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Managing Materials Flow
Content of Materials
Management
Materials management ;
 is an integral part of the logistics
management process,
 encompasses the administration of raw
materials, subassemblies, manufactured
parts, packing materials, and in-process
inventory,
 critical to the total logistics process.
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Price/cost advantage
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Without efficient and effective
management of inbound materials flow,
the manufacturing process cannot
produce products at the desired price and
the right cost.
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Time Advantage
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Without efficient and effective
management of inbound materials flow,
the manufacturing process cannot
produce products at time required for
distribution to the customer.
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Results of Poor Materials
Management
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STOCK OUT IN RETAIL,
– Customers seek substitutes or shop elsewhere.
In a service such as health care, lack of needed
materials may delay testing or vital patient
treatment, causing at least inconvenience and, at
worst, threatening patient health.
e.g. organ transplantation
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Materials Management: Old versus New
Old Thinking
New Thinking
Market
Seller’s market; low
competition; restricted export
Buyer’s market; keen
competition; global oriented
Products
Small assortment; long life
cycle; low technology
Wide assortments; short life
cycle; high technology
Production
Full capacity load; low
flexibility; large lot sizes, long
lead times; low costs, make
instead of buy
Full capacity load; high
flexibility; low lot sizes; short
lead times; low costs; buy
instead of make
Service level
High service level; high
inventories;slow logistics
process; long transport time
High service level; low
inventories; quick logistics
process; short transport time
Information Technology
Manual data processing;
paper administration
Enterprise Strategy
Production oriented
Electronic data processing,
paperless factory
Market oriented
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Materials Management
Activities
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6
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Anticipating materials requirements
Sourcing and obtaining materials
Introducing materials into the
organization
Monitoring the status of materials as a
current asset
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The Objectives of Integrated
Materials Management
Company Objectives
Objectives of Materials
Management
Low Costs
To optimize
materials
costs,
capital
costs, and
overhead
expences
High Level
of Service
To optimize
response
toward
production
and
markets
Quality
Assurance
To maintain
and
improve the
quality of
material
Low Level
of
Tied-up
Capital
To optimize
capital
tied-up in
inventories
Support of
Other
Functions
To support
Sales and
Design
development
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Scope of Materials
Management
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Purchasing and
procurement
Production control
Inbound logistics
Warehousing and
storage
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Data and
information
systems
Inventory planning
and control
Forecasting
Materials disposal
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Differences Between Purchasing and
Procurement
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The terms purchasing and procurement
are often used interchangeably although
they differ in scope;
– Purchasing generally refers to the actual
buying of materials and those activities
associated with buying process.
– Procurement is a broader in scope and includes
purchasing, traffic, warehousing, and all
activities related to receiving inbound materials.
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Relationship between
Production and Logistics
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Production affects the logistics process in
two significant ways:
1. Production activity determines the quantity
and types of finished goods that are produced.
2. Production directly determines the company’s
need for raw materials, subassemblies,and
component parts used in the manufacturing
process.
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Differences Between Inbound and
Outbound Transportation
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Market demand that generates the need for
outbound movement is more uncertain and
fluctuating
Inbound transportation concern with bulk
movements of raw materials, large shipments of
parts and subassemblies.
Firms exercise less control over inbound
transportation due to total delivered pricing
programs-not having a separate analysis of
inbound costs
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Warehousing and Storage
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Unlike the warehousing of finished goods, which
usually occurs in the field, items awaiting use in
production are usually stored on-site, that is at the
point of manufacture; or they are delivered on an
“as needed” basis by a just-in-time (JIT) supplier.
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With JIT, the need for inbound warehousing is
greatly minimized or eliminated.
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Warehousing and Storage
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If the JIT system is not used, the materials
manager is usually much more concerned with
inbound warehousing and inventory costs because
they account for a larger percentage of product
value.
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Warehousing of requirements for raw materials
are usually quite different: open/outside storage
with many raw materials like sand, coal…
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Data and Information
Systems
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The materials manager needs direct access to
the organization’s information system
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The types of information needed include
*demand forecasts for production,
*names of suppliers and supplier
characteristics,
*inventory levels
*pricing data, and
*other financial and marketing facts.
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Inventory Planning and
Control
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Inventory planning and control of raw materials,
component parts, subassemblies, and goods-inprocess are just as important as the management
of finished goods inventory.
