Distribution Resource Planning
The next Total Quality Logistics tool is
Distribution Resource Planning. One of the primary issues that
logistics professionals face is keeping the right product in the
right place at the right time. Everyone seems to have too much
total inventory. It's just not at the right distribution center in
the right quantity to meet the customer's demands. DRP is the
logistics tool to get the right product in the right place at the
DRP is the function of determining the needs to replenish
inventory at branch warehouses. A time-phased order point approach
is used, where the planned orders at the branch warehouses are
"exploded" via MRP logic to become gross requirements on
the supplying source. DRP is equally important to
both manufacturers and distributors.
DRP for Manufacturers
Today, more and more manufacturers are taking
an integrated supply chain view of inventory management. In the
old days, manufacturers forecasted customer demand from the plant
master production schedule viewpoint. Therefore, the plants
produced finished products whether the distribution centers needed
replenishing or not.
Today, DRP is used to force the replenishment
decisions to the distribution centers, closer to the ultimate
customer. DRP generates planned orders for the distribution
centers, placing requirements back to the plant. The planned
orders for all distribution centers are consolidated as dependent
demand on the plant's master production schedule. The plant now
works off of calculated demand, rather than a statistical
forecast. The only forecasting that is needed at the plant level
is to incorporate customer orders shipped directly from the plant.
DRP facilitates the transfer of data between
partners in the overall supply chain. The new wave of Quick
Response relationships between the mass merchandisers, such as
K-Mart and WalMart, utilize DRP to tie customers and suppliers.
Point-of-sale data from the mass merchandisers is transmitted via
EDI to the manufacturers. The manufacturer sets up the customer's
distribution as another DC on their DRP
"bill-of-distribution." DRP produces planned orders to
ship to the customer distribution centers or stores. No purchase
orders or invoices are required if the supply chain is fully
DRP for Distributors
Distributors use DRP to plan inventory in
remote distribution centers. Depending on the size of the
organization, distributors may let each distribution center stand
alone and place purchase orders directly on suppliers or utilize a
multi-tier network of regional distribution centers. Either way
DRP provides dramatic improvement in inventory turns and customer
service over the old reorder point systems.
Besides planning replenishment orders, DRP
provides many distributors with tools that they have not had
available before. DRP aids in transportation planning and
warehouse management by modifying the planned order schedules to
account for joint replenishment, full truck loads or ordering in
full case or pallet quantities.
Distributors can utilize DRP for strategic
links to key suppliers. DRP allows distributors to provide
time-phased plans to their suppliers in exchange for additional
discounts and firm delivery schedules.
Today, most companies have yet to take
advantage of DRP as a management tool. The concepts of DRP are so
simple and the benefits are so great. DRP is a Total Quality
Logistics tool that has yet to see its finest day.
Electronic Data Interchange
Companies in today's competitive marketplace no
longer have the luxury of deciding if they want to develop EDI
links with their customers and suppliers. The only questions now
are when and how to do it.
Many companies have EDI, yet it has to be one
of the most under utilized information technology tools around.
Sure, a lot of companies are receiving purchase orders from big
customers that require EDI as a condition for receiving the
orders. Others have,
in turn, implemented programs to transmit EDI
purchase orders to key suppliers and they have set up aggressive
schedules for converting the "critical mass" of
suppliers to their EDI program.
Unfortunately, it seems as if many companies
wait until they are forced into implementing EDI before they act.
Then they implement stand alone, PC-based EDI applications that
are not much more that glorified fax machines. Here are some of
the current barriers to implementing EDI:
1. Time and expense associated with
integrating EDI into existing mainframe based application
2. Alphabet soup standards: ANSI X.12, WINS,
VICS, TDCC, EDIFACT, AIAG, TCIF. How do you make sense of it?
3. Lack of appreciation of the benefits of EDI.
4. Fax machines can get documents to
customers and suppliers quicker.
5. "Why help implement EDI when it will
only help to eliminate my job?"
Progressive companies now use EDI as a
strategic tool, and are making plans to implement EDI faster and
better than the competition. Typically, companies start out
sending and receiving purchase orders, invoices and freight bills
via EDI. The potential savings from automating the paper handling
steps and eliminating errors are potentially enormous for many
However, let's apply the concepts of Business
Process Reengin-eering and DRP to the world of EDI. BPR would
suggest that the traditional invoicing function does not add value
to a company's operations, either for the customer or supplier. If
the customer ordered it, the supplier shipped it, and the customer
received it, then why is an invoice necessary at all? Just pay it.
Let's not automate the invoicing process, let's obliterate it
Instead, let's use EDI to transmit planning information such as
point-of-sale data, planning schedules from DRP and advanced
shipping notices rather than simply automating transactions that
add cost without adding value. Let's use BPR, DRP and EDI to
integrate the supply chain from customer to manufacturer to
To be Continued
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