Chapter 7 Managing Materials Flow1

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CHAPTER 7

Managing Materials Flow


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Chapter Seven: Managing Materials Flow

Objectives:

To identify the activities of materialsmanagement

To examine the concept of total quality

management (TQM)

To identify and describe a variety of materials

management techniques, including Kanban/Just-

in-Time systems, MRP, and DRP


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Materials Management Activities

Anticipating materials

requirements Sourcing and obtaining materials Introducing materials into the

organization Monitoring the status of materials

as a current asset


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Objectives of Integrated Materials

Management

Low costs

High level of service Quality assurance

Low level of tied-up capital

Support of other functions


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Differences Between Inbound and

Outbound Transportation

Market demand that generates the need for

outbound movement is more uncertain andfluctuating

Inbound transportation tends to involve bulkraw materials, supplies, or parts

Firms exercise less control over inboundtransportation due to total delivered pricingprograms


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Types of Forecasts

Demandforecast

Supply forecast Price forecast

Long-term

Midrange

Short-term


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Forecasting SupplyChain Requirements

I hope you'll keep in mind that economicforecasting is far from a perfect science. If recenthistory's any guide, the experts have someexplaining to do about what they told us had tohappen but never did.

Ronald Reagan, 1984


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What is forecasting?Predicting the future (through quantitativeor qualitative methods)

Why forecasting? Customer satisfaction, manage shipping,schedule production efficiently, pricing &

promotion management, informed pricingdecisionsStock outs, safety stock requirements,product obsolescence costsNegotiate superior terms with suppliers


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Whats Forecasted in the

Supply Chain?

Demand, sales or requirements

Purchase prices

Replenishment and deliverytimes


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Some Forecasting Method Choices

Historical projectionMoving averageExponential smoothing

Causal or associativeRegression analysis

QualitativeSurveysExpert systems or rule-based

Collaborative


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CR (2004) Prentice Hall, Inc.

Actions When Forecasting is

Not AppropriateSeek information directly from customers

Collaborate with other channel members

Apply forecasting methods with caution (may workwhere forecast accuracy is not critical)

Delay supply response until demandbecomes clear

Shift demand to other periods for bettersupply response

Develop quick response and flexible supplysystems


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Collaborative Forecasting

Demand is lumpy or highly uncertain

Involves multiple participants each with a

unique perspectivetwo heads are betterthan one

Goal is to reduce forecast error

The forecasting process is inherentlyunstable


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Collaborative Forecasting:

Key Steps Establish a process champion Identify the needed Information and collection processes

Establish methods for processing information from multiple sources

and the weights assigned to multiple forecasts Create methods for translating forecast into form needed by each

party

Establish process for revising and updating forecast in real time

Create methods for appraising the forecast

Show that the benefits of collaborative forecasting are obvious and

real


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Managing Highly

Uncertain DemandDelay forecastingas long as possible

Prioritize supplyby products degree of uncertainty(supply to the more certain products first)

Apply the principle of postponementto the mostuncertain products (delay committing to a final productform until an order is received)

Create flexible supplyto changing demand (altercapacity and output rates through subcontracting,computer technology, multi-purpose processes, etc.)

Be able to respond quicklyto uncertain demand levels


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Total Quality Management (TQM)

the application of quantitative and

human resources to improve the materialservices supplied to an organization, all theprocesses within the organization, and thedegree to which the needs of customers are

met - now and in the future.


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TQM integrates fundamental techniques,existing improvement efforts, and technical toolsunder a disciplined approach focused on

continuous improvement.


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Traditional Management TQM

Looks for quick fix Adopts a new managementphilosophy

Firefights Use structured, disciplinedoperating methodology

Operates the same oldway

Advocates breakthroughthinking using smallinnovations

Randomly adoptsimprovements efforts

Sets the examplethrough managementaction


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Administration andControl of Materials Flow

Kanban/Just-in-time Kanban (Toyota Production System)

JIT MRP

Materials requirements planning (MRP I)

Manufacturing resource planning (MRP II)

DRP Distribution requirements planning (DRP I)

Distribution resource planning (DRP II)

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Kanban

Also known as Toyota Production System (TPS),developed by Toyota 1950-1960

The philosophy is that parts and materialsshould be supplied at the very moment they areneeded in the factory production process.

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Kanban

Optimal strategy, from both a cost and serviceperspective

Can apply to any manufacturing processinvolving repetitive operations


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Kanban Card Procedure

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Just-in-Time (JIT)

Extension of Kanban, by linking purchasing,manufacturing and logistics.

Basically a philosophy of doing business.


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Benefits Resulting from ImplementingJust-in-Time

Improved inventoryturns.

Improved customer

service. Decreased

warehouse space.

Improved response

time. Reduced logistics

costs.

