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1. Introduction to Materials Management

Chapter 1     Introduction to Materials Management Introduction Wealth is measured by the output of goods and services produced in a... thumbnail 1 summary
Chapter 1  

Introduction to Materials Management

  • Wealth is measured by the output of goods and services produced in a given time.
  • Goods are physical objects and services are the performance of some useful function.
  • A production function is needed to transform resources into useful goods.  At each stage in the development of the final product, value is added, thus creating more wealth.
  • To get the most value out of our resources, we design production processes that make products most efficiently.  Once the processes exist, we need to manage the operation so it produces goods most economically.  Managing the operation means planning for and controlling the resources used in the process: labor, capital and material.
  • The major way in which management plans and controls is through the flow of materials; the right materials in the right quantities and at the right time.
Operating Environment
  • The most important factors affecting the environment in which we operate are government, economy, competition, customers and quality.
  • Government regulation of business affects the way business is conducted.
  • Economic conditions influence demand for products or services and availability of inputs.
  • Companies face global competition.  Transporting materials is less costly today.  Global communications are fast, effective and inexpensive.
  • Customers expect more from suppliers.  Customer selection criteria include a fair price, quality products and services, reduction in delivery lead-time, better pre and post sales service, and product and volume and flexibility.
  • Quality must meet or exceed customer expectations.
  • The customer’s minimum requirements for a supplier to be considered a viable competitor in the marketplace are called order qualifiers.  The competitive characteristics that persuade a customer to choose a product or service are called order winners
  • Delivery lead-time is from receipt of an order to delivery of the product.
  • The four basic manufacturing strategies to achieve delivery lead-time objectives are engineer-to-order, make-to-order, assemble-to-order, and make-to-stock.
The Supply Chain Concept
  • The supply chain system contains three basic elements: supply, production and distribution.
  • Supply chain includes all activities and processes to supply a product or service to a final customer.
  • Any number of companies can be linked in the supply chain. Sometimes called the value chain.
  • A customer can be a supplier to another customer, so the total chain can have a number of supplier/customer relationships.
  • While the distribution system can be direct from supplier to customer, it can contain distributors such as wholesalers, warehouses, and retailers.
  • Product or services usually flow from supplier to customer and design and demand information usually flows from customer to supplier .
Supply Chain Concepts
  • Traditionally, management focused on internal operating issues, constraints and parameters.  Suppliers were considered adversaries.
  • The first major change evolved through the explosive growth of Just-in-Time (JIT) concepts.  Suppliers were viewed as partners with mutually linked destinies, the success of each was linked to the success of the other.  Emphasis was placed on trust in the relationship, i.e. elimination of receiving inspection, reduction in administrative paperwork replaced with the exchange of electronic data, mutual analysis of cost reductions and shared benefits, and shared product design.
  • The growth of the supply chain concept continues to be influenced by the explosive growth in computer capability, software applications (Enterprise Resource Planning) and the ability to link companies electronically (Internet), growth in global competition, and dramatic reduction in product life cycles and the resulting design flexibility and ability to effectively communicate changes to suppliers and distributors.
  • To result in optimal performance, the supply chain of activities, from raw material to final customer, should be managed as an extension of the partnership.  This implies three critical issues: flow of materials, flow of information electronically and fund transfers.  More recently, the new trend is to manage the recovery, recycling and reuse of material.
  • Conflicts in traditional systems often appear because differing departments maximize departmental objectives without considering the impact to other parts of the system.
  • To manage a supply chain, try to efficiently plan material and information flows to maximize cost efficiency, effectiveness, delivery, and flexibility.  This requires systems integration and reevaluating performance measures.  To maximize profit, set objectives that provide better customer service, lowest production costs, lowest inventory investment, and lowest distribution cost.  Stress the need to supply customers with what they want when they want it and to keep inventories at a minimum.
What Is Materials Management?
  • The problem is to balance conflicting objectives to minimize the total of all the costs involved (maximize the use of the firm’s resources) and maximize customer consistent with the goals of the organization.  This requires some type of integrated materials management or logistics organization responsible for supply, production and distribution.  The name we are giving this function is materials management.
  • Reducing cost contributes directly to profit.  Increasing sales increases direct costs of labor and materials so profit does not increase directly.
  • Manufacturing planning and control is responsible for the planning and control of the flow of materials through the manufacturing process and the primary activities are production planning (includes forecasting, master planning, material requirements planning and capacity planning), implementation and control (production activity control), and inventory management (provide buffer against the differences in demand rates and production rates).
  • There are five basic inputs to the manufacturing planning and control system: product description (engineering drawings, specifications and bill of material), process specifications, standard time needed to perform operations, available facilities, and quantities required (independent demand).
  • Physical supply/distribution includes all activities involved in transporting goods, from the supplier to the beginning of the production process, and from the end of the production process to the customer, including transportation, distribution inventory, warehousing, packaging, materials handling, and order entry.
  • Maximize service and minimize cost.  The objective is to be able to deliver what customers want, when and where they want it, and do so at minimum cost.  To achieve this objective, materials management must make trade-offs between the level of customer service and the cost of providing that service.  As a rule, costs rise as the service level increases, and materials management must find that combination of inputs to maximize service and minimize cost.