DRP's distribution network defines the relationships among distribution
centers, warehouses, manufacturing plants and vendors. It is similar to
a bill of materials except that it describes the flow of finished goods
from their source, through all distribution locations, to the ultimate
consumer. DRP lets you easily define your unique distribution channels,
whether you have a single distribution facility, a relatively simple network,
or even a complex multilevel network with primary distribution centers
serving other distribution locations. You also can designate different
network configurations for different products, depending upon how they
flow from their source to the consumer. Each distribution network configuration
can consist of an unlimited number of locations and levels. The latest
trend is to include end-customer's locations in the DRP network (customer
connectivity). DRP will accommodate such a network.
Predicting Inventory Availability
To make sure the right products are available at the right time, in the
right amounts, and in the right places, DRP links all of the locations
in the distribution network together all the way down to the master production
scheduling level or vendor scheduling level. DRP contrasts projected future
demands, including safety stock, against projected available inventory
so it can predict future shortages. It compares beginning inventory plus
anticipated receipts to projected demand throughout the planning horizon.
If a shortage is predicted, it automatically plans a receipt based on
one of the several ordering rules that you can specify. Traditional inventory
replenishment approaches, such as reorder point, cannot accurately make
such predictions because they lack sufficient future visibility and are
unable to consider the relationships among stocking locations. It is important
that these relationships be considered, especially in business environments
with multilevel distribution networks. For example, the majority of the
Atlanta plant warehouse's requirements need not be forecasted (Download
& print the Distribution Structure graphic {in WORD}). They can be
derived from Denver's and New York's schedules of future planned orders
because Atlanta fills these orders. Forecasts are only needed for demands
serviced directly by Atlanta and, if applicable, they are added to this
"derived demand" in order to calculate total requirements. As
forecasts are consumed by current orders, DRP considers both the actual
demand and the forecast to ensure that requirements always reflect the
latest changes in demand. The resulting schedule of future planned orders
for Atlanta is distribution's key interface to the master production schedule
or vendor procurement schedule.
Managing Replenishment
The implementation of just-in-time (JIT) distribution and production requires
optimum distribution and manufacturing schedules with precision timing.
DRP's powerful on-line, real-time planning and "what if?" simulation
capabilities help you streamline the planning cycle, shorten lead times,
improve service, minimize inventory investment, and ensure consistent
and realistic distribution and manufacturing schedules. DRP helps you
maintain tight control of replenishment through its exception-and action-oriented
design. While DRP performs many replenishment functions automatically,
it also provides the detail you need to solve special replenishment situations.
The system alerts you to potential problems before they occur and provides
your inventory planners with clearly phrased decision guides that recommend
specific corrective actions in an on-line, real-time mode. With DRP, you
always have easy on-line access to detailed replenishment and requirements
information. Once your replenishment plans are determined and approved,
you can authorize the planned replenishment transfers real-time. DRP even
helps you plan the most economical shipping methods.
Determining What Replenishment Actions Should Be Taken
DRP automatically derives a replenishment plan for every product at every
location. By notifying you of the exceptions and prescribed actions that
need attention, DRP allows you to better anticipate and avoid potential
problems---even in today's complex environments involving thousands of
items. As a result, you take corrective action before service is affected
or capital is tied up in unproductive inventory. DRP is also easy to use.
It guides you through the replenishment process with clear, concise action
messages that communicate exactly what must be done and why.
Exception-Oriented Planner Action
Whenever the system encounters a problem somewhere in the replenishment
process, the planner is automatically notified through on-line exception
messages. Each DRP planner can "customize" the method by which
conditions are presented, so those most important for that planner can
be resolved quickly. Unlike traditional batch-oriented systems, DRP checks
the result of any action on a location on the balance of the network ---
real-time. This ensures that the DRP plan passed to production and distribution
is fully coordinated across the distribution network. This is true real-time
DRP.
Decision Guides
The messages that suggest replenishment actions are called decision guides.
They instantly highlight and identify priorities for replenishment. The
decision guides only recommend replenishment actions; the system does
not execute any of these actions automatically. Instead, DRP evaluates
all the factors and calls your attention to the situations that require
your review and possible action. As a result, you are always in control
of replenishment.
