Aspects on the optimal decoupling point setting problem

Demand-Driven Material Requirement Planning (DDMRP) represents a combination of traditional Material Requirements Planning (MRP) and the reorder point method. A key consideration DDMRP revolves around determining the optimal position of decoupling points, also referred as strategic inventory positions. This article addresses the question of where these decoupling points should be strategically positioned, utilizing a directed universal graph derived from Bill of Materials (BOM) to formalize the optimal decoupling point setting problem. To address this challenge, analytical formulas are developed. The analytical formulas utilize parameters such as delivery time, demand variance, replenishment time, lot sizes, holding costs, and service levels. These formulas provide insights into key characteristics of optimal decoupling points. The obtained results can be categorized into arguments advocating for decoupling points be positioned either more upstream or more downstream. Furthermore, we derive specific characteristics that an optimal decoupling point position should possess. This research contributes valuable knowledge for practitioners seeking to enhance the efficiency and effectiveness of their DDMRP implementation.