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Lean Manufacturing Quality

 

PART II. 

 

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 right time.

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 integrated.

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 systems.

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 companies.

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 altogether!

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 supplier.

To be Continued


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