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Inventory Management Distribution Requirements Planning
Lecture 11
ESD260 Fall2003 Caplice
Assumptions Basic MRP ModelDemand Constant vs Variable Known vs Random1048708 Continuous vs DiscreteLead time1048708 Instantaneous 1048708 Constantc or Variable (deterministicstochastic)Dependence of items Independent1048708 Correlated1048708 Indentured Review Time Continuous vs PeriodicNumber of Echelons1048708 One vs ManyCapacityResources1048708 UnlimitedvsLimited
DiscountsNone1048708 All Units OrIncrementalExcess Demand1048708 None1048708 All orders are backordered Lost orders1048708 SubstitutionPerishability1048708 None1048708 Uniform with timePlanning Horizon1048708 Single Period1048708 Finite Period1048708 InfiniteNumber of Items1048708 One1048708 Many
MIT Center for Transportation amp Logistics - ESD260 2 copy Chris Caplice MIT
A Multi-Echelon Inventory System
MIT Center for Transportation amp Logistics - ESD260 3 copy Chris Caplice MIT
What if I Use Traditional Techniques
In multi-echelon inventory systems with decentralized control lot size reorder point logic will
Create and amplify lumpy demand
Lead to the mal-distribution of available stock hoarding of stock and unnecessary stock outs Force reliance on large safety stocks
expediting and re-distribution
MIT Center for Transportation amp Logistics - ESD260 4 copy Chris Caplice MIT
Impact of Multi-Echelons
CDC Demand Pattern
RDC Ordering
Patterns
RDC Inventory
Cycles
Layers of Inventory Create Lumpy Demand
MIT Center for Transportation amp Logistics - ESD260 5 copy Chris Caplice MIT
What does a DRP do Premises
Inventory control in a distribution environment Many products many stockage locations Multi-echelon distribution network Layers of inventory create lumpy demand Concepts Dependent demand versus independent demand Requirements calculation versus demand forecasting Schedule flow versus stockpile assets Information replaces inventory
ldquoDRP is simply the application of the MRP principles and techniques to distribution inventoriesrdquo Andre Martin
MIT Center for Transportation amp Logistics - ESD260 6 copy Chris Caplice MIT
DRP Requirements Information Requirements
Base Level Usage Forecasts Distribution Network Design Inventory Status Ordering Data
DRP Process Requirements Implosion Net from Gross Requirements Requirements Time Phasing Planned Order Release
MIT Center for Transportation amp Logistics - ESD260 7 copy Chris Caplice MIT
A Distribution Network Example
Plant
Centra Warehouse
Regional Warehouse 2 Regional Warehouse 1 Regional Warehouse 3
Retailer A
Retailer B
Retailer C
Retailer D
Retailer E
Retailer E
Retailer G
Retailer H
Retailer I
MIT Center for Transportation amp Logistics - ESD260 8 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse One
Q=50 SS=15 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rqmt
Plan Rcpt
End Inv
PORt
MIT Center for Transportation amp Logistics - ESD260 9 copy Chris Caplice MIT
The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 10 copy Chris Caplice MIT
Central Warehouse Facility
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Example The DRP Plan Regional Warehouse Two
Q=30 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 11 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse Three
Q=20 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 12 copy Chris Caplice MIT
The DRP Plan for All Locations Rolling Up Orders
MIT Center for Transportation amp Logistics - ESD260 13 copy Chris Caplice MIT
NOW1 2 3 4 5 6 7 8
CENTRAL
Period Usage100 20 50
30 100 0 100 0
POR200
200 200
REGION ONE
Period Usage25
25 25 25 25 25 25 25
POR
50
50 50 50
REGION TWO
Period Usage10
10 1010
10 1010
10
POR30
30 30 30
REGION THREE
Period Usage5
15 10 10 0 15 0 15
POR20
2020 20
Example The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 14 copy Chris Caplice MIT
Central Warehouse Q=200 SS=0 LT=2
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
Results and Insights DRP is a scheduling and stockage algorithm -- it replaces the forecasting mechanism above the base inventory level DRP does not determine lot size or safety stock -- but these decisions must be made as inputs to the process DRP does not explicitly consider any costs -- but these costs are still relevant the user must evaluate trade-offs DRP systems can deal with uncertainty -- using safety time and safety stock
MIT Center for Transportation amp Logistics - ESD260 15 copy Chris Caplice MIT
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
