Materials Management
Materials Management
• Support the transformation of raw
materials and component parts into
shipped or finished goods
• Inventory management
Suppliers
• Source of raw materials and component
part inventories.
Production Planning
• Planning to acquire materials, whether raw
materials, component parts, or finished
goods,
• Capacity must be considered for both the
buyer and seller.
Production Planning
• Each materials acquisition must be
translated into a capacity requirement by
the supplier.
Capacity Planning
• The upper level of production is limited by:
1. Process technology
2. Disposition of the workforce.
Capacity Planning
• Can a plant manager pressure workers to
produce, in the short run, at very high
levels of production to satisfy a very
important customer?
• Probably yes, but not very often.
Capacity Planning
• Pushing the plant (equipment, people, and
suppliers) to produce at very high levels of
output accelerates wear and tear on
machines and people.
• Machine maintenance, quality, and morale
suffer
Capacity and Inventory
• Inventory is stored capacity.
• If capacity is insufficient to satisfy peak
demand for a product with seasonal sales,
finished goods inventory can be
accumulated during periods of low
demand.
Throughput Time (TPT)
• The delay between receipt of raw
materials and the availability of the
finished goods produced.
• Applies also to single components of the
supply chain;
• Short as possible.
Throughput Time
• If TPTs are long, it is more likely that the
customer’s requirements will change
• The longer an order for material stays in
the plant, the larger the work-in-process
inventory will be, the larger the storage
area required, and the more likely the
material will be damaged, lost, or stolen
Five Functions of Inventory
The five functions of inventory are:
1. Pipeline inventories (raw materials/in
process)
2. Cycle inventories
3. Buffer stock
4. Seasonal
5. Decoupling
Pipeline
• Means by which various resources flow
1. Information (orders, billings, inquiries)
2. Material
3. Money (credit)
Order Cycle Link
• Both a link and a set of activities.
• As a link, the order cycle facilitates the
flow of information and materials
Order Cycle Activities
• The principal activities and the locus of
responsibility are:
Order Cycle—Activities
Responsibility Activity
• Customer • Order preparation
• Customer • Order transmission
• Supplier • Order processing
• Supplier • Order transportation
• Customer • Order receipt
Order Cycle—Activities
Each activity is in turn a bundle of tasks.
For example, the receipt of materials by the
customer involves:
1. Physical receipt
2. Unloading
3. Inspection
4. Storage location decision
5. Move to storage
6. Documentation
Speed, Reliability, Inventory &
Cost Tradeoff
Customer orders also may be transmitted by
alternative technologies:
1. Telephone
2. Postal service
3. Internet
4. Fax
5. EDI
Speed, Reliability, Inventory &
Cost Tradeoff
• Prices of these modes vary
• More rapid service usually implies a higher
price,
• Technologies such as the Internet have
somewhat changed that paradigm.
Speed, Reliability, Inventory &
Cost Tradeoff
• The trade-off considerations are similar to
those for transportation.
• The shorter the order cycle, the quicker
the customer is served and the less
inventory the customer needs
Lead Time
• Some may argue that lead time begins
when the order is transmitted.
• We'll go a step earlier include order
preparation, which begins when the need
for material is recognized.
Integrated Materials System
• It is not necessary that all resource flows
between components occur at the same
time or in the same manner.
• This idea is called channel separation
and is useful when designing supply-
distribution systems.
Integrated Materials System
• It really isn’t accurate to say that
components are joined by a single link.
Integrated Materials System
• An order cycle has “length.”
• The distance between supplier and
customer determines, in part, how long it
takes to transmit data and transport
materials
Integrated Materials System
• A customer may elect to have an order
moved by various transportation
technologies (modes):
1. Air
2. Rail
3. Truck
4. Water
5. Pipeline
Dell
• Second largest supplier of desktop PC in
the corporate market
• Sales growth is 40% yearly
• Twice the rate for the sector
• Fifth behind Compaq, Apple and NEC
Dell
• Business success is simple:
1. Simplify supply chain;
2. Sell direct to the customer;
3. Cut out the dealers;
4. Build to customer requirements;
5. Make to order.
Dell
• Early 1990s, Dell was beset by cash flow
problems.
• Internal organizational competencies and
supply capabilities could not deal with
volume growth and inevitable
manufacturing complexities.
• Poor production and costly errors had
caused multi-million write-offs and re-
tooling.
Dell
• Off-strategy retailer partnerships had
failed.
• So what business practices have led to the
bounce back?
Dell
• Maintain and extend the prime focus on
the corporate customer.
• Seek their views.
• Encourage them to influence technology.
Dell
• Respond vigorously to their needs.
• For example, every year Dell runs a two
day breakout retreat with the senior
executives of all major customers.
Dell
• Bypass the distributors and dealers.
• Not only cut costs and secure margin
• Keep close touch to customer
• Real external rather than accepting third
party market research
Dell
• Align production to future trends.
• 2 weeks’ inventory compared to 48 days
for Compaq.
• Norm in the sector is well in excess of 60
days.
• Stock is turned over 30+ times a year.
• Gross margins and return on capital are
high: 21% and 106% respectively.
Dell
• Adopt responsive supply.
• Low stocks, fast turnaround and strongly
customer focused distribution
• To fight obsolescence and price
competition
Dell
• Close supply chain collaboration.
• Alignment with Intel and Microsoft
• Co-marketing and pre-loaded software tap
into the market of potential home users.
Dell
• Make purchasing easy.
• Dell secures sales via the Internet and
corporate intranets.
