Supply Chain Management: Indian Institute of Management Lucknow

Supply Chain Management
Distribution Requirement Planning
Indian Institute of Management

Lucknow
Distribution Inventory System

Customers for products are generally
geographically dispersed
It may be necessary to store inventory in
several locations
Physical distribution involves movement &
storage of finished goods from production
site to customer
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Distribution Inventory System

Manufacturing adds form value to products
Distribution adds place value & time value
Distribution Centre
finishing, final assembly, packaging, repair &
service centres for some products
provide required level of customer service at the
least total system cost
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Trilevel Distribution Network

Master DC
Regional DC
100
Regional DC
200
Regional DC
300
Local DC
101
Local DC
201
Local DC
301
Local DC
102
Local DC
202
Local DC
302
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Local DC
103
Local DC
303
Local DC
104
Local DC
304
Critical Issues in Distribution Inventory System

Where to locate the
distribution centre?
What products to stock at
each location?
How to replenish stocks
at each distribution centre
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Distribution Resource Planning (DRP)

Uses dependent demand techniques throughout
the supply chain
Gross requirements, which are the same as expected

demand or sales forecasts
Minimum levels of inventory to meet customer

service levels
Accurate lead times
Distribution network structure

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Distribution Requirement Planning

It is the application of MRP logic to distribution
inventories
It is a method of handling stock replenishment in a
multiechelon distribution environment
It anticipates future requirements by forward
planning at all levels of a distribution network
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Basic Logic of DRP

From forecasts at local distribution centers, it
calculates time-phased net requirements
net requirements indicate when stock level will be consumed
by gross requirements
net requirements = gross requirements + safety stock

- scheduled receipts - project on hand for the previous period
Only positive values of net requirements are recorded.
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Basic Logic of DRP

It creates a planned order receipt for net requirements
quantity in the period of net requirements
It calculates the planned order release date by offsetting
the planned order receipt date by the lead time, stock
must be ordered one lead time prior to its need
It revises the projected-on-hand quantity at the end of
each period
Planned order release quantity becomes a gross
requirement in the same time period for the parent supply
centre at the next higher level of distribution network
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DRP and MRP
Distribution requirement
planning
MRP
Distribution activity
planning
Production
Activity
Control
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10
Basic DRP Structure

1. Time periods: Can be a day, week, month or any other period
The standard convention in commercial packages is to have
the due date the first day of the time period.
2. Gross requirements: The amount that must be supplied to
support demand. Sources of demand are actual customer
orders, forecast and resupply orders.
3. Scheduled receipts: Orders for replenishment can come from
supplier, actual production, or resupply from another
warehouse branch. Scheduled receipts should not be altered
without the planners intervention.
4. Planned on hand: Inventory position for the given period.
5. Planned order receipt: This is the quantity that must be
received to prevent the on hand balance from being depleted.
6. Planned order release: This is the planned order release for
lead time.
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11
Example of DRP
A distribution system consists of a central distribution
centre that supplies 3 local distribution centres (A,B,C).
The forecast demand for a product over 8 week at each
distribution centre is known as shown in Tables on the
next slides along with the products lot size, safety
stock, lead time, and stock on hand
WHEN are replenishment orders for the product to be
planned at each of these centres?
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12
Example of DRP
Centre A, safety stock 30
Lot size 120, Lead time 1
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned order receipts
Planned order releases
Centre B, safety stock 10

Gross requirements
Scheduled receipts
Projected on hand
Net requirements
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PD
1
30
Period
4
5
30
30
2
30
3
30
2
20
Period
3
4
5
20
40
20
6
30
7
30
8
30
70
PD
1
20
6
20
7
20
8
50
50
13
Example of DRP
Centre C, safety stock 5
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Centre Central, safety 0

Gross requirements
Scheduled receipts
Projected on hand
Net requirements
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PD
1
40
70
2
15
3
20
Period
4
5
30
10
6
5
7
30
8
10
Period
4
5
15
PD
300
14
Solution of Example of DRP

Center A, Safety stock 30
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Center B, Safety stock 10

Gross requirements
Scheduled receipts
Projected on hand
Net requirements
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PD
1
30
2
30
3
30
70
40
130
20
120
100
Period
4
5
30
30
70
120
40
6
30
7
30
8
30
130
20
120
100
70
6
20
7
20
8
50
10
90
20
100
40
120
PD
1
20
2
20
3
20
50
30
10
90
20
100
100
Period
4
5
40
20
50
30
100
15
Solution of Example of DRP

Center C, safety stock 5
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Center Central, safety 0