Assumptions Basic MRP ModelDemand Constant vs Variable Known vs Random1048708 Continuous vs DiscreteLead time1048708 Instantaneous 1048708 Constantc or Variable (deterministicstochastic)Dependence of items Independent1048708 Correlated1048708 Indentured Review Time Continuous vs PeriodicNumber of Echelons1048708 One vs ManyCapacityResources1048708 UnlimitedvsLimited
DiscountsNone1048708 All Units OrIncrementalExcess Demand1048708 None1048708 All orders are backordered Lost orders1048708 SubstitutionPerishability1048708 None1048708 Uniform with timePlanning Horizon1048708 Single Period1048708 Finite Period1048708 InfiniteNumber of Items1048708 One1048708 Many
MIT Center for Transportation amp Logistics - ESD260 2 copy Chris Caplice MIT
A Multi-Echelon Inventory System
MIT Center for Transportation amp Logistics - ESD260 3 copy Chris Caplice MIT
What if I Use Traditional Techniques
In multi-echelon inventory systems with decentralized control lot size reorder point logic will
Create and amplify lumpy demand
Lead to the mal-distribution of available stock hoarding of stock and unnecessary stock outs Force reliance on large safety stocks
expediting and re-distribution
MIT Center for Transportation amp Logistics - ESD260 4 copy Chris Caplice MIT
Impact of Multi-Echelons
CDC Demand Pattern
RDC Ordering
Patterns
RDC Inventory
Cycles
Layers of Inventory Create Lumpy Demand
MIT Center for Transportation amp Logistics - ESD260 5 copy Chris Caplice MIT
What does a DRP do Premises
Inventory control in a distribution environment Many products many stockage locations Multi-echelon distribution network Layers of inventory create lumpy demand Concepts Dependent demand versus independent demand Requirements calculation versus demand forecasting Schedule flow versus stockpile assets Information replaces inventory
ldquoDRP is simply the application of the MRP principles and techniques to distribution inventoriesrdquo Andre Martin
MIT Center for Transportation amp Logistics - ESD260 6 copy Chris Caplice MIT
DRP Requirements Information Requirements
Base Level Usage Forecasts Distribution Network Design Inventory Status Ordering Data
DRP Process Requirements Implosion Net from Gross Requirements Requirements Time Phasing Planned Order Release
MIT Center for Transportation amp Logistics - ESD260 7 copy Chris Caplice MIT
A Distribution Network Example
Plant
Centra Warehouse
Regional Warehouse 2 Regional Warehouse 1 Regional Warehouse 3
Retailer A
Retailer B
Retailer C
Retailer D
Retailer E
Retailer E
Retailer G
Retailer H
Retailer I
MIT Center for Transportation amp Logistics - ESD260 8 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse One
Q=50 SS=15 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rqmt
Plan Rcpt
End Inv
PORt
MIT Center for Transportation amp Logistics - ESD260 9 copy Chris Caplice MIT
The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 10 copy Chris Caplice MIT
Central Warehouse Facility
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Example The DRP Plan Regional Warehouse Two
Q=30 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 11 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse Three
Q=20 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 12 copy Chris Caplice MIT
The DRP Plan for All Locations Rolling Up Orders
MIT Center for Transportation amp Logistics - ESD260 13 copy Chris Caplice MIT
NOW1 2 3 4 5 6 7 8
CENTRAL
Period Usage100 20 50
30 100 0 100 0
POR200
200 200
REGION ONE
Period Usage25
25 25 25 25 25 25 25
POR
50
50 50 50
REGION TWO
Period Usage10
10 1010
10 1010
10
POR30
30 30 30
REGION THREE
Period Usage5
15 10 10 0 15 0 15
POR20
2020 20
Example The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 14 copy Chris Caplice MIT
Central Warehouse Q=200 SS=0 LT=2
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
Results and Insights DRP is a scheduling and stockage algorithm -- it replaces the forecasting mechanism above the base inventory level DRP does not determine lot size or safety stock -- but these decisions must be made as inputs to the process DRP does not explicitly consider any costs -- but these costs are still relevant the user must evaluate trade-offs DRP systems can deal with uncertainty -- using safety time and safety stock
MIT Center for Transportation amp Logistics - ESD260 15 copy Chris Caplice MIT
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
A Multi-Echelon Inventory System
MIT Center for Transportation amp Logistics - ESD260 3 copy Chris Caplice MIT
What if I Use Traditional Techniques
In multi-echelon inventory systems with decentralized control lot size reorder point logic will
Create and amplify lumpy demand
Lead to the mal-distribution of available stock hoarding of stock and unnecessary stock outs Force reliance on large safety stocks
expediting and re-distribution
MIT Center for Transportation amp Logistics - ESD260 4 copy Chris Caplice MIT
