Distribution
Network and flow
Distribution plans the flow of finished goods from plant to customer. DRP works backward from demand at each distribution center, netting on-hand and scheduled receipts to produce replenishment orders - the mirror image of MRP, applied to distribution rather than manufacturing.
Network decisions (number, location, and role of DCs) trade transportation, warehousing, inventory, and service. Centralization reduces safety stock and broadens product availability; decentralization shortens outbound distance and cuts customer lead time. Cross-docking, milk runs, and multi-echelon replenishment all depend on disciplined information flow.
Service metrics
Fill rate measures the share of demand shipped complete; OTIF requires both on time and in full. Perfect order index multiplies the components (on time × in full × damage free × correct documentation).
Traps
- Minimizing freight while raising total landed cost (inventory, handling, expediting).
- Adding DCs for service without checking the inventory and inbound freight penalty.
- Treating fill rate and OTIF as the same metric.
- Forgetting that 3PL and 4PL arrangements shift execution but not accountability.
- Applying consolidation savings without re-checking transportation cost and lead time.
Worked example - square root law
Four DCs each carry 1,000 units of safety stock, total 4,000. Inventory scales roughly with the square root of stocking points: a single DC serving the same total demand needs 1,000 × sqrt(4) = 2,000 units - a 50% reduction. Rule of thumb: consolidation saves inventory, but validate outbound transport and service before committing.