Managing Materials Flow

1. 1 Managing Materials Flow

2. Contentof 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.

3. Price/costadvantage • Without efficient and effective management of inbound materials flow, the manufacturing process cannot produce products at the desired priceandtherightcost.

4. Time Advantage • Without efficient and effective management of inbound materials flow, the manufacturing process cannot produce products at time required for distribution to the customer.

5. Results of Poor Materials Management • 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

6. MaterialsManagement: Oldversus New

7. 1 Materials Management Activities 6 • Anticipating materials requirements • Sourcing and obtaining materials • Introducing materials into the organization • Monitoring the status of materials as a current asset

8. TheObjectives of IntegratedMaterialsManagement 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

9. Purchasing and procurement Production control Inbound logistics Warehousing and storage Data and information systems Inventory planning and control Forecasting Materials disposal Scope of Materials Management

10. Differences Between Purchasing and Procurement • Thetermspurchasingandprocurementareoftenusedinterchangeablyalthoughtheydiffer in scope; • Purchasinggenerallyreferstotheactualbuyingof materialsandthoseactivitiesassociatedwithbuyingprocess. • Procurement is a broader in scopeandincludespurchasing, traffic, warehousing, andallactivitiesrelatedtoreceivinginboundmaterials.

11. RelationshipbetweenProductionandLogistics • Productionaffectsthelogisticsprocess in twosignificantways: 1. Productionactivitydeterminesthequantityandtypesof finishedgoodsthatareproduced. 2. Productiondirectlydeterminesthecompany’sneedforrawmaterials, subassemblies,andcomponentpartsused in themanufacturingprocess.

12. Differences Between Inbound and Outbound Transportation • Market demand that generates the need for outbound movement is more uncertain and fluctuating • Inbound transportationconcernwithbulkmovements of rawmaterials, largeshipmentsof partsandsubassemblies. • Firms exercise less control over inbound transportation due to total delivered pricing programs-not having a separateanalysis of inboundcosts

13. Warehousing and Storage • 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. • With JIT, theneedforinboundwarehousing is greatlyminimizedoreliminated.

14. Warehousing and Storage • If the JIT system is not used,the materials manager is usually much more concerned with inboundwarehousing and inventory costs because they account for a larger percentage of productvalue. • Warehousing of requirementsforrawmaterialsareusuallyquitedifferent: open/outsidestoragewithmanyrawmaterialslikesand, coal…

15. Data and Information Systems • The materials manager needs direct access to the organization’s information system • 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.

16. Inventory Planning and Control • Inventory planning and control of raw materials, component parts,subassemblies, and goods-in-process are just as important as the management of finished goods inventory. • Techniques of ABC Analysis, EOQ and inventory carrying costs are directly applicable to materials management.

17. Forecasting • Forecasting attempts to predict the future through quantitative or qualitative methods or some combination of both. • The essence of forecasting is to aid in logistics decision making.

18. Why Forecast? • 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...

19. Materials Disposal • afirm often overlooks or considers following issues as minor: • the disposal of scrap, surplus, recyclable, or obsolete materials. • reverse logistics • increased public awareness of the environment, more stringent government legislation, and a better recognition of the opportunities

20. Key Questions Important to Materials Management • What is the means of communication between materials management and production? • Whichissues 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?

21. Key Questions Important to Materials Management • Who schedules production runs? • On what basis are production runs scheduled? • How frequently is scheduling performed and updated? • How do the policies or procedures of materials management impact other parts of the organization?

22. 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 • MRP systems • Materials requirements planning (MRP I) • Manufacturing resource planning (MRP II) • DRP systems • Distribution requirements planning (DRP I) • Distribution resource planning (DRP II)

23. Kanban • Developed by Toyota Motor Company (1950s-1960s) • Kanban ( kan means "visual," and ban means "card" or "board") is a concept related to lean and just-in-time (JIT) production. • Kanban Philosophy: Parts and materials should be supplied at the very moment they are needed in the factory production process. • Kanban can be applied to any other manufacturing process involving repetitive operations

24. KANBAN -Kanbantakestheproduct-materialflowandtheinformationflow at thesame time, preventsthewaste. -Kanbanis a productionmanagementtoolwhich is usedforcontrollingtheproductionandmaterialflow • whattoproduce, • wheretoproduce, • whentoproduce, • howmuchtoproduce, • wheretosendtotheproductionprocesses.