Reducedtransportationcosts.

Improved quality ofvendor products.

Reduced number ofvendors.

Reduced number oftransportationcarriers.


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MRP SystemsMaterial Requirements Planning (MRP I)

Manufacturing Resource Planning (MRPII)

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MRP I

When to use MRP I systems are usually employed when 1 or

more of following conditions exist:

When usage (demand) of materials isdiscontinuous or highly unstable during a firmsnormal operating cycle (intermittentmanufacturing or job shop operation as opposed

to a continuous-processing or mass-productionoperation)

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MRP I

When to use When demand for materials depends directly on

the production of other specific inventory items or

finished products. When purchasing department and its suppliers &

firms own manufacturing units, possess theflexibility to handle order placements or delivery

releases on a weekly basis.


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Elements of an MRP I System

Inventorytransactions

Customers

orders Forecasts Engineeringchanges

Master production

schedule (whichproducts to produce, in

what quantity, and when)

Bill-of-materials file(product structure

and routing)

Inventory status

file (finished items,work in progress,

planned orders)

Planned schedules

and various

other reports

MRP I

system

Source: MCB University Press Ltd., Amrik Sohal, and Keith Howard, "Trends in Materials Management,"

International Journal of Physical Distribution and Materials Management17, no. 5 (1987), p.11.


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MRP Scheduling

Example

The master schedule for a particular part over the next 8weeks shows requirements of:

1 2 3 4 5 6 7 8

150 500 350 300 1000 800 700 500The average lead-time to receive these parts from avendor is 2 weeks. A previous order for 800 units hasbeen placed with the vendor and will arrive by week 2.

An inventory of 200 units is currently on hand.Lot-for-lot scheduling

Purchase orders are matched on a one-for-one basiswith requirements.

CR (2004) Prentice Hall, Inc.


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MRP Example (Contd)

Week 1 2 3 4 5 6 7 8

Require-ments 150 500 350 300 1000 800 700 500

Scheduledreceipts 800 300 1000 800 700 500

Quantityon hand 200 50 350 0 0 0 0 0 0

Purchasereleases 300 1000 800 700 500

Lot-for-lot scheduling (Contd)

CR (2004) Prentice Hall, Inc. 10-11


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Order min. qty.

MRP Example (Contd)

Week 1 2 3 4 5 6 7 8

Require-ments 150 500 350 300 1000 800 700 500

Scheduledreceipts 800 300 800 800 700 500

Quantity

on hand 200 50 350 0 200 0 0 0 0

Purchasereleases 500 800 800 700 500

Order minimums

Suppose the vendor has an order minimum of 500 units.

CR (2004) Prentice Hall, Inc. 10-13


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Vendor Managed Inventory

The supplier usually owns the inventory at thecustomers location

The supplier manages the inventory by any means

appropriate and plans shipment sizes and deliveryfrequency

The buyer provides point of sale information to thesupplier

The buyer pays for the merchandise at the time of saleThe buyer dictates the level of stock availability

required

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MRP II System From MRP I, with addition of financial,

marketing, and purchasing aspects.

Includes entire set of activities involved inplanning and control of production operations.

Elements of an MRP II System


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Elements of an MRP II System

Materials

requirements

planning

(MRP)

Capacity

requirements

planning(CRP)

Execute

capacity plans

Execute

material plans

Realistic

?

Order

(production plan)

Order

(production plan)

Inventory

records

Yes

No

Source:Karl A. Hatt, Whats the Big Deal about MRP II? Winning Manufacturing 5, no. 2 (1994), p. 2.

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DRP I the application of MRP principles to the

distribution environment, integrating the special

needs of distribution[it] is a dynamic modelthat looks at a time-phased plan of events thataffect inventory.

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DRP II Distribution resource planning extends DRP I

to include the planning of key resources in a

distribution system-warehouse space, manpowerlevels, transport capacity (e.g., trucks, railcars)and financial flows.

Uses the needs of distribution to drive themaster schedule, controlling the bill of materials,and materials requirements planning.

Elements of a DRP II System


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Elements of a DRP II System

Source: How DRP Helps Warehouses Smooth Distribution, Mondern Materials Handling 39, no. 6 (April 9, 1984), p. 53.

Modern Materials Handling, copyright 1984 by Cahners Publishing Company, Division of Reed Holdings.

Distribution

center

Distribution

center

Distribution

center

Distribution

center

Customers

Distributioncenter

Distribution

center

Regional

warehouse

Plant

warehouse

Regional

warehouse

Distribution

resource

planning


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Elements of a DRP II System (cont.)Plant

warehouse

Final assembly

(manufacturing)

Subassembly B Subassembly C

Subassembly A Part C

Raw materials

Part C

Part D

Part B

Part E

Part A

Material

requirements

planning

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