Distribution Requirements Planning (DRP) · Distributors keen to replicate MRP success hence DRP developed · DRP mirror image of MRP, i.e. it seeks to identify requirements for finished product at the point of demand · Aggregated, time phased requirements schedules for each echelon are then produced. (Compare with typical MRP example.)

DRP continued DRP is a "Pull" rather than "Push" philosophy Customer requirements are identified or anticipated at the point of demand and "pulled" down the distribution pipeline DRP relies upon forecasts of end demand generated at the lowest point in the distribution echelon.

MRP/DRP - ERP From regional depots - central warehouse and then the plant. This demand is aggregated on a time phased basis. Significant advantages can be gained by DRP. The biggest pay-off is through the linking of MRP and DRP into an integrated planning system. This is called "Logistics Requirements Planning" (LRP). Or “Enterprise Resources Planning” (ERP)

Supply-Chain Management? Supply-chain management is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer

Formulas for Measuring Supply-Chain Performance One of the most commonly used measures in all of operations management is “Inventory Turnover” In situations where distribution inventory is dominant, “Weeks of Supply” is preferred and measures how many weeks’ worth of inventory is in the system at a particular time 17

Example of Measuring Supply-Chain Performance Suppose a company’s new annual report claims their costs of goods sold for the year is $160 million and their total average inventory (production materials + work-in-process) is worth $35 million. This company normally has an inventory turn ratio of 10. What is this year’s Inventory Turnover ratio? What does it mean?

Example of Measuring Supply-Chain Performance (Continued) = $160/$35 = 4.57 Since the company’s normal inventory turnover ration is 10, a drop to 4.57 means that the inventory is not turning over as quickly as it had in the past. Without knowing the industry average of turns for this company it is not possible to comment on how they are competitively doing in the industry, but they now have more inventory relative to their cost of goods sold than before. 17

Bullwhip Effect The magnification of variability in orders in the supply-chain Retailer’s Orders Wholesaler’s Orders Manufacturer’s Orders Quantity Order Quantity Order Quantity Order Time Time Time A lot of retailers each with little variability in their orders…. …can lead to greater variability for a fewer number of wholesalers, and… …can lead to even greater variability for a single manufacturer.

MRP/DRP Combining MRP and DRP into a closed loop system is likely to offer a number of benefits High degree of integration from Raw Materials to WIP to Finished Goods Better control of material flow Reduction in total investment in inventory Increased utilisation of warehouse space, plant and transportation Greater flexibility in the systems can improve response to customers' requirements

Distribution Network: Milan winery and its outlet Information flow Physical flow Winery Milan Distribution Centre ZURICH Distribution Centre TORINO Retail outlet BADEN Retail outlet ZUG Retail outlet COMO Retail outlet BERGAMO Retail outlet St GALLEN Retail outlet PIANCENZO

Wine Distribution Centre, Switzerland & Italy Retail outlet Weekly Demand (cases) Inventory on hand Order Quantity Baden, Switzerland 8 12 15 Zug, Switzerland 9 14 20 St Gallen, Switzerland 19 Como, Italy 18 25 Piancenzo, Italy 21 35 Bergamo, Italy 22 32 30

Distribution centre with inventory on hand Order quantity Zurich, Switzerland 65 50 Torino, Italy 105 70

Milan Winery inventory on hand and production lot Inventory on hand Production lot Milan 80 160

Winery example Assignment: Develop a ‘pull’ distribution requirements plan, over an 8-week period, using the weekly demand from each retails outlet as the independent demand, which pulls the product through the network Assume lead time of 1 week for all outlets

Enterprise Resource Planning (ERP) Systems What is Enterprise Resource Planning? Software systems SAP R/3 System Components Benefits and Implementation of ERP 2

ERP Systems Defined ERP is a computer system that integrates application programs in accounting, sales, manufacturing and other functions in the firm This integration is accomplished through a database shared by all the application programs

ERP Vision What is ERP? One Database One Application Sales & Marketing Automation Human Resources Distribution Planning New Product & Process Development Corporate Management & Strategy Corporate Accounting Manufacturing Planning Manufacturing Process Automation One Database One Application One User Interface

Major Developers of ERP software AIM computer solutions (Comprehensive selection of software www.aimcom.com) American Software (Comprehensive selection: focus on supply chain management www.amsoftware.com) The Baan Company (Baan IV client/server: dynamic enterprise modelling www.baan.com) Chesapeake Software systems (Optimised manufacturing scheduling www.chessie.com) i2 Technologies (Forecasting flow manufacturing www.i2.com) Manugistics (Optimisation of logistics functions www.manugistics.com) Oracle (Comprehensive system: major database vendor www.oracle.com) Peoplesoft (Comprehensive selection: client/server products www.peoplesoft.com)

SAP AG’s R/3 (www.sap.com) SAP AG (a German firm) provides ERP - its flagship product - R/3 R/3 comprises four major modules: Financial Accounting Human Resources Manufacturing & Logistics Sales & Distribution The software is designed to operate in a three-tier client/server configuration at the core is a high-speed network of database servers the applications have a range of modules which are networked through a front-end application server The key to SAP success is its comprehensive coverage of business applications

R/3 System Functional Components Financial Accounting R/3 System Sales & Distribution Human Resources Functional Components Manufacturing & Logistics

Financial Accounting Financials (FI) Controlling (CO) Asset Management (AM)

Human Resources (HR) Payroll Benefits administration Applicant data administration Personnel development planning Workforce planning Schedule & shift planning Time management Travel expense accounting

Manufacturing & Logistics Materials management (MM) Plant maintenance (PM) Quality management (QM) Production planning & control (PP) Project management system (PS)

Sales and Distribution (SD) Prospect & customer management Sales order management Configuration management Distribution Export controls Shipping and transportation management Billing, invoicing, and rebate processing

Reasons for Implementing SAP R/3 Desire to standardise and improve processes To improve the level of systems integration To improve quality of information

Benefits of ERP Why Invest in ERP? The Future of ERP Sharing of information - quick decisions, less admin Schedule production, utilise capacity Guides staff through processes Less IT maintenance The Future of ERP New modules Electronic Commerce - bypass distribution chain Standards Decline of costs - new easy to use tools Optimisation of Resources and Processes (ORP)

Enterprise Requirements Planning (ERP) in practice extremely difficult to implement. a number of prerequisites exist. These include: accurate bottom up forecasts open lines of communication flexible manufacturing and distribution systems improved communications with suppliers and customers accuracy in the collection of data, i.e. Bill of Material (BOM) and Inventory Records a high level of management commitment

SAP R/3 Application Modules Financial Accounting (FI) Financial Controlling (CO) Fixed Assets Management (AM) Human Resources (HR) Workflow (WF) Industry Solutions (IS) Plant Maintenance (PM) Project System (PS) Quality Management (QM) Sales and Distribution (SD) Production Planning (PP) Materials Management (MM)