Impact of Multi-Echelons
CDC Demand Pattern
RDC Ordering
Patterns
RDC Inventory
Cycles
Layers of Inventory Create Lumpy Demand
MIT Center for Transportation amp Logistics - ESD260 5 copy Chris Caplice MIT
What does a DRP do Premises
Inventory control in a distribution environment Many products many stockage locations Multi-echelon distribution network Layers of inventory create lumpy demand Concepts Dependent demand versus independent demand Requirements calculation versus demand forecasting Schedule flow versus stockpile assets Information replaces inventory
ldquoDRP is simply the application of the MRP principles and techniques to distribution inventoriesrdquo Andre Martin
MIT Center for Transportation amp Logistics - ESD260 6 copy Chris Caplice MIT
DRP Requirements Information Requirements
Base Level Usage Forecasts Distribution Network Design Inventory Status Ordering Data
DRP Process Requirements Implosion Net from Gross Requirements Requirements Time Phasing Planned Order Release
MIT Center for Transportation amp Logistics - ESD260 7 copy Chris Caplice MIT
A Distribution Network Example
Plant
Centra Warehouse
Regional Warehouse 2 Regional Warehouse 1 Regional Warehouse 3
Retailer A
Retailer B
Retailer C
Retailer D
Retailer E
Retailer E
Retailer G
Retailer H
Retailer I
MIT Center for Transportation amp Logistics - ESD260 8 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse One
Q=50 SS=15 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rqmt
Plan Rcpt
End Inv
PORt
MIT Center for Transportation amp Logistics - ESD260 9 copy Chris Caplice MIT
The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 10 copy Chris Caplice MIT
Central Warehouse Facility
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Example The DRP Plan Regional Warehouse Two
Q=30 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 11 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse Three
Q=20 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 12 copy Chris Caplice MIT
The DRP Plan for All Locations Rolling Up Orders
MIT Center for Transportation amp Logistics - ESD260 13 copy Chris Caplice MIT
NOW1 2 3 4 5 6 7 8
CENTRAL
Period Usage100 20 50
30 100 0 100 0
POR200
200 200
REGION ONE
Period Usage25
25 25 25 25 25 25 25
POR
50
50 50 50
REGION TWO
Period Usage10
10 1010
10 1010
10
POR30
30 30 30
REGION THREE
Period Usage5
15 10 10 0 15 0 15
POR20
2020 20
Example The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 14 copy Chris Caplice MIT
Central Warehouse Q=200 SS=0 LT=2
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
Results and Insights DRP is a scheduling and stockage algorithm -- it replaces the forecasting mechanism above the base inventory level DRP does not determine lot size or safety stock -- but these decisions must be made as inputs to the process DRP does not explicitly consider any costs -- but these costs are still relevant the user must evaluate trade-offs DRP systems can deal with uncertainty -- using safety time and safety stock
MIT Center for Transportation amp Logistics - ESD260 15 copy Chris Caplice MIT
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
What if I Use Traditional Techniques
In multi-echelon inventory systems with decentralized control lot size reorder point logic will
Create and amplify lumpy demand
Lead to the mal-distribution of available stock hoarding of stock and unnecessary stock outs Force reliance on large safety stocks
expediting and re-distribution
MIT Center for Transportation amp Logistics - ESD260 4 copy Chris Caplice MIT
Impact of Multi-Echelons
CDC Demand Pattern
RDC Ordering
Patterns
RDC Inventory
Cycles
Layers of Inventory Create Lumpy Demand
MIT Center for Transportation amp Logistics - ESD260 5 copy Chris Caplice MIT
What does a DRP do Premises
Inventory control in a distribution environment Many products many stockage locations Multi-echelon distribution network Layers of inventory create lumpy demand Concepts Dependent demand versus independent demand Requirements calculation versus demand forecasting Schedule flow versus stockpile assets Information replaces inventory
ldquoDRP is simply the application of the MRP principles and techniques to distribution inventoriesrdquo Andre Martin
MIT Center for Transportation amp Logistics - ESD260 6 copy Chris Caplice MIT
DRP Requirements Information Requirements
Base Level Usage Forecasts Distribution Network Design Inventory Status Ordering Data
DRP Process Requirements Implosion Net from Gross Requirements Requirements Time Phasing Planned Order Release
MIT Center for Transportation amp Logistics - ESD260 7 copy Chris Caplice MIT
A Distribution Network Example
Plant
Centra Warehouse
