Page 86 - DCAP302_ENTERPRISE_RESOURCE_PLANNING

Enterprise Resource Planning

notes The concept of DRP very closely mimics the logic of MRP. As with MRP, gross requirements consist
of actual customer orders, forecasted demand, or some combination of both; scheduled receipts
are the goods the distributor expects to receive from orders that already have been released, while
goods that already are received and entered into inventory constitute the on-hand inventory
balance. Subtracting scheduled receipts and on-hand inventory from gross requirements yields
net requirements. Based upon the distributor’s lot-sizing policy and receiving behavior, planned
order receipts are generated. Firms may order only what they need for the next planning period
or for a designated time period. Known as economic order quantity (EOQ), this involves a lot size
based on a costing model. Alternatively, firms may be limited to multiples of a lot size simply
because the supplying firm packages or palletizes their goods in standard quantities. Also, some
distributors may require some time interval between the arrival of goods on their docks and
the entry of the goods into the inventory system. For example, a firm may have a staging area
where goods remain for an average time period while awaiting quality or quantity verification.
Hence, planned order receipt may be during the planning period when the goods are needed,
or they may need to be received earlier depending on time requirements. Order release is then
determined by offsetting the planned order receipt by the supplier’s lead time.

Did u know? The Master Production Schedule serves as the basis for all further output
information from MRP.

4.8 physical Distribution management

There are many decisions that must be taken, when a company organizes a channel or network
of intermediaries, who take responsibility for the management of goods as they move from the
producer to the consumer. Each channel member must be carefully selected and the company
must decide what type of relationship it seeks with each of its intermediate partners. Having
established such a network, the organization must next consider how these goods can be efficiently
transferred, in the physical sense, from the place of manufacture to the place of consumption.
Physical distribution management (PDM) is concerned with ensuring the product is in the right
place at the right time.

It is now recognized that PDM is a critical area of overall supply chain management.
Business logistical techniques can be applied to PDM so that costs and customer satisfaction are
optimized. There is little point in making large savings in the cost of distribution if in the long
run, sales are lost because of customer dissatisfaction.
Similarly, it does not make economic sense to provide a level of service that is not required by
the customer but leads to an erosion of profits. This cost/service balance is a basic dilemma that
physical distribution managers face.
The reason for the growing importance of PDM is the increasingly demanding nature of the
business environment. In the past it was not uncommon for companies to hold large inventories
of raw materials and components. Although industries and individual firms differ widely in
their stockholding policies, nowadays, stock levels are kept to a minimum wherever possible.
Holding stock is wasting working capital for it is not earning money for the company. To think
of the logistical process merely in terms of transportation is much too narrow a view. Physical
distribution management (PDM) is concerned with the flow of goods from the receipt of an
order until the goods are delivered to the customer. In addition to transportation, PDM involves
close liaison with production planning, purchasing, order processing, material control and
warehousing. All these areas must be managed so that they interact efficiently with each other
to provide the level of service that the customer demands and at a cost that the company can
afford.

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