated estimate of the total financial
potential savings in average inventory levels is how the benefit of implementing DDMRP.
RQ3 is addressed in this research. Furthermore, other as- An educated guess and an estimate must be done to
pects of the financial impact originating from DDMRP evaluate cost savings that could be achievable with DDMRP
implementation are assessed by estimations. by the CPF. As stock-outs can be often prevented by using
As stated in the methodology study, the inventory levels more costly express deliveries for the POs to arrive on time,
that were evaluated during the research were from the the rare occasion of longer stock-outs originating by not
period between January 1 and June 31, 2023. All calcu- having certain material available for production to use
lations and results regarding RQ3 have been calculated makes calculating the cost savings difficult. However, as
based on the data that was gathered from the review period. DDMRP can prevent stock-outs with the dynamic buffers,
While it was discovered that if all materials that would using priority shipments should be reduced.
have had lower stock levels during the review period had
been purchased with DDMRP, the total decrease in total Breakdown of cost savings. The most savings inventory levels
inventory value of the CPF would have been 63%, the in euros were found to be possible to achieve with some key
process of moving all 4001 of these materials in the scope components that have unarguably the highest unit prices.
of the external DDMRP procurement system was con- However, since the unit price plays such a massive role in
sidered unrealistic. Therefore, a scenario analysis of re- the average stock value, it can be declared that a huge
alistic implementation options was done to evaluate the impact in euros on the inventory value can be achieved
financial impact of broadening the scope of DDMRP in the when lowering the average stock levels just mildly when it
CPF. The results suggested that the comprehensively most comes to the materials with high unit costs. Nevertheless,
rational option for scenario 2 (S2) with high (100%) the same components tend to generate big losses in prof-
manageability would result in some additional monthly itability if not available for the production to use at the right
costs, and 1.4% of one-off savings in the form of inventory moment. Top 10 potential inventorial savings in euros in the
level reductions. However, if the concept of decoupling review period are implied in Figure 7. The horizontal row
points is examined throughout, the savings the CPF could indicates the item that is listed, and on top of each bar in the
face would presumably be higher. chart, the savings are presented in percentage values.
Shamsuzzoha and Jaakkola 15

Table 12. Potential inventory savings of 10 materials with highest unit price.

Material On-hand target (piece) Average stock quantity (piece) (1.1.2023-30.6.2023) Potential savings (%)

PI1 16.7 20.8 19.7

PI2 5.2 7.8 33.9
PI3 2.5 1.3 87.5
PI4 2.5 4.3 42.3
PI5 2.5 1.0 150.0
PI6 4.0 9.0 55.6
PI7 8.3 19.3 57.3
PI8 2.7 29.3 90.8
PI9 3.0 22.2 86.5
PI10 2.7 5.2 48.4

Figure 7. Top 10 potential inventory value savings.

While high unit prices account for the most savings in the materials are listed and on top of each bar the potential
euros, it was found that the materials with relatively most saved monetary value is listed.
savings (in percent) were not at all the same type of ma- The findings strengthen the observation that every ma-
terials. In fact, the most savings in relation to the inventories terial must be assessed individually to comprehensively
managed by conventional MRP were found to be potentially define the potentiality of DDMRP in the purchasing pro-
achieved with materials that have a high ADU and con- cess. For example, one material from the top 10 savings in
sequently have relatively more pieces in stock, as more euros (see Figure 7) has only 34% in relative savings,
pieces are needed in the assembly of final products. In whereas another material on the same list is listed with 91%
addition, the unit price is relatively low. Consequently, it savings. The same logic is applicable to the top 10 relative
seems that materials that have these characteristics ought to savings (see Figure 8). Some materials with high savings
have high inventory levels since maintaining a safety stock when measured in relatively, have rather insignificant fi-
for an individual purchased item with low unit cost appears nancial impact since the inventory level savings in euros are
as a cost-efficient insurance. measured in less than a thousand euros.
However, when many items are planned with the same The financial impact of each scenario was further as-
method of keeping high safety proportions, the financial sessed through evaluating different cost-related issues (see
inefficiencies multiply. For example, the potential savings in Table 13). The scenarios were indexed to ensure the
average inventory value of PI1 was about 98.5% (see comparability of the different measures. To begin with, the
Figure 8). Figure 8 shows the materials that had the highest manageability was evaluated since higher masses of SKUs
relative savings in the review period. On the horizontal axle, are more difficult to manage especially when first
16 International Journal of Engineering Business Management

Figure 8. Top 10 materials with relatively highest savings.

Table 13. Scenario evaluation.

