1. Replenishment in a Distribution Environment
“Education in Pursuit of Supply Chain Leadership”
dp&c
Chapter9
Chapter 9
Replenishment in a Distribution Environment

2. Learning Objectives Describe distribution channel dependencies
Detail “push” system functions
Detail “pull” system functions
Define distribution requirements planning (DRP)
Decide what to choose: reorder points or DRP?
Explore DRP in a multiechelon environment
Understand the DRP planning grid
Calculate the projected available balance (PAB) and the DRP grid

3. Learning Objectives (cont.)
Calculate net requirements and the DRP grid
Review the DRP planned order generation
Perform PAB and net requirements recalculation
Outline the DRP planning process
Perform a full DRP calculation
Review supply chain capacity planning

4. Replenishment in a Distribution
Chapter 9
Replenishment in a Distribution
Environment
Distribution Channel Basics

5. Distribution Channel Dependencies
Product Flow
Plant
Information Flow
Decoupling Point
Replenishment Point
Central Warehouse
Decoupling Point
Replenishment Point
Local Warehouse
Decoupling Point
Replenishment Point
Customer

6. “Push” or “Pull”? Plant Central Warehouse Local Warehouse Customer
Channel Allocation
Demand Requirement
Local Warehouse
Customer

7. “Push” System Functions
Aggregate Channel
Demand History
Central Inventory
Planning
Yes No
Stock OK?
Resupply
Order
Review Branch
Order Points
Supplier
Shipment
Inventory
Allocation
“Fair-Share”
Allocation
Order
Receipt
Echelon
Shipment

8. “Push” System Functions (cont.)
Warehouses
DCs
55%
Manufacturing
Plant
45%
60%
40%
Forecasting –
Aggregate
Requirements
65%
Production
Lot Size
Allocation
35%
Allocation

9. Performance Measurement
Advantages of a Push System
Performance Measurement
Enables performance management of the entire supply channel
Central Planning
Enables channel inventory planning to be centralized in a single plan
By centralizing inventory planning and deployment, planners can remove planning redundancies
Cost Reductions
Safety Stock Control
Push systems cut safety stocks by centralizing them at supply DCs

10. “Push” System Allocation – Example
15,000 x 12% = 1,800 units
1,800 x 40% = 720 units
720 x 30% = 216 units

11. “Pull” System Functions
Local Facility
Stock Status
Customer
requirements
Stock OK?
Order point/
DRP No
Shipment
Resupply Order
Interbranch resupply order
Interbranch shipments
Distribution Center
DRP
Plant
No Plant
Order Point
Plant
Stock
Resupply Order
Purchase
Receipt

12. “Pull” System Functions (cont.)
Warehouses
DCs
Manufacturing
Plant
Master Schedule
Plant
MRP OP
DRP
Order Shipment
Planned Orders
Planned Orders
Order Shipment

13. Advantages of a Pull System
Planning is simplified because there is no centralized planning functions. Each facility does it own planning
Planning Simplicity
Because facilities calculate their exact requirements, push system stock excess is removed
Turnover
Overhead Cost Reduction
By decentralizing planning, centralized planning overheads can be reduced
Use of ROP and DRP techniques
Pull system enable the effective use of ROP and DRP planning methods

14. BOMs and BODs Bill of Material Product A Component A Component B
Component C
Warehouse 1
Warehouse 2
Warehouse 3
Bill of Distribution
Supply DC

15. Purchased Finished Product Flow
Central DC
LT=5
Outside Supply Source
Lead Time (LT) = days
LT=4
LT=4
Regional DC1
Regional DC2
LT=3
LT=3
LT=3
LT=3
Warehouse 1
Warehouse 2
Warehouse 3
Warehouse 4
LT=3
Warehouse 3
LT=2
Customer

