Distribution Requirements Planning

Logistics Workshop Asia 2004

Phnom Penh, Cambodia10 – 14 May 2004

2

Distribution Requirements Planning

What is DRP?

DRP is the function of determining the time-phased requirement to replenish inventory at branch warehouses.

The sum of the requirements over different Distribution Centres again results in the time-phased requirement at the final supplier.

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RCCP

CRP

Forecasting

Distribution Requirements

Planning

Material Requirements

Planning

Master Production Scheduling

Distribution Requirements Planning

4

Distribution Requirements Planning

Brewery

Central warehouse

Regional warehouse 1

Regional warehouse 2

Forecast / Sales information

Inventory flow (delivery)Sales Plan

RetailOutlet E

RetailOutlet D

RetailOutlet C

RetailOutlet B

RetailOutlet A

5

Distribution requirement planning

Brewery

Distribution Centres

Customers

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Distribution Requirements PlanningDemand DC 1

Planned Available week 1: 6,500 – 2,200 = 4,300Safety stock should be 1,500, so no order

Week

0 1 2 3 4 5 6 7

Gross requirement 2,200 2,000 2,000 2,100 1,800 1,900 3,300

Planned available 6,500 4,300 1,800 3,800 1,700 3,900 2,000 2,700

Planned order due 4,000 4,000 4,000

Planned order release 4,000 4,000 4,000

Product: Heineken 60 cl Leadtime: 2 weeksSafety stock: 1,500Order Quantity 4,000

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Distribution Requirements PlanningDemand DC 1

Planned Available week 2: 4,300 – 2,500 = 1,800Safety stock should be 1,500, so no order

Week

0 1 2 3 4 5 6 7

Gross requirement 2,200 2,500 2,000 2,100 1,800 1,900 3,300

Planned available 6,500 4,300 1,800 3,800 1,700 3,900 2,000 2,700

Planned order due 4,000 4,000 4,000

Planned order release 4,000 4,000 4,000

Product: Heineken 60 cl Leadtime: 2 weeksSafety stock: 1,500Order Quantity 4,000

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Distribution Requirements PlanningDemand DC 1

Planned Available week 3: 1,800 – 2,000 = - 200Safety stock should be 1,500, so minimal order 1,700

Week

0 1 2 3 4 5 6 7

Gross requirement 2,200 2,500 2,000 2,100 1,800 1,900 3,300

Planned available 6,500 4,300 1,800 3,800 1,700 3,900 2,000 2,700

Planned order due 4,000 4,000 4,000

Planned order release 4,000 4,000 4,000

Product: Heineken 60 cl Leadtime: 2 weeksSafety stock: 1,500Order Quantity 4,000

Order 4000, since order quantity = 4,000 (order release week 1)Planned available = -200 + 4,000 = 3,800

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Distribution Requirements PlanningDemand DC 1

Planned Available week 4: 3,800 – 2,100 = 1,700Safety stock should be 1,500, so no order

Week

0 1 2 3 4 5 6 7

Gross requirement 2,200 2,500 2,000 2,100 1,800 1,900 3,300

Planned available 6,500 4,300 1,800 3,800 1,700 3,900 2,000 2,700

Planned order due 4,000 4,000 4,000

Planned order release 4,000 4,000 4,000

Product: Heineken 60 cl Leadtime: 2 weeksSafety stock: 1,500Order Quantity 4,000

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Distribution Requirements PlanningDemand DC 1

Planned Available week 5: 1,700 – 1,800 = - 100Safety stock should be 1,500, so minimal order 1,600

Week

0 1 2 3 4 5 6 7

Gross requirement 2,200 2,500 2,000 2,100 1,800 1,900 3,300

Planned available 6,500 4,300 1,800 3,800 1,700 3,900 2,000 2,700

Planned order due 4,000 4,000 4,000

Planned order release 4,000 4,000 4,000

Product: Heineken 60 cl Leadtime: 2 weeksSafety stock: 1,500Order Quantity 4,000

Order 4000, since order quantity = 4,000 (order release week 3)Planned available = -100 + 4,000 = 3,900

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Distribution requirement planning

Brewery

Distribution Centres

Customers

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Distribution Requirements PlanningDemand DC 2

Planned Available week 1: 3,000 – 700 = 2,300Safety stock should be 900, so no order

Week

0 1 2 3 4 5 6 7

Gross requirement 700 900 1,100 900 700 900 900

Planned available 3,000 2,300 1,400 2,100 1,200 2,300 1,400 2,300

Planned order due 1,800 1,800 1,800

Planned order release 1,800 1,800 1,800

Product: Heineken 60 cl Leadtime: 1 weekSafety stock: 900Order Quantity 1,800

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Distribution Requirements PlanningDemand DC 2

Planned Available week 2: 2,300 – 900 = 1,400Safety stock should be 900, so no order

