DISTRIBUTION REQUIREMENT PLANNING

(DRP).
•DEFINTION : DRP is software supported time phased planning of
distribution resources in order to satisfy demand at all stages of the
distribution channel.

FEATURES :
•DRP provides a general method of Inventory model for both dependent
and independent demand items.
•DRP starts with the arrival of goods at the finished goods stores till the
time the product & services reaches the customers’ hand.
• DRP extends the supply chain management to the customer’s end.
• DRP identifies the TIME & PLACE at which product SKUs (Stock
Keeping Units) will be required.
• DRP ensures the availability of the product at right place, right time and
right quantity.
• DRP also has a say w.r.t. right Price particularly in case of the products
having low value of the ratio between price to the weight like Cement,
Salt etc.
• DRP analyses demand for individual SKUs at each customer – service
location and produces aggregated time-phased requirement schedule for
each level in the distribution system.
• These schedules are then fed into the Master Production Schedule or
M S P.
• DRP ensures perfect co-ordination between Production, Marketing and
Distribution Management.
• Common bases of information to enhance communication and help
build the company wide Plan.

PHYSICAL DISTRIBUTIOIN MANAGEMENT (PDM).

• PDM is the flow of goods through the economic system consisting of flow of raw
materials and bought out components from suppliers to the Production process of
the firm as well as the flow of products from the organisation to its customers.
A certain level of Distribution service is required at both the level.
• PDM is the art and science of determining requirements; acquiring them;
distributing them and finally maintaining them in an operationally ready condition
for their entire life.
• PDM is the planning, organising and controlling of all move-store
activities that facilitates product flow from the point of raw material
acquisition to the point of final consumption with relevant information
flow and cost effective service overcoming the resistance of time and
space.
• PDM is the management of all activities which facilitate movement and
coordination of supply and demand in the creation of time and place
utility in the goods.
• PDM activities include freight transportation, warehousing, material
handling, protective packaging, inventory control, plant and warehouse
site selection , order processing, marketing, forecasting and customer
services.

CURRENT FORESEABLE BUSINESS ENVIRONMENT:

• AN INCREASE IN THE NUMBER OF ECONOMIC POWER BASES – EU, NAFTA,
ASEAN etc.

• FOCUSING ON LOW MANUFACTURING AND LABOUR COST AREAS –

ASEA/PACIFIC AREA.

• GLOBALISED SOURCING.

• SOPHISTICATED AND EXPANDING SERVICE INDUSTRIES.

• LEANER FLATTER ORGANISATION STRUCTURE.

• Customer Service explosion.

• Time Compression.
• OPEN DEREGULATED MARKET.

• DEREGULATED FINANACIAL MAARKET.

• FLOATING VOLATILE EXCHANGE RATE.

• INCREASING DE-UNIONISED LABOUR STRUCTURES. ORGANIZATIONSAL
INTEGRATION.

• PREVIOUSLY POLARISED POLITICAL VIEWS BECOMING MORE CENTRALISED.

• FLUCTUATING SHORT TERM GOVERNMENT FISCAL & MONETARY POLICIES.

FOCUS OF PDM IS CUSTOMER SERVICE.

• CUSTMER SERVICE IS MAKING A PRODUCT OF RIGHT QUALITY AVAILABLE TO

THE CUSTOMER IN RIGHT QUANTITY AT RIGHT TIME, RIGHT PLACE AND
RIGHT PRICE.

• CUSTOMER SERVICE MAY BE SEEN AS A WAY IN WHICH VALUE IS ADDED TO

THE PURCHASE OF A CUSTOMER. VALUE ADDED IS THE DUFFERENCE
BETWEEN WHAT THE CUSTOMER PAYS AND COST OF PROVIDING THE
SERVICE.

Operational Issues: the emphasis of physical

 distribution management

Operational Issues: the emphasis of physical

distribution management
Order administration and
Information costs
Inventory Transportation
carrying Operational service costs
costs
response

Order
Customer service characteristic Facility
quantity
costs
costs • order cycle profile
•inventory availability
•order processing & progressing
•delivery times
Market •flexibility
segment/ •invoicing
customer •returns
logics •company investment

DISTRIBUTION CHANNELS :
• Producers sells their products through marketing intermediaries like whole sellers,
dealers, retailers etc.