Regional Warehouse 2 Regional Warehouse 1 Regional Warehouse 3
Retailer A
Retailer B
Retailer C
Retailer D
Retailer E
Retailer E
Retailer G
Retailer H
Retailer I
MIT Center for Transportation amp Logistics - ESD260 8 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse One
Q=50 SS=15 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rqmt
Plan Rcpt
End Inv
PORt
MIT Center for Transportation amp Logistics - ESD260 9 copy Chris Caplice MIT
The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 10 copy Chris Caplice MIT
Central Warehouse Facility
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Example The DRP Plan Regional Warehouse Two
Q=30 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 11 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse Three
Q=20 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 12 copy Chris Caplice MIT
The DRP Plan for All Locations Rolling Up Orders
MIT Center for Transportation amp Logistics - ESD260 13 copy Chris Caplice MIT
NOW1 2 3 4 5 6 7 8
CENTRAL
Period Usage100 20 50
30 100 0 100 0
POR200
200 200
REGION ONE
Period Usage25
25 25 25 25 25 25 25
POR
50
50 50 50
REGION TWO
Period Usage10
10 1010
10 1010
10
POR30
30 30 30
REGION THREE
Period Usage5
15 10 10 0 15 0 15
POR20
2020 20
Example The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 14 copy Chris Caplice MIT
Central Warehouse Q=200 SS=0 LT=2
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
Results and Insights DRP is a scheduling and stockage algorithm -- it replaces the forecasting mechanism above the base inventory level DRP does not determine lot size or safety stock -- but these decisions must be made as inputs to the process DRP does not explicitly consider any costs -- but these costs are still relevant the user must evaluate trade-offs DRP systems can deal with uncertainty -- using safety time and safety stock
MIT Center for Transportation amp Logistics - ESD260 15 copy Chris Caplice MIT
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
Impact of Multi-Echelons
CDC Demand Pattern
RDC Ordering
Patterns
RDC Inventory
Cycles
Layers of Inventory Create Lumpy Demand
MIT Center for Transportation amp Logistics - ESD260 5 copy Chris Caplice MIT
What does a DRP do Premises
Inventory control in a distribution environment Many products many stockage locations Multi-echelon distribution network Layers of inventory create lumpy demand Concepts Dependent demand versus independent demand Requirements calculation versus demand forecasting Schedule flow versus stockpile assets Information replaces inventory
ldquoDRP is simply the application of the MRP principles and techniques to distribution inventoriesrdquo Andre Martin
MIT Center for Transportation amp Logistics - ESD260 6 copy Chris Caplice MIT
DRP Requirements Information Requirements
Base Level Usage Forecasts Distribution Network Design Inventory Status Ordering Data
DRP Process Requirements Implosion Net from Gross Requirements Requirements Time Phasing Planned Order Release
MIT Center for Transportation amp Logistics - ESD260 7 copy Chris Caplice MIT
A Distribution Network Example
Plant
Centra Warehouse
Regional Warehouse 2 Regional Warehouse 1 Regional Warehouse 3
Retailer A
Retailer B
Retailer C
Retailer D
Retailer E
Retailer E
Retailer G
Retailer H
Retailer I
MIT Center for Transportation amp Logistics - ESD260 8 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse One
Q=50 SS=15 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rqmt
Plan Rcpt
End Inv
PORt
MIT Center for Transportation amp Logistics - ESD260 9 copy Chris Caplice MIT
The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 10 copy Chris Caplice MIT
Central Warehouse Facility
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Example The DRP Plan Regional Warehouse Two
Q=30 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 11 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse Three
Q=20 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 12 copy Chris Caplice MIT
The DRP Plan for All Locations Rolling Up Orders
MIT Center for Transportation amp Logistics - ESD260 13 copy Chris Caplice MIT
NOW1 2 3 4 5 6 7 8
CENTRAL
Period Usage100 20 50
30 100 0 100 0
POR200
200 200
REGION ONE
Period Usage25
25 25 25 25 25 25 25
POR
50
50 50 50
REGION TWO
Period Usage10
10 1010
10 1010
10
POR30
30 30 30
REGION THREE
Period Usage5
15 10 10 0 15 0 15
POR20
2020 20
Example The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 14 copy Chris Caplice MIT
Central Warehouse Q=200 SS=0 LT=2
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
