SPPLAN – Service Parts Planning

This is a quotation from “Multiechelon Inventory Optimization” by Calvin Lee PhD

http://www.stanford.edu/group/scforum/Welcome/White%20Papers/Multi-Echelon%20Inventory%20Optimization%20-%20Evant%20white%20paper.pdf

Here he describes the important distinction between DRP v.s Multiechelon enabled planning.

With a DRP Approach

“DC-level demand forecasts are first used to develop gross product requirements. These forecasts are combined with safety stock requirements and stock status information to arrive at net requirements at the DCs. This is analogous to an MRP master schedule. The time-phased dependent demand at the RDC is calculated by offsetting the DC net requirements by the RDC ➜ DC lead times and summing over corresponding time periods. The RDC uses these “pass-up” demands to replenish itself. The DRP approach has several major shortcomings. The No. 1 weakness is the deterministic perspective vis-à-vis pass-up demands and lead times. An immediate consequence of this is the subjective way in which the RDC safety stock is usually determined. Because the requirements passed up to the RDC include no uncertainty, there is no rigorous method for determining safety stock. This is why enterprises that use this replenishment method generally use rules of thumb for the RDC safety stock; this unscientific approach leads to excess inventory. It is not surprising that safety stock determination is somewhat loose—DRP has its roots in manufacturing, where production and transportation costs are of greater concern than inventory costs. Like the sequential approach, DRP fails to exploit visibility up the demand chain and lacks a network view of inventory optimization.”

DRP and MultiEchelon Inventory Optimization and SAP SPP

In SAP SPP, DRP is one mechanism of planning, and the material moves across a Bill of Distribution.

http://sapplanning.wordpress.com/2008/09/28/spp-bill-of-distribution-bod/

However Multi-Echelon Inventory Optimization (where material is rebalanced in the system) is called just Inventory Balancing, and it disregards the Bill of Distribution.

Details on DRP are available here:

http://sapplanning.wordpress.com/2009/04/19/spp-drp-special-cases-and-consolidation/