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Also known as distribution requirements planning (DRP), distribution planning is a common strategy that aids in creating a schedule for ordering within the overall process of supply chain management. The general idea behind distribution planning is to make use of relevant information to determine when and in what quantities certain items must be ordered in order to maintain a supply inventory that is capable of allowing production to occur at the most advantageous pace without tying up company resources in the maintenance of an excessively large inventory. In a way, distribution planning is a valuable tool when it comes to maintaining a lean inventory that makes sure enough raw materials are always on hand, but there is no need to store and pay taxes on huge amounts of raw materials.
A number of factors are considered as part of an effective distribution planning process. Typically, the process will require making use of historical data to determine how many units of a given item are required in order to allow a company to efficiently operate within a given period of time, such as a calendar month. Taking into consideration how much advance notice vendors need to process an order and deliver the quantity desired, it is possible to create an ordering schedule that ensures the quantity necessary to successfully get through the period is on hand, and there is no chance of running out of those essentials before another order can be delivered.
In order to accomplish this balance, distribution planning will routinely look at the inventory that is on hand at the end of a period and determine how long that current inventory will last. From there, orders are placed that will allow the company to augment that existing inventory with enough additional units to get through the upcoming period, taking into account the lag time between order placement and the earliest possible date of delivery. When usage of an item is not necessarily consistent from one period to the next, working with section managers and supervisors to project usage during the upcoming period is important, since the frequency and volume of orders can be adjusted to suit those projected needs. By assessing the quantity remaining at the end of the period, it is possible to once again alter the distribution planning for the next period and keep inventory costs as low as possible.
Effective distribution planning can save a company a great deal of money over the course of an operational year. By keeping inventories such as raw materials, equipment, and even inventories of office supplies as low as possible while also making sure there is always enough material on hand to support the production effort, a company avoids the need to rent or lease additional storage space as well as minimize the amount of taxes that must be paid to local and national tax agencies on the assessed value of those inventories. This translates into more of the net profits that the company can use for expansion or other desirable tasks.