16. Reorder Point Channel Management
Warehouse 1
Warehouse 2
Warehouse 3
Inventory
Inventory
Inventory OP OP OP SS SS SS
Resupply order
LT=3
Resupply order
LT=3
Resupply order
LT=3
Central DC
Regional DC1
Inventory
Quantity
Available Inventory
LT=4
Resupply order OP OP X SS
OP= order point
SS=safety stock
Time

17. Defining Distribution Requirements Planning (DRP)
The function of determining the need to replenish inventory at branch warehouses. A time-phased order point approach is used where the planned orders at the branch warehouse level are “exploded” via MRP logic to become gross requirements on the supplying source. In the case of multilevel distribution networks, this explosion process can continue down through the various levels of regional warehouses (master warehouse, factory warehouse, etc.) and become input to the master production schedule. Demand on the supplying sources is recognized as dependent, and standard MRP logic applies.
What is distribution requirements planning (DRP)?

18. Manufactured Finished Product Flow
Central DC
LT=25
Manufacturing Plant
Lead Time (LT) = days
LT=4
LT=4
Regional DC1
Regional DC2
LT=3
LT=3
LT=3
LT=3
Warehouse 1
Warehouse 2
Warehouse 3
Warehouse 4
LT=3
Warehouse 3
LT=2
Customer

19. Time Phasing – The Heart of DRP
Solving the question of when in the inventory replenishment equation!!

20. Replenishment in a Distribution
Chapter 9
Replenishment in a Distribution
Environment
Basics of DRP

21. DRP Grid Rows

22. DRP Period Variations

23. Projected Available Balance Calculation

24. Net Requirements Calculation

25. DRP Planned Order Receipt

26. Two day lead-time offset
DRP Planned Order Release
Two day lead-time offset

27. DRP Recalculation

28. Order Policies Discrete (lot-for-lot) Fixed period requirements
Discrete above the standard lot size
Incremental above the standard lot size
Multiples of a standard lot size
EOQ models
Min/max order quantity
Lot costing models

29. Safety stock violations
DRP Safety Stock
Safety Stock = 75 units
Safety stock violations

30. Covering planned order
DRP Safety Stock Recalculation
Covering planned order

31. Replenishment in a Distribution
Chapter 9
Replenishment in a Distribution
Environment
The DRP Calculation

32. Basic DRP Calculation Data Elements
Length of the planning horizon
Size of the planning buckets
Item forecasts by due date
Open customer orders by item by due date
Beginning on-hand quantities by item
Purchase, interbranch, and postponement orders by item by due date
Replenishment lead times by item
Safety stock by item
Order policy code by item
Supply sources based on the bill of distribution

33. DRP System Outputs Exception Reporting Planned Orders Action Messages
Availability of online displays and dashboards as a result of the DRP generation
The DRP generation provides the planner with a window into the schedule of planned order release
Planned Orders
Generation of action messages to inform the planner of required planning and scheduling problems
Action Messages
Pegged Requirements
Pegging enables planners to trace item resupply orders back to their sources

34. Bucketless DRP Display

35. Replenishment in a Distribution
Chapter 9
Replenishment in a Distribution
Environment
DRP in a Multi-Echelon Environment

36. DRP Multiechelon Channel Implosion

37. DRP Planning Process DRP Generation DRP Order Release
Determine Gross Requirements
Review Inventory Balances
Net Requirements Calculation
Total Demand OK?
Quantities OK?
Shortages OK?
Plan New Orders
Orders OK?
DRP Order Release

38. DRP Order Action Report

39. Replenishment in a Distribution
Chapter 9
Replenishment in a Distribution
Environment
Stocking Multi-Echelon Supply Channels

40. Selective Stocking
A method of maximizing available warehouse space in the channel by determining which items are to be stocked at what channel echelon level based on item ABC classification

41. Square-Root Rule
Calculating the advantage gained through a channel inventory consolidation strategy
where:
CI is the inventory value if the entire network stock were to be centralized at n number of stocking locations
SI is the amount of inventory stocked at n distribution locations
n is the number of stocking points in the channel.

