Distribution Requirements Planning (DRP)

DRP calculates net requirements by offsetting gross requirements against projected on-hand inventory and scheduled receipts across discrete time buckets. The system applies a planning horizon divided into weeks or days, performing a forward-looking inventory projection. At each echelon, the formula is: Net Requirements = Gross Requirements - (Projected On-Hand + Scheduled Receipts) + Safety Stock. When projected inventory falls below the safety stock threshold, the system generates a planned order release, offset by the lead time to determine when the upstream node must ship.

The Bill of Distribution (BOD) defines the parent-child relationships between network nodes, analogous to a Bill of Materials in MRP. It specifies:

• Source nodes: Regional distribution centers supplying downstream locations
• Destination nodes: Local warehouses or retail points receiving replenishment
• Lead times: Transit and handling durations between each linked pair
• Allocation rules: Percentage splits when one source serves multiple destinations This hierarchical structure enables the system to explode demand from the point of independent consumption backward through the network.

DRP maintains a strict boundary between independent demand at the final echelon and dependent demand at all upstream nodes. Independent demand is driven by external customer orders and statistical forecasts. Dependent demand at distribution centers and manufacturing sites is calculated, not forecasted, derived directly from the planned order releases of the downstream echelon. This separation eliminates the bullwhip effect amplification that occurs when each node independently forecasts and orders, replacing it with a synchronized, demand-driven replenishment signal.

When net requirements are identified, DRP generates planned order releases—future-dated replenishment orders that become inputs to the supplying node's gross requirements. Key attributes include:

• Order quantity: Determined by lot-sizing rules such as lot-for-lot, economic order quantity (EOQ), or period order quantity
• Release date: Back-scheduled from the requirement date by the defined lead time
• Pegging: Traceability linking each planned order to the specific downstream demand that triggered it These releases feed into Master Production Scheduling (MPS) and Materials Requirements Planning (MRP) at manufacturing sites, creating an integrated supply chain plan.

DRP systems incorporate exception messages that alert planners to conditions requiring intervention, rather than requiring manual review of every item. Common exceptions include:

• Past-due planned orders: Releases whose scheduled date has passed without execution
• Expedite signals: Situations where projected inventory drops below safety stock before a scheduled receipt arrives
• Defer recommendations: Instances where early replenishment would create excess inventory exceeding target levels
• Capacity violations: When aggregated planned releases exceed warehouse throughput or transportation capacity constraints This exception-driven workflow enables planners to manage by exception across thousands of SKU-location combinations.

Unlike single-node reorder point systems, DRP provides end-to-end visibility across the entire distribution network. Planners can view:

• Projected inventory positions at every node across the full planning horizon
• Pipeline inventory: Quantities in transit between echelons, visible as scheduled receipts
• Aggregate requirements: Consolidated demand signals flowing upstream to suppliers and manufacturing
• What-if simulation: The ability to model demand changes or supply disruptions and instantly see the cascading impact on all downstream nodes This holistic view transforms distribution planning from reactive firefighting to proactive orchestration.