10/22/2012

Demand Push and Pull in a

Distribution Channel
David F. Ross, PhD, CFPIM, CSCP
APICS Professional Development

Learning Objectives

Describe distribution channel dependencies

Detail push
p
system
y
functions
Detail pull system functions
Decide what to choose: reorder points or DRP?
Define distribution requirements planning (DRP)
Work with the Bill of Distribution
Trace the DRP planning process
View a full DRP example

10/22/2012

Distribution Channel Dependencies

Product Flow

Plant

Decoupling Point

Information Flow
Replenishment Point

Central
Warehouse
Replenishment Point

Decoupling Point

Local
Warehouse
Replenishment Point

Decoupling Point

Customer

Push or Pull?
Push

Channel
Allocation

Plant
Central
Warehouse
Local
Warehouse

Pull

Demand
Requirement

Customer

10/22/2012

Push System Functions

Aggregate Channel
Demand History
Central Inventory
Planning

Yes

Stock
OK?

No

Resupply
Order

Review Branch
Order Points
Inventory
Allocation
Fair-Share
Allocation
Echelon
Shipment

Supplier
Shipment
Order
Receipt

Push System Functions (cont.)

Warehouses
DCs

55%
Manufacturing
Plant

45%

60%

Forecasting
Aggregate
Requirements

40%
65%

Production
Lot Size

Allocation

35%
Allocation

10/22/2012

Push System Allocation - Example

15,000
,
x 12% = 1,800
,
units

1,800 x 40% = 720 units

720 x 30% = 216 units

nits

Pull System Functions

Local Facility
Stock Status

Customer
requirements

Stock
OK?

Order point/
DRP

Shipment

Resupply Order

Interbranch
shipments
DRP

Interbranch
resupply order

Distribution
Center
Plant

Plant
Stock

No

No Plant

Resupply Order

Order point

Purchase
Receipt

10/22/2012

Pull System Functions (cont.)

Warehouses

DCs

Manufacturing
Plant

Master
Schedule

OP
DRP

Plant
MRP

Order
Shipment

Planned
Orders

Order
Shipment

Planned
Orders

Two Ordering Systems

Reorder
Point/Order
Quantity

Distribution
Requirements
Planning (DRP)

Statistical demand drives replenishment

Goal is to always have enough inventory
Replenishment quantities balance the
costt off ordering
d i with
ith th
the costt off stocking
t ki
Safety stocks protect against demand
variability
Items use forecasting to predict demand
Goal is to time replenishment to demand
Uses a bill of distribution
Demand exploded via MRP-type logic
Replenishment quantities use order
policies

10/22/2012

Ordering Techniques When to Order

Order Point System
OP = Demand x Lead Time
+ Safety Stock

The order point calculation consists of

enough material to satisfy Demand
during the replenishment Lead Time plus
Safety Stock to account for unplanned
variances in demand and supply.

Order Point Safety Stock

Demand
Trigger Point
Order
Quantity

Order
Point

Inventory

Quantity

Safety Stock

Guard Against
Stockout

Time
Replenishment Lead Time

10/22/2012

What to Choose: Order Points or DRP?

OP
SS

OP
SS

Pulled by DC 2

Quantity

Pulled by DC 1

Regional DC
In entor
Inventory
OP

OP
SS

X
Time

Pulled by DC 3

Impact of an order
point (OP)
distribution channel
pull on a Regional
DC from three
satellite DCs
OP= order point
SS=safety stock

Defining Distribution Requirements Planning

(DRP)
The function of determining the need to replenish
inventory at branch warehouses. A time-phased order
point
i approach
h iis used
d where
h
the
h planned
l
d orders
d
at
the branch warehouse level are exploded via MRP
logic to
become gross
requirementsplanning
on the supplying
What
is distribution
requirements
(DRP)?
source. In the case of multilevel distribution networks,
this explosion process can continue down through the
various levels of regional warehouses (master
warehouse factory warehouse
warehouse,
warehouse, etc.)
etc ) and become
input to the master production schedule. Demand on
the supplying sources is recognized as dependent,
and standard MRP logic applies.