Paperless Planner Action --- real-time DRP
With DRP, planners can select and respond to exception conditions and
recommended actions on-line, real- time without the need for optional
paper reports. From the planner messages screen, each planner can select
specific decision guide action messages for follow-up. The planner can
then select item and location (stock- keeping unit or SKU) detail to determine
what triggered the particular action. With the DRP Model screen, the planner
can quickly determine the best actions to take.
DRP Model
The real-time DRP Model screen displays by item and location the current
time-phased replenishment plan. With this screen, you can easily see the
effects of changes in forecasts, demands, special demands, safety stocks,
lead times, replenishment rules, time-phased minimum inventory targets
or service levels. Since the new plan can be reviewed at each level in
the distribution channel, you can quickly evaluate the effect of recommended
actions and alternatives on replenishment plans, manufacturing schedules,
purchasing requirements and warehousing schedules.
Detailed Requirements And Replenishments Information
Occasionally, you need additional information concerning time-phased supply
and demand. DRP gives you this detailed information on-line, real-time,
so you can thoroughly research any situation in an instant. When you need
more detail on the sources of requirements, DRP gives you instant access
to all of the different types of requirements, including forecasted demands
and market demands from market unit forecasts (supplied automatically
from DF), actual demands (supplied automatically from OMS, OP or linked
to your in-house applications), composite demands (the net of forecast
and actual demands), special demands and dependent requirements. Integrated
information about forecasted and actual demands enables DRP to automatically
react to forecast revisions and current order activity in "consuming"
the sales forecast. The composite demand shows the effect of this process.
Dependent requirements are anticipated orders generated from the replenishment
plans at subordinate locations. If, for example, your distribution network
is characterized by a central distribution location with other subordinate
distribution locations supplying the anticipated orders, those other locations
would be regarded as dependent requirements by the central location. DRP
calculates those dependent requirements automatically.
Solving Inventory Replenishment Problems
DRP's time-phased approach to inventory planning can minimize or even
eliminate most typical distribution problems such as too much inventory,
too little inventory, inventory in the wrong locations, and obsolete inventory.
However, because of uncontrollable events such as unanticipated demand
fluctuations and transportation or production problems, inventory replenishment
problems occasionally do occur. DRP is designed to provide exception-oriented
information to alert you to problems, decision support information to
help you select the appropriate remedies and the action-oriented capabilities
you need to quickly implement their resolution.
Allocation Decision-Making
Sometimes distribution locations need more inventory than is available
from their supplying facilities. DRP automatically recommends "fair
share" allocations proportional to each location's true requirements,
computing the amount of inventory that is available to each location without
adversely impacting the amount that is available to any other location.
This assistance helps ensure consistent service and helps minimize transportation
and handling costs by reducing transfers between locations. In actual
shortage situations, you may sometimes need to override DRP's "fair
share" allocations, due to factors such as individual considerations
or transportation constraints. DRP not only provides the starting point,
it also gives you additional information so you can quickly and easily
make informed decisions to optimally allocate the available inventory.
Any quantity recommended for transfer between two locations is automatically
decomposed into three components: the portion of the total quantity that
is necessary to satisfy demand, the portion of the total quantity that
is replenishing safety stock, and the portion of the total quantity that
is not really needed at all except to satisfy order lot-size modifiers,
such as minimum order quantity constraints or package sizes. Presenting
information in this manner provides you with an excellent basis for making
even more sophisticated allocation decisions. For example, when supply
is scarce, you may choose to transfer available inventory only to locations
that need it to satisfy demands, without regard for order size constraints.
You also might choose to ignore locations which only need to replenish
safety stock until sufficient stock is available to satisfy these needs.
The Transfer Approval screen presents you with all of the information
that is necessary to implement your decisions and take actions effectively
and efficiently. DRP does all of the allocation "number crunching",
freeing you to make quick, informed decisions and take immediate action
to maximize customer service and maintain inventory at acceptable levels.
Shipment Planning
Once your distribution planner has determined what to order, DRP and the
Load Building module helps plan the actual shipment of your replenishment
orders. DRP's comprehensive Shipping Action report helps your traffic
manager better plan and schedule the utilization of available transportation
equipment. If your organization uses commercial carriers, you'll now have
a shipping plan with which to negotiate more economical tariffs.