Stock-out risk

Scenario Manageability Potential savings Potential Criticality Total risk Total

S1 Medium (0.75) 25% (1.00) 4 5 20 (1.00) 0.75

S2 High (1.00) 1.4% (0.06) 2 2 4 (0.20) 0.86
S3 Low (0.50) 14.8% (0.59) 3 3 9 (0.45) 0.39

implementing a new method of purchasing. The values were potential savings of S2 was divided by the highest potential
determined with the logic that the higher manageability a saving, resulting to the indexed value of 0.06. The total
scenario has, the more points it gets. The distribution was impact of each scenario was calculated by summing up
done with a specification of 0.50 – 0.75 – 1.00 from low to manageability and potential savings and extracting total risk
high. S1 had the lowest quantity of SKUs but from eight from the equation.
different suppliers, resulting in 0.75 manageability. S2 had The first scenario was achieved to potentially gather the
25 SKUs but only from three suppliers, accounting for most significant reductions in the total inventory value of
relatively easy manageability. Finally, S3 had an estimated the CPF, while simultaneously including the greatest risk of
of 100 different SKUs, resulting to 0.5 manageability. critical stock-outs. Furthermore, the low number of different
Potential savings were adapted from the calculation sheet PIs in S1 contributed to a relatively good level of man-
with the scope that S1 savings was composed of the po- ageability, lowered by the long LTs and shipping times.
tential savings of the top 10 materials, S2 savings of the ones Consequently, total indexed impact of S1 was 0.75 + 1.00 -
defined, and S3 savings based on an estimation. According 1.00 = 0.75. Furthermore S2 had a total impact of 1.00 +
to Demand Driven Technologies (2020), inventory levels 0.06 – 0.20 = 0.86, which was deemed as the highest impact.
are usually lowered by 15% to 30% when implementing Finally, the total impact of S3 was found to be 0.50 + 0.64 –
DDMRP. Based on the assumption that optimal im- 0.45 = 0.44. Consequently, S2 was considered the best
plementation of DDMRP to correct decoupling points scenario.
would lower the inventory levels by 15%, S3 was calculated The total financial impact of S2 was estimated by
to reduce the inventory level potentially by 15%. counting all relevant additional costs and savings to
Finally, the total risk was evaluated by multiplying a monthly cash flow and equity. Costs include the DDMRP
potentiality estimate of stock-out related issues with the software license fee that is paid annually. Positive monthly-
value between 1 and 5 with a criticality estimate with a value based financial impacts include possible decreases in
likewise from the range 1 to 5. The indexed numbers that are shipment costs and other costs related to insufficient in-
presented in Table 13, were founded with dividing the value ventory levels. Thus, monthly impacts were estimated to be
with the highest value of each category. For example, around 7%.
Shamsuzzoha and Jaakkola 17

Figure 9. Top 10 inventory value-increasing materials.

For tied capital, the released capital from reduced in- inventory values are quite major, it must be noted that the
ventory levels was estimated to be 1.4%. The reduced in- values in euros are considerably lower than the values of the
ventory was counted based on the savings indicated by the potential savings.
calculation sheet 25 SKUs that are supplied by three nearby
suppliers for the CPF. These suppliers were observed to be Analysis and summary of RQ3 findings. Around 40% of all
reliable enough to be included in S2. The calculations re- analyzed materials were found to be unbeneficial to be
garding the inventory changes with respect to the financial purchased with DDMRP in the retrospective analysis.
side are visible in Abbreviation 2. Moreover, if the scope of While it was discovered that if all materials that would have
PIs that are purchased with DDMRP is widened further the had lower stock levels during the review period had been
decrease of capital tied to excess inventory naturally purchased with DDMRP, the total decrease in total in-
increases. ventory value of the CPF would have been 63%, the process
of moving all 4001 of these materials in the scope of the
Limitations and potential downsides. Due to restrictions in the external DDMRP procurement system was considered
calculation tool and data collection, no scale prices were unrealistic. Therefore, a scenario analysis of realistic im-
considered in the estimation of the financial effects of plementation options was done to evaluate the financial
DDMRP. Also, due to timely restrictions and limitations of impact of broadening the scope of DDMRP in the CPF. The
the analysis tool, there is no proof that any of the materials results suggested that the comprehensively most rational
would have held the inventory level above zero throughout option S2, would result in some additional monthly costs,
the review period. Consequently, if some materials had been and 1.4% of one-off savings in the form of inventory level
out of stock when needed in production, the savings raised reductions. However, if the concept of decoupling points is
from the lower inventory levels would have been reduced or examined throughout, the savings the CPF could face would
completely overturned. presumably be higher.
A potential financial downside for implementing
DDMRP is also the fact that if the material master (MM)
data or other relevant data or parameters are incorrect, the
Discussions and conclusions
potential savings can turn into a potential increase in in-
ventory levels. In the research, it was found that some This research was done to assist in the process of piloting the
purchased items would have potential negative savings on demand-driven planning approach in a case company and in
inventory values (i.e., higher inventories) during the review its operative purchasing. The case company desired to get
period, which implies that some materials that are not insights into DDMRP as a planning method, with a focus on
suitable for DDMRP would be better off by purchasing with what purchased materials should be included in the scope of
conventional MRP. An example of this kind of material is the method, and what would be the financial consequences
presented in Figure 9, where the top ten (by EUR €) po- of purchasing these materials with DDMRP. Consequently,
tential inventory level-increasing materials are listed. The three research questions arose that addressed all the ob-
inventory increase for some materials was measured even in jectives of the research, forming a comprehensive base for
tens of thousands of precents. While the additional solving the research problems.
18 International Journal of Engineering Business Management