Gross requirements
Scheduled receipts
Projected on hand
Net requirements
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PD
15
1
40
70
45
2
15
3
20
30
10
Period
4
5
30
10
50
25
70
40
70
6
5
7
30
8
10
35
65
10
70
6
170
7
0
8
0
120
120
120
70
PD
1
120
2
170
3
0
300
180
10
10
Period
4
5
0
120
10
290
110
400
400
16
Issues in Distribution Requirements Planning (DRP)

1. Lumpy demand: Can produce shortages or excess
inventory.
2. Lack of integration with marketing: Quantity
discounts, advertising campaigns, promotional
activity can change normal demand.
3. Change in suppliers or supplier contracts: This can
impact delivery and lot size for replenishment.
4. Design changes: Warehouses may be left with
obsolete inventory.
Communication with suppliers and marketing is key
to dealing with most of the problems.
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DRP & Demand Management

DRP when connected to the logistics system
Helps determine vehicle capacity planning.
Helps loading.
Helps in developing vehicle dispatching.
Helps in determining warehousing capacity.
Provides the data to accurately say when availability
will be improved and delivery can be expected.
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18
Enterprise Resource Planning (ERP)

An extension of the MRP system to tie in
customers and suppliers
Allows automation and integration of many
business processes
Shares common data bases and business practices
Produces information in real time
Coordinates business from supplier evaluation

to customer invoicing
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Enterprise Resource Planning (ERP) Modules

ERP modules include
Basic MRP
Finance
Human resources
Supply chain management (SCM)
Customer relationship management (CRM)
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20
Scope of Enterprise Resource Planning (ERP)

ERP can be highly customized to meet specific
business requirements
ERP systems can be integrated with
Warehouse management
Logistics
Electronic catalogs
Quality management
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21
Benefits of Enterprise Resource Planning (ERP)

ERP systems have the potential to
Reduce transaction costs
Increase the speed and accuracy of information
Facilitates a strategic emphasis on JIT systems

and integration
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22
ERP and MRP

Customer Relationship Management
Invoicing
Sales Order
(order entry,
product configuration,
sales management)
Shipping
Distributors,
retailers,
and end users
Figure 13.11
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ERP and MRP

Master
Production
Schedule
Inventory
Management
Bills of
Material
MRP
Work
Orders
Purchasing
and
Lead Times
Table 13.6
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Routings
and
Lead Times
24
ERP and MRP

Vendor Communication
(schedules, EDI, advanced shipping notice,
e-commerce, etc.)
Figure 14.11
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25
ERP and MRP

Finance/
Accounting
Accounts
Receivable
General
Ledger
Accounts
Payable
Payroll
Table 13.6
Figure 14.11
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26
Advantages of ERP Systems

1. Provides integration of the supply
supply--chain, production,
and administration
2. Creates commonality of databases
3. Can incorporate improved best processes
4. Increases communication and collaboration between
business units and sites
5. Has an off
off--thethe-shelf software database
6. May provide a strategic advantage
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27
Disadvantages of ERP Systems

1. Is very expensive to purchase and even more so to
customize
2. Implementation may require major changes in the
company and its processes
3. Is so complex that many companies cannot adjust to it
4. Involves an ongoing, possibly never ending, process for
implementation
5. Expertise is limited with ongoing staffing problems
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SAPs ERP Modules

Cash to Cash
Covers all financial related activity:
Accounts receivable
Accounts payable
Promote to Deliver
Covers front-end
customer-oriented
activities:
Marketing
Quote and order
processing
Transportation
Documentation and
labeling
After sales service
Warranty &
guarantees
GL
Treasury
Design to Manufacture
Covers internal production activities:
Design
Shop floor
engineering
reporting
Production
Contract/project
engineering
management
Plant
Subcontractor
maintenance
management
Recruit to Hire
Covers all HR & Payroll oriented
activity:
Time and attendance
Payroll
Travel and expenses
Cash management
Asset management
Procure to Pay
Covers sourcing
activities:
Vendor sourcing
Purchase
requisitioning
Purchase ordering
Purchase contracts
Inbound logistics
Supplier invoicing/
matching
Supplier payment/
settlement
Supplier
performance
Dock to Dispatch
Covers internal inventory management:
Warehousing
Distribution planning
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Forecasting
Replenishment planning
Physical inventory
Material handling
29
ERP in the Service Sector

Developed for health care, government, retail
stores, hotels and financial services
Sometimes called efficient consumer response
(ECR) systems in retail context
Objective is to tie sales to buying, inventory,
logistics, and production
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30

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Supply Chain Management

Distribution Requirement Planning

Indian Institute of Management

Distribution Inventory System