Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Manufacturing Planning and Control MPC 6 th Edition Chapter 10

10-2 Distribution Requirements Planning Distribution requirements planning (DRP) provides the basis for integrating supply chain inventory information and physical distribution activities with the manufacturing planning and control (MPC) system.

10-3 Agenda DRP in the Supply ChainDRP TechniquesDRP Management IssuesPrinciples

10-4 DRP in the Supply Chain DRP links firms in the supply chain Planning records carry demand information from receiving points to supply points and returns supply information to the receiving points DRP integrates key linkages in the supply network DRP can be linked to the MPC systems of the manufacturer, customers, and suppliers Spans the boundary from internal to external MPC

10-5 DRP Links to MPC DRP Links external internal

10-6 DRP Role DRP coordinates material flows through the physical distribution system Effectively managing the flow of goods and inventories between the firm and the market Planned timings and quantities for replenishing inventories throughout the physical distribution system Provides information to the master scheduler in a format consistent with MRP records

10-7 DRP and the Marketplace DRP starts at or near the marketplace Local demand data can help manage field inventories Special orders Planned inventory adjustments by customers

10-8 DRP and Demand Management DRP information is key to developing logistics system management plans

10-9 DRP and Master Production Scheduling DRP allows incorporation of records and information into the MPS system Extends MPC visibility into the distribution system Can have political costs Boundaries between supply chain partners Convincing them of the value of integration DRP collects detailed information in the field, summarizes it, and passes it along to the MPC system

10-10 DRP Techniques Basic DRP Record Time- Phased Order Point Linking Warehouse Records Managing Day-to-Day Variations Safety Stock

10-11 Basic DRP Records Records are maintained centrally as part of the MPC system Records are kept for stockkeeping units (SKU) Extends the bill of materials to define the SKU as an SKU in the field warehouse Product isn’t “completed” until it has been delivered to the location where it satisfies customer demand

10-12 DRP Record On hand Period Forecast requirements20 30 In transit60 Projected available balance Planned shipments60 Safety stock = 20, shipping quantity = 60, lead time = 2 Forecast includes information on special orders and customer inventory adjustments “In transit” goods can’t easily be expedited or delayed

10-13 Time-Phased Order Point Time-phased order point (TPOP) uses forecast information for requirements and a time-phased MRP approach to develop planned shipments TPOP record shows planned shipment data All demand sources (TPOP, service parts, interplant shipments) are considered by the DRP system

10-14 Linking Several Warehouse Records Information about planned requirements from all field warehouses is passed along to the central facility Implosion–process of bringing demand information back to the central facility

10-15 Managing Variations from Plan One method for dealing with errors is to stabilize the information flow Firm planned orders–reduce variation by reviewing implications of change before allowing changes to occur Error addback method–assumes forecasts are unbiased Shortages from one period are predicted to be made- up in the next (or excess sales are believed to result in reductions in the future) Less effective if the forecast is biased

10-16 Safety Stock DRP allows carrying of safety stock at any location in the system More frequent replenishment reduces the necessary safety stock Safety lead time is also an option Useful when delivery times are variable Aggregating uncertainty from several locations allows safety stock reductions Risk pooling

10-17 DRP Management Issues Data Integrity and Completeness Organizational Support Problem Solving

10-18 Data Integrity and Completeness Garbage-in, garbage-out Use of aggregate forecasts, which are then broken down into detailed forecasts Errors can increase as total is disaggregated Forecast adjustments must be made carefully to avoid introducing systematic bias Forecast adjustments should be monitored Inventory accuracy requires efficient, accurate transaction processing

10-19 Organizational Support Objectives must consider inherent conflicts among functional groups

10-20 Problem Solving Changing conditions cause uncertainty in the system Demand Changing market conditions Changing product lines Changes to marketing plans DRP records can anticipate these changes and minimize their impact

10-21 Principles Top-level DRP records should cover items in a location as close to the customer as possible. Local information and demand patterns should be incorporated into the DRP record at a warehouse and/or the customers’ MPC data should be used at customer locations. Data and performance measurement systems should be put in place to monitor forecast adjustments in the field. Matching supply to demand requires close control of supply as well as data on demand.

10-22 Principles Projections of future requirements should be used to decide inventory allocation in periods of short supply. Transparent records and consistent processing logic should be used to integrate the system. What-if analysis should be based on integrated records of the system. Uncertainty filters, like firm planned orders or error addback, should be available to the master production scheduler. The organization form should be consistent with the supply chain being managed.

10-23 Quiz – Chapter 10 A major tool in DRP systems is the ____________ record. Customer purchases are generally part of _________ demand. The time-phased order point (TPOP) approach uses what type of data to determine requirements? DRP systems can utilize both safety stock and safety lead time? (True/False)