Results and Insights DRP is a scheduling and stockage algorithm -- it replaces the forecasting mechanism above the base inventory level DRP does not determine lot size or safety stock -- but these decisions must be made as inputs to the process DRP does not explicitly consider any costs -- but these costs are still relevant the user must evaluate trade-offs DRP systems can deal with uncertainty -- using safety time and safety stock
MIT Center for Transportation amp Logistics - ESD260 15 copy Chris Caplice MIT
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
What does a DRP do Premises
Inventory control in a distribution environment Many products many stockage locations Multi-echelon distribution network Layers of inventory create lumpy demand Concepts Dependent demand versus independent demand Requirements calculation versus demand forecasting Schedule flow versus stockpile assets Information replaces inventory
ldquoDRP is simply the application of the MRP principles and techniques to distribution inventoriesrdquo Andre Martin
MIT Center for Transportation amp Logistics - ESD260 6 copy Chris Caplice MIT
DRP Requirements Information Requirements
Base Level Usage Forecasts Distribution Network Design Inventory Status Ordering Data
DRP Process Requirements Implosion Net from Gross Requirements Requirements Time Phasing Planned Order Release
MIT Center for Transportation amp Logistics - ESD260 7 copy Chris Caplice MIT
A Distribution Network Example
Plant
Centra Warehouse
Regional Warehouse 2 Regional Warehouse 1 Regional Warehouse 3
Retailer A
Retailer B
Retailer C
Retailer D
Retailer E
Retailer E
Retailer G
Retailer H
Retailer I
MIT Center for Transportation amp Logistics - ESD260 8 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse One
Q=50 SS=15 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rqmt
Plan Rcpt
End Inv
PORt
MIT Center for Transportation amp Logistics - ESD260 9 copy Chris Caplice MIT
The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 10 copy Chris Caplice MIT
Central Warehouse Facility
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Example The DRP Plan Regional Warehouse Two
Q=30 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 11 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse Three
Q=20 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 12 copy Chris Caplice MIT
The DRP Plan for All Locations Rolling Up Orders
MIT Center for Transportation amp Logistics - ESD260 13 copy Chris Caplice MIT
NOW1 2 3 4 5 6 7 8
CENTRAL
Period Usage100 20 50
30 100 0 100 0
POR200
200 200
REGION ONE
Period Usage25
25 25 25 25 25 25 25
POR
50
50 50 50
REGION TWO
Period Usage10
10 1010
10 1010
10
POR30
30 30 30
REGION THREE
Period Usage5
15 10 10 0 15 0 15
POR20
2020 20
Example The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 14 copy Chris Caplice MIT
Central Warehouse Q=200 SS=0 LT=2
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
Results and Insights DRP is a scheduling and stockage algorithm -- it replaces the forecasting mechanism above the base inventory level DRP does not determine lot size or safety stock -- but these decisions must be made as inputs to the process DRP does not explicitly consider any costs -- but these costs are still relevant the user must evaluate trade-offs DRP systems can deal with uncertainty -- using safety time and safety stock
MIT Center for Transportation amp Logistics - ESD260 15 copy Chris Caplice MIT
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
DRP Requirements Information Requirements
Base Level Usage Forecasts Distribution Network Design Inventory Status Ordering Data
DRP Process Requirements Implosion Net from Gross Requirements Requirements Time Phasing Planned Order Release
MIT Center for Transportation amp Logistics - ESD260 7 copy Chris Caplice MIT
A Distribution Network Example
Plant
Centra Warehouse
Regional Warehouse 2 Regional Warehouse 1 Regional Warehouse 3
Retailer A
Retailer B
Retailer C
Retailer D
Retailer E
Retailer E
Retailer G
Retailer H
Retailer I
MIT Center for Transportation amp Logistics - ESD260 8 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse One
Q=50 SS=15 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rqmt
Plan Rcpt
End Inv
PORt
MIT Center for Transportation amp Logistics - ESD260 9 copy Chris Caplice MIT
The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 10 copy Chris Caplice MIT
Central Warehouse Facility
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Example The DRP Plan Regional Warehouse Two
Q=30 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 11 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse Three
Q=20 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 12 copy Chris Caplice MIT
The DRP Plan for All Locations Rolling Up Orders
MIT Center for Transportation amp Logistics - ESD260 13 copy Chris Caplice MIT
NOW1 2 3 4 5 6 7 8
