Page 169 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes 7.5.2 Reactive Methods

The reactive or pull inventory system, as the name implies, responds to a channel member’s
inventory needs by drawing the product through the distribution channel. Replenishment
shipments are initiated when available warehouse stock levels fall below a predetermined
minimum or order point. The amount ordered is usually based on some lot-sizing formulation,
although it may be some variable quantity that is a function of current stock levels and a
predetermined maximum level.

7.5.3 Planning Methods

Inventory planning methods use a common information base to coordinate inventory
requirements across multiple locations or stages in the supply chain. Planning activities may
occur at the plant warehouse level to coordinate inventory allocation and delivery to multiple
destinations. Planning may also occur to coordinate inventory requirements across multiple
channel partners such as manufacturers and retailers.
The Advanced Planning and Scheduling (APS) systems planning method applications: While
APS systems computerize the process, it is important for logistics managers to understand the
underlying logic and assumptions. Two inventory planning methods are Fair Share Allocation
and Distribution Requirements Planning (DRP).
Fair share allocation: It is a simplified inventory management planning method that provides
each distribution facility with an equitable or “fair share” of available inventory from a common
source such as a plant warehouse.
Distribution Requirements Planning (DRP): DRP is a more sophisticated planning approach
that considers multiple distribution stages and their unique characteristics. DRP is the logical
extension of Manufacturing Requirements Planning (MRP), although there is one fundamental
difference between the two techniques. MRP is driven by a production schedule that is defined
and controlled by management policy. On the other hand, DRP is driven by customer demand.
So, while MRP generally operates in a dependent demand situation, DRP operates in an
independent demand environment where uncertain customer demand drives inventory
requirements. MRP coordinates scheduling and integration of materials into finished goods,
and so controls inventory until manufacturing or assembly is completed. DRP takes coordination
responsibility once finished goods are received in the plant warehouse.

7.5.4 Collaborative Inventory Planning

Replenishment programs are designed to streamline the flow of goods within the distribution
channel. There are several specific techniques for collaborative replenishment, all of which
build on the common denominator of rapidly replenishing inventory according to actual sales
experience. The intent is to reduce reliance on forecasting when and where inventory will need
to be positioned to meet consumer or end-user demand and instead allow suppliers to respond
to demand on a just-in-time basis. Effective collaborative replenishment programs require
extensive cooperation and information sharing among distribution channel participants. Specific
techniques for automatic replenishment include quick response, continuous replenishment,
vendor managed inventory, and profile replenishment.

7.5.5 Adaptive Logic

A combined inventory management system may be used to overcome some of the problems
inherent in using either a reactive or a planning method. The factors that might make a reactive
system better in one situation may change over time to favour the use of an inventory planning

164 LOVELY PROFESSIONAL UNIVERSITY