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DRP Overview
CourtauldsAerospace
DistributionRequirementsPlanning
WhitePaper
Dan Rivera, CPIM, CIRM
1400 North Central Ave., #1
Glendale, CA 91202
(818) 243-2659
Abrief overview of Distribution Requirements
Planning (DRP): its purpose, how it
functions, and typical methodologies utilized.
Developed for CourtauldsAerospace (1996).
By Daniel Rivera, CPIM

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DistributionRequirements
Planning(DRP)
Tying the physical distribution system to the
manufacturing planning and control system.
Traditionally, most manufacturing companies have used order-point logic to manage
inventories. But order-point logic, particularly in multi-echelon warehousing systems (such
as Courtaulds’), provides only limited visibility of actual demand at the regional warehouses.
Inventory planners and production planners react to replenishment orders from a warehouse,
not to actual usage and current system-wide inventory levels. This can lead to shortages when
several warehouse orders arrive simultaneously or to excess inventory when sales slow down
and production is not adjusted.
Distribution requirements planning was first implemented in 1975 at Abbott Laboratories,
Canada. DRP has had over twenty years to develop and to prove itself in a number of
different environments, and it has withstood the test of time well. During the past twenty-two
years DRP has been expanded to embrace not only inventory planning and control, but also
the enterprise’s logistics functions.
Distribution requirements planning systems provide a full view into the warehousing network
by first examining demand at the end of the channel and accumulating requirements back
through the warehouse network. This approach allows for full visibility of needs and better
management of inventories. DRP, if implemented correctly, can reduce costs, improve
customer service, and better leverage a company’s inventory investment.
What is Distribution Requirements Planning?
Today, a company’s finished-goods inventories are often positioned in a complex physical
system, consisting of field warehouses (such as Courtaulds’ ASC’s), intermediate distribution
centers, and a central supply (such as Courtaulds’ Glendale and Mojave facilities) that can be
a manufacturing facility, a central distribution center, or both. In such systems, a key task is
effectively managing the required flow of goods and inventories between the firm and the
market/customer. In performing this task, Distribution Requirements Planning (DRP) has a
central coordinating role similar to Material Requirements Planning’s (MRP) role in
coordinating materials in manufacturing. DRP’s role is: to provide the necessary data for
matching customer demand with the supply of products at various stages in the physical
distribution system and products being produced by manufacturing.
When it comes to supplying distribution centers (syn. ASC’s) inventory planners have a
choice between two basic inventory ordering techniques: some form of statistical
replenishment and Distribution Requirements Planning (DRP). Compared with
replenishment methods that utilize statistical calculations to determine when orders should be
released and what the order quantity should be, DRP determines resupply by time-phasing
demand and supply for each item at each distribution center in the distribution channel.

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One simple definition of Distribution Requirements Planning is:
“The function of determining the need to replenish inventory at
branch warehouses.”1
The Basics of DRP
The ability to time-phase the interplay of supply and demand is the very foundation of DRP.
Adding the element of time to the basic perpetual inventory equation requires that the
inventory planning system be able to record and store the specific due dates and quantities of
forecasts and open customer and supply orders. In addition, the system must be able to time-
phase by due date the traditional elements of on-hand, demand requirements and resupply
stock on order, and calculate the inventory equation each time an order due date appears.
This means that the system must be able to subtract the supply from the demand, or add on-
order quantities to on-hand quantities, as the due dates of each are referenced through time. If
sufficient inventory remains after each calculation, then there is no resupply action to
perform. If, on the other hand, the result is a negative, the system should alert the planner that
a potential stockout will occur at that point in time so that a counterbalancing planned order
quantity can be placed in anticipation of a future shortage. Although, in reality, DRP reviews
by due date each occasion of item demand and the corresponding availability of supply stock,
a visual format, similar to an MRP grid, can significantly assist in making the computations
clear.
Distribution Requirements Planning’s Similarities to MRP
Utilizing the same logic as Material Requirements Planning (MRP), DRP performs a gross-to-
net requirements calculation of demand and supply in each time period. When demand
exceeds supply, the system:
 Generates a planned resupply order
 Alerts the planner that replenishment action is required if a stockout is
to be avoided
 Through the Bill of Distribution (BOD), DRP implodes the time-
phased requirements up through the distribution channel, which
emphasizes and links together the replenishment needs of both
supplying and branch warehouses
Distribution Requirements Planning Compared to
Statistical Order Point Methods
The advantages of DRP are best understood when contrasted with conventional statistical
replenishment methods.
1
APICS Dictionary, eighth edition (1995).

