Distributions Requirements Planning is the method used by supply chain entities to plan orders in the whole supply chain taking into accounts the inventories to be kept along with buffer or safety stock, placing the orders with the manufacturer to replenish inventories to meet customer orders, etc.
It is similar to materials requirements planning (MRP) except that MRP is used in manufacturing companies and DRP is used in logistics companies. DRP tries to efficiently carry out the whole process of completing customer orders by minimizing shortages and reducing the overall costs comprising of ordering, transporting and inventory holding costs.
Distribution resource planning (DRP) is a method used in administration for planning orders within a supply chain. DRP enables the user to set certain inventory control parameters (like a safety stock) and calculate the time-phased inventory requirements. This process is also commonly referred to as distribution requirements planning. Distribution requirements planning (DRP) is designed to optimize the movement of inventory in a multi-warehouse environment so that demands can be met effectively and efficiently without
relying on excessive stock holdings.
Companies that would typically use DRP include those in the wholesale or manufacturing sectors which have regional demand fed by one or more supply warehouses or manufacturing plants. DRP provides the drivers that enable the Requirements Planning module to suggest Supply Chain Transfers from one warehouse to another rather than a purchase order on an external supplier or a job on production. Suggestions are based on the closest warehouse in a chain of supplying warehouses, resulting in stock being supplied from oversupplied warehouses to those with a demand.
DRP uses several variables:
- the required quantity of product needed at the beginning of a period
- the constrained quantity of product available at the beginning of a period
- the recommended order quantity at the beginning of a period
- the backordered demand at the end of a period
- the on-hand inventory at the end of a period
DRP needs the following information:
- the demand in a future period
- the scheduled receipts at the beginning of a period
- the on-hand inventory at the beginning of a period
- the safety stock requirement for a period