Distribution Resource Planning (DRP) was my first assignment as supply chain planner for a large consumer goods firm.
It was the late 1980’s and Manufacturing Resource Planning (MRP 2) was at the height of popularity in the corporate world. The company I was working for was embarking on integrating MRP 2 in an information technology upgrade of its operations and DRP was one module offered.
DRP is a planning tool in which one schedules the deployment of items, usually finished products, to distribution centres or depots at different geographical locations. It manifests itself in matrices such as the following for a depot and a central storage facility:
The matrices serve as templates in which the planner can see how much a depot needs at a point in time in the future. In the following example, it’s week three (3) in the future:
To anticipate the out-of-stock on Week 3, the planner simply schedules the shipment of product to the depot. Assuming a lot size of 800 and a two-week transit time, the planner schedules a shipment from the central facility at Week 1:
It’s simple enough for one item and for one depot. The work adds up when it includes several depots:
For multiple items and multiple depots, the work adds up even more:
As much as the planning is simple per item per depot, the work becomes more cumbersome and complicated with multiple depots and multiple items. Hence, DRP works best with the help of MRP 2 software that would automatically compute the schedules for all items for all depots.
It’s no wonder then that organizations look forward to artificial intelligence (AI) in planning the deployment of products. It’s just a lot of simple work that a machine can do instead.
If only it was that easy.
DRP deployments don’t take into account uncertainty and sudden disruptions. It assumes things will go as planned when in reality, they do not. Such as when a planned arrival is delayed:
Customer orders as a result are not served. And the disruption may even cause customers to speculate:
In such scenarios, automated planning is no longer useful. Human intervention is needed as the central facility would either rush stocks to the depot or the sales force served by the depot negotiate with customers to smoothen demand.
When it comes to uncertainties, planners tend to build up inventories to avoid situations like in the aforementioned example. It defeats what DRP is trying to do which is to keep inventories manageable and at the same time serve customers only when they would be needing their items.
Information technology (IT) software does not provide a fool-proof automated solution for planning inventories and deployment. Yet, many managers make the mistake expecting that computer programs will do so. DRP is no exception.
Deployment is a critical step in the supply chain, especially for enterprises that have markets in far-off places. It isn’t something that can easily be automated. It requires a framework founded on an overall strategy.
An overall strategy answers how the enterprise shall distribute its products:
- Do we set up depots or distribution centers at different geographical regions?
- Do we deliver directly to markets from a single central distribution facility?
- Do we build manufacturing and distribution facilities at different locations?
- Do we just rely on a 3rd party logistics (3PL) provider to do all the sales and distribution of products?
The distribution strategy will need to align with how the enterprise wants to sell and deliver its products.
- Will selling be via retail channels?
- Do we negotiate contracts with distributors, wholesalers, and/or licensed dealers to sell at different markets?
- Does the enterprise utilize e-commerce for customers to order and couriers to deliver?
The framework for deployment consists of both policy and structure derived from a distribution strategy.
Policy would cover such areas as:
- Inventory: how much to keep, when to replenish, how items are handled (e.g. first-in first-out);
- Service: how items are dispatched (e.g. minimum quantities, lot sizes, less-than-truckload [LTL] limits);
- Quality: how merchandise is inspected, how damages are prevented;
- Risk: how products are secured and accounted for.
Structure would involve the assets and people directly involved with deployment. These would consist of:
- Facilities such as depots, warehouses, storage equipment (e.g. racks, tanks, vessels), & materials handling (e.g. forklifts, conveyors);
- Transportation assets from trucks, vans, to shipping containers and air-freight;
- Organizational structure and management set-up.
The effectiveness of a deployment framework depends on how well the enterprise develops its policies and structures. This is where supply chain engineers (SCE’s) can help.
SCE’s can assist executives in studying various scenarios for an enterprise’s deployment framework. These range from assessing the capacities and financial effects of product flows via different network options to determining optimal inventory levels taking into account the risks of stock-outs and overstocks.
SCE’s can also fine-tune options on how an enterprise can deploy its products efficiently and effectively. For example, SCE’s can help executives decide whether cross-docks would be a better option to rapidly move products from centralized locations to customers.
DRP is a good tool for supply chain planners. But like all good tools, it is most effective when it fits in with a framework founded on a well-developed distribution strategy.
Supply chain engineers have the expertise to help enterprises optimally spread their inventories to the markets they want to sell to, with the tools and software they are familiar with and can muster.
Ellery's Essays 