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Case Study
Improving DRP effectiveness in ERP environment Karuna Jain & Sunil Phabiani
Joju Johny Roll No 17
Company Profile
The largest household insecticide player in the country and the worlds largest producer of mosquito repellent mats. SPL is now in the growth phase. Its three major bands SP1, SP2, SP3 command almost 70 percent share of the mosquito repellent mats market, which is the largest category of household insecticides in India. Logistics Network: 4 manufacturing sites at Pondichery, Goa, Silvassa and Nashik.4 regional offices in metros Delhi. Mumbai, Chennai, Calcutta. Each regional office has CFAs under its jurisdiction. Distribution Planning - distribution mainly constitutes of two types of materials movements factory to the depots directly from the factory to the hub centers from which it is then sent to the satellite depots
Problem Definition
SPL has implemented the distribution module of ERP - Rs 3 crore.
All CFAs have distribution module of ERP. Weekly sales and stocks arrive from CFAs electronically through emails.
Inspite of that, the DRP functions were not being used by the logistics department. Only if DRP functionality is used, the benefits of having a common platform for information exchange can be more successful Thus the efficacy of the current manual dispatch plan was calculated Observation - The manual distribution plan was not the best plan. Marginal improvement over the FY 1996 97. Transportation cost had increased and the inventory turnover was poor. All these showed that there was scope for improvement and it was believed that DRP is one such tool which can improve this.
Objectives
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
To achieve these objectives the study was divided into 2 phases namely Phase I and Phase II
Phase I Develop a framework for benefit quantification. Simulating the distribution of SPL using DRP. Comparing the simulated distribution plans with actual distribution plans. Projecting the benefits and its impact on corporate profitability.
Phase II Identifying issues in current DRP practices. Reviewing inputs to DRP Analyzing the problem areas Recommending the improvements
A good distribution model is the one which provides both internal mechanisms of the process and its linkages with the other processes of the organization. The proposed model of DRP is one such model.
Logistics department is the one whose impact could be seen in all the financial aspects of the business and ROI could prove to be the right platform to project the benefits of DRP.
Simulation Exercise
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. Simulation Parameter: The simulations used for the study are: Fixed Order Quantity (truckload). Planning horizon (raw material procurement to receipt by CFAs eight weeks) Lead times as per contract agreement.
Data Requirement: The data required for the simulation exercise is as follows:
Opening stocks and goods in transit Weekly sales and value of stocks. Actual dispatches from factory to CFAs. Analysis Parameter: Number of dispatches Weekly inventory position. Avoidable dispatches Inter CFA
Impact on ROI:
system.
DRP Review
Further to see the impact of forecast accuracy on performance of DRP, a similar situation exercise was carried out.
It was found that with 100 percent accuracy DRP can further bring down the transportation and inventory carrying costs by 15 %.
Conclusion: the correctness of the system is entirely dependent upon the correctness of parameters fed into the system Therefore, to improve effectiveness, those inputs that are dynamic, need to be identified and treated accordingly. Using this methodology it was found that the dynamic inputs to DRP are Safety Stock (SS), Lead time (LT), Bill of Distribution (BOD) and ordering Policy (OP).
Recommendations
Planning process: The distribution planning should be done centrally by taking DRP run at every HO every week.
Using DRP to generate MPS to synchronize operations: The integration of DRP with MPS gives a single, continuous seamless system that uses one set of logic across the operations.
Revising DRP parameters every quarterly: Using safety stocks for demand uncertainties, calculated at 95 % service level.
Using safety time for lead time uncertainties, calculated at 95 % service level.
Recommendations
Following periodic order quantity (POQ) dispatch policy, where period shall be calculated for optimum total cost from a trade off analysis between transportation cost and inventory holding cost. The time bucket of one week should be uniformly applied. Dispatch variance report should be generated by factory, giving reasons for any dispatches not done as per the dispatch plan. Provide the DRP summary information to depots so that even the branch managers have the visibility of the system and can suggest changes in the forecasts or lead times which according to them are not correct.