10/22/2012

Introduction to the DRP Grid

DRP Rows

GrossRequirements

100

110

125

DRPIn Transit Receipts

200

ProjectedAvailableBalance

50

140

15

NetRequirements

DRPPlannedOrderReceipt

DRPPlannedOrderRelease

200

200

DRP and the Bill of Distribution

ABC Electronics
DC 1

ABC Electronics
DC 2

ABC Electronics
DC 3

Resupply Demand
Resupply Delivery

ABC Electronics
Manufacturing Plant

10/22/2012

DRP Planning Process

DRP Generation
Determine
Gross
Requirements

Review
Inventory
Balance

Net
Requirements
Calculation

Total Demand OK?

Quantities OK?

Shortages OK?

Plan New
Od
Orders

Orders OK?

DRP Order Release

DRP Example
LeadTime/weeks
OrderQuantity
OnHandInventory/units

1
600
240

PRODUCTK20010
GrossRequirements
DRPInTransitReceipts
ProjectedAvailableBalance
NetRequirements
DRP Pl
DRPPlannedOrderReceipt
dO d R i t
DRPPlannedOrderRelease
LeadTime/weeks
OrderQuantity
OnHandInventory/units

1
225
25

PRODUCTK20010
GrossRequirements
DRPInTransitReceipts
ProjectedAvailableBalance
NetRequirements
DRPPlannedOrderReceipt
DRPPlannedOrderRelease

LeadTime/weeks
OrderQuantity
OnHandInventory/units

PRODUCTK20010
GrossRequirements
DRPInTransitReceipts
ProjectedAvailableBalance
NetRequirements
DRPPlannedOrderReceipt
DRPPlannedOrderRelease

1
250
350

DISTRIBUTIONCENTER1
WEEKLYPERIODS
1
2
3
4
5
6
7
8
210 210 210 210 210 210 210 210
600
30 420 210
0
390 180 570 360
0
0
0
0
210 0
30
0
0
0
0
0
600 0 600 0
0
0
0
600
0 600 0

SUMMARY
PRODUCTK20010
DistributionCenter1
DistributionCenter2
DistributionCenter3

WEEKLYPERIODS
1
2
3
4
5
6
7
0
0
0
600
0 600 0
0 225 0
225
0
0 225
250 0 250 250 250 250 0
TOTAL 250 225 250 1
TOTAL
1,075
075 250 850 225

8
0
0
0
0

DISTRIBUTIONCENTER2
WEEKLYPERIODS
1
2
3
4
5
6
7
100 100 100 100 100 100 100
225
150 50 175 75 200 100 0
0
0
50
0
25
0
0
0
0 225
0
225 0
0
0 225 0
225
0
0 225

8
100
125
100
225

DISTRIBUTIONCENTER3

LeadTime/weeks
OrderQuantity
OnHandInventory/units

2
550
25

PRODUCTK20010
GrossRequirements
MRPScheduledReceipts
ProjectedAvailableBalance
q
NetRequirements
MRPPlannedOrderReceipt
MRPPlannedOrderRelease

MANUFACTURINGPLANT
WEEKLYPERIODS
1
2
3
4
5
6
7
8
250 225 250 1,075 250 850 225 0
550
325 100 400
0
300 0 325 325
0
0 150 675 250 550 225 0
0
0 550 675 550 550 550 0
550 675 550 550 550 0
0
0

WEEKLYPERIODS
1
2
3
4
5
6
7
8
200 200 200 200 200 200 200 200
150 200 0
0
50
0
0 250 0
250 0 250

50
200
250
250

100
150
250
250

150 200
100 50
250 250
250 0

0
0
0

10/22/2012

Thank You for Attending!!

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