Managing Materials Flow

1. 7 1 Managing Materials Flow

2. 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

3. Price Advantage and Time Utility • 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.

4. 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

5. 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

6. Purchasing and procurement Production control Inbound logistics Warehousing and storage Data and information systems Inventory planning and control Forecasting Materials disposaldisposal of scrap, surplus, recyclable, or obsolete materials Scope of Materials Management

7. 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.

8. 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

9. Kanban is a production management tool which is used for controlling the production and material flow • what to produce, • where to produce, • when to produce, • how much to produce, • where to send to the production processes.

10. Kanban takes the product-material flow and the information flow at the same time, prevents the waste. Kanban cards include: • 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)

11. Examples of Kanban Cards

13. 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.

14. JIT • JIT extends Kanban linking purchasing, manufacturing and logistics. • delivery“as needed” basis by a just-in-time (JIT) supplier. 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.

15. JIT • A philosophy based on the principle of getting the right materials to the right place at the right time. • flexible resources, • cellular layouts, • pull system, • kanban, • small-lot production, • quick set ups, • quality at source (Kaizen) • TPM (total productive maintenance) • supplier networks • 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

16. JIT • Implementation of JIT requires a full integration of all logistics activities. • Transportation becomes a more vital component of logistics under a JIT system • 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

17. 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 productvalue. • Warehousing of requirements for raw materials are usually quite different: open/outside storage with many raw materials like sand, coal…

18. Problems Associated with Implementing JIT -While JIT offers a number of benefits it may not be suitable for all firms: • 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

19. JIT II • supplier's sales representative works full-time in a customer firm while being paid by the supplier. • 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. • The in-plant is then authorized to purchase materials from the supplier for the customer. • 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.

20. 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

21. Reengineering, ISO,Total Quality Management, Deming Cycle, Six Sigma.. (Cont’d) • TQM: a management approach for an organization; centered on quality and continuous improvement.. • 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-Study-Act). • ISO: International Organization for Standardization (Switzerland) (since 1987)

22. Reengineering, ISO, Total Quality Management, Deming Cycle, Six Sigma.. • 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.

23. Important Points in Materials Management • 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

24. 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.

25. 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)

26. MRP • MRP has been used to signify systems called materials requirements planning(MRP I) and manufacturing resource planning(MRP II) • 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.

27. MRP I • 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.

28. 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. • 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 • Higher transportation bills and higher unit costs are incurred because the firm is less likely to qualify for large volume discounts.

29. 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

30. MRP II • 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.

31. 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

34. ERP –enterprise resource planning • A software that organizes and manages a company’s business processes by sharing info across functional areas and across countries. • ERP-integration of accounting, sales, distribution, manufacturing, planning, purchasing, HR • 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,…)

37. 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.

38. 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.