Access To All Recommended Transfers
The Shipping Action report shows all transfers between a source and the
distribution locations by shipping route. This time-phased information
enables you to identify situations in which you may want to pull shipments
ahead when you can ship additional inventory at reduced cost. For example,
all transfer quantities are grouped by priority within shipping route.
Cumulative weight and cube information is displayed, not only for those
items that must be shipped immediately, but also for those planned for
shipment. This information enables you to pull shipments ahead so railcars
and trailers can be used more economically. In many business environments,
this can result in significant transportation savings.
Introducing Strategies Into The Planning Process
Managing your distribution network effectively means making strategic
decisions. In addition to helping you manage the normal day-to-day distribution
planning decisions, DRP offers you comprehensive decision support capabilities
to help you make key management decisions. For example, the system lets
you classify and group similar or high-demand products for better control.
In addition, real-time simulation capabilities and automatic calculations
make it easy to determine optimum replenishment quantities and safety
stock, even when you face unexpected demands. PSI Software also recognizes
that your management needs comprehensive, yet concise, performance evaluation
capabilities. DRP provides the key performance indicators you need to
assess the effectiveness of your distribution inventory strategies.
Inventory Stratification
DRP's flexible inventory stratification capabilities enable you to easily
determine and assign priorities or classifications to items which make
the most sense for your environment. You can define groups on the basis
of nearly any criteria you desire. Stratification can be based on demand
history, statistical forecast or adjusted forecast information. In addition,
you can express ranking criteria in terms of units, cost, selling price,
margin, weight or cube. Once a priority is assigned to an item, you can
set policies that establish the level of control you desire in managing
the service level and replenishment review of a group of products. For
example, in many business environments a few items make up the majority
of sales and occupy the majority of warehouse space. Under the traditional
ABC inventory classification scheme, these items are referred to as Class
A items. Another slightly larger number of Class B items makes up the
remaining significant portion of sales and warehouse space usage, while
a large number of Class C items have only a nominal impact. By determining
and classifying which items belong in each group, you can set controls
and implement policies which better leverage your resources and concentrate
attention on the high-priority items.
Determining Safety Stock And Replenishment Quantities
Safety stock is "extra" inventory that is carried in order to
satisfy demands that exceed forecast. Safety stock can help you significantly
improve service, but it also can become costly if not properly managed.
DRP gives you several options for prescribing safety stock values. One
way is to allow DRP to automatically determine the values that are consistent
with your specified service objectives. To calculate a safety stock value,
DRP considers your desired service level, forecast error information provided
by DF and the magnitude of the replenishment quantity. For organizations
that want to use other safety stock options, DRP provides the flexibility
to express safety stock values by specified periods of supply, specified
number of units and safety time. In addition, you can specify minimum
and maximum periods of safety stock supply. You also have the flexibility
to instruct the system to allow safety stock to influence or not influence
replenishment as an immediate requirement. For organizations that require
safety stock allocations based on a national level, DRP can compute a
national safety stock amount. This amount can be set aside for management
of one facility or can be allocated on a percentage basis to multiple
warehouse locations. As with safety stock values, there are also ways
in which you can prescribe replenishment quantity values. One way is to
allow DRP to compute a value. This value trades off the annual cost of
ordering with the annual cost of carrying inventory, based on the annual
demand at cost. This approach is like a traditional economic order quantity,
but is much more dynamic. The replenishment amount is expressed in terms
of periods of supply rather than units, which allows the number of units
ordered to vary depending on seasonal characteristics and the requirements
of subordinate distribution locations. For example, just prior to the
peak of the season, three periods of supply may be three hundred units.
However, after the peak of the season, three periods of supply may only
be 40 units. This approach not only minimizes your exposure, it can also
significantly reduce overstock. Other alternate replenishment quantity
rules include specified periods of supply, specified number of units and
lot for lot. Order quantities also can be based on lot sizes that are
consistent with manufacturing's minimum and incremental lots.
