Materials Management: An Overview

Materials Management

• Materials management involves controlling the kind, amount, location, movement, and timing of commodities used by an industrial enterprise.
• It integrates purchasing, storage, inventory control, materials handling, and standardization to reduce organizational costs.
• Maximizing production while minimizing cost is a goal of every organization.
• Money spent on materials is higher than for machines, labor, and methods.
• Materials add value to a product, as product quality directly relies on the materials utilized.
• Materials management is a system ensuring product availability to customers at minimal cost.
• It includes having the right materials in right quantity, at a right price, and on the right time.

Objectives of Materials Management

• Maximize the use of company resources
• Provide the required level of customer service

Ways Companies Maximize Resources

• Strategic Resource Allocation: prioritizing and distributing limited resources like finances, workforce, technology, and raw materials to maximize efficiency, profitability, and competitiveness.
• Netflix shifted from DVD-by-mail to video streaming.
• Amazon is investing in robotics and automation.
• Outsourcing: Delegate non-core functions to external partners to allow focus on primary competencies. This can lead to cost savings and specialized expertise e.g. BPO and IT Outsourcing
• Vertical Integration: A business strategy where a company controls multiple stages of its supply chain instead of relying on external suppliers.
• Apple designs its own processors (M1 & M2 chips), software (iOS/macOS), and sells directly via Apple Stores.

Functions of Material Control

• Material requirement lies at the core of successful material management
• Identifies sources of supply
• Performs market research and selects supplies
• Negotiates with suppliers, making materials available.
• This function is responsible for the location and storage of materials
• Materials remain available at the minimum cost and quickest time.
• Responsible for material receipt and issue in such a way that requires minimum handling while minimizing waste.
• Material Handling: Aims to minimize handling and provision of equipment for handling materials
• It is crucial for minimizing space requirements, effective distribution, and providing better working space.
• Warehousing: Responsible for storage facilities, weighing facilities, materials-handling equipment, material distribution facilities, fire-fighting instruments, etc.
• Standardization and Simplification: selects items of great demand and sets the standards for quality, raw materials, sizes and performance of products.
• Organization and appraisal of materials enhances effectiveness due to smooth material flow through coordination, and preventing delays and waste.

Materials Manager

• They align demand with sourcing activities
• They align inventory requirements with sales and operations planning and/or the demand schedule
• They define and execute physical inventory and/or cycle count policy
• They develop or maintain reports, analytics, and metrics
• They manage purchase orders, including expediting or e-procurement
• They measure operational performance against the plan
• They plan capacity requirements, Plan material requirements, Plan production schedules
• They receive and distribute product

Manufacturing Resource Planning (MRP II)

• It fully integrates planning and control system of marketing, finance, and production to achieve the overall goals of the company
• It provides coordination between marketing and production
• It is a method for effective planning of all resources of a manufacturing company

Basic Strategies in Developing a Production Line

• Chase (Demand Matching) Strategy
• Production leveling
• Subcontracting

Chase (Demand Matching) Strategy

• Amounts are produced at any given time
• Inventory levels remain stable while production varies to meet demand
• Minimum inventories can be maintained with good made as needed

Production Leveling

• It produces an amount equal to the average demand amount
• It provides a smooth level of operation which avoids the costs of changing production levels
• When the inventory amount builds up, and demand is greater, the inventory is used up

Subcontracting

• Producing at the level of minimum demand and meeting any additional demand
• It uses buying or excess demand or turning away extra demand
• Costs of purchasing may be greater if the item were made in the plant Elements of Material Flow System:.
• Manufacturing Planning and Control (MPC) System
• Physical Distribution System

Manufacturing Planning and Control (MPC) System

• Responsible for the planning and control of the flow of materials through manufacturing process
• Entails the acquisition and allocation of limited resources to production activities to satisfy customer demand in specified time horizon

Primary Activities of MPC

• Production Planning including forecasting, master planning, and materials Requirement Planning (MRP)
• Implementation and Control via Purchasing
• Inventory Management: The process of managing inventories from raw materials to finished product.

Methods of MPC

• just-in-time management (JIT). Also known as Toyota Production System (TPS). Management strategy that aligns raw-material orders form suppliers directly with production schedules

Materials Requirement Planning (MRP)

• It is a software based integrated inventory and supply management system for businesses, considered the earliest computer-based inventory management system, it is used to estimate quantities of raw materials, maintain inventory levels, and schedule production and deliveries

Economic Order Quantity (EOQ)

• It is the ideal quantity of units that a company should purchase to meet demand while minimizing inventory costs (holding costs, shortage costs, and order costs)
• It was created in 1913

Inventory Sales

• Inventory Days/Days in inventory): Measurement of number of days/time required for a business to convert its inventory to sales. Formula is Inventory on hand divided by Cost of goods sold multiplied by Number of days in time period.

Physical Distribution System

• It includes all activities involved in moving goods from the supplier to the beginning of the production process and from the end of the production process to the consumer
• Encompases: Transportation
• Transportation
• Distribution
• InventoryWaterHousing
• Materials Handling
• Order Entry

Forecasting

• Forecasting is used to predict future events based on available information, using historical data inputs to make informed, predictive estimates related to future trends
• The 4 Principles of Forecasting are:
• Forecasts are usually wrong, errors are inevitable and must be expected
• Every forecast should include an estimate of error. Estimate of error is often expressed as a percentage (+/-) of the Forecast or as a range between maximum/minimum values
• Forecasts are more accurate for families or groups. The family scenario benefits from the shared knowledge and understanding of each member's preferences, making the forecasting process more
• Forecasts are more accurate for nearer time periods

Forecasting Techniques

• Qualitative Techniques/Judgmental Method: relies on judgment, intuition, and informed opinions (Subjective). May include Delphi Method
• Quantitative Techniques: data-based mathematical process (Objective)
• Extrinsic Techniques: Based on external (extrinsic) indicators
• Intrinsic Techniques: Based on assumption that what happened in the past will happen in the future