25. KANBAN CARDS INCLUDE: • Theplace it is used (stockoriginpoint,consumptionpoint, transportationway) • Itemnumber • Item name • Itemdefinition • Kanbannumber (kanbancardnumber) • Itemcount (thedemand of itembythisKanbancardforproducingthemainpart) • Kanbancardboxnumber • Thedeliveringpoint of Kanban ( theworkstationnumberKanbangoingto)

26. Examples of Kanban Cards

28. The Kanban - JIT Connection • Kanban is directly related to just-in-time (JIT) production by the fact that it improves communication about production flow and thereby can reduce stock-outs and overproduction. • Kanban is not a synonym for JIT — it is a tool that can form part of a more encompassing JIT system. • There is more to running a JIT system than just kanban and there is more to kanban than just managing inventory.

29. JIT • Aim: Zerostock • JIT extendsKanbanlinkingpurchasing, manufacturingandlogistics. JIT can be defined in severalways: as a productionstrategy, thatworkstoreducethemanufacturingcostsandtoimprovequalitybywasteeliminationandmoreeffectiveuse of existingcompanyresources.

30. Benefits Resulting from Implementing Just-in-Time • 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

31. Problems Associated with Implementing JIT -While JIT offers a number of benefits it may not be suitableforallfirms: • Production scheduling at plant(s) Whenstockoutcostsaregreat, JItmay not be the optimal system. • Supplier production schedules Success of JIT depends on suppliers’ abilitytoprovideparts in accordancewiththefirm’sproductionschedule-smaller,morefrequentorders can result in higherorderingcosts, higherproductionandsetupcosts • Supplier locations As distancebetweensupplierandthefirmincreases, deliverytimesmaybecomemoreerratic, shippingcostsincrease as LTL movementsaremade • Lack of systemsupport, organizationalresistance, lack of planning

32. JIT andLogisticsManegement • Implementation of JIT requires a fullintegration of alllogisticsactivities. • Transportationbecomes a morevitalcomponent of logisticsunder a JIT system • Warehousestakesthe role of a consolidationfacilityinstead of storagefacility • JIT systemsareusuallycombinedwithothersystemsforcontrollingandplanningmaterialsflowinto, withinandout of organization- MRP and ERP,DRP

33. JIT II- Supplier Park • The in-plant is thenauthorizedtopurchasematerialsfromthesupplierforthecustomer. • Supplier'ssalesrepresentativeworksfull-time in a customerfirmwhilebeingpaidbythesupplier. • Thecustomerserves as thehostorganization, andthesupplierrepresentative "in-plant"--functions as an employee of thecustomer'spurchasingdepartment, attendingplanningmeetingsanddeterminingmaterialneeds.

34. JIT II- Supplier Park (Con’t) • Developed by Bose Corporation, • Improvesmutual understanding between the buyer and supplier, reduces waste and redundancy of efforts, improves supplier responsiveness, and creates a positive working environment.

35. MRP • MRP has been used to signify systems called materials requirements planning(MRP I) and manufacturing resource planning(MRP II) • An MRP system is intendedtosimultaneouslymeet 3 objectives: • Ensurematerialsandproductsareavailableforproductionanddeliverytocustomers. • Maintainthelowestpossiblelevel of inventory. • Plan manufacturingactivities, deliveryschedulesandpurchasingactivities.

36. MRPImaterials requirements planning • 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.

37. MRP I systems offer many advantages over traditional systems, including; • 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

38. Disadvantages of MRP I • 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. • Higher transportation bills and higher unit costs are incurred because the firm is less likely to qualify for large volume discounts.

39. Disadvantages of MRP I • 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. • 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

40. Elements of MRP I System Inventory transactions Customers’ orders Forecasts Engineering changes Inventory status ( finished items, work in progress, planned orders) Master production schedule Which products to produce, when,in what quantity Bill-of-materials file MRP I System

41. MRP IImanufacturing resource planning • 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, • demandmanagement, • theabilitytoperformwhat-ifanalyses, • tobookorders, • materials requirements planning(MRP I), • shop floor control, • purchasing, • controlinventory, • performaccountingandfinancialanalyses • capacitycontrol.

42. 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

43. 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 time-phased plan of events that affect inventory.

44. DRP II • DRP II(distribution resource planning) is an extension of distribution requirements planning(DRP I). • 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. • DRP II system, translates the forecast demand for each SKU (stock keeping unit) at each warehouse and DC into a time-based replenisment plan.

46. ERP –EnterpriseResourcePlanning • A software thatorganizesandmanages a company’sbusinessprocessesbysharinginfoacrossfunctionalareasandacrosscountries. • ERP-integration of accounting, sales, distribution, manufacturing, planning, purchasing, HR • SAP, Oracle Modules • Financemodule (ABC, capitalbudgeting,…) • Sales/marketing (Distributionreq., customercomplaints,…) • Production (CAD, MRP, supplierevaluations, allocation of resources,…) • HR ( jobdescriptions, org. charts,…)