Académique Documents
Professionnel Documents
Culture Documents
Management
Case Study
Submitted To Submitted By
Prof. Mukundan Joju Johny
Roll No 17
Operations Management
MMS ( 2nd Year )
BESIMSR
Introduction
Competition has become intense in the household insecticides market due to a number of new players who
have entered. Thus there is an urgent need for SPL reducing costs as customers now have a choice. This is
where Distribution Requirement Planning (DRP) becomes important. If implemented successfully, DRP can
enable planners to better anticipate future requirements of the depots, closely match the customers demand,
more effectively deploy inventory to meet customer service requirements and adjust to the changing market.
SPL has implemented ERP package. DRP is one of its functions of the distribution module of the ERP
package. In spite of the distribution module in place DRP was not being utilized. Thus a study was initiated to
quantify the benefits that SPL can derive from DRP so that the user can gain confidence in the DRP. It was also
to review DRP process in an ERP environment to identify measures to improve its efficiency.
5. Distribution Planning:
• In SPL, distribution mainly constitutes of two types of materials movements, either from the
factory to the depots directly or from the factory to the hub centers, from which it is then sent to the satellite
depots.
• The distribution planning procedure for these two movements of material are slightly different
as the supply source for the forecast items is the factory in case of single items, while in case of two tier
distribution it is a regional warehouse which acts as a supply source of CFA’s.
Problem Definition
1) SPL has implemented the distribution module of ERP at a cost of Rs 3 crore. All CFAs have distribution
module of ERP. Weekly sales and stocks arrive from CFAs electronically through emails.
2) Inspite of that, the DRP functions were not being used by the logistics department.
3) ERP has provided common bases for communicating information. But, only if DRP functionality is used,
the benefits of having a common platform for information exchange can be more successful.
4) Thus the efficacy of the current manual dispatch plan was calculated by examining a few ratios like
inventory turns, transportation, cost and interests cost from the balance sheet and the profit and loss
account statement for the FY 1995 – 96 and 1996- 97.
5) These ratios clearly showed that the manual distribution plan was not the best plan. The ratios had
marginally improved over the FY 1996 – 97. Transportation cost had increased and the inventory turnover
was poor.
6) All these showed that there was scope for improvement and it was believed that DRP is one such tool
which can improve this. It was believed that DRP is one such tool which can improve financial performance
of SPL at no cost.
7) As SPL had already spent Rs 3 crore on implementing the distribution module, it was possible to
improve SPL’s bottom line at no extra cost.
Objectives
1) The reason for process users not utilizing DRP was the lack of confidence by the top management as
well as the users.
2) Thus the project was initiated
• to draw the top management attention towards the need for using DRP by showing its impact on the
bottom line of the organization
• to develop confidence in the users about the DRP functionality by demonstrating how it could improve
the performance of the logistics department
3) To achieve these objectives the study was divided into 2 phases namely Phase I and Phase II
Phase I Objectives:
a. Develop a framework for benefit quantification.
b. Simulating the distribution of SPL using DRP.
c. Comparing the simulated distribution plans with actual distribution plans.
d. Projecting the benefits and its impact on corporate profitability.
Phase II Objectives:
a. Identifying issues in current DRP practices.
b. Reviewing inputs to DRP
c. Analyzing the problem areas
d. Recommending the improvements.
Simulation Exercise
1. In order to quantify the benefits of DRP, a simulation exercise was carried to prove that if DRP was
used instead of the current manual system, then benefits like reduction in inventory, reduced transportation
costs could be achieved.
2. The exercise was carried out for a fast moving SKU, SK1 under the following assumptions:
• Weekly forecast is assumed to be available for eight weeks on rolling basis.
• Movement of goods on routes not identified in the bill of distribution will be considered as inter
CFA transfers and therefore avoidable costs.
• The existing distribution networks viz direct dispatch from factory to depots is considered.
4. Data Requirement: The data required for the simulation exercise is as follows:
a. Opening stocks and goods in transit
b. Weekly sales and value of stocks.
c. Actual dispatches from factory to CFAs.
DRP Review
1. Further to see the impact of forecast accuracy on performance of DRP, a similar situation exercise was
carried out.
2. It was found that with 100 percent accuracy DRP can further bring down the transportation and
inventory carrying costs by 15 %.
3. Generalizing the conclusion it can be stated as: the correctness of the system is entirely dependent upon
the correctness of parameters fed into the system.
4. Crawford (1993) has recognized certain inadequacy in the conventional DRP. Therefore, there is a
need to review DRP to improve its effectiveness.
5. The first step in reviewing the DRP is to check the validity of data and planning parameter.
6. Stein (1996) proposed that for an information system to resemble reality, it must be dynamic in nature.
7. However, data are instead stored as static and recalled from the database without the consideration of
the changes which may have occurred or the physical laws which govern how it should be used.
8. Therefore, to improve effectiveness, those inputs that are dynamic, need to be identified and treated
accordingly.
9. Using this methodology suggested by Ross (1996), it was found that the dynamic inputs to DRP are
Safety Stock (SS), Lead time (LT), Bill of Distribution (BOD) and ordering Policy (OP). These parameters
were analyzed in detail and the summary of the analysis is presented next.
Safety Stock
The safety stock was calculated using the analytical approach as suggested by Plossl (1986) with the
following assumptions:
1. The demand is normally distributed.
2. Average of sales is close to average of the forecast. The analysis will be done by taking average of the
sales as the forecast. So all the other requirements of normal distribution will be satisfied.
3. Desired service level is 95 percent.
A closer look at sales trend of SPL reveals that the year could be split into smaller periods wherein demand
in each period is more uniform than considering the full year as one period. When the review period was
reduced from 12 months to 3 months, the safety stock levels can be brought down drastically. Thus DRP
system is being made dynamic to a certain extent.
1. SK being a fast moving SKU is sent directly to depots in truckloads. So the ordering policy can be said
to be Fixed Order Quantity (FOQ) with an ordering quantity as a truckload.
2. Actually by shipping truckload quantities rather than less than truckload quantities, a company may
experience lower transportation rates only as long as any expenses exceed the savings in transportation
costs. This needs to be examined.
3. This trade off needs to be worked out depending upon the ordering/ shipping frequency. If shipping
were frequent, it would be costlier, but less than truckload will be dispatched as frequency increases.
Consequently, inventory carrying cost decreases.
4. Four cases have been analyzed viz, one dispatch every week / every 2 weeks / every 3 weeks / 4 weeks.
Calculations of transportation were done for each quarter.
5. From the results, it was seen that for the first quarter, it was economical to make dispatch every week to
Calcutta from factory. However, for the rest of the year, it was economical to make dispatches once every
second week.
Ordering Quantity
1. It was found that the ordering policy which was followed at SPL for SK was not an optimum policy.
2. Periodic Order Quantity (POQ) was the ordering policy where a time period is specified instead of
quantity. This ordering policy could be used along with the trade off results.
3. From the above analysis, it was clear that the best ordering policy for SPL would be POQ, where
period should be defined based upon the optimum shipment frequency.