Real-Time Simulation
DRP's Replenishment Quantity Safety Stock Detail screen helps you quickly
and easily establish the optimum safety stock and replenishment quantity
values for your products. Using this screen, you can simulate the impact
of various replenishment scenarios, real-time. For example, you can immediately
determine the impact on replenishment quantity attributable to increasing
ordering cost or inventory carrying cost. You also can modify the desired
service level, forecast error and replenishment quantities to recalculate
required safety stock whenever you wish. For instance, if you want to
increase your service level, you can immediately determine the cost of
carrying the incremental safety stock. When you are satisfied with your
simulation results, you can update the product's ordering cost, carrying
cost, replenishment quantity, safety stock and desired service level on-line,
real-time. DRP's powerful "what if?" simulation capabilities
can help you prevent costly mistakes.
Evaluating Your Distribution Strategies And Performance
Management must constantly evaluate the performance of both its distribution
resource planning strategies and the resulting distribution replenishment
plans not only to identify strengths and weaknesses such as imbalances,
understocks and overstocks within the distribution network, but also to
determine both the short-term remedies and the alternative strategies,
policies and controls to address underlying causes. For example, inventory
projection evaluations can help you identify inventory that may need to
be redistributed, reworked, repriced or even committed to obsolescence.
DRP gives you informative screens and reports that make it easy to analyze
both current and projected replenishment plan performance. For example,
these screens display key inventory statistics such as projected investment,
projected inventory turnover, projected service and the amount of inventory
designated as overstocked. You also can view performance information at
many different levels of summarization, including: Product line within
product group within location, Product group within location, Location
total, Product, Product line within product group, Product group, and
Grand total. DRP's inventory projection reporting continuously evaluates
the system's own effectiveness, as well as the effectiveness of actions
taken by planners as a result of the system's recommendations. When actions
are not logically related to recommendations, the system's performance
reporting alerts you to the possibility of an undesirable plan. Since
projection summaries are available both on-line and in hardcopy format,
you can quickly identify areas of the organization that are not meeting
established goals and objectives, and easily determine the necessary corrective
action. DRP's comprehensive projection summaries provide key measures
that enhance management control throughout your organization. For example,
materials personnel can review safety stock levels and obsolete inventory
potential. Financial management personnel can use performance reporting
to determine inventory investment requirements, project obsolescence costs
and improve cash flow management. Distribution can review the performance
of individual locations to determine if specific service and inventory
objectives are being met. DRP gives you the information and capabilities
you need to both evaluate and improve the effectiveness of your entire
organization's distribution resource planning activities and strategies.
A Powerful Sales And Operations Planning Tool
Proactive production planning and scheduling requires a reliable projection
of distribution inventory needs. DRP generates the inventory replenishment
plans for each item at each location so manufacturing and purchasing can
schedule replenishment requirements. Better communication and consistent
planning between manufacturing and distribution cannot only reduce distribution
and production costs, it also can improve your organization's ability
to meet its service objectives. This combination can significantly impact
your company's competitive edge.
Load Building
The Load Building system makes it easy for you to build loads
from a source of supply to one or more destinations. The system allows
you to simultaneously consider four constraints during the process of
building a load: the system supplied defaults include units (cases), cube,
weight, and containers (pallets). When transportation or storage capacity
is at a premium, the system helps you make sure that you're shipping the
highest priority products first. It helps you build loads from your sources
of supply to your distribution facilities; or from your facilities directly
to your customers. The Load Building system considers trailers, railcars,
or any other mode of transportation that you use. You can build full loads
of nothing but the same product; or loads with multiple products; you
can specify one destination; or multiple destinations, including a mix
of distribution facilities and customers.
You must provide two major inputs to the Load Building system. The Deploy
From file, which you may also think of as the supply file, contains information
about the availability (when and how much) of each product at each source
of supply. Your inventory control system, or your master production scheduling
system, or your purchasing system typically provides this information
to the Deploy From file. The Deploy To file, which you may also think
of as the demand file, contains information about the needs (when and
how much) of each destination or deploy to location including those of
customers. Your inventory replenishment planning system usually supplies
this information to the Deploy To file. Distribution Resource Planning
(DRP) is a particularly good source for this information.
The Load Building system generates one major output file. The Approved
Shipments file contains information about loads that have been built by
a planner and designated as approved for shipment. This information is
typically provided to your existing inventory control system, order processing
system, or warehouse management system. Then, whichever system is applicable
can initiate the physical transfer of inventory from one of your locations
to another or from one of your locations to a customer.
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