A data-driven and risk-based prudential approach to validate the DDMRP planning and control system

28 Pages Posted: 18 Nov 2021

See all articles by Daniela Favaretto

Daniela Favaretto

Ca Foscari University of Venice - Department of Management

Alessandro Marin

Ca Foscari University of Venice - Department of Management

Marco Tolotti

Ca Foscari University of Venice - Department of Management

Date Written: November 17, 2021

Abstract

In this paper, we study the single-item dynamic lot-sizing problem in an environment characterized
by stochastic demand and lead times. A recent heuristic called Demand Driven MRP,
widely implemented using modern ERP systems, proposes an algorithm that is will effectively
tackle this problem. Our primary goal is to propose a theoretical foundation for such a heuristic
approach. To this aim, we develop an optimization model inspired by the main principles
behind the heuristic algorithm. Specifically, controls are of the type (s(t); S(t)) with time-varying
thresholds that react to short-run real orders; in this respect, control is risk-based and
data-driven. We also consider service levels derived as tail risk measures to ensure fulfillment
of realized demand with a predetermined probability; in this respect, our approach is prudential. Finally, we use our model as a benchmark to theoretically validate and contextualize the
aforementioned heuristic.

Keywords: Inventory management, Manufacturing resource planning, Data-driven demand planning, Tail risk measures, DDMRP.

Suggested Citation

Favaretto, Daniela and Marin, Alessandro and Tolotti, Marco, A data-driven and risk-based prudential approach to validate the DDMRP planning and control system (November 17, 2021). Department of Management, Università Ca' Foscari Venezia Working Paper No. 9, Available at SSRN: https://ssrn.com/abstract=3965617 or http://dx.doi.org/10.2139/ssrn.3965617

Daniela Favaretto (Contact Author)

Ca Foscari University of Venice - Department of Management ( email )

San Giobbe, Cannaregio 873
Venice, 30121
Italy

Alessandro Marin

Ca Foscari University of Venice - Department of Management ( email )

San Giobbe, Cannaregio 873
Venice, 30121
Italy

Marco Tolotti

Ca Foscari University of Venice - Department of Management ( email )

San Giobbe, Cannaregio 873
Venice, 30121
Italy

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