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Distribution Requirements Planning Statistical Replenishment Methods
DRP develops an entire schedule of planned
replenishment orders for the planner.
Statistical Order Point (SOP) methods only alert the
planner to release one order at a time.
The point in time when forecast demand is expected
to drive the inventory below safety stock is
transparent to the planner in DRP.
Under SOP the planner never knows when the order
point will be tripped until it actually happens.
DRP will assist in keeping open supply order due
dates valid. DRP will continually reschedule open
orders to align them with projected requirements
and keep their relative priorities valid.
SOP does not help out the planner in these areas.
This means it is up to the planner to keep up with
monitoring due dates and maintaining their validity.
DRP has the ability to overcome forecasting
inaccuracies. The self-adjusting nature of DRP
enables DRP to replan with ease regardless of
whether poor forecasts or a variance between
forecast and actual demand caused the error.
Typically, no matter how large the forecast error,
DRP provides the mechanism for automatic
adjustment of demand and supply and timely
resupply order action.
SOP techniques are totally dependent on accurate
forecast usages for their validity and accuracy.
DRP is also able to work with inaccurate lead times.
When actual purchase order receipt occurs, DRP
can quickly adjust and plan for the new net
requirements that are calculated. In this sense, DRP
techniques enable the inventory planner to adjust
quickly to what is actually happening, rather than
what was planned to happen.
Again, SOP techniques are totally dependent on
accurate lead times for their validity and accuracy.
DRP can effectively respond to the problems
associated with lumpy demand. As irregular
demand arising from lot/batch sizes, promotions,
and so forth occur, the gross-to-net requirements
calculation provides the planner with the ability to
respond quickly with targeted order action to avoid
stockouts while keeping inventory levels in line
with future demand.
SOP is notoriously poor at enabling a company to
respond to the problems associated with lumpy
demand.
DRP is easy to understand and manipulate; there are
no complicated formulas to memorize.
SOP is relatively complex and has a number of
formulas that need to be understood and utilized.

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DRP Logic: The Big Picture
DRP is a management process that determines the needs of inventory stocking locations
(ISL’s)2
and ensures that supply sources will be able to meet the demand. This is
accomplished in three distinct phases. First, DRP receives input from the following:
 Sales forecasts by stock keeping unit (SKU) by ISL
 Customer orders for current and future delivery
 Available inventory for sale by SKU by ISL
 Outstanding purchase orders and/or manufacturing orders by product
purchased and/or manufactured
 Logistics, manufacturing, and purchasing lead times
 Modes of transport used, as well as deployment frequencies
 Safety stock policies by SKU by ISL
 Normal minimum quantity of product to be purchased, manufactured,
and distributed
Second, once all inputs have been received, DRP generates a time-phased model of resource
requirements to support the logistics strategy. These include:
 Which product is needed, how much, and where and when it is needed
 Transportation capacity needed by mode of transport by ISL
 Needed space, manpower, and equipment capacity by ISL
 Required inventory investment by ISL and in total
 Required level of production and/or purchases, by product and by supply
source
Third, DRP compares the required resources to what is currently available at supply sources, and
what will be available in the future. It then recommends what actions must be taken to expedite or
delay purchases and/or production, thereby synchronizing supply and demand. This third phase
forces integration and feedback into the system, thus closing the loop among manufacturing,
purchasing, logistics, and the customers.
2
For the purpose of this explanation, an inventory stocking location (ISL) can be any store, distribution
center (DC), regional distribution center (RDC), central DC, manufacturing DC, or warehouse that
maintains product for sale. The supply source can be a third party supplier, a regional distribution point,
or a factory.

