Logistics (Managing Materials Flow)

8/8/2019 Logistics (Managing Materials Flow)

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Chapter 6

Managing

Materials Flow

Reported by:

Mary Jane Atas

Ivy Gonzaga

Jonalyn Porto

Nikki Rose Vergara


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What is Materials Management?

-it is part of logistics process which

encompasses the administration of raw

materials, subassemblies, manufactured

parts, packing materials and in-process

inventory.


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Scope of Materials Management

Materials management is typically

comprised of four basic activities:

1. Anticipating materials requirements.

2. Sourcing and obtaining materials.

3. Introducing materials into the organization.

4. Monitoring the status of materials as a currentasset.


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Functions performed by materials managers

include purchasing, inventory control of rawmaterials and finished goods, receiving,

warehousing, production scheduling and

transportation.

The specific objectives of materials

management are closely tied to the firms main

objectives of achieving an acceptable level of

profitability or return on investment (ROI) and

remaining competitive in an increasingly

competitive marketplace.


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The objectives of integrated materials

management:

Company Objectives

Objectives of

Materials mngt.

Low Costs

To optimize

materialscosts, capital

costs and

overhead

expenses

High level

of service

To optimizeresponse

toward

production

and markets

Quality

assurance

To maintainand 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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Integral aspects of materials management

includes:

1. Purchasing and Procurement

2. Production control3. Inbound traffic and transportation

4. Warehousing and Storage

5. Data and Information systems

6. Inventory Planning and Control

7. Materials disposal


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Purchasing and Procurement

The terms purchasing and procurement areoften used interchangeably, although they do

differ in scope.

*PURCHASING generally refers to the actual

buying of materials and those activities associated

with the buying process.

*PROCUREMENTis broader in scope and

includes purchasing, traffic, warehousing and allactivities related to receiving inbound materials.


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Production Control

Production control is an activity traditionally

positioned under manufacturing, although a few

firms place it under logistics. Its position in the

firms organizational chart is not crucial so long as

both manufacturing and logistics have input into

the production planning and control activities.


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Inbound Logistics

One of the most important activities ofmaterials management is working with the

logistics function to manage inbound traffic and

transportation. Materials managermust be aware

of the available transport modes and

combinations, government regulations that affect

the firms transportation carriers, private versus

for-hire carrier issues, leasing, evaluation of

mode/carrier performance and the cost-service

trade-offs involved in the inbound movement of

product.


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Warehousing and Storage

Raw materials, components parts and

subassemblies are placed in STORAGEuntil they

are required by the production process. 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.


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Data and Information Systems

The materials manager needs direct access

to the organizations information system to

properly administer materials flow into and within

the organization.

Modern information technology will offer

opportunities for the fast and safe transmission

and processing of extensive amounts of data, bothinternally for users within the company and

externally for suppliers and customers.


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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.

Concepts such as ABC Analysis, inventory carrying

costs and economic order quantity (EOQ) are

directly applicable to materials management.


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MaterialsDisposal

One of the most important areas ofmaterials management that a firm often overlooks

or considers minor is the disposal of scrap, surplus,

recyclable or obsolete materials. During the last

few years, this area, referred to as reverse

logistics, has gained significant importance

because of increased public awareness of the

environment, more stringent government

legislation and a better recognition of the

opportunities it offers in return.


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F

ORECASTING..

Predicting the future is important because it

allows logistics executives to primarily be proactive

rather than reactive.

Forecasting attempts to predict the future

through quantitative or qualitative methods, or

some combination of both. The essence offorecasting is to aid in logistics decision making.


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Why forecast?

1. Increasing customer satisfaction

2. Reducing stockouts

3. Scheduling production more efficiently

4. Lowering safety stock requirements

5. Reducing product obsolescence costs

6. Managing shipping better

7. Improving pricing and promotion management8. Negotiating superior terms with suppliers

9. Making more informed pricing decisions


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Types of fore

c

asts:

*DemandForecast. Investigation of thefirms demand for the item, to include current and

projected demand, inventory status, and leadtimes. Also considered are competing current and

projected demands by industry and product end

use.


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*SupplyForecast. Collection of data

about current producers and suppliers, theaggregate projected supply situation, and

technological and political trends that might affect

supply.

*Price Forecast. Based on informationgathered and analyzed about demand and supply.

Provides a prediction of short- and long-termprices and the underlying reasons for those trends.


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Forecasting Time Frames:

*Long-term forecasts usually cover morethan three years and are used for long range

planning and strategic issues. These will beperformed in broad terms; that is, sales by product

line or division, throughout capacity by ton per

period or dollars per period.


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*Midrange forecasts usually range from

one to three years and address budgeting issuesand sales plans. Again, these might predict more

than demand.

*Short-term forecasts are mostimportant for the operational logistics planning

process. They project demand into the next

several months and, in some cases, more than ayear ahead. These are needed in units, by actual

items to be shipped, and for finite periods of

timemonthly or perhaps weekly.


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Total Quality Management..

All people involved in logistics must

understand their role in delivering a level of quality

to suppliers, internal operations and customers.

TQM focuses on continuous improvement throughemployee involvement and top-level management

support. Studies have shown that quality is more

important than cost within materials management,

especially in outsourcing and supplier selectiondecisions.


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TQM and logistics are interrelated.Managing logistics within incorporating the costs

of quality is just as shortsighted as looking at the

management of quality without considering the

role of logistics. Thus, it is important that the flowof materials be administered and controlled

utilizing the concepts of TQM.


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Administration and Control of

Materials Flow

The administration and control of materials

flow requires that firms measures, report and

improve performances.

In measuring the performance of materials

management, a firm should examine a number of

elements including supplier service levels,

inventory, prices paid for materials, quality levels

and operating costs.


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Service levels can be measured using

several methods, including order cycle time and fillrate for each supplier and the number of

production delays caused by materials being out of

stock.

Inventoryis an important aspect ofmaterials management. It can be controlled by

considering the amount of slow-moving inventoryand comparing actual inventory levels and

turnover within targeted and historical levels.


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Materials price levelmeasures include

gains and losses resulting from forward buying, acomparison of prices paid for major items over

several time periods, and a comparison of actual

prices paid for materials with targeted prices.

Measures that can be used in the area of

Quality controlare the number of product

failures caused by defects in materials and thepercentage of materials rejected from each

shipment from each supplier.


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As an overall measure of performance,

management can compare the actual budgetconsumed by materials management to the

targeted budgetdetermined at the beginning of

the operating period.

Once the company has establishedperformance measures for each component in the

materials management process, data must be

collected and results reported to individuals in

decision-making positions.


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The End!

Logistics (Managing Materials Flow)

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