Production Planning for Supply

Chain

Chapter 10:
Distribution Requirements Planning
(DRP)

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Distribution Requirements Planning

 Distribution Requirements Planning (DRP)

provides the basis for integrating supply chain
inventory information and physical distribution
activities with the manufacturing planning and
control (MPC) system.

 DRP system supports logistics savings through

better planning of transportation capacity needs
and dispatching of shipments.

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Distribution Requirements Planning

 Well developed DRP system helps management:

 Anticipate future requirements in the field.
 Closely match material supply and demand.
 Effectively deploy inventory to meet customer
service requirements.
 Rapidly adjust to the ups/downs of the
marketplace.

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 DRP in the Supply Chain

How does DRP integrate the MPC system with the Supply
Chain Needs?
 DRP links firms in the supply chain

 Planning records carry demand information from

receiving points to supply points and returns supply
information to the receiving points
 DRP integrates key linkages in the supply network
 DRP can be linked to the MPC systems of the
manufacturer, customers, and suppliers
 Spans the boundary from internal to external MPC

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DRP in the Supply Chain

 DRP manages material flows between:

 Firms
 Warehouses
 Distribution centers
 Returns to point of origin with value added
 Remanufacture/Rework

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DRP in the Supply Chain
Auto Assembly Example

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DRP in the Supply Chain
 DRP manages logistics of distribution to warehouses;
 May involve breaking bulk – large volumes to customer
friendly units.
 Packaging/Labelling activity – destination specific
requirements.
 Vendor managed inventories, material/product
management at the customer location is under vendor
control.
 Make-to-Knowledge, information provided through
customer MPC system allows for more effective reaction
to changes (benefits over time –reduced safety stock,
reduced surprises, etc)
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 Resource Sales and operations Demand
Planning planning management

Enterprise Resource Planning (ERP) System

Master production
scheduling Front End

Detailed capacity Detailed material

planning planning
Engine
Material and
capacity plans

Shop-floor Supplier Back end

systems systems

Manufacturing Planning and Control System

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DRP in the Supply Chain
DRP Links to MPC

external
inte
int
er

rna
na

l
l
extern
al DRP Links

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 DRP in the Supply Chain
DRP Links to MPC

 DRP coordinates material flows through the physical

distribution system
 Effectively managing the flow of goods and
inventories between the firm and the market
 Planned timings and quantities for replenishing
inventories throughout the physical distribution
system
 Provides information to the master scheduler in a
format consistent with MRP records

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 DRP in the Supply Chain
DRP Links to MPC
 Front End;
 Links between Demand Management and Customer
 Demand information brought back to SOP and MPS
• MPS – information is important for managing balance of
Demand & Supply. (eg MPS calculations for Periods 2,3,…
after period 1 actuals are known, DRP provides the information
to determine if we can adopt the changes)
• SOP – information is important for Market data analysis,
development of company plans.
 Back End;
 DRP central role coordinates material flow to: field warehouse,
distribution centers, central suppliers & customers (similar to MRP
role in coordinating materials in manufacturing)

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 DRP in the Supply Chain
DRP and the Marketplace

 DRP starts at or near the marketplace.

 DRP starts inside a company in most instances.
 DRP records originate in warehouse(s) or distribution
center(s).
 At the independent-dependent interface, hence
they are forecasts.
 Local demand data can help manage field inventories
by paying careful attention to patterns;
 Special orders
 Planned inventory adjustments by customers.

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 DRP in the Supply Chain
DRP and the Marketplace

 DRP serves two purposes in the Marketplace:

 (1) Capture data – local demand conditions –
modify forecasts – report current inventories.
 (2) Provide data to manage distribution, and
consist communication with customer & company
structure.

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 DRP in the Supply Chain DRP and
Demand Management

 DRP information is key

to developing logistics
system management
plans

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 DRP in the Supply Chain
DRP and Demand Management
 Demand Management module is the gateway between the
manufacturing facility and the marketplace.
 Information on demand is taken IN and inventory status is
sent OUT.
 As actual field demands vary around forecasts,
adjustments are required, DRP makes these adjustments,
by sending inventories from central warehouse to
distribution centers.
 Insufficient total inventories, DRP:
 Provides basis for deciding on allocations
 When availability will improve and delivery is expected.

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 DRP in the Supply Chain
DRP and Master Production Scheduling
 DRP allows incorporation of records and information into
the MPS system
 Extends MPC visibility into the distribution system
(DRP & MRP records are compatible)
 Can have political costs
 Boundaries between supply chain partners
 Convincing them of the value of integration
 What are the benefits (costs savings, service
improvements, etc). How are they divided between the
various companies (customers, company, vendors).

