SECTION I: DISTRIBUTION

PLANNING TECHNIQUES
Section I Overview

Section I Learning Objectives

▪ Location-specific forecasts
▪ SKU replenishment parameters
▪ Time-phased planning logic methods in DRP
▪ Linkages between DRP, S&OP, and master scheduling
processes
▪ Pull and push systems
▪ Data collection methods for gathering feedback
▪ Key distribution performance indicators
▪ Network design, distribution process, and execution options

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Topic 1: Replenishment Planning Parameters and Inventory Control

Improving Performance of the Distribution Network

Quick responses to Robust DRP systems Material supply and

market changes demand are closely
can be made by matched.
relocating products
to areas where they
are in demand.
Inventory can be
located and
The systems assist deployed from
management in specific locations to
planning for future best meet customer
requirements in the service require-
field. ments.

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Topic 1: Replenishment Planning Parameters and Inventory Control

Distribution Location-Specific Product Forecast

Coordinates materials flow through physical distribution
system

Addresses when, where, and how much

inventory is needed

Shapes what resources are needed to

ensure that replenishment inventory can
be delivered, handled, and stored
according to replenishment plans

DRP
Goal is efficient, timely service with
minimal inventory investment

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Topic 1: Replenishment Planning Parameters and Inventory Control

Replenishment Planning Parameters

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Topic 1: Replenishment Planning Parameters and Inventory Control

Push versus Pull

Key Attributes Pull Systems Push Systems
Authority to initiate Decentralized (warehouse) Centralized (central supply
replenishment planners)
Inventory planning At warehouse level For total system inventory
Customer service Measured at DC level Measured system-wide
Reorder point Order point, min/max, When projected available
periodic review; at signal— balance for future given period
pull item, kanban signal is negative or below safety
stock level
System-wide High: safety stock carried Lower: consolidated at one
safety stock at each location and level location
Organizational Downstream inventory Central planners responsible;
implications requirements not visible forecasting training; need
accurate demand/supply data

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Topic 1: Replenishment Planning Parameters and Inventory Control

Inventory Control

4 2

People Process

Paper

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Topic 2: Warehouse Replenishment Systems

Warehouse Replenishment Systems

▪ Assumptions may not hold true, but there may be a

broad range where close enough
▪ Safety stock and
order quantity
control average
inventory and
customer service
level
▪ Decentralized

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Topic 3: Distribution Requirements Planning (DRP)

DRP Order Policies

Discrete/L4L

Fixed-period requirements

Discrete above standard lot size

Incremental above standard lot size

Multiples of standard lot size

Minimum/maximum order quantity

Lot costing models

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Topic 3: Distribution Requirements Planning (DRP)

DRP Safety Stock Calculation Options

▪ Set safety stock using preset number of days of inventory

▪ Set safety stock based on usage and lead time
Safety Stock =
(Maximum Daily Usage ⨯ Maximum Lead Time in Days)
– (Average Daily Usage ⨯ Average Lead Time in Days)

▪ Estimate safety stock (SS) using square root law

Square Root Law

√
Number of DCs in Future
Future SS = Current SS ×
Number of DCs in
Present
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 Topic 3: Distribution Requirements Planning (DRP)

DRP Calculation

CALCULATE
Inputs Outputs
DRP

• Planning horizon length • Using this information, • Exception

• Planning bucket size DRP processor reporting
• Item forecast populates each planning • Planned orders
• Open customer orders grid bucket. • Action messages
Beginning on-hand quantities • Resupply of buckets is • Pegged
• Open purchase, interbranch, determined by item’s requirements
postponement order order policy code.
• Replenishment/finishing lead
times
• Safety stock
• Order policy code
• Supply sources based on BOD
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Topic 3: Distribution Requirements Planning (DRP)

Time-Phased Order Point (TPOP)

Period
On Hand 1 2 3 4 5
Forecast requirements 20 20 20 20 20
In transit
Projected available
32 12 37 17 42 22
balance
Planned order receipts 45 45
Planned order releases 45 45

Safety Stock: 10 Shipping Quantity: 45 Lead Time: 1

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Topic 4: Methods to Link DRP, S&OP, and Master Scheduling Processes

Linking DRP, S&OP, and Master Scheduling

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Topic 5: Distribution Performance Measurement and Feedback

Performance Feedback

▪ Service
▪ Fast flow response
▪ Reduction of operating variance
▪ Minimum inventories
▪ Transportation reduction
▪ Quality management
▪ Product life cycle support

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Topic 5: Distribution Performance Measurement and Feedback

Distribution System Performance Measures

Customer Distribution Inventory

service efficiency mgmt.

• % of orders completely • % order filling • Inventory turns

satisfied from stock • % shipping accuracy • Cash-to-cash cycle
• % of units required • % inventory record
filled from stock accuracy
• % of units required • % storage utilization
delivered on time
• % of item stockout
• % of stock cycles
without shortages
• % of months without
stockout
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Topic 5: Distribution Performance Measurement and Feedback

Data Collection Methods

Email and Feedback

contact forms surveys

Interviews/
Social listening
focus groups

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Topic 5: Distribution Performance Measurement and Feedback

Improvements in the Distribution Planning Process

•Fill rates
•Average length of time
required to satisfy
backorders
•Percentage of order
replenishment cycles in
which one or more units
are backordered
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