Distribution Requirements Planning Logistics Workshop Asia 2004 Phnom Penh, Cambodia 10 – 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.

3 RCCP CRP Forecasting Distribution Requirements Planning Material Requirements Planning Master Production Scheduling Distribution Requirements Planning

4 Brewery Central warehouse Regional warehouse 1 Regional warehouse 2 Forecast / Sales information Inventory flow (delivery) Sales Plan Retail Outlet E Retail Outlet D Retail Outlet C Retail Outlet B Retail Outlet A

5 Distribution requirement planning Brewery Distribution Centres Customers

6 Distribution Requirements Planning Demand DC 1 Planned Available week 1: 6,500 – 2,200 = 4,300 Safety stock should be 1,500, so no order Week Gross requirement2,2002,000 2,1001,8001,9003,300 Planned available6,5004,3001,8003,8001,7003,9002,0002,700 Planned order due4,000 Planned order release4,000 Product:Heineken 60 clLeadtime:2 weeks Safety stock:1,500 Order Quantity4,000

7 Distribution Requirements Planning Demand DC 1 Planned Available week 2: 4,300 – 2,500 = 1,800 Safety stock should be 1,500, so no order Week Gross requirement2,2002,5002,0002,1001,8001,9003,300 Planned available6,5004,3001,8003,8001,7003,9002,0002,700 Planned order due4,000 Planned order release4,000 Product:Heineken 60 clLeadtime:2 weeks Safety stock:1,500 Order Quantity4,000

8 Distribution Requirements Planning Demand DC 1 Planned Available week 3: 1,800 – 2,000 = Safety stock should be 1,500, so minimal order 1,700 Week Gross requirement2,2002,5002,0002,1001,8001,9003,300 Planned available6,5004,3001,8003,8001,7003,9002,0002,700 Planned order due4,000 Planned order release4,000 Product:Heineken 60 clLeadtime:2 weeks Safety stock:1,500 Order Quantity4,000 Order 4000, since order quantity = 4,000 (order release week 1) Planned available = ,000 = 3,800

9 Distribution Requirements Planning Demand DC 1 Planned Available week 4: 3,800 – 2,100 = 1,700 Safety stock should be 1,500, so no order Week Gross requirement2,2002,5002,0002,1001,8001,9003,300 Planned available6,5004,3001,8003,8001,7003,9002,0002,700 Planned order due4,000 Planned order release4,000 Product:Heineken 60 clLeadtime:2 weeks Safety stock:1,500 Order Quantity4,000

10 Distribution Requirements Planning Demand DC 1 Planned Available week 5: 1,700 – 1,800 = Safety stock should be 1,500, so minimal order 1,600 Week Gross requirement2,2002,5002,0002,1001,8001,9003,300 Planned available6,5004,3001,8003,8001,7003,9002,0002,700 Planned order due4,000 Planned order release4,000 Product:Heineken 60 clLeadtime:2 weeks Safety stock:1,500 Order Quantity4,000 Order 4000, since order quantity = 4,000 (order release week 3) Planned available = ,000 = 3,900

11 Distribution requirement planning Brewery Distribution Centres Customers

12 Distribution Requirements Planning Demand DC 2 Planned Available week 1: 3,000 – 700 = 2,300 Safety stock should be 900, so no order Week Gross requirement , Planned available3,0002,3001,4002,1001,2002,3001,4002,300 Planned order due1,800 Planned order release1,800 Product:Heineken 60 clLeadtime:1 week Safety stock:900 Order Quantity1,800

13 Distribution Requirements Planning Demand DC 2 Planned Available week 2: 2,300 – 900 = 1,400 Safety stock should be 900, so no order Week Gross requirement , Planned available3,0002,3001,4002,1001,2002,3001,4002,300 Planned order due1,800 Planned order release1,800 Product:Heineken 60 clLeadtime:1 week Safety stock:900 Order Quantity1,800

14 Distribution Requirements Planning Demand DC 2 Planned Available week 3: 1,400 – 1,100 = 300 Safety stock should be 900, so minimal order 600 Week Gross requirement , Planned available3,0002,3001,4002,1001,2002,3001,4002,300 Planned order due1,800 Planned order release1,800 Product:Heineken 60 clLeadtime:1 week Safety stock:900 Order Quantity1,800 Order 1,800, since order quantity = 1,800 (order release week 2) Planned available = ,800 = 2,100

15 Distribution Requirements Planning Demand DC 2 Planned Available week 4: 2,100 – 900 = 1,200 Safety stock should be 900, so no order Week Gross requirement , Planned available3,0002,3001,4002,1001,2002,3001,4002,300 Planned order due1,800 Planned order release1,800 Product:Heineken 60 clLeadtime:1 week Safety stock:900 Order Quantity1,800

16 Distribution Requirements Planning Demand DC 2 Planned Available week 5: 1,200 – 700 = 500 Safety stock should be 900, so minimal order 400 Week Gross requirement , Planned available3,0002,3001,4002,1001,2002,3001,4002,300 Planned order due1,800 Planned order release1,800 Product:Heineken 60 clLeadtime:1 week Safety stock:900 Order Quantity1,800 Order 1,800, since order quantity = 1,800 (order release week 4) Planned available = ,800 = 2,300

17 Distribution requirement planning Brewery Distribution Centres Customers

18 Distribution Requirements Planning Demand DC 3 Week Gross requirement Planned available2,7002,0001,4001, , ,400 Planned order due1,200 Planned order release1,200 Product:Heineken 60 clLeadtime:1 week Safety stock:600 Order Quantity1,200

19 Distribution Requirements Planning Total Demand Week Requirement DC 14,000 Requirement DC 21,800 Requirement DC 31,200 Gross Requirement4,0003,0004,0003,0004,0003,000

20 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)

21 Distribution Requirements Planning Brewery Central warehouse Regional warehouse 1 Regional warehouse 2 Forecast / Sales information Inventory flow (delivery) Sales Plan Retail Outlet E Retail Outlet D Retail Outlet C Retail Outlet B Retail Outlet A

22 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)

23 Distribution Requirements Planning

24 Distribution Requirements Planning

25 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).

26 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.

27 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%

28 Exercise 7