CHAPTER 7 Managing Materials Flow

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 7-2 Materials Management Activities Anticipating materials requirements Sourcing and obtaining materials Introducing materials into the organization Monitoring the status of materials as a current asset

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 7-3 Objectives of Integrated Materials Management Low costs High level of service Quality assurance Low level of tied-up capital Support of other functions

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 7-4 Differences Between Inbound and Outbound Transportation Market demand that generates the need for outbound movement is more uncertain and fluctuating Inbound transportation tends to involve bulk raw materials, supplies, or parts Firms exercise less control over inbound transportation due to total delivered pricing programs

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 7-5 Types of Forecasts Demand forecast Supply forecast Price forecast Long-term Midrange Short-term

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 7-6 Total Quality Management (TQM) the application of quantitative and human resources to improve the material services supplied to an organization, all the processes within the organization, and the degree to which the needs of customers are met - now and in the future.

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 7-7 Administration and Control of Materials Flow Kanban/Just-in-time systems »Kanban (Toyota Production System) »JIT & JIT II MRP systems »Materials requirements planning (MRP I) »Manufacturing resource planning (MRP II) DRP systems »Distribution requirements planning (DRP I) »Distribution resource planning (DRP II)

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 7-8 Benefits Resulting from Implementing Just-in-Time Improved inventory turns. Improved customer service. Decreased warehouse space. Improved response time. Reduced logistics costs. Reduced transportation costs. Improved quality of vendor products. Reduced number of vendors. Reduced number of transportation carriers.

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 7-9 Elements of an MRP I System Inventory transactions Customers’ orders Forecasts Engineering changes Master production schedule (which products 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 Management 17, no. 5 (1987), p.11.

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 7-10 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, ‘What’s the Big Deal about MRP II?” Winning Manufacturing 5, no. 2 (1994), p. 2.

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 7-11 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 Distribution center Distribution center Regional warehouse Plant warehouse Regional warehouse Distribution resource planning 7-11 a

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 7-12 Elements of a DRP II System (cont.) 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. Plant warehouse Final assembly (manufacturing) Subassembly BSubassembly C Subassembly APart C Raw materials Part C Part D Part B Part E Part A Material requirements planning 7-11 b