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DRP
Open
PO’s/MO’s
Inventory
Control
ForecastingOrder
Entry
Bill of
Distribution
Transportation
Planning
and Scheduling
Resources
Requirements
Planning
and Scheduling
Realistic?
Yes
Make Buy
(MPS)
Sales and
Operations
Planning
Purchase
and/or
Inventory
Planning
Key input
Interfaces=
DRP plans/schedules
And key output interfaces=
No
Figure 1-1. The DRP management process

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DRP Logic: The Math
At the core of this management process is a very simple, yet very powerful, logic. Its power
is not found in mathematical calculations, but in the overall system’s ability to time-phase
future activities, predict possible outcomes, critique ongoing activities, and recommend
action.
The advantage of DRP over order point techniques lies in the ability of the inventory planner
to see the relationship of supply and demand, not just as it occurs in the current planning
period but also as it is projected out through time. The time-phasing technique permits the
user to be proactive to potential inventory shortages before they occur to ensure the highest
service level at the least inventory cost.
Here’s how the logic works. Let’s assume you’re a retail store manager, and you have been
asked to predict when you will run out of product. The data given to you states that you will
sell a given item at the rate of 400 per week. You have 1,000 on hand and 1,200 in transit,
due to arrive at your store next week. If asked how long your inventory will last, your
response probably will be, “Roughly five and a half weeks.” In a nutshell, that’s how the
math of DRP works. It attempts to predict future shortages, then recommends action to avoid
them. Figure 1-1 shows the entire DRP management process
The Bill of Distribution (BOD)
One of the fundamental requirements of the DRP technique is the Bill of Distribution. Statistical
replenishment does not provide for a formal connection between supplying and satellite
warehouses in a distribution channel. Whether employing a “push” or a “pull” system, the
communication of resupply requirements through the channel depends for the most part on
informal, often ad hoc rules of thumb procedures. In such an environment, replenishment
decisions are often made without a clear understanding of the impact they will have on the rest of
the channel. DRP solves this lack of integration and coordination among channel stocking
locations through the use of the Bill of Distribution (BOD).
Utilizing the concept and structure of the manufacturing Bill of Material (BOM), the BOD
links supplying and satellite warehouses together similar to the way the BOM links
component items to their assembly parents (Figure 1-2). The difference between the two is
subtle but critical. When demand is posted on a parent assembly item, the MRP processor
references the assembly’s BOM and “explodes” the requirement through the product
structure, placing demand on the component parts. The structure of the BOD, on the other
hand, has been designed to facilitate the transfer of requirements from the components (the
satellite warehouses) to the parent (the supplying location). This structure, often called an
inverted BOM, performs an implosion where requirements are passed up the structure rather
than down. The exact structure of a BOD can be configured to match a variety of channel
inventory flows. For example, not all items may be stocked in every warehouse. Again, a
mixture of products might be sold to the customer from the central warehouse or from several
regional or even local distribution points. In any case, for the DRP implosion to work
effectively, the proper BODs must be structured detailing the flow of each and every product
in the distribution channel.

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Figure 1-2. BOMs and BODs.
The benefits of using the BOD can be summarized as follows:
 A comprehensive distribution channel can be structured, thus providing
inventory planners with full visibility of supply and demand relationships
up and down the channel.
 Supplying and satellite warehouse dependencies are clearly established.
 The resupply path of each item in each stocking point is clearly defined.
 The DRP processor can begin its low level coding by beginning with the
last warehouse(s) in the channel and progressing up through each level to
the appropriate supplying warehouse.
 The BOD establishes the framework for total logistics control from the
distributor, up the network, and out to the vendor.
Product A
Component 1 Component 2 Component 3
Supply Warehouse
Branch
Warehouse
2
Branch
Warehouse
3
Branch
Warehouse
1
Bill of
Distribution
Bill of
Materials