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Managing Materials Flow
1
Fundamentals of
LOGISTICS MANAGEMENT
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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 Advantage and Time
Utility
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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 time
required for distribution to the customer.
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Materials Management
Activities
1
6
Fundamentals of
LOGISTICS MANAGEMENT
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1.
2.
3.
4.
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
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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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Fundamentals of
LOGISTICS MANAGEMENT
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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
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Materials disposal
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disposal of scrap, surplus,
recyclable, or obsolete materials
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Fundamentals of
LOGISTICS MANAGEMENT
Why Forecast?
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9.
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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Fundamentals of
LOGISTICS MANAGEMENT
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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Fundamentals of
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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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Fundamentals of
LOGISTICS MANAGEMENT
Kanban takes the product-material flow and the
information flow at the same time, prevents the
waste.
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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 extends Kanban linking purchasing, manufacturing
and logistics.
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delivery “as needed” basis by a just-in-time (JIT) supplier.
Fundamentals of
LOGISTICS MANAGEMENT
JIT
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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Fundamentals of
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JIT
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A philosophy based on the principle of getting the right materials to the
right place at the right time.
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flexible resources,
cellular layouts,
pull system,
kanban,
small-lot production,
quick set ups,
quality at source (Kaizen)
TPM (total productive maintenance)
supplier networks
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A program that seeks to eliminate the non-value added activities from
any operation.
Just in case X Just in time
Safety stock is considered unnecessary
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JIT
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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---the need for inbound
warehousing is greatly minimized or eliminated.
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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Fundamentals of
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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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-While JIT offers a number of benefits it may not be suitable for all
firms:
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Fundamentals of
LOGISTICS MANAGEMENT
Problems Associated with
Implementing JIT
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Production scheduling at plant(s)
When stockout costs are great, JIt may not be the optimal system.
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
Supplier locations
As distance between supplier and the firm increases, delivery times may become more
erratic, shipping costs increase as LTL movements are made
Lack of system support, organizational resistance, lack of planning
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JIT II
Fundamentals of
LOGISTICS MANAGEMENT
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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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The in-plant is then authorized to purchase materials from the
supplier for the customer.
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Developed by Bose Corporation,
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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Fundamentals of
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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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Fundamentals of
LOGISTICS MANAGEMENT
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Reengineering, ISO,Total Quality
Management, Deming Cycle, Six Sigma..
(Cont’d)
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TQM: a management approach for an organization; centered on
quality and continuous improvement..
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The Deming Cycle (or Shewhart Cycle): a simple method
to test information before making a major decision. The 4 steps in
the Deming Cycle are: Plan-Do-Check-Act (or Plan-Do-StudyAct).
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ISO: International Organization for Standardization
(Switzerland) (since 1987)
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Reengineering, ISO, Total Quality
Management, Deming Cycle, Six Sigma..
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REEENGINEERING; deals with “starting with a clean slate”
taking systems and processes, and rethinking and redesigning
them in order to create significant improvements in quality, cost,
speed and service.
Six Sigma: Six Sigma is a set of practices originally developed
by Motorola to systematically improve processes by eliminating
defects. The term "Six Sigma" refers to the ability of highly
capable processes to produce output within specification. In
particular, processes that operate with six sigma quality produce
at defect levels below 3.4 defects per (one) million opportunities
(DPMO). Six Sigma's implicit goal is to improve all processes to
that level of quality or better.
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Fundamentals of
LOGISTICS MANAGEMENT
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Important Points in
Materials Management
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means
of
communication
between
materials management and production
issues to be communicated and periods for
communication
suppliers’ involvement in the processes of
materials forecasting and inventory
management
schedules of production runs and frequency
of scheduling
the policies or procedures of materials
management
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Fundamentals of
LOGISTICS MANAGEMENT
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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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-Computers are also used to improve materials
management performance:
 Kanban/Just-in-time systems
Fundamentals of
LOGISTICS MANAGEMENT
Administration and
Control of Materials Flow
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» Kanban (Toyota Production System)
» JIT & JIT II
MRP systems
» Materials requirements planning (MRP I)
» Manufacturing resource planning (MRP II)
DRP systems
» Distribution requirements planning (DRP I)
» Distribution resource planning (DRP II)
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Fundamentals of
LOGISTICS MANAGEMENT
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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
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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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Fundamentals of
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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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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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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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Inventory transactions
Fundamentals of
LOGISTICS MANAGEMENT
Elements of MRP I System
Inventory status
( finished items, work in progress,
planned orders)
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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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Fundamentals of
LOGISTICS MANAGEMENT
MRP II
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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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MRP systems offer many advantages
over traditional systems, including;
Improved business results(ROI, profits...)
 Improved manufacturing performance results
 Better manufacturing control and reduced
production costs
 More accurate and timely information
 Less inventory
 Time-phased ordering of materials
 Less material obsolescence
 Higher reliability
 More responsiveness to market demand
 Minimization of workforce overtime
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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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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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