• These marketing intermediaries are called the Channels of Distribution, Trade

Channels or the Marketing Channels.

• DIRECT SELLING – is directly from the Producer to the Consumer. This is

effective, profitable .This is particularly applicable for technical and industrial
products. This establishes close contact with customer & maximum control over
selling practices and policies.

• INDIRECT DISTRIBUTION : This is through a middle man i.e. dealer,

distributor, whole seller or a franchise. This is applicable more to the consumer
durable and non durables. This maximises the distribution outlet and reach to the
consumers. However this is costlier and creates a communication gap between the
distributor and the consumers.

FACTORS DETERMINING CHANNEL

STRUCTURE:
• Functions in a marketing Channel can’t be eliminated, but can be shifted upward
and downward.

• Channel members specialize in certain functions and participate in channel flows.

• There is growing emphasis on “Green Marketing” i.e. reverse marketing channels

for recycling product packaging / wastage after use or consumption.

• New computer technology, video text and electronic ordering is changing the
buyer’s behavior.

• Wal-Mart in USA & 7-Eleven in Japan improved and reduced 20% to 30

%of retail price by eliminating whole sellers from the supply chain.

• Electronic Malls & PC based shopping network is becoming popular.

• Home shopping network – totie is responsible for $2 billion of electronic

 shopping.
• Single European Community has led to in-house distribution system.

• The manufacturers are increasingly using outside Logistics specialists to provide

transport, warehousing and delivery services.

• Changing life style of consumers are demanding 24 hours service

• Large manufacturers and well brands are switching over from Whole sellers, dealers
to Franchisees.

• Service output determines the Channel Structure Bucklin has specified four service
outputs: Spatial Convenience (Market decentralization), Lot size, Waiting/delivery
time and Product delivery.

• Marketing cost as determinant of Channel structure – Efficiency to cost trade off.

Shifting of activities may have spinning off functions.

• The emergence of Mass Retailer and Power Buyers to countervail the power of
large manufacturers and their use of Private brands to counter the popular brands.

• The emergence of voluntary & retailer co-operative chains to countervail power of

large corporate Chains.

• Trade association activities by small retailers and pharmacies etc. in an attempt to

countervail the power of Chain retailer & Manufacturer.

• Emergence of Consumer societies and their power of bargaining

.
Performance Characteristics of Distribution Network :
• SERVICE FACTOR PERFORMANCE –
• Quick Response Time.
• Large Product Variety.
• Easy Product Availability.
• Customer experience as per fulfillment of needs.
• Fast Time to Market.
• Order Visibility.
• Returnability.
B. COST FACTOR PEREFORMANCE-
• Inventory Cost.
• Transportation Cost.
• Facilities & Handling Cost.
• Information Cost.

Design Options for a Distribution Network :

• Manufacturer Storage with Direct Shipping- Industrial products as per specific

order or slow moving consumer product are drop shipped directly to Customers.
• Manufacturer Storage with Direct Shipping and in transit Merge- Sony Monitors
& Dell computer are in transit merged and drop shipped directly.
• Distributor Storage with Carrier Delivery- Shipping of Books by Amazon.
• Distributor Storage with last mile Delivery- Albertsons Grocery delivery. Needs
more warehousing cost
• Manufacturer/Distributor Storage with Customer Pickup- Seven-eleven, Big
bazaar, Life style etc.
• Retail Storage with Customer Pickup- a typical conventional Grocer.
 Manufact Manufact Distribut Distribut Manufact Retail
urer urer or or urer Storage
Storage Storage Storage Storage Storage With
With With With With last With Customer
Direct In-
In-transit package mile Customer Pickup
Shipping Merge Carrier delivery Pickup
delivery
Response
Time
4 4 3 2 4 1
Product
Variety
1 1 2 3 1 4
Product
Availability
1 1 2 3 1 4
Customer Varies
Experience
4 3 2 1 5 from 1-
1-5

