Non-Stationary Demand Distribution Requirements Planning

Note that in any make-to-stock product setting, the linchpin between product manufacturing and customer demand is the distribution system, and indeed, it is distribution system inventory that coordinates customer demand with producer supply. While distribution system inventory levels could be determined using the reorder point-order quantity (ROP-OQ) control methods as described previously, the critical difference between DRP and ROP-OQ is that DRP plans forward in time, whereas ROP-OQ systems react to actual demands whenever those demands drive inventory to a level that warrants an order being placed. This is not to say that the two approaches are inconsistent. Indeed, it is quite easy to show that, in a stationary-demand environment with sufficiently small planning time buckets, DRP and ROP-OQ produce equivalent results. Where 

DRP provides a clear benefit, however, is in situations where demand is not constant over time, particularly those situations in which surges and drop-offs in demand can be anticipated. Thus, one of the important inputs for DRP is a time-series demand forecast, the subject of the discussion in Chapter 2. 

The basic logic of DRP is to compute the time-phased schedule of replenishments for each stock-keeping unit (SKU) in the distribution system that keeps the inventory level of that SKU at or above a specified safety stock level (which, of course, could be set to zero). Let the DRP horizon span planning periods t = and assume that the safety stock SS, the order lot size Q, and the 

To illustrate the basic concepts, let us consider an example, altered from Bozarth and Handheld (2006). Assume that MeltoMatic Company manufactures and distributes snow blowers. Sales of MeltoMatic snow blowers are concentrated in the midwestern and northeastern states of the United States. Thus, the company has distribution centers (DCs) located in Minneapolis and Buffalo, both of which are supplied by MeltoMatic s manufacturing plant in Cleveland. Table 3.4 shows the DRP records for the Minneapolis and Buffalo DCs for MeltoMatic s two SKUs, Model SB-15 and Model SBX-25. The first three lines in the table sections devoted to each SKU at each DC provide the forecasted demand (requirements), D, the scheduled receipts, SR, already expected to arrive in future periods and the projected ending inventory in each period, C This last quantity. If, is computed on a period-by-period basis as follows  

- SS))—i.e., compute the net demand not covered by available supply (and note that, since we expect inventory to remain at or above SS, this quantity must be subtracted from inventory and scheduled receipts in order to determine the sup ply available to support current demand). 

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