Distribution Resource Planning Overview

Distribution Resource Planning (DRP) is used to project and anticipate future inventory shortages based on available inventory and product forecasts, and to recommend action in the form of suggested order quantities.

There are two basic methodologies of DRP that can be used:

Methodology

Description

Recommended Uses

Reorder Point (ROP)

This is a single point method that calculates a quantity that triggers the decision when to buy. If the sum of available quantity and on-order quantity is less than the ROP, it is time to buy.

ROP = Usage during the Lead Time + Safety Stock + Usage during the Review Cycle

Products with short lead times (less than 45 days), typically domestic
Products with non-radical seasonality
Products where you review the entire supplier’s product line before placing an order

Note The advantage is that if you run out of inventory, there is a relatively short time period to replenish it.

Time-Phased Buckets

This is a time-phased method of supply and demand that shows projected excess or deficit inventory by time period bucket. Time-phased suggestions are made for planned receipts (purchase orders, work orders, and/or transfer orders).

Products with long lead times (greater than 45 days), typically overseas
Products with radical seasonality
Placing orders product by product (instead of for an entire product line)

Note The disadvantage is that if you run out of inventory, there is a relatively long time period to replenish it.

DRP contains a new sales history table that is used exclusively for forecasting purposes (it has no effect on real sales history). This table can be manually updated and adjusted based on the particular circumstances using Forecast Sales History Maintenance.

Distribution Logistics Models

It is important to understand and map out the logistics process, product by product, from supplier to warehouses to end customer to fully implement an effective inventory strategy. An effective inventory strategy has the right inventory available most of the time for the right customers.

In a distribution company with only one shipping warehouse location, the logistics are relatively simple. All products are delivered to that location and shipped from that location (with the exception of direct ships).

In a distribution company with multiple shipping warehouse locations, the logistics are more complex.

For a visual depiction of DRP distribution logistics, see DRP Logistics Models Diagram.

Different companies handle these logistics differently. The following table lists some of the major logistics models that a company can select:

Logistics Model	Description and Examples
Independent Locations	Each warehouse location services its own unique customers. Products are directly shipped from suppliers to specific warehouse locations. Sometimes this is controlled by a corporate buyer (buying for multiple warehouses) and sometimes this is controlled by buyers at each warehouse location. Transfers to other locations are optional, and typically are negotiated with the requesting location. Example A company has two warehouses: Los Angeles and Atlanta. The Los Angeles warehouse services customers west of the Mississippi River and the Atlanta warehouse services everyone else. Each warehouse orders products from suppliers independent of each other. If a customer of the Atlanta warehouse needs a product that is not available in Atlanta, it will have to wait until the supplier delivers it to Atlanta.
Geographic Locations	Each warehouse location primarily services customers within a defined geographical region. However, if one location is out of product, the product can be shipped from another location with the consent of the other location. Transfers are not typically made between locations. Example A company has two warehouses: Los Angeles and Atlanta. The Los Angeles warehouse services customers west of the Mississippi River and the Atlanta warehouse services everyone else. A corporate buyer is in charge of maintaining inventory in both locations. If a customer of the Atlanta warehouse needs a product that is not available in Atlanta, it will be shipped from the Los Angeles warehouse.
Multi-Level Satellite Locations	Each warehouse location services its own unique customers, but relies on other warehouse locations for replenishment. Example A company has five warehouses: Los Angeles, Chicago, New York, Philadelphia, and Boston. Most of the company’s products are purchased from vendors in Asia, and are initially delivered to the Los Angeles warehouse. Los Angeles replenishes the Chicago and New York warehouses (Chicago and New York are satellite locations of Los Angeles). New York replenishes the Philadelphia and Boston warehouses (Philadelphia and Boston are satellite locations of New York). The buyers must understand the inventory needs of each warehouse - some warehouses only service customers (Chicago, Philadelphia, and Boston) and some warehouses service customers and replenish satellite warehouse locations (Los Angeles and New York).
Direct Ship	Products are shipped directly from suppliers to customers. The company acts as an intermediary in this model.
Hybrid	Any combination of the above models

DRP and Multi-Level Bill of Material (Assembly or Light Manufacturing Needs)

DRP has been designed to handle multi-level bills of material. So, when a product at a specific location has a primary replenishment path of Build (which means that you have set up a bill of material for this product in Bill of Material Maintenance), an actual planned receipt for that product/location will create demand for the components of that product. This will also cascade down the levels of the bill of material.

For more information, see DRP and Multi-Level Bill of Material FAQ.