CENTRAL
Period Usage100 20 50
30 100 0 100 0
POR200
200 200
REGION ONE
Period Usage25
25 25 25 25 25 25 25
POR
50
50 50 50
REGION TWO
Period Usage10
10 1010
10 1010
10
POR30
30 30 30
REGION THREE
Period Usage5
15 10 10 0 15 0 15
POR20
2020 20
Example The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 14 copy Chris Caplice MIT
Central Warehouse Q=200 SS=0 LT=2
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
Results and Insights DRP is a scheduling and stockage algorithm -- it replaces the forecasting mechanism above the base inventory level DRP does not determine lot size or safety stock -- but these decisions must be made as inputs to the process DRP does not explicitly consider any costs -- but these costs are still relevant the user must evaluate trade-offs DRP systems can deal with uncertainty -- using safety time and safety stock
MIT Center for Transportation amp Logistics - ESD260 15 copy Chris Caplice MIT
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
A Distribution Network Example
Plant
Centra Warehouse
Regional Warehouse 2 Regional Warehouse 1 Regional Warehouse 3
Retailer A
Retailer B
Retailer C
Retailer D
Retailer E
Retailer E
Retailer G
Retailer H
Retailer I
MIT Center for Transportation amp Logistics - ESD260 8 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse One
Q=50 SS=15 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rqmt
Plan Rcpt
End Inv
PORt
MIT Center for Transportation amp Logistics - ESD260 9 copy Chris Caplice MIT
The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 10 copy Chris Caplice MIT
Central Warehouse Facility
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Example The DRP Plan Regional Warehouse Two
Q=30 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 11 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse Three
Q=20 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 12 copy Chris Caplice MIT
The DRP Plan for All Locations Rolling Up Orders
MIT Center for Transportation amp Logistics - ESD260 13 copy Chris Caplice MIT
NOW1 2 3 4 5 6 7 8
CENTRAL
Period Usage100 20 50
30 100 0 100 0
POR200
200 200
REGION ONE
Period Usage25
25 25 25 25 25 25 25
POR
50
50 50 50
REGION TWO
Period Usage10
10 1010
10 1010
10
POR30
30 30 30
REGION THREE
Period Usage5
15 10 10 0 15 0 15
POR20
2020 20
Example The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 14 copy Chris Caplice MIT
Central Warehouse Q=200 SS=0 LT=2
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
Results and Insights DRP is a scheduling and stockage algorithm -- it replaces the forecasting mechanism above the base inventory level DRP does not determine lot size or safety stock -- but these decisions must be made as inputs to the process DRP does not explicitly consider any costs -- but these costs are still relevant the user must evaluate trade-offs DRP systems can deal with uncertainty -- using safety time and safety stock
MIT Center for Transportation amp Logistics - ESD260 15 copy Chris Caplice MIT
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
Example The DRP Plan Regional Warehouse One
Q=50 SS=15 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rqmt
Plan Rcpt
End Inv
PORt
MIT Center for Transportation amp Logistics - ESD260 9 copy Chris Caplice MIT
The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 10 copy Chris Caplice MIT
Central Warehouse Facility
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Example The DRP Plan Regional Warehouse Two
Q=30 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 11 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse Three
Q=20 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 12 copy Chris Caplice MIT
The DRP Plan for All Locations Rolling Up Orders
MIT Center for Transportation amp Logistics - ESD260 13 copy Chris Caplice MIT
NOW1 2 3 4 5 6 7 8
CENTRAL
Period Usage100 20 50
30 100 0 100 0
POR200
200 200
REGION ONE
Period Usage25
25 25 25 25 25 25 25
POR
50
50 50 50
REGION TWO
Period Usage10
10 1010
10 1010
10
POR30
30 30 30
REGION THREE
Period Usage5
15 10 10 0 15 0 15
POR20
2020 20
Example The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 14 copy Chris Caplice MIT
Central Warehouse Q=200 SS=0 LT=2
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
Results and Insights DRP is a scheduling and stockage algorithm -- it replaces the forecasting mechanism above the base inventory level DRP does not determine lot size or safety stock -- but these decisions must be made as inputs to the process DRP does not explicitly consider any costs -- but these costs are still relevant the user must evaluate trade-offs DRP systems can deal with uncertainty -- using safety time and safety stock