Time to
Market
1 1 2 3 1 4

Manufact Manufact Distribut Distribut Manufact Retail

urer urer or or urer Storage
Storage Storage Storage Storage Storage With
With With With With last With Customer
Direct In-
In-transit package mile Customer Pickup
Shipping Merge Carrier delivery Pickup
delivery
Order
Visibility
5 4 3 2 6 1
Return ability
5 5 4 3 2 1
Inventory
1 1 2 3 1 4
Transportatio
n
4 3 2 5 1 1
Facility &
1 2 3 4 5 6
Handling
 Manufact Manufact Distribut Distribut Manufact Retail
urer urer or or urer Storage
Storage Storage Storage Storage Storage With
With With With With last With Customer
Direct In-
In-transit package mile Customer Pickup
Shipping Merge Carrier delivery Pickup
delivery
Information
4 4 3 2 5 1

1 corresponds to Strongest performance

&
6 is the weakest Performance

Criteria for NETWORK DESIGN :

• FACILITY LOCATION.

• FACILITY ROLE.

• CAPACITY ALLOCATION.

• SUPPLY ALLOCATION.

• MARKET ALLOCATION.

Network Design Decision factors :

• STRATEGIC FACTORS –

• Off-shore facility – low cost facility for export production.

• Source Facility - low cost facility for Global Production.

• Server Facility – Regional Production facility is built to take advantage of

nearness to market, tax incentives, favorable tariff barrier or high logistic cost. Euro
Market

• Contributor facility- Regional Production facility with developmental skill of

New Product, customization, process improvements for better operational
efficiency. E.g. Maruti for Suzuki.

• Outpost facility – regional Production facility to gain local skill & knowledge.
E.g. B.P.OS in India.

• Lead facilities – facility that leads in development and process

technologies. E.g. Indian Pharmaceutical industries taking over R & D
facility of European enterprises.
• TECHNOLOGICAL Factors – Flexibility of the Production technology and its related
cost affect the degree of consolidation that can be achieved in the network. E.g.
Computer chip mfg. factories needs high cost and easy to transport & hence
centralized distribution & Manufacturing facility. On the other hand bottling plant for
coca-cola are low cost and hence put up regionally.

• Macro Economic Factors – As Global trade has increased macro-economic factors

have a significant influence in the success or failure of supply chain networks. The
factors are Tariff, Tax incentives, trade barriers, Trade groups like ‘ASEAN’, ‘EU’,
‘NAFTA, etc., exchange rates. Free trade zones etc.
• Political Factors – Stable political system where rules of commerce & ownership are
well defined with a free and fair judiciary is preferred as facility.

• COMPETITIVE FACTORS – Companies must consider competitors’ strategy, size,

location along with the products & services offered with their core competencies play
vital role in designing the supply chain. Sometimes positive externalities between
firms give advantage to each other like location of similar shops in a wholesale
market or a Mall. The other factors are locating to split the market, customer
response time and local presence as well as the logistics and facilities cost to derive
competitive edge in the market.
 Framework for Network Design Decisions

COMPETITIVE STRATEGY
PHASE I
INTERNAL CONSTRAINTS Supply Chain
Capital, growth strategy, GLOBAL COMPETITION
Strategy
existing network

PRODUCTION TARIFFS AND TAX

TECHNOLOGIES INCENTIVES
Cost, scale/scope impact,
support required, flexibility REGIONAL DEMAND
PHASE II Size, growth, homogeneity,
COMPETITIVE Regional Facility local specifications
ENVIRONMENT Configuration
POLITICAL,
AGGREGATE FACTOR EXCHANGE RATE,
AND LOGISTICS COSTS AND DEMAND RISK

PRODUCTION METHODS PHASE III AVAILABLE

Skill needs, response time Desirable Sites INFRASTRUCTURE

LOGISTIC COSTS
FACTOR COSTS PHASE IV
Transport, inventory,
Labor, materials, site specific Location Choices
coordination
Conceptual model of service quality
Word – of – mouth Past
Personal Needs
Communications Experience

Expected Service
Gap 5

PROVIDER Perceived Service

Service Gap 4 External

Delivery Communications
Gap 3
to Customers
Gap 1
Service Quality
Specifications
Gap 2
Management
perceptions of
customer expectations

CConceptual model of service quality

 DISTRIBUTION PLANNING PROCESS.
• Develop through understanding of Business Strategies and marketing plan.