42. Square-Root Rule – Exercise
Objective: Cost benefit of consolidating an item stocked in 10 warehouses to 3 warehouses
Data: Stocking cost of item in 10 warehouses = US$20,554.80
Formula:
where:
CIn3 = total cost for three facilities
n2 = 3 facilities
n1 = number of existing facilities (10)
X1 = total unit cost for 10 facilities
Solution:

43. Push System With Stocking Constraint – Steps
Determine the quantity of the production run or supplier purchase.
Determine the forecast requirements of each of the channel locations between the current time and the next expected production run or supplier purchase.
Calculate the adjusted requirements forecast by using the predetermined stocking target and the forecast error (standard deviation).
Tally the existing on-hand balances at each channel location.
Subtract the adjusted requirements forecast from the current on- hand balances at each warehouse to arrive at the warehouse’s net allocation.
Sum the net allocations and then subtract it from the total push quantity determined in step 1.

44. Push System With Stocking Constraint – Steps
Apportion the inventory excess over the adjusted requirements forecast to arrive at the proration of excess.
Add each warehouse’s net allocation and the proration of excess to arrive at the new push allocation for each warehouse.
Establish the normal capacity target for storing inventories at each channel location and the max stock quantity target.
Divide the max stock quantity target by the prorated allocation to arrive at the percent utilization of capacity for each warehouse.

45. Push System Stocking Constraint – Exercise
Objective: Reviewing the impact of an opportunity supply order
Data: Supplier discount if 55,000 units purchased

46. Push System Stocking Constraint – Exercise
Objective: Determine forecast allocation
Formula: Forecast + (NORMSINV [Service target]) * Standard Deviation (s)

47. Push System Stocking Constraint – Exercise
Objective: Determine allocation capacity
Formula: Prorated allocation / max quantity target

48. Least-Cost Redistribution
Objective: Restore channel warehouse inventory imbalances at the least cost
Data: Transportation cost matrix
Solution:

49. “Fair Share” Technique
Objective: Provide branch locations with equal run out resupply sufficient enough to prevent stock out
Formula 1: Days of total inventory at all facilities
where
DS = Common days supply for branch inventories
AQ = Inventory units to be allocated from the DC
Ib = Inventory in units for branch b
Db = Daily demand for branch b

50. “Fair Share” Technique (cont.)
Objective: Determine fair share allocation
Formula 2: Calculate fair share allocation
Ab = (DS – Ib/Db)Db,
where
Ab = Amount allocated to branch b
DS = days supply provided for each branch
Ib = Inventory in units for branch b
Db = Daily demand for branch b

51. “Fair Share” Technique – Exercise
Objective: Allocating 200 units across three branches
Data:

52. “Fair Share” Technique – Exercise (cont.)
Formula 1: Days of total inventory at all facilities
Formula 2: Branch A fair share allocation
Ab = (DS – Ib/Db)Db = ((10 – (30/8)) * 8) = 50 units
Formula 2: Branches B and C fair share allocation
Ab = (DS – Ib/Db)Db = ((10 – (37/10)) * 10) = 63 units
Ab = (DS – Ib/Db)Db = ((10 – (33/12)) * 12) = 87 units

53. Replenishment in a Distribution
Chapter 9
Replenishment in a Distribution
Environment
Supply Chain Capacity Planning

54. Labor and Equipment Capacity
Supply Chain Capacity Planning
Financial Estimating
Labor and Equipment Capacity
Transportation
Planning
DRP
Warehouse Space
Planning

55. Costed DRP Inventory Report

56. Transportation Report

57. Detailed Shipping Report

58. Warehouse Space Report

59. Chapter 9 End of Session dp&c Chapter9
“Education in Pursuit of Supply Chain Leadership”
dp&c
Chapter9
Chapter 9
End of Session