Chapter 7 Pages

Supply chain management – the process of integrating and planning, implementing and controlling the systems of organisations, people, technology, activities, information and resources that transforms inputs into finished outputs.

Focuses on establishing and operating the best and most appropriate processes in relation to sourcing, purchasing, storing, using and safeguarding all the raw materials, components, intermediate and finished work, work-in-progress and inventory.

Inventory Management Inventory – The holding or storage of raw materials, components, work in progress and finished goods. It is the role of the operations manager to keep close tabs on the inventory to ensure production is on schedule, waste is minimised and the storage of intermediate and finished goods is efficient.

Waste Minimisation An organisation aims to minimise the amount of direct wastage in the raw material inputs that it uses. Why? Because waste costs money. Waste can be considered materials that have been purchased but that do not get used.

This ties in and relies on the operations management planning - MPS & MRP. Master Production Schedule (MPS) – sets out what is to be produced and when it is to be produced. Materials Requirements Planning (MRP) – itemised list of all materials required to meet production needs. Most organisations have a zero waste approach.

Materials Cost Reductions Materials management aims at reducing other costs relating to inventory that are not due to waste. These costs may be due to: - Inventory holding costs - Borrowing and financing costs - Storage costs - Spoilage costs - Theft costs

Organisations spend money to buy stock, hence the more stock the more money spent. Therefore holding large amount of stock costs the organisation money. Often this money is borrowed. This incurs an interest cost. Large amounts of stock require large areas to store this may incur rental or storage costs.

Stock may become outdated or spoil and this incurs a spoilage expense. Finally theft is a factor to consider with large amounts of stock this incurs insurance costs and security costs.

The handling of materials costs time and money. Handling involves transforming, storing, sorting, packaging, processing, filling orders and finally selling. The more stages between receiving the raw material to selling the product generally means more money.

Just In Time (JIT) This is an inventory management system. The name of this management method illustrates its meaning just in time. An organisation orders its materials when it needs them and they are delivered just in time. JIT aims at minimising waste and prevents an organisation holding large amounts of material and tying up finances.

JIT relies on an effective supply chain and therefore a positive relationship needs to be established between the organisation and the supplier.