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Techniques of ABC Analysis, EOQ and inventory
carrying costs are directly applicable to materials
management.
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Forecasting
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Forecasting attempts to predict the
future through quantitative or qualitative
methods or some combination of both.
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The essence of forecasting is to aid in
logistics decision making.
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Why Forecast?
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Increasing customer satisfaction,
Reducing stock outs,
Scheduling production more efficiently,
Lowering safety stock requirements,
Reducing product obsolescence costs,
Managing shipping better,
Improving pricing and promotion
management,
Negotiating superior terms with suppliers,
Making more informed pricing decisions...
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Materials Disposal
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a firm often overlooks or considers following
issues as minor:
– the disposal of scrap, surplus, recyclable, or obsolete
materials.
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reverse logistics
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increased public awareness of the environment,
more stringent government legislation, and a
better recognition of the opportunities
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Key Questions Important to
Materials Management
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What is the means of communication
between materials management and
production?
Which issues are communicated and
how often?
What is our suppliers’ involvement in
the processes of materials forecasting
and inventory management?
What sort of relationships do we have
with our suppliers?
Are they eager to serve us and meet our
needs, even in times when supplies are
allocated?
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Key Questions Important to
Materials Management
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Who schedules production runs?
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On what basis are production runs
scheduled?
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How
frequently
is
performed and updated?
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How do the policies or procedures of
materials management impact other
parts of the organization?
scheduling
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Administration and
Control of Materials Flow
-Computers are also used to improve materials
management performance:
 Kanban/Just-in-time systems
» Kanban (Toyota Production System)
» JIT & JIT II
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MRP systems
» Materials requirements planning (MRP I)
» Manufacturing resource planning (MRP II)
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DRP systems
» Distribution requirements planning (DRP I)
» Distribution resource planning (DRP II)
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Kanban
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Developed by Toyota Motor Company (1950s-1960s)
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Kanban ( kan means "visual," and ban means "card" or
"board") is a concept related to lean and just-in-time (JIT)
production.
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Kanban Philosophy: Parts and materials should be
supplied at the very moment they are needed in the factory
production process.
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Kanban can be applied to any other manufacturing
process involving repetitive operations
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KANBAN
- Kanban takes the product-material flow and the
information flow at the same time, prevents the
waste.
-Kanban is a production management tool which
is used for controlling the production and
material flow
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what to produce,
where to produce,
when to produce,
how much to produce,
where to send to the production processes.
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KANBAN CARDS INCLUDE:
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The place it is used (stock origin
point,consumption point, transportation way)
Item number
Item name
Item definition
Kanban number (kanban card number)
Item count (the demand of item by this Kanban
card for producing the main part)
Kanban card box number
The delivering point of Kanban ( the work station
number Kanban going to)
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Examples of Kanban Cards
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The Kanban - JIT Connection
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Kanban is directly related to just-in-time (JIT)
production by the fact that it improves communication
about production flow and thereby can reduce stockouts and overproduction.
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Kanban is not a synonym for JIT — it is a tool that can
form part of a more encompassing JIT system.
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There is more to running a JIT system than just
kanban and there is more to kanban than just
managing inventory.
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JIT
Aim: Zero stock
 JIT extends Kanban linking purchasing,
manufacturing and logistics.
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JIT can be defined in several ways:
as a production strategy, that works to reduce
the manufacturing costs and to improve
quality by waste elimination and more
effective use of existing company resources.
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Benefits Resulting from
Implementing Just-in-Time
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Productivity improvements and greater control
between various production stages
Diminished raw materials, work-in-process, and
finished goods inventories
Reduction in manufacturing cycle times
Improved inventory turnover rates
Better customer service
Decreased warehouse space
Improved response time
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Problems Associated with
Implementing JIT
-While JIT offers a number of benefits it may not be suitable for all
firms:
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Production scheduling at plant(s)
When stockout costs are great, JIt may not be the optimal system.
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Supplier production schedules
Success of JIT depends on suppliers’ ability to provide parts in accordance with the
firm’s production schedule-smaller,more frequent orders can result in higher ordering
costs, higher production and setup costs
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Supplier locations
As distance between supplier and the firm increases, delivery times may become more
erratic, shipping costs increase as LTL movements are made
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Lack of system support, organizational resistance, lack of planning
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JIT and Logistics
Manegement
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Implementation of JIT requires a full integration of all
logistics activities.
