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distribution requirements planning
Midsize business

What is distribution requirements planning (DRP)?

Distribution requirements planning (DRP) helps determine the number of products a company should ship to each distributor to satisfy customer demand. As part of supply chain management, distribution requirement planning is responsible for efficiently moving inventory from production facilities to multiple distribution centers.

This article covers the essential elements of distribution requirements planning and the key benefits it brings to a company’s supply chain. 

What is distribution requirements planning?

Distribution requirements planning (also referred to as distribution resource planning) is determining the right quantity of finished goods to produce and send to variousdistribution centersto meet customer demand.

Several factors are considered during planning, such as customer orders, historical sales data, manufacturing schedules, and other actual demand signals.

By looking at both sides of distribution—inventory production and customer demand—DRP can manage the flow of products to optimize stock levels and minimize transportation and carrying costs. When done correctly, DRP ensures a company is consistently delivering its products most efficiently.

DRP works alongsidematerial requirements planning (MRP). While both types of planning play important roles in the supply chain, MRP occurs before production and determines what materials are needed, in what quantities, and during what step of the production process.

What are push and pull methods in DRP?

DRP uses either a push or pull method. The push distribution method is when companies initially determine how many products are manufactured or distributed and essentially “push” products toward the customers. 

This is done by looking at historical sales and inventory cycles to forecast upcoming customer demand. Based on these numbers, companies then use an inventory management system torefine the optimal amount of products sent to distribution centers. 

While the push method gets a larger volume of inventory to customers faster, it is a producer-centric strategy. The distribution decision is based on factors far from the actual current demand of customers. Therefore, it is most effective for seasonal products that are typically known to have high demand.

On the other hand, the pull method prioritizes actual customer demand that “pulls” products at the retail level. This is then used to determine how much inventory should be produced and sent to distribution centers. 

While a pull strategy can bring in better profit margins, it typically deals with smaller order sizes and can create a “bullwhip effect,” wherein incremental fluctuations in demand at the retail level can lead to larger fluctuations in demand at the distributor, production, and supply levels.

How does DRP work?

To ensure the right products are distributed to the right locations in a manner that best fulfills customer orders, DRP is tasked with balancing a company’s production with upcoming market demand. 

This involves a number of steps, starting with forecasting market demand. DRP teams need to first establish the locations and available storage capacities of all the company’s distributors, as well as which retailers each distributor is responsible for supplying. 

The company’s total distribution network allows DRP to consolidate relevant historical sales, seasonal trends, and local customer data. Anorder management softwarecan be used to generate real-time reporting and analyze data that more accurately forecasts market demand. 

Then, to meet this market demand, DRP teams will often make time-based adjustments to inventory production. By looking at current or on-hand inventory levels, target safety stock, and reorder lead times, current production cycles can be optimized to avoid overstock and stockouts or shortages.

The resulting inventory is then allocated to each distributor based on the location’s market demand. Any disbursement logistics and resources should also be assigned at this point to streamline distribution. 

Over time, DRP strategies should be reevaluated when supply chain issues arise, such as shifts on market demand or expanded distribution areas. It’s also critical to routinely evaluate DRP results for cost-effectiveness and overall efficiency.

Benefits of distribution requirement planning

DRP’s main purpose is to strengthen the ties between inventory production and customer demand. By analyzing demand at more granular service levels—according to product and location—DRP helps to increase the company’s fulfillment rate at much lower costs. 

The additional focus on demand forecasting can also foster more efficient data collecting and reporting through the use of wholesale distribution software. And since only the required inventory is produced for each batch, companies are able to minimize unnecessary costs and any deadstock from unsold products. 

Ultimately, more timely distribution and faster replenishment makes it easier to satisfy customer demand and improve overall experience. 

How QuickBooks Enterprise supports wholesale distributor demand planning

Wholesale distribution is a complex operation that involves multiple touchpoints and steps in the supply chain planning process.QuickBooks Enterprise facilitates the process by providing a single source for your critical information. 

All data needed to perform distribution planning, including purchasing, distribution, inventory, and sales order fulfillment, are easily managed on the platform. Key metrics to help forecast future demand and long-term profitability are available at a glance. 

Companies can easily see what products their customers purchase, which bring the highest sales, and what products are moving slowly and should be removed from retail shelves. An inventory valuation summary report is also available to better understand how much inventory is on-hand, what it costs, and what the sales price is.

Once optimal product distribution is determined, QuickBooks Enterprise includes available-to-promise functionality that allows companies to easily manage large purchase orders, incomplete shipments, and orders that are difficult to fulfill or buy parts for. Inventory can be tracked and transferred between multiple locations, from warehouse to distribution center, and easily split to speed up fulfillment times. 

Final thoughts

Distribution requirements planning is an important function in any wholesale company. By reviewing customer demand more frequently at each location, planners can make the necessary changes in production to reduce the total overhead costs.

An effective DRP strategy not only helps distribute products to the right place at the right time, it effectively improves a company’s ability to fulfill customer needs and improves the overall purchase experience.

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