Week

0 1 2 3 4 5 6 7

Gross requirement 700 900 1,100 900 700 900 900

Planned available 3,000 2,300 1,400 2,100 1,200 2,300 1,400 2,300

Planned order due 1,800 1,800 1,800

Planned order release 1,800 1,800 1,800

Product: Heineken 60 cl Leadtime: 1 weekSafety stock: 900Order Quantity 1,800

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Distribution Requirements PlanningDemand DC 2

Planned Available week 3: 1,400 – 1,100 = 300Safety stock should be 900, so minimal order 600

Week

0 1 2 3 4 5 6 7

Gross requirement 700 900 1,100 900 700 900 900

Planned available 3,000 2,300 1,400 2,100 1,200 2,300 1,400 2,300

Planned order due 1,800 1,800 1,800

Planned order release 1,800 1,800 1,800

Product: Heineken 60 cl Leadtime: 1 weekSafety stock: 900Order Quantity 1,800

Order 1,800, since order quantity = 1,800 (order release week 2)Planned available = 300 + 1,800 = 2,100

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Distribution Requirements PlanningDemand DC 2

Planned Available week 4: 2,100 – 900 = 1,200Safety stock should be 900, so no order

Week

0 1 2 3 4 5 6 7

Gross requirement 700 900 1,100 900 700 900 900

Planned available 3,000 2,300 1,400 2,100 1,200 2,300 1,400 2,300

Planned order due 1,800 1,800 1,800

Planned order release 1,800 1,800 1,800

Product: Heineken 60 cl Leadtime: 1 weekSafety stock: 900Order Quantity 1,800

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Distribution Requirements PlanningDemand DC 2

Planned Available week 5: 1,200 – 700 = 500Safety stock should be 900, so minimal order 400

Week

0 1 2 3 4 5 6 7

Gross requirement 700 900 1,100 900 700 900 900

Planned available 3,000 2,300 1,400 2,100 1,200 2,300 1,400 2,300

Planned order due 1,800 1,800 1,800

Planned order release 1,800 1,800 1,800

Product: Heineken 60 cl Leadtime: 1 weekSafety stock: 900Order Quantity 1,800

Order 1,800, since order quantity = 1,800 (order release week 4)Planned available = 500 + 1,800 = 2,300

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Distribution requirement planning

Brewery

Distribution Centres

Customers

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Distribution Requirements PlanningDemand DC 3

Week

0 1 2 3 4 5 6 7

Gross requirement 700 600 900 800 600 600 700

Planned available 2,700 2,000 1,400 1,700 900 1,500 900 1,400

Planned order due 1,200 1,200 1,200

Planned order release 1,200 1,200 1,200

Product: Heineken 60 cl Leadtime: 1 weekSafety stock: 600Order Quantity 1,200

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Distribution Requirements PlanningTotal Demand

Week

0 1 2 3 4 5 6 7

Requirement DC 1 4,000 4,000 4,000

Requirement DC 2 1,800 1,800 1,800

Requirement DC 3 1,200 1,200 1,200

Gross Requirement 4,000 3,000 4,000 3,000 4,000 3,000

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Distribution Requirements Planning

Characteristics :

• Great emphasis on the assets in sourcing and distribution

systems, in particular on inventory levels

• DRP contributes to the reduction of stock costs

• Reduce inventory levels but more competitive service

levels (the costs of stocks represent a significant part of

cost price)

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Distribution Requirements Planning

Brewery

Central warehouse

Regional warehouse 1

Regional warehouse 2

Forecast / Sales information

Inventory flow (delivery)Sales Plan

RetailOutlet E

RetailOutlet D

RetailOutlet C

RetailOutlet B

RetailOutlet A

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Distribution Requirements Planning

DRP I versus Stock Replenishing System

(re-order point system)

Characteristics of re-order point methods:

• Using an average demand

• Determination of re-order time (not when product is needed)

• No warning for and anticipate for demand fluctuation

• No integration of stock levels in the chain ( Forester effect)

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Distribution Requirements Planning

0

1000

1100

1160

1280

1400

Quantity

Time

manufacturer

40%

central

warehouse

28%

wholesaler

16%

retailer

10%

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Distribution Requirements Planning

Important characteristics in DRP-I

• It calculates when present stock and goods in transit are used

• It generates the moments of receipt

• It generates the moment of sending the products

• Receipts will be taken into account for requirements planning

(the planning horizon will move on).

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Distribution Requirements Planning

Advantages of DRP

• Possibility to complete the order with future orders to create full truck loads

• Orders can be communicated with the supplier in an early stage (improvement of the reliability).

• Parallel orders, which means peaks in transports can be signalled in an early stage.

• In case of disturbance, it offers possibilities to create solutions which are optional for the whole chain.

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Distribution Requirements Planning

Advantages of complementation in the USA

• Improvement of the delivery reliability from 85% to 97%

• Decrease in inventories with 25%

• Decrease of the distribution costs with 15%

• Decrease of absolute stock with 80%

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Exercise 7