9B. Distribution Requirement Planning

The planning activities associated with transportation, warehousing, inventory levels, materials handling, order administration, site and location planning, industrial packaging, data processing, and communications networks to support distribution

As MRP became more popular it was recognized that the order point could be setup in a MRP format. This was originally called the TPOP but that was just a term to help people who had learned that ‘order point applies to independent demand items’ bridge the gap in learning, & understand that  MRP applies to independent items too!. The fact of matter is that the MRP format applies whether demand is independent or dependent. TOP is merely a synonym for MRP – for independent demand items

The time-phased order point (TPOP) is used for the planning & control of independent demand is not continuous. In some situations such as MPS & DRP, TPOP can be used when demand is continuous. TPOP is used for FGs and service parts. The order point is a misnomer in that this technique does not calculate a specific order point. Time phasing is the segmenting of inventory status by time periods.

The TPOP for independent demand at distribution centers is called distribution requirement planning. Anything that is going to be distributed has to be made & today DRP is seen as simply an extension of MRP.

The demand in a TPOP system may be forecasted or based on customer orders & is listed as the Gross Requirement. Gross requirements are listed by time period over the horizon of the palling period. The available inventory is also listed by time period with the projection based on forecasted demands (gross requirements), as well as open & planned order receipts. The Net requirement for the period is calculated by subtracting the projected available inventory from the gross requirement. The order quantity may be based on a fixed period, such as every 2 weeks, or a fixed quantity, such an EOQ of 100 units.

Bill of distribution

The bill of distribution (BOD) specifies how a product is further distributed within your enterprise following inward delivery from the supplier before being passed on to the customer. The concept is similar to the way BOM links component items to their assembly parents. In case of BOM when a demand is posted on a parent assembly item the MRP processor references the assembly’s BOM & explodes the requirement through the product structure, placing demand on the component parts. In case of BOD the structure had been designed to facilitate the transfer requirements from the components (the satellite warehouses) to the parent (the supplying warehouses).

This structure is  often called as an inverted BOM performs an implosion whereby requirements are passed up the structure rather than down. A BOD can be configured exactly to match a variety of channel inventory flows, E.g. not all items may be stocked in every warehouse. Again a mixture of products might be sold to the customer from central warehouse or from several regional or even local distribution points.

For DRP implosion to work effectively the proper BODs must be structured to details the flow of each product in the distribution channel.

The DRP & MRP system interface at the master production schedule level. The forecast of product demand filtered through the distribution plan, should be the major contributor to the master schedule. The master schedule can check distribution capacity as part of the rough cut capacity planning feasibility check.

Safety Stock and DRP




DRP is a systematic process for determining which goods, in what quantity, at which location, and when are required in meeting anticipated demand. This inventory related information is then entered into a manufacturing requirements planning (MRP-I) system as gross requirements for estimating input flows and production schedules.
DRP II is an extended version of distribution requirement planning (DRP-I) process which includes provision for key non-inventory resources such as labor, material handling facilities, and storage space. This information is then entered into a manufacturing resources planning (MRP-II) system as gross requirements for estimating input flows and production schedules.

DRP is the function of determining the need to replenish inventory at branch warehouses. A timephased order point approach is used where the planned orders at the branch warehouse level are “exploded” via MRP logic to become gross requirements on the supplying source. In the case of multilevel distribution networks, this explosion process can continue down through the various levels of regional warehouses (master warehouse, factory warehouse, etc.) and become input to the master production schedule. Demand on the supplying sources is recognized as dependent and standard MRP logic applies. More generally, replenishment inventory calculations, which may be based on other planning approaches such as period order quantities or “replace exactly what was used,” rather than being limited to the time-phased order point approach”.

In certain cases where the distribution is for a limited number of items, but a balance must be maintained between multiple warehouse sites, master schedules based on actual schedules sales orders and sales forecasts may be used to drive the planning process through standard DRP logic. This may result in master production schedules for one or more production sites.

The Objectives: The objectives of Distribution Resource Planning (DRP) in are

The Planning Horizon: It is the number of periods in the future for time phased records in DRP systems
must be planned when the system is designed. In general the planning horizon should extend far enough
into the future to cover the sum of all lead times from the beginning to the end of the manufacturing
process through the delivery to the final distribution point.

Frequency of Re-planning: Re-planning can be performed either periodically or continually using systemic net change regeneration. With periodic re-planning the TPOP records are recreated on a regular cycle, usually corresponding to the length of each period in the display. At the time of re-planning the current period’s plans disappears, period 2 becomes period 1, 3 becomes 2 & so fourth with a new
forecast added to the first week in the horizon. With continual planning all data are maintained on a perpetual basis with updating of inventory, forecast & order data based on transactions as they occur usually in real time. This creates a much ore dynamic system that can react quickly to changes as they occur. With net change regeneration only those products that have had unplanned activities posted
against them since the last regeneration will be processed & regenerated.