• Move towards a Distribution system that balances service and cost effectiveness.

• Evaluate customer service requirements and determine the vital few elements.

• Determine the level of performance expected against these key elements and how
the business measures up against its competition.

• Analysis & work out least cost for production and distribution to accomplish
customer, marketing and customer requirements.

• Develop a viable Distribution strategy in line with the customer’s service

requirement, the associated cost and corporate goal.

• The distribution plan should include sections on corporate objectives, marketing

strategy, inventory details, warehousing, transport and customer communication
strategy.
.
• INVENTORY STRATEGY :

• Service level Policy.

• Replenishment Strategy.

• Differential Deployment (Pareto principle)

• Stock- turn over Ratio.

TRANSPORTATION STRATEGY

• Own account / Third party split.

• Lease/buy decision.

• Customer pick-up/ Direct delivery/ other options.

• Vehicle utilization Targets.

• Routing Flexibility.

• Modal Split.

• Time- cost trade off.

WARE HOUSING STRATEGY.

• Number of Stock holding Points.

• Location of Depots.

• Use of Public warehouses.

• Warehouse design & layout.

• Material handling methods.

CUSTOMER COMMUNICATION STRATEGY.

• Order cycle time policy.

• Differential customer response strategy.

• Order Processing Systems.

• Damages/ Claim/ Return strategy.

• Order Status Reporting.

A SUITABLE FOCUS FOR SUCH A MONITORING SYSTEM IS

CUSTOMER SERVICE BOTH FROM THE VIEW OF
PERFORMANCE AND THE COST OF SETTING UP THE SERVICE
FOLLOWING A SYSTEMATIC PROCEDURE OF A SUGGESTED
SEQUENCE.

DISTRIBUTION PLANNING CYCLE.

Strategic Planning.
Products, markets &Channels.
Profits & ROI obj.

Performance Measurement Operational Planning

and Reporting. Mfg. & Dist. configuration.
Actual versus Plan, Mid-course correction. Cust. Service goals.
Re-examination of Strategy. Operating Budget.
Inventory Investment.

Distribution Management.
Inventory control & traffic.
Manpower Planning & Budgets.

DISTRIBUTION PLANNING TASKS:

 DISTRIBUTION PLANNING TASKS:
Audit
distribution 1. where Define dist.
performance. are we mission &
now objectives.
4. How do
we know 2.Where do
we have we want to
arrived be.

Design Dist. 3. How do we

Control get Develop
Strategies. there Distribution
Strategies.

Missions are defined in terms of Channels and Outlets served by the

Products.
• This is to be attained within the constraints of specified levels of cost &
Service.
• Distribution mission is translated into a set of goals to be achieved by
the system within a specific product/ market context.
• To identify and evaluate alternative strategic options and select the best
strategy to attain the end objectives with least cost.
 DISTRIBUTION MISSIONS :

2.
CHANNELS

1.
DISTRIBUTION 3.
PRODUCT
MISSION OUTLETS
TYPE.

4.CUSTOMER
SERVICE
REQUIREMENT

DISTRIBUTION PLANNING HORIZONS

• Distribution Planning has to work both for Short term and long term
levels.

• Short term planning is for a calendar year or budget known as “

Operation Planning”.

• Long term distribution planning extends for a minimum period of five

years or more termed as “Strategic or Resource Planning”.
 LOGISTICS MANAGEMENT
Physical distribution management
Materials
Management Transit depot

INVENTORIES
Raw Materials
Finished Finished
Components Work End User
products products
Manufactured parts in
Packaging material Prog-
Factory Field
ess
warehousewarehouse

Production Intermediary

Materials flows Logistics

Information flows