Page 85 - DCAP302_ENTERPRISE_RESOURCE_PLANNING

Unit 4: Manufacturing Perspective of ERP

5. Shipping notes
6. Transportation

Distribution channels are formed to solve three critical distribution problems: functional
performance, reduced complexity, and specialization.
The central focus of distribution is to increase the efficiency of time, place, and delivery utility.
When demand and product availability are immediate, the producer can perform the exchange
and delivery functions itself. However, as the number of producers grows and the geographical
dispersion of the customer base expands, the need for both internal and external intermediaries
who can facilitate the flow of products, services, and information via a distribution process
increases.

Distribution management also can decrease overall channel complexity through sorting and
assistance in routinization. Sorting is the group of activities associated with transforming
products acquired from manufacturers into the assortments and quantities demanded in the
marketplace. Routinization refers to the policies and procedures providing common goals,
channel arrangements, expectations, and mechanisms to facilitate efficient transactions. David F.
Ross describes sorting as including four primary functions:
1. Sorting is the function of physically separating a heterogeneous group of items into
homogeneous subgroups. This includes grading and grouping individual items into an
inventory lot by quality or eliminating defects from the lot.
2. Accumulating is the function of combining homogeneous stocks of products into larger
groups of supply.
3. Allocation is the function of breaking down large lots of products into smaller salable
units.

4. Assorting is the function of mixing similar or functionally related items into assortments to
meet customer demand. For example, putting items into kit form.
As the supply chain grows more complex, costs and inefficiencies multiply in the channel. In
response, some channels add or contain partners that specialize in one or more of the elements
of distribution, such as exchange or warehousing. Specialization then improves the channel by
increasing the velocity of goods and value-added services and reducing costs associated with
selling, transportation, carrying inventory, warehousing, order processing, and credit.
DRP is a widely used and potentially powerful technique for helping outbound logistics systems
manage and minimize inbound inventories. This concept extended the time-phase order point
found in material requirements planning (MRP) logic to the management of channel inventory.
By the 1980s DRP had become a standard approach for planning and controlling distribution
logistics activities and had evolved into distribution resource planning.
DRP is usually used with an MRP system, although most DRP models are more comprehensive
than stand-alone MRP models and can schedule transportation. The underlying rationale for
DRP is to more accurately fore-cast demand and then use that information to develop delivery
schedules. This way, distribution firms can minimize inbound inventory by using MRP in
conjunction with other schedules.

One of the key elements of DRP is the DRP table, which includes the following elements:
1. Forecast demand for each stock-keeping unit (SKU)
2. Current inventory level of the SKU
3. Target safety stock

4. Recommended replenishment quantity
5. Replenishment lead time

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