MIT Center for Transportation amp Logistics - ESD260 15 copy Chris Caplice MIT
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 10 copy Chris Caplice MIT
Central Warehouse Facility
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Period Usage
Gross Rqmt
Begin Inv
Sched Recpt
Net Rqmt
Planned Recpt
End Inv
Planned Order
Example The DRP Plan Regional Warehouse Two
Q=30 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 11 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse Three
Q=20 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 12 copy Chris Caplice MIT
The DRP Plan for All Locations Rolling Up Orders
MIT Center for Transportation amp Logistics - ESD260 13 copy Chris Caplice MIT
NOW1 2 3 4 5 6 7 8
CENTRAL
Period Usage100 20 50
30 100 0 100 0
POR200
200 200
REGION ONE
Period Usage25
25 25 25 25 25 25 25
POR
50
50 50 50
REGION TWO
Period Usage10
10 1010
10 1010
10
POR30
30 30 30
REGION THREE
Period Usage5
15 10 10 0 15 0 15
POR20
2020 20
Example The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 14 copy Chris Caplice MIT
Central Warehouse Q=200 SS=0 LT=2
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
Results and Insights DRP is a scheduling and stockage algorithm -- it replaces the forecasting mechanism above the base inventory level DRP does not determine lot size or safety stock -- but these decisions must be made as inputs to the process DRP does not explicitly consider any costs -- but these costs are still relevant the user must evaluate trade-offs DRP systems can deal with uncertainty -- using safety time and safety stock
MIT Center for Transportation amp Logistics - ESD260 15 copy Chris Caplice MIT
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
Example The DRP Plan Regional Warehouse Two
Q=30 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 11 copy Chris Caplice MIT
Example The DRP Plan Regional Warehouse Three
Q=20 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 12 copy Chris Caplice MIT
The DRP Plan for All Locations Rolling Up Orders
MIT Center for Transportation amp Logistics - ESD260 13 copy Chris Caplice MIT
NOW1 2 3 4 5 6 7 8
CENTRAL
Period Usage100 20 50
30 100 0 100 0
POR200
200 200
REGION ONE
Period Usage25
25 25 25 25 25 25 25
POR
50
50 50 50
REGION TWO
Period Usage10
10 1010
10 1010
10
POR30
30 30 30
REGION THREE
Period Usage5
15 10 10 0 15 0 15
POR20
2020 20
Example The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 14 copy Chris Caplice MIT
Central Warehouse Q=200 SS=0 LT=2
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
Results and Insights DRP is a scheduling and stockage algorithm -- it replaces the forecasting mechanism above the base inventory level DRP does not determine lot size or safety stock -- but these decisions must be made as inputs to the process DRP does not explicitly consider any costs -- but these costs are still relevant the user must evaluate trade-offs DRP systems can deal with uncertainty -- using safety time and safety stock
MIT Center for Transportation amp Logistics - ESD260 15 copy Chris Caplice MIT
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
Example The DRP Plan Regional Warehouse Three
Q=20 SS=10 LT=1
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
NOW
MIT Center for Transportation amp Logistics - ESD260 12 copy Chris Caplice MIT
The DRP Plan for All Locations Rolling Up Orders
MIT Center for Transportation amp Logistics - ESD260 13 copy Chris Caplice MIT
NOW1 2 3 4 5 6 7 8
CENTRAL
Period Usage100 20 50
30 100 0 100 0
POR200
200 200
REGION ONE
Period Usage25
25 25 25 25 25 25 25
POR
50
50 50 50
REGION TWO
Period Usage10
10 1010
10 1010
10
POR30
30 30 30
REGION THREE
Period Usage5
15 10 10 0 15 0 15
POR20
2020 20
Example The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 14 copy Chris Caplice MIT
Central Warehouse Q=200 SS=0 LT=2
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
Results and Insights DRP is a scheduling and stockage algorithm -- it replaces the forecasting mechanism above the base inventory level DRP does not determine lot size or safety stock -- but these decisions must be made as inputs to the process DRP does not explicitly consider any costs -- but these costs are still relevant the user must evaluate trade-offs DRP systems can deal with uncertainty -- using safety time and safety stock
MIT Center for Transportation amp Logistics - ESD260 15 copy Chris Caplice MIT
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
The DRP Plan for All Locations Rolling Up Orders
MIT Center for Transportation amp Logistics - ESD260 13 copy Chris Caplice MIT
NOW1 2 3 4 5 6 7 8
CENTRAL
Period Usage100 20 50
30 100 0 100 0
POR200
200 200
REGION ONE
Period Usage25
25 25 25 25 25 25 25
POR
50
50 50 50
REGION TWO
