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Inventory Control System Using Distribution Requirement Planning

(DRP) (Case Study : Food Company)
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International Conference on Science and Technology 2019 IOP Publishing
Journal of Physics: Conference Series 1569 (2020) 032005 doi:10.1088/1742-6596/1569/3/032005

Inventory Control System Using Distribution Requirement

Planning (DRP) ( Case Study : Food Company)

Y Ngatilah1, N Rahmawati2, C Pujiastuti3, I Porwati4, A Y Hutagalung5

1,2,3,5
Industrial Engineering Department, Faculty of Engineering
UPN “Veteran” Jawa Timur, Surabaya, Indonesia
4
Technology and Sains Institute“Akprind” Yogyakarta
yustinangatilah@[Link]

Abstract. Distribution and inventory are two major components that causes total cost of the
product become high. Those two components are not categorized in to the process that added
value to the product. This research use Distribution Requirement Planning (DRP) to find the
right quantity and short replenishment time in inventory decision that manufacture industries
faced to supply their own Distribution Centers and Warehouses in food Company. DRP giving
the lower total distribution cost than actual cost. It is because DRP supply products at each
Distribution Centers and Warehouses in a minimum quantity using Economic Order Quantity. It
also using the similar concept with Material Requirement Planning to find the right delivery time
so that it can minimize the total inventory time in The supply chain. DRP can be used to solve
the inventory and distribution problem in multi echelon supply chain. From this research, using
historical data, DRP gave the minimum total distribution and inventory cost than the initial
scenario that company used. Based on DRP result , The total Inventory and Distribution Cost
from January to December 2019 is 481.251.325,4.

Key words — Inventory control, EOQ, DRP.

1. Introduction

In manufacturing industries, availability is the main factor that can support continuity of the
production process [2]. Availability that is mentioned here can be machines, materials, work in process
products or end products. Company should has the right plan to control their inventory so that the
production can run as it should be in a lower cost. Cost components here are Inventory and Distribution
Costs. Inventory cost consists of Purchasing cost, ordering cost, and holding cost while distribution cost
consists of vehicle rent cost and fuel cost [11].
The Major problems of inventory control that the manufature industries faced are how to
obtain the minimum inventory and also in a short replenishment of the stock time. Some inventory
control mechanism has been proposed in order to control inventory [18]. Such as Economic Order
Quantity (EOQ)[5], [17], and [3], Economic Order Interval (EOI) [8] and [15], Economic Production
Quantity (EPQ) [9] and [16], Material Requirement Planning (MRP) [1] and [13], And the last one is
Distribution requirement planning (DRP)[7], [4], and [12].
PT. Heinz ABC Indonesia (HAI) is a manufacturing industry that produce food and beverages.
This Company produce Soy Souce in a variety of volume among them are 135 ml and 275 ml. Based on
preliminary investigation, that company has faced some problems in determining the optimal quantity
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International Conference on Science and Technology 2019 IOP Publishing
Journal of Physics: Conference Series 1569 (2020) 032005 doi:10.1088/1742-6596/1569/3/032005

and time to delivere their product to their Distribution Centers (DCs), And also from their DCs to their
Warehouses using their own land transpotation vehicles. This research aims to solve the problem using
DRP. DRP method can be used to handle of an inventory problem in multiechelon distribution
environment [14].
2. Literature Review
2.1 Inventory Control System
Based on [5], inventory is a number of products or items that should be available at a certain
place and time in a company. There are a lot of ways that can be used to control inventory position in a
company. The first one is Economic Order Quantity (EOQ). EOQ use demand to determine the optimal
order size and minimal stock level that can be used as a signals to place an order. The second one is
Economic Order Interval (EOI). EOI determine the optimal order interval based on given demand
pattern. The third one is Economic Production Quantity (EPQ). EPQ using a similar concept with EOQ
but the product in EPQ is not purchased from the other company but produced in-house. The fourth one
is Material Requirement Planning (MRP) that planned inventory lotsize so they are time phased when
they are needed from a product to the detailed of the product components. And the last one is Distribution
requirement planning (DRP).
2.2 Distribution Requirement Planning System
Distribution requirement planning (DRP) is one type of inventory control system. DRP is a
method of a handling stock replenishment in multiechelon distribution environment [19]. DRP applies
time-phased logic to products in a distribution network in a manner similar to the way Material
Requirement Planning (MRP) applies it to the sub-assembly and component of a products in a
manufacturing bill of material network [12]. DRP is an “Implosion” process which applies centralized
push system in inventory distribution management from the lowest levels of a network to the central
distribution center (DC), while MRP is an “Explosion” from Master production schedule (MPS) to the
scheduling of the product components [20]. General concept of DRP can be shown in Figure 1.