“The extension of distribution requirements planning into the planning of the key resources contained in a distribution system: warehouse space, workforce, money, trucks, freight cars, etc.” It includes many of the physical aspects of distribution such as warehousing & transportation facilities. It also implies the connection of the replenishment system to financial systems & the use of simulation as a
means to improve system performance.

Transportation Loading under DRP:
The ability of DRP to plan shipments in advance constitutes a significant opportunity to plan for transportation needs. Full truck or railcar loads, together with selecting optimum size delivery containers & vehicles improves the efficiency of the transportation function. In addition the forward visibility of needs helps preclude the need for costly expedited shipments at premium shipping rates.

DRP Terms

In VMI a manufacturer or distributor assumes the role of inventory planning for the customer. Extensive information sharing is required so that the manufacturer/distributor can maintain a high degree of visibility of its goods at the customer’s location. Instead of the customer reordering when its supply has been exhausted, the supplier is responsible for replenishing and stocking the customer at appropriate levels. Wal-Mart has mastered VMI and is the company against which many other organizations benchmark themselves (1).

Steps in a VMI process
For better understanding they describe the VMI business model as follows:
- The manufacturer receives electronic data (usually via EDI or the internet) that informs him about the distributor’s sales and stock levels.
- The manufacturer can view every item carried by the distributor and point of sales data.
- The manufacturer is responsible for creating and maintaining the inventory plan.
- The manufacturer generates the order, not the distributor (But this doesn’t change the ownership!)

Customer Benefits
When the supplier can see that its customer is about to exhaust its inventory, the supplier can better prepare to replenish the customer because the supplier can then better schedule its own production/distribution. Customers will reduce/eliminate stockouts because they will not have to reorder goods at the last minute without knowing whether the supplier has the ability to restock without interrupting the customer’s operations. Therefore, part of VMI’s goal is to reduce uncertainty that arises when the supplier is blind to the customer’s inventory status.

Supplier Benefits
As long as the supplier carries out its task of maintaining predetermined inventory and avoiding stockouts, it will be able to lock in a VMI-supported customer for the long term with or without a contract. This will produce a steady and predictable flow of income for the supplier and reduce the risk that the customer will switch suppliers (Switching would be too costly for the customer). A VMI arrangement will allow the supplier to schedule its operations more productively because it is now monitoring its customer’s inventory on a regular basis. Furthermore, reductions in inventory will be achieved once the supplier develops a better understanding of how the customer uses its goods over the course of a year.

Consignment Inventory is inventory that is in the possession of the customer, but is still owned by the supplier. In other words, the supplier places some inventory at the customer’s location. The customer purchases the inventory only after he has resold or consumed it. The liability of loss, damage, obsolescence and theft remains with the supplier.

As a manufacturer you may have consignment inventory at your customers and you may also have to contend with consignments from your Vendors. Most ERP systems have difficulty with consignment inventory. With consignment inventory the invoicing is not tied to the shipment or receipt transaction. This requires companies to manage consignment inventory with cumbersome time consuming and error prone processes. Typically both the Customer and Vendor maintaining separate spreadsheets. There are several trigger points to the actual ownership transfer and billing transaction:

Collaborative Planning, Forecasting & Replenishment (CPFR)

I1) A collaboration process whereby supply chain trading partners can jointly plan key supply
chain activities from production and delivery of raw materials to production and delivery of final products to end customers. Collaboration encompasses business planning, sales forecasting, and all operations required to replenish raw materials and finished goods.

2) A process philosophy for facilitating collaborative communications. CPFR is considered a standard, endorsed by the Voluntary Inter industry Commerce”.

Due to inaccurate forecasting many distribution companies encounter difficulty in managing their finished
goods inventories. The result of these inaccurate forecasts is surplus inventory on items that did not sell &
backorders on items where actual sales exceeded the forecasts. These forecasts inaccuracies inevitably
result in higher costs for the distributor & the ultimate consumer. Voluntary Inter Industry Commerce
Standards (VICS) is a trade association for retailers & members of their supply chains. The CPFR
initiative involves a major reengineering of existing forecast & related planning & replenishment processes.

Manufacturers found themselves planning with one set of numbers while retailers have a different set of
numbers. Because of this the customer service is impacted at the shelf level. The CPFR initiative
addresses business processes that must be jointly managed, standards for sharing information, methods
of integrating the results of collaborative effort into the operation system & key performance