Introduction to Materials Management
Logistics or material management (MM) basically handles the processes of procurement to payments, from inventory management through final receipt of invoices and verification