Period Usage10
10 1010
10 1010
10
POR30
30 30 30
REGION THREE
Period Usage5
15 10 10 0 15 0 15
POR20
2020 20
Example The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 14 copy Chris Caplice MIT
Central Warehouse Q=200 SS=0 LT=2
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
Results and Insights DRP is a scheduling and stockage algorithm -- it replaces the forecasting mechanism above the base inventory level DRP does not determine lot size or safety stock -- but these decisions must be made as inputs to the process DRP does not explicitly consider any costs -- but these costs are still relevant the user must evaluate trade-offs DRP systems can deal with uncertainty -- using safety time and safety stock
MIT Center for Transportation amp Logistics - ESD260 15 copy Chris Caplice MIT
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
Example The DRP Plan
MIT Center for Transportation amp Logistics - ESD260 14 copy Chris Caplice MIT
Central Warehouse Q=200 SS=0 LT=2
Period Usage
Gross Rqmt
Begin Inv
Sched Rcpt
Net Rpmt
Plan Rcpt
End Inv
POR
Results and Insights DRP is a scheduling and stockage algorithm -- it replaces the forecasting mechanism above the base inventory level DRP does not determine lot size or safety stock -- but these decisions must be made as inputs to the process DRP does not explicitly consider any costs -- but these costs are still relevant the user must evaluate trade-offs DRP systems can deal with uncertainty -- using safety time and safety stock
MIT Center for Transportation amp Logistics - ESD260 15 copy Chris Caplice MIT
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
Results and Insights DRP is a scheduling and stockage algorithm -- it replaces the forecasting mechanism above the base inventory level DRP does not determine lot size or safety stock -- but these decisions must be made as inputs to the process DRP does not explicitly consider any costs -- but these costs are still relevant the user must evaluate trade-offs DRP systems can deal with uncertainty -- using safety time and safety stock
MIT Center for Transportation amp Logistics - ESD260 15 copy Chris Caplice MIT
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
MRP DRP Integration Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail
Retail
Retail
Retail
SalesMarketing Plan
MIT Center for Transportation amp Logistics - ESD260 16 copy Chris Caplice MIT
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
Evolution of Inventory Management
Traditional Replenishment Inventory Lot Size Order Point Logic Single item focus Emphasis on cost optimization
Long run steady state approach The MRP DRP Approach
Scheduling emphasis Focus on quantities and times not cost Multiple inter-related items and locations Simple heuristic rules
MIT Center for Transportation amp Logistics - ESD260 17 copy Chris Caplice MIT
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
Evolution of Inventory Management
MRP DRP have limited ability to deal with Capacity restrictions in production and distribution ldquoset-uprdquo costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities
Next Steps in MRPDRP Establish a time-phased MRPMPSDRP network Apply optimization tools to the network Consider cost trade-offs across items locations and time periods Deal with shortcomings listed above
MIT Center for Transportation amp Logistics - ESD260 18 copy Chris Caplice MIT
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
A DRP Network Plan What happens when actual demand in the short term doesnrsquot follow the forecast exactlyhellip How should I re-deploy my inventory to take the maximum advantage of what I do have
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC4LDC3
R8
MIT Center for Transportation amp Logistics - ESD260 19 copy Chris Caplice MIT
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
A DRP Network Reality Plant
RDC1 RDC2
LDC1 LDC2 LDC3 LDC4
R1 R2 R3 R4 R5 R6 R7 R8
SHORTAGES
EXCESS
Higher than expected demand Lower than expected demand
MIT Center for Transportation amp Logistics - ESD260 20 copy Chris Caplice MIT
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
Optimal Network Utilization
Plant
LDC2LDC1
R7R6R5R4R3R2R1
RDC2RDC1
LDC3 LDC4
R8
SHORTAGES EXCESS
MIT Center for Transportation amp Logistics - ESD260 21 copy Chris Caplice MIT
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
Information and Control Impacts
MIT Center for Transportation amp Logistics - ESD260 22 copy Chris Caplice MIT
CenrtalizedControl
Decentralized Control
Global Information
Vendor Managed Inventory (VMI)
DRP (some cases) ExtendedBaseStock
ControlSystems
DRP (most cases) Base Stock Control
Local Information
NA Standard Inventory Policies (RQ) (sS) etc
