Distribution requirements planning, which may also be called distribution resources planning is a technique to ensure that inventories, both incoming and outgoing are managed effectively. It is used within the business administration function to efficiently plan orders within the supply chain. The DRP will assist the user in setting various parameters for inventory control and then calculate the requirements over a certain length of time. Orders are phased in over a period of time, ensuring that stock is available when required, but conversely stock levels are not so high that there is waste generated by accommodating too much inventory.
DRP and MRP
A DRP system is usually utilised in conjunction with a materials/manufacturing requirements planning system (MRP) although the benefits of the DRP system tend to outweigh those ascertained using an MRP system alone. The DRP is more capable of forecasting demand and using the forecast to create a schedule for deliveries. However, using the two systems provides a very thorough approach to the management of inventory and the logistics involved in inventory management.
A DRP system can also be used to assist the process of Economic Order Quantity planning. EOC is a means of calculating the most cost effective levels at which stock should be purchased, so that no resources are squandered by poor purchasing techniques.
The DRP Table
The DRP table is a vital component of any DRP system. This is comprised of the forecast demands for every stock keeping unit (abbreviated to SKU). The current levels of the SKU are also shown in the DRP table.
There is also a clear indication of the target stock levels in terms of what is a ‘safe level’ of stock. This is important because it looks at what is safe in terms of the operational requirements of the company. Stock levels that are too low will have a knock on effect in terms of operators having to hang around and wait until stock levels are replenished. But as ever, if stock levels are too high, then muda or waste will be created by keeping the stock on site.
The DRP table will indicate the amount of stock that should be replenished in order to keep stock levels at an acceptable level.
Finally, the table will give the lead time for replenishment, so that it is clear how long it will take to get new stock.
Benefits of Using DRP
One of the main benefits of using DRP is simply that inventory is managed in a smart way, that ensures maximum efficiency, with adequate levels of stock. Inventory tends to be an asset that is expensive in terms of how much resources it requires, so managing the inventory is important.
Keeping inventory levels at a satisfactory level, sounds straightforward but is in fact difficult to achieve. A satisfactory level is not just satisfactory in terms of the shop floor, where operators will have very specific needs for inventory, but management will also have other demands, which may conflict with those who are involved in production.
Creating a system where the supply plan is generated automatically based on the forecasted demand, means that production and flow will be uninterrupted, which keeps customers happy through timescales and deadlines being met.
Less costly procurement procedures. Because stock levels are simply kept ticking over, those involved in the process of buying stock will not have to deal with as many problems (i.e. stock not being available etc), their time is freed up and the procurement system as a whole becomes more efficient.
Finally and perhaps more importantly, keeping stock low, but always available means that the production flow is uninterrupted and production is therefore more efficient and cost effective!