The first place to start in the development of a “pull” system is the design of the distribution channel structure. The linkage of channel facilities is critical in pull system design. Performing this essential task requires the definition of the relationship of each of the facilities constituting the channel system.
Channel design begins by linking each product found in the channel system with each facility where it is stocked. If the product is stocked in 10 warehouses, there will need to be 10 item-warehouse planning linkages. All ERP and supply chain management (SCM) systems provide a computer program where planners can perform this task. Key fields in the program are planning method, default supplying facility, order policy, and shipping calendar. This data will determine how the DRP processor will perform its planning tasks for a product at a given facility.
The next step is the establishment of the relationship of each facility to other facilities in the supply channel. The relationship determines which is the supplying facility (or facilities) and which the child (or receiving) facility. In the typical ERP system this is performed in a maintenance program where such factors as shipping lead times, shipping calendar, delivery methods and terms, and other information is established for each supplying and receiving facility relationship.
Facility relationships enable the establishment of two critical pull system requirements:
First, the facility relationship establishes a hard linkage that guides the transfer of the schedule of replenishment distribution orders (DOs) from the satellite facility up to the supplying facility and the return resupply shipment from the supplying to the satellite facility.
Second, while built as single relationship between a specific supplying and a specific satellite facility, facilities can be said to be linked together to comprise a complex, multiechelon structure (termed the bill of distribution or BOD). A complex example would consist, perhaps, of a supplying plant, regional distribution centers, local distribution centers, and warehouses all the way down to the retail level, ending with the customer. In this sense, the schedule of DO resupply orders occurring at each echelon can be said to indirectly cascade up the BOD concluding with the originating manufacturing plant or outside supplier.
The below figure illustrates how the linkages of individual facilities constitutes a BOD. In the example, the BOD describes a pull system network that stocks only finished goods originating from outside suppliers. Note that the structure consists of 12 separate warehouse relationships. For example, the Central DC is linked to Regional DC1. Note that the distribution lead time between the Central DC and Regional DC1 is four days.
A second relationship is the linkage of the Central DC to Regional DC2. A third relationship is the linkage of Regional DC1 and Warehouse 1 and so on for the remainder of the structure. Note that Retailer 3 receives a portion of its replenishment from two warehouses and therefore has a relationship record for each. Finally, it is important to note that, while the BOD is a loose connection of facilities, it enables the system to link the furthest facility in the channel with the originating DC or manufacturing plant.
In the discussion to follow on distribution pull systems the importance of the facility relationship linkage will become more apparent.