Distribution Requirement Planning (DRP) is a method of analysing expected/actual demand and available stock level in future periods. You can thereby identify future expected replenishment needs. The DRP plan, which is included in the Supply Plan, will show how much needs to be replenished, and when, to meet a requested minimum stock level.
In summary, the DRP plan (Supply Plan) contains information about all future needs, for all items in all warehouses. Within the distribution network the need is satisfied by internal supply from the supplying warehouse. At the main warehouse the need is satisfied by a purchase order to an external supplier.
DRP versus reorder point model
DRP planning gives a better visibility of expected future requirements than the reorder point model. In a reorder point system the purchase suggestion tells you if you need to make a purchase. If you do not, it does not really tell you anything about the future. It could be time to order in ten minutes, ten days or ten weeks; it does not say which.
The DRP plan (Supply Plan), on the other hand, tells you about all future expected requirements for one year into the future. This information in itself can be very useful for long term planning and communication with the suppliers.
When dealing with warehouse structures, with internal supplies, on several levels the DRP technique is also superior to the ROP model. DRP will identify and accumulate net requirements at various warehouses to the supplying warehouse. This gives the system knowledge in advance and the possibility to be pro-active rather than re-active to changes in demand.
The advantage of the ROP model is that it is conceptually easier to use and understand and that it is continuous. When the available stock falls below the reorder point the purchase suggestion is created immediately. In DRP there is a periodical element, the DRP plan is normally recalculated only once per DRP period.
DRP and warehouse structures
Managing inventory at one single warehouse can be relatively easy and done very well by using a reorder point model. It is substantially more difficult to manage inventory in a distributed warehouse system, where you have several warehouses linked together and some warehouses supplied from other warehouses by internal supply. In this case it is more difficult to plan and control the replenishment of stock between warehouses, and to warehouses from suppliers.
There can be problems when using the reorder point model for controlling the replenishment to all warehouses, either from an external supplier or from another warehouse. In some cases this model will react too late and cause a stock shortage. In other cases the reorder point model replenishes stock too soon and thereby results in too much inventory being carried.
It is of course possible to use the reorder point model for controlling the supply within a warehouse structure, but the DRP model will give an even better solution to the problem of matching demand and supply.
Thus, DRP applied on a single warehouse gives some benefits compared to a reorder point model. DRP applied in a warehouse structure gives even more advantages compared to using the reorder point model. At the main warehouse, which is supplying other warehouses, you would typically accumulate gross demand from end customers at all supplied warehouses to the main warehouse. Based on that accumulated demand you would calculate a forecast at the main warehouse.
The problem here is that you do not recognise the stock on hand at the supplied warehouses. DRP uses the information about demand from customers at the local warehouse, but also information of available stock to identify in which future period a net requirement occurs at the local warehouse. This net requirement is accumulated rather than just the customer demand values.
The net requirement at the local warehouse will be seen as a demand at the supplying warehouse, in the right period. The demand at the supplying warehouse is time shifted compared to the requirement at the supplied warehouse, to handle the transportation time and internal lead time.
Related topics
- Supply plan process
- Create the base supply plan version
- Create a supply plan simulation
- Calculate the supply plan values
- Calculate lower level requirements from supply plan
- Maintain the supply values
- Run the IC calculation from the supply plan program
- Create orders from a supply plan
- View the safety stock calculation for a warehouse in a supply plan
- Formula for safety stock calculation in a supply plan
- About IBS Planning and Forecasting