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Issue No:02/03/2

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Over the last few years, the demand placed on the distribution and logistics departments of manufacturing and marketing organizations has been continuously intensifying due to pressures from increased competition, introduction of new manufacturing methods, and increased expectations from partners and consumers in terms of low price and high service levels. Corporations are looking to increase their customer service levels, while reducing inventory, working capital requirements and distribution costs.

While distribution and logistics planning is gaining importance within corporations, distribution planners and supply chain managers are still struggling to come to terms with the increased expectations. The bulk of their time is still spent on short-term operational problems related to meeting immediate demand requirements, without much consideration for longer-term costs or strategic issues.

Most of the issues faced by distribution planners and supply-chain planners can be linked to:

  1. Demand-side Variability
    Difference between forecasted and actual demand; hockey stick sales patterns
  2. Supply-side Variability
    Delays in supply; lead time variability; campaign production runs; production in lot sizes
  3. Process Variability
    Non-standardized planning process; use of intuition, experience, and rule-based heuristics instead of complete cost based optimization
  4. Lack of information availability and visibility
    Delays in conveying forecast changes to Distribution since Distribution and Marketing work on different forecasts
  5. Conflicting objectives between different departments
    Marketing wants to maximize sales and increase product availability, while Distribution wants to minimize product inventories and distribution costs
  6. Sub-optimal planning
    Lack of synchronization between Production and Distribution planning; limitations of the human mind to process and utilize all available data to make optimal decisions

The highly data-intensive, deterministic and repetitive nature of distribution planning lends itself well to the use of Decision Support Systems. These systems can leverage the latest advances in information technology and optimization techniques to manage inventories and plan dispatches to meet demand at minimum cost.

Distribution Planning systems can address the following operational issues faced by a supply chain manager

  • Product dispatching: When and where should a product be dispatched?
  • Product placement: Which product should be held at each location and in what quantity?
  • Vehicle loading: What products should be loaded on to a vehicle?
  • Vehicle choice: Which mode of transportation should be used?
  • Vehicle planning: How many vehicles of each type would be required on what days in the next one month?

Distribution Planning solutions should reduce process variability, improve information visibility and co-ordination between departments, and optimize planning, while responding to demand and supply side variabilities in real time.

In addition to the above, Distribution Planning solutions can also aid in strategic decision-making in areas like network planning, warehouse capacity planning, vehicle capacity planning, and inventory and service level management. These systems facilitate long-term planning, and creation and analysis of various demand, supply and supply chain structure scenarios.

Distribution Planning should be led by Demand Planning and be a driver for Production Planning to ensure seamless supply chain integration.

Requirements of a good distribution planning system

  1. Minimize total cost of distribution
  2. Increase manager productivity through automated, high-speed planning
  3. Synchronize Distribution and Production planning
  4. Formalize informed decision-making and reduce variability in the Distribution planning process
  5. Leverage information collected through ERP and other transactional systems for optimized planning
  6. Improve information visibility and coordination between Marketing, Distribution and Production.
  7. Improve responsiveness by
    a) Allowing planners to quickly adjust production and distribution plans to demand/supply variability (for example, changes in demand forecasts, supply delays, etc.)
    b) Generating production and distribution requirements for different demand and supply scenarios, allowing for contingency planning

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