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Transportation becomes a more vital component of
logistics under a JIT system
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Warehouses takes the role of a consolidation facility
instead of storage facility
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JIT systems are usually combined with other systems
for controlling and planning materials flow into, within
and out of organization- MRP and ERP,DRP
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JIT II- Supplier Park
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The in-plant is then authorized to purchase materials from
the supplier for the customer.
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Supplier's sales representative works full-time in a
customer firm while being paid by the supplier.
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The customer serves as the host organization, and the
supplier representative "in-plant"--functions as an
employee of the customer's purchasing department,
attending planning meetings and determining material
needs.
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JIT II- Supplier Park (Con’t)
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Developed by Bose Corporation,
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Improves mutual understanding between the
buyer and supplier, reduces waste and
redundancy of efforts, improves supplier
responsiveness, and creates a positive
working environment.
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MRP
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MRP has been used to signify systems called
materials requirements planning(MRP I) and
manufacturing resource planning(MRP II)
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An MRP system is intended to simultaneously meet 3
objectives:
Ensure materials and products are available for production
and delivery to customers.
Maintain the lowest possible level of inventory.
Plan manufacturing activities, delivery schedules and
purchasing activities.
1.
2.
3.
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MRP I
materials requirements planning
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MRP I consists of
– a computing system for dependent demand,
– a manufacturing information system,
building on inventory, production
scheduling, and administrating all inputs to
production and,
– a concept and philosophy of management.
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MRP I systems offer many advantages
over traditional systems, including;
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Improved business results(ROI, profits...)
Improved manufacturing performance results
Better manufacturing control
More accurate and timely information
Less inventory
Time-phased ordering of materials
Less material obsolescence
Higher reliability
More responsiveness to market demand
Reduced production costs
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Disadvantages of MRP I
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MRP I does not tend to optimize materials
acquisition costs. Because inventory levels are
kept to a minimum, materials must be
purchased more frequently and in smaller
quantities. This results in increased ordering
costs.
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Higher transportation bills and higher unit
costs are incurred because the firm is less likely
to qualify for large volume discounts.
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Disadvantages of MRP I
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MRP I is a potential hazard of a production
slowdown or shutdown that may arise
because of such as unforeseen delivery
problems and materials shortages.
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MRP I arises from the use of standardized
software packages, which may be difficult to
accommodate within the unique operating
simulations of a given firm- need for
modification according to the firm’s needs
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Elements of MRP I System
Inventory transactions
Inventory status
( finished items, work in progress,
planned orders)
Customers’ orders
Forecasts
Master production schedule
Which products to produce,
when,in what quantity
Engineering changes
Bill-of-materials file
MRP I
System
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MRP II
manufacturing resource planning
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MRP I is expanded ,
MRP II includes the entire set of activities involved in the planning
and control of production operations,
production planning,
resource requirements planning,
master production scheduling,
demand management,
the ability to perform what-if analyses,
to book orders,
materials requirements planning(MRP I),
shop floor control,
purchasing,
control inventory,
perform accounting and financial analyses
capacity control.
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The Advantages of MRP II
Inventory reductions of one-fourth to
one-third
 Higher inventory turnover
 Improved consistency in on-time
customer delivery
 Reductions in purchasing costs due to few
expedited shipments
 Minimization of workforce overtime
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DRP I
Distribution requirements planning(DRP
I) –
 “ the application of MRP principles to
the distribution environment, integrating
the special needs of distribution.”
 a dynamic model that looks at a timephased plan of events that affect
inventory.
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DRP II
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DRP II(distribution resource planning) is an extension
of distribution requirements planning(DRP I).
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DRP II applies the time-based DRP I logic to
replenish inventories in multiechelon warehousing
systems including warehouse space, manpower levels,
transportation capacity, financial flows.
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DRP II system, translates the forecast demand for each
SKU (stock keeping unit) at each warehouse and DC
into a time-based replenisment plan.
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ERP –Enterprise Resource
Planning
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A software that organizes and manages a company’s business
processes by sharing info across functional areas and across
countries.
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ERP-integration of accounting, sales, distribution, manufacturing,
planning, purchasing, HR
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SAP, Oracle
Modules
 Finance module (ABC, capital budgeting,…)
 Sales/marketing (Distribution req., customer complaints,…)
 Production (CAD, MRP, supplier evaluations, allocation of
resources,…)
 HR ( job descriptions, org. charts,…)
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