Warehouse 1 Warehouse 2 Warehouse 3

DC

Figure 1. Distribution Requirement Planning Concept [12]

DRP can be used to anticipate future demand by planning at each level in the distribution
network. This method can be used to predict problems before it happened. This also can give a broader
paradigm to the decision maker to solve an inventory problem in the distribution network. For
manufacturing company that producing and selling their on product in their own distribution network,
DRP performance can be improved by using MRP and DRP together that can be shown in Figure 2.

Demand Time-Phased
DRP
Forecast Order Point

MRP MPS

Inventory Decision Rules

Figure 2. MRP and DRP Integration [12]

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International Conference on Science and Technology 2019 IOP Publishing
Journal of Physics: Conference Series 1569 (2020) 032005 doi:10.1088/1742-6596/1569/3/032005

DRP Algorithm:
1. Netting
Projected on-hand is an on-hand inventory. It can be calculated using formulation below:
Projected on Hand (t) = (On Hand (t-1) + Scheduled Receipt (t) + Planned Order Receipt(t)–
Gross Requirement (t)) (1)
Net Requirement can be calculated using formulation below:
Net Requirement (t) = (Gross Requirement (t) + Safety Stock) – (Scheduled Receipt (t) +
Projected on Hand (t-1)) (2)
2. Lotting
Lotting is the process to find the order or production lot size in every network distribution. There
are several lottting method. In this research, EOQ is used. Lotting in DRP represented by plan
order receipt (Porec). Planned order receipt (Porec) is a Net Requirement that has been adjusted
according to the Lot size order or production.
3. Offsetting
Offseting is an order quantity that is planned to be ordered in the planned time period. Offsetting
in DRP represented by plan order release (Porel). Porel is a Porec that has been adjusted
according to the Lead time order or production.
4. Explosion
Total inventory and distribution cost can be obtained using formulation below:
Total Inventory and Distribution Cost = Ordering Cost + Holding Cost + Delivery Cost (3)

2.3 Economic Order Quantity

Economic order quantity (EOQ) is one of the Lot sizing Method. EOQ is the order that can
minimizes the total inventory cost. If the stockouts are not permitted, the EOQ can be shown in Eqution
4 below:
(4)
Where
C = Ordering cost per order
P = Purchase cost of a product or item
R = Annual demand in units
F = Annual holding cost as a fraction of unit cost

3. Methodology
In this research, DRP system is used to solve the problem. DRP mechanism can be shown in Figure 3.

Demand actual/ Forecast at each level in the

distribution network

Lot sizing using Economic Order Quantity

(EOQ)

Demand Planning and Scheduling using DRP

level 0 (Factory)

Demand Planning and Scheduling using DRP

level 1 (DCs)

Demand Planning and Scheduling using DRP

level 2 (Warehouses)

Figure 3. DRP Mechanism

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International Conference on Science and Technology 2019 IOP Publishing
Journal of Physics: Conference Series 1569 (2020) 032005 doi:10.1088/1742-6596/1569/3/032005

4. Result and Discussion

4.1 Total Inventory and Distribution Cost in 2018
From Table 1, it can be shown that total inventory and distribution cost using DRP is lower than
actual inventory and distribution cost. Therefore, DRP is used in this reseach to calculate demand and
distribution cost in 2019.

Table 1. Total Distribution Cost using Distribution Requirement Planning in 2018 (Rp)
Actual Inventory and Distribution
DRP Method (Rp)
Cost (Rp)
Rp.585.788.454,5 Rp.465.606.631,75

4.2 Total Inventory and Distribution Cost using DRP in 2019

From Table 2 below, it can be shown that the total inventory and distribution cost using DRP
Method is 481.251.325,4 from January to December 2019.

Table 2. Total Inventory and Distribution Cost Using Distribution Requirement Planning
Distribution Network Product
Kecap Manis ABC 135ml Kecap Manis ABC 275ml
DC Surabaya 52.955.164 37.563.813
Level 1 DC Semarang 40.320.804 44.551.562
DC Karawang 38.881.927 44.000.211
Warehouse Malang 12.611.542,92 18.457.342,99
Warehouse Kediri 18.594.903,51 18.342.492,62
Warehouse Jombang 16.658.667,75 16.519.770,43
Warehouse Magelang 15.816.918,38 17.273.573,15
Level 2
Warehouse Cilacap 17.754.759,27 16.807.683,5
Warehouse Kalideres 12.375.060,53 9.166.801,952
Warehouse Sukabumi [Link] 17.195.336,78
Total Cost 481.251.325,4

5. Conclusion
Distribution Requirement Planning (DRP) giving the lower total distribution cost than actual cost. It is
because DRP supply products at each Distribution Centers and Warehouses in a minimum quantity using
Economic Order Quantit. It also adopt Material Requirement Planning Concept to find the right delivery time so
that it can minimize the total inventory and distribution cost in The Supply chain. From this research, using
historical data, DRP gave the minimum total distribution and inventory cost than the initial scenario that company
used. Based on DRP result , The total Inventory and Distribution Cost from January to December 2019 is
481.251.325,4.

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