Tuesday, July 14, 2009

Demand Planning - DRP (Distribution Requirement Plan)

In our earlier blogs, we were discussing about one aspect of Demand Planning ie Forecasting. Demand Planning is incomplete without mentioning DRP (Distribution Requirement Planning).

So far we have learnt that how forecating has been done. The demand planner has to arrange the stocks as per the forecast volumes. At the outset this looks simple and straight forward approach without much complication. This is true if demand for the product is stable and forecast variations are within control. But in real life the demand for most of the products are volatile and forecast variations are on higher side. This opened up pandora's box with the following questions.

a) What quantity ? - Is it only the forecast quantity for given item. If so, when market is buoyant and require more stocks how are we going to tackle the situation. Are we going to build up some more additonal stock refferred as safety stock or buffer stock to meet the unexpected demand every month. If so what are the norms for building safety stocks for that item. You cannot keep more safety stocks every month as it involves Inventory cost and Inventory carrying cost.

b) When (Time Period) are we going to despatch the quantity ? On Monthly basis, Weekly basis or daily basis ? Lesser the time period is advantageous to the organization due to higher inventory turn, low inventory holding cost, low investment on raw materials and inventory etc.

c) Which locations are we going to despatch the quantity ? This requires clear understanding of "Distribution Network Design" of the organization. For example the manufacturing plant send items to Central Distribution Centre (CDC) through which Regional Distribution centres (RDC) receive the items. In some cases there may not be any CDC and hence manufacturing plant may send items to RDC. "Network Design" is an important concept in SCM and hence we will discuss about this in our subsequent blog.

These issues are addressed through DRP process. Let us first understand what is DRP and where does DRP fit in within the Supply Chain Management.

What is DRP ?

DRP provides the basis for integrating supply chain inventory information and physical Distribution activities with the Manufacturing Planning and Control (PAC) system.

Distribution Requirements Planning (DRP) is a systematic process for determining which item (Finished Goods), in what quantity, at which location, and when are required in meeting anticipated demand. It manages the flow of finished goods between firms, Distribution centres, warehouses.

DRP is the approach by which optimum stock levels of Finished Goods (FG) would be maintained in multiple warehouses usually serving different geographical locations. It is a time phased replenishment approach, in which inventory status and planned lead time are reviewed and new shipment plans are generated periodically.

Where DRP fits in the Supply Chain ?

Before exploring DRP further, we will introduce another concept MRP which stands for Material Requirement Planning. DRP and MRP are integrated and goes hand in hand even though DRP is meant for distribution and MRP for manufacturing. Given below diagram explains how DRP and MRP are integrated.

In the next few sessions we will discuss more about DRP and related terminology. Subsequently we will discuss about MRP, MPS (Master Production Schedule), PPC (Production Planning & Control) and more production related topics.

Now the user may feel why should we know about MRP, MPS, PPC which is a hard core production function. MRP, MPS, PPC are planning oriented activities in the production function which direclty impact Demand and Sales function. As a SCM Manager one should understand these concepts and terminology clearly, in order to function effectively.


  1. Congrats. You have covered Demand Planning topic so nicely. This blog reflects your indepth knowldege which you have gained out of 18 years of experience.

  2. I like your article and it really gives an outstanding idea that is very helpful for all the people on web.

  3. I'm interested in DRP, but wich software can be used hich can guarantee all functionality?