Distribution Planning (DRP): Stock in the Wrong Place Is No Stock

The stock report looks great: 900 units of your best-selling product across the network. Then the call comes from Warehouse East. A customer wants 150 units next week, and East has zero. The 900 units are real. They are just in the wrong buildings.

Distribution planning (often called DRP, distribution requirements planning) is the calculation that decides how much stock each warehouse needs, when it needs it, and when it must be shipped from the factory or another site so it arrives on time. It is MRP for locations: instead of walking down a bill of materials, it walks back along the delivery route.

Why total stock is the wrong number

Think of a bank with a full vault and an empty ATM. The bank is not short of money. The customer standing at the ATM still goes home without cash.

Stock works the same way. Until a unit is picked, trucked and booked in at East, it does not exist for East's customer. The network total is a finance number. The planning number is stock by location, by date.

How DRP works, step by step

For each warehouse, DRP runs the same three steps as MRP:

1. Net. Take the demand at that location (orders and forecast), subtract stock on hand and transfers already on the way, and keep a safety stock.
2. Offset. Count back by the transit time to find the date the shipment must leave.
3. Roll up. Add the planned shipments of all warehouses together. That total becomes demand on the factory warehouse, which in turn creates manufacturing demand.

Transit time is not the truck's driving time. It is prep + travel + receipt: picking and loading (1 day), the road (2 days), unloading, checking and putting away (1 day). Four working days, which in a weekly plan means "ship one week earlier."

A worked DRP example: 4 weeks, 2 warehouses

The network: Central (at the factory) 600 units, West 300, East 0. Total 900. Each warehouse keeps a safety stock of 50. Transfers arrive one week after they leave Central.

Warehouse East, demand of 150 per week starting in week 2:

Week 2 needs 150 for customers plus 50 to rebuild safety stock, so 200 must arrive in week 2 and leave Central in week 1. That is this week. If nobody ships on Friday, the week 2 orders are late, no matter how full Central is.

Warehouse West, demand of 100 per week, 300 on hand: stock falls to 200, then 100, then would hit 0 in week 3. To stay at 50, West needs 50 in week 3 and 100 in week 4, so Central ships 50 in week 2 and 100 in week 3.

Central now sees what it has to send: 200 in week 1, 200 in week 2 (150 + 50), 250 in week 3 (150 + 100). That is 650 units against 600 on hand. Central runs out in week 3, 50 units short, even though the network started with 900.

A production run takes two weeks, so the order has to start now. DRP turned "we have plenty" into two actions for this week: ship 200 to East, and start production.

Transfer or produce?

Compare the options on time first, then on cost.

• Transfer from Central: 4 days, about $3 per unit in freight. 200 units cost $600 and arrive in time.
• Produce a new batch: 2 weeks plus 4 days of transit, plus a $900 changeover. Too late for week 2, and more expensive.

For East, the transfer wins easily. For Central's week 3 gap, only production helps, because nobody in the network has spare stock. And made is not the same as ready to ship; the hours between the last machine and the loading dock are covered in finished goods.

The myth: "More stock fixes the service problem"

When a warehouse runs out, the reflex is to raise inventory everywhere. The network held twice as much stock as East would sell in the whole month, and East still would have missed its week 2 orders if the shipment left one week late.

Service problems in a network are usually timing problems. Adding stock without a DRP view just puts more units in the wrong place. Good inventory management starts with the question "where and when," not "how much."

What to get right before you trust DRP

• Transit times per lane, including prep and receipt.
• Stock that is really available, not stock on quality hold or already allocated.
• In-transit stock, counted once, not at both ends.
• Safety stock per location, sized to local demand.

The same inputs decide whether you ship on time and in full; see how those two percentages combine in OTIF. And each link in the chain can amplify small demand changes, as shown in supply chain management and the bullwhip effect.

How it looks in factory.online

In factory.online, stock is held per inventory location, and transfers are recorded as inventory movements, so the planner sees 600, 300 and 0 rather than 900. Sales orders placed against a location create demand there, and MRP turns the remaining gap into manufacturing demand with its shortage linked back to the orders behind it. Central's week 3 shortfall of 50 is tied to East's and West's customers.

If your team finds out about the wrong-warehouse problem when the customer calls, book a demo and walk through one of those weeks with us.