Results from literature search and main findings of the tool’s output. The first choice is to choose the ma-
the study terials with the highest estimated savings to test the
procedure. The second choice is to increase the process
From past research it is noticed there are no identification tools step-by-step, working with one provider at a time and
available to choose purchasing materials to plan involving all pertinent parties. The third alternative is to
DDMRP.13,14,32,47 Additionally, it was found from literature increase the understanding of DDMRP inside the CPF
search that although implementing DDMRP can bring clear organization by addressing the buffer positioning
advantages to a company’s operations, the process itself re- follow-up research topic before expanding the range of
quires a great deal of effort to get the desired result. Moreover, materials that are acquired using the DDMRP method.
no supporting evidence of the universal applicability of the Regardless of the approach chosen on the subject, it is
method to all industrial contexts was found.49,50 Moreover, it is generally advised that the case firm make sure all rel-
observed from literature search that traditional inventory evant data are current before moving forward with the
planning systems are not designed to operate in volatile, idea, including making sure the data is maintained that
uncertain, complex, and ambiguous business worlds.2,7,32–34 way going forward.
Furthermore, it is also noticed that there is a lack of clear Option 1 proposes a prudent but doable approach to
boundaries between the demand-driven replenishment method DDMRP implementation. Starting with the materials that
and the purchased materials.11,12,25,33 offer the biggest savings based on the tool’s forecasts is
Based on the identified literature gaps, this study pro- what it suggests. Because its goal is to maximize profits
posed three research questions which were addressed in- while minimizing potential disruptions, this method is
dividually with methodologies most suitable for each savings oriented. Before proceeding, though, a careful
question. Regarding material suitability for DDMRP, no comparison of the anticipated savings with the actual results
delimiting boundaries for material characteristics were is necessary. If the technology regularly generates accurate
found, since the analysis of the sample data suggested the predictions and there is confidence in its savings estimates,
materials that would have performed better with DDMRP then this strategy might work well. However, there is a
during the review period represented almost all different chance that materials with lesser projected savings will go
material types. An exception was materials with current unnoticed, even if they could have a significant impact on
procurement modes that limit every requirement to be in- overall efficiency gains.
dividual. These materials are not now possible to be inte- Option 2 focuses on implementing the DDMRP ap-
grated in the external procurement software incorporating proach gradually and under supervision. The plan is to
the DDMRP method that the CPF uses. implement the strategy piecemeal, starting with one or a
However, the inventory levels and usage data, together small number of suppliers and working your way up to
with an additional buffer determined by the supply chain larger organizations. Incorporating pertinent stakeholders
unreliability of an individual material during the review guarantees a knowledgeable execution that tackles possible
period defined whether the material would possess the obstacles or opposition. This course is advantageous be-
potential to benefit financially from planning the purchasing cause it controls the possibility of disruptive changes and
with the demand-driven method. Based on the results, about enables the organization to grow by learning from its
two-thirds of the sample materials were found to have mistakes and improving the procedure over time. To fully
saving potential in inventory levels, which accounts for a reap the benefits, though, can take more time and require
total of 65.5 million euros in decreased inventory value. careful supplier coordination.
The calculation sheet that was used to get the results to Option 3 suggests a more thorough organizational
RQ1 and RQ3 formed the basis for the identification tool change in the direction of DDMRP adoption. It recom-
that was initially developed in the study. In addition, results mends investigating buffer location as a future study topic to
from interviews that were conducted with supply chain expand the organization’s understanding of DDMRP be-
professionals suggested the general user interface of the tool yond the immediate tool usage. This calculated action may
and simple, and to act as a supportive instrument in result in the optimization of overall inventory management.
decision-making of the case company. Consequently, the This strategy, however promising, necessitates an organi-
identification tool was defined to be integrated into a current zational commitment to information exchange and com-
material planning tool of the CPF that is accessible through prehensive training. This evaluation is based on the CPF’s
Microsoft PowerBI. willingness to adopt the DDMRP technique and its desire
for change.
After a thorough evaluation that considered the danger of
Managerial implications stock-outs, the second option was determined to be the most
Based on the findings, a thorough examination is nec- logical and is recommended for implementation by the case
essary before implementing DDMRP purely based on company. Irrespective of the approach selected, the widely
Shamsuzzoha and Jaakkola 19

accepted advice to start implementing DDMRP using Declaration of conflicting interests

current data is quite significant. Additionally beneficial to The author(s) declared no potential conflicts of interest with re-
the ongoing daily operations is this exercise. If the data is spect to the research, authorship, and/or publication of this article.
not updated prior to installation, it may jeopardize the
benefits that come with DDMRP.
Funding
The author(s) received no financial support for the research, au-
Practical implications and study limitations thorship, and/or publication of this article.

As the aim of this study was mainly to produce practi-

ORCID iD
cable results for the use of the case company, it must be
acknowledged that the findings might not be directly Ahm Shamsuzzoha  https://orcid.org/0000-0002-4219-0688
applicable to other organizations. Furthermore, the im-
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