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DRP in the Supply Chain
Auto Assembly Example

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 DRP in the Supply Chain
DRP and Master Production Scheduling
 DRP collects detailed information in the field, summarizes
it, and passes it along to the MPC system:
 Decisions can respond to company needs.
 Evaluate current conditions – revise manufacturing
priorities.
 More informed when making trade-offs.
 Provides master scheduler with better information to
match manufacturing output with shipping.

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 DRP Techniques
Basic DRP Records
 Records are maintained centrally as part of the MPC
system
 Records are kept for stockkeeping units (SKU)
 Extends the bill of materials to define the SKU as an SKU
in the field warehouse
 Product isn’t “completed” until it has been delivered to
the location where it satisfies customer demand.
 MRP – deals with finished product.
 Customer decides how much and when to order.
 Planners in the company decide when and how much to
produce.

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 DRP Techniques “In transit” goods
can’t easily be
Basic DRP Records expedited or
Forecast includes delayed
information on
special orders and Period
customer inventory
adjustments On hand 1 2 3 4 5

Forecast requirements 20 20 20 20 30

In transit 60

Projected available balance 45 25 65 45 25 55

Planned shipments 60 60

Safety stock = 20,

shipping quantity = 60, lead time = 2
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 DRP Techniques
Basic DRP Records

 Forecast, if linked to the customer MPC, then it is a

reflection of the customer’s current plans.
 DRP record is similar to the MRP record with some
differences, however the consistency in format and
processing logic is of major benefit.
 Lead time must include; loading time (from where
the product is coming from); transit time; unloading
time; stocking time.

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DRP Techniques
Time-Phased Order Point

 Time-phased order point (TPOP) uses forecast

information for requirements and a time-phased
MRP approach to develop planned shipments
 TPOP record shows planned shipment data
 All demand sources (TPOP, service parts,
interplant shipments) are considered by the DRP
system

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 DRP Techniques
Linking Several Warehouse Records
 Information about planned
requirements from all field
warehouses is passed
along to the central facility
 Implosion–process of
bringing demand
information back to the
central facility

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 DRP Techniques
Linking Several Warehouse Records
 Implosion - Gathering information from field locations &
aggregating it at the manufacturing facility.
 Whereas, Explosion in the MRP is the finished product
broken down to its components (the 2 have similarities).
 Demand from a warehouse is a ‘dependent’ demand
therefore it is a ‘Gross Requirement’ not a ‘Forecast
Requirement’.
 Central facility gross requirement in the same time period
as field warehouse planned shipment since the lead time
is covered in the field warehouse (load, transit, unload,
stock)
 Central facility information used to create MPS.
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 DRP Techniques
Managing Variations from Plan

 Daily – transactions are processed for actual

customer demand, receipts of inventory, shipments,
material movement, etc.
 IF Forecasts and Execution of Plans were perfect,
we would not need to do anything.
 Forecasts are rarely correct and plans are may not
be perfect.

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 DRP Techniques
Managing Variations from Plan

 One method for dealing with discrepancies/errors is to

stabilize the information flow by:
 (1) Firm planned orders, treat Planned Shipments as
Firm Planned Shipments – reduce variation by
reviewing implications of change before allowing
changes to occur.
• For instance, if safety stock limit is triggered, an
error message is created and reviewed by master
scheduler before any Action (computer) is taken.

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 DRP Techniques
Managing Variations from Plan

 (2) Error addback method – assumes forecasts

are unbiased (overall forecast approaches
accuracy on average)
• Shortages from one period are predicted to be
made-up in the next (or excess sales are
believed to result in reductions in the future)
• Less effective if the forecast is biased

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 DRP Techniques
Safety Stock
 DRP allows carrying of safety stock at any location in the
system.
 More frequent replenishment reduces the necessary
safety stock.
 Safety lead time is also an option.
 Useful when delivery times are variable.
 Aggregating uncertainty from several locations allows
safety stock reductions - Risk pooling.
 Transshipment between field warehouses.
 Move inventory closer to customer (field warehouses)
thus carry less inventory at central facility.

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 Management Issues with DRP
Data Integrity and Completeness
 Garbage IN – Garbage OUT.
 Two key data items:
 Forecast requirements.
 Inventory balance (including any in transit).
 Detailed forecasts (at Field level) are combined together
to create aggregate forecast.
 Errors (compared to actuals over time) in individual Field
forecasts tend to cancel each other.
 Bias in detailed/field forecast can cause significant issues.
 Need for tight procedural controls to mitigate issues.

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 Management Issues with DRP
Data Integrity and Completeness

 Traditional company structures with departments

can result in conflicting functional objectives thus
reducing overall company achievement.
 Material management form of organization to
help align responsibilities to material flow, which
is across departments and functional objectives
tied to material flow.

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Management Issues with DRP
Data Integrity and Completeness

Impact on Objectives
Functional Objectives Inventory Customer service Total Costs
High customer service
Low transportation costs
Low warehousing costs
Reduce inventories
Fast deliveries
Reduced labour costs

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