Distribution Requirements Planning (DRP): what is it and what are its advantages?

Empty shelf spaces at the retailer. Meanwhile, at the distribution center, several units of the product that should be there are waiting for their turn to be sent to the point of sale inventory. This fact does not seem fair to the store, much less to the end consumer. To be competitive in the market, the retailer must have inventory available. At the same time, it must respect the financial and storage space limitations at the point of sale. But what can be done to reconcile these two needs? The answer to this challenge is in the DRP – Distribution Requirements Planning concept, also known as Distribution Planning.

Understand DRP

The purpose of DRP is to distribute the products that are stored in the distribution center (DC) of the wholesale and retail chain among its points of sale. To do that, it prepares suggestions on how, when and how much of each merchandise will be sent to a specific unit. This is all based on some parameters, such as the average sales in each store, the time it takes for the DC to deliver, replenishment frequency and the safety stock of each product.

Considering variables like these, it is possible to scale inventory levels for each product at each store. DRP does this calculation and makes a replenishment suggestion.

Think, for example, of a chain of sporting goods stores that sells socks from a specific brand. Also consider that a given establishment sells 200 pairs of this product per month and the replenishment frequency must be weekly. Thus, it keeps the safety stock with a margin of 20 items, and the time that the nearest DC takes to deliver to that location is two days. Combining numbers like these and considering other information, such as sales history and seasonality, for example, the DRP can suggest the appropriate number and frequency of socks that should be sent to the store.

DRP benefit

This feature always enables establishing a balance between consumption and storage, preventing the retailer from experiencing issues related to out-of-stock – which causes lost sales and customers – and excess of merchandise – avoiding the need to make promotions and, thus, reducing its margin. On the contrary, DRP (Distribution Planning) generates increased service level through continuous availability for products, sales and billing.

Another DRP benefit is inventory reduction. It allows allocating funds that were employed in excessive storage to more profitable actions for the company.

Full warehouses do not necessarily guarantee that customers will be well served, and the right adjustments can improve inventory management as a whole. DRP is yet another highly efficient resource that has come to help retailers. This is thanks to a large volume of products and information that exist and are managed by the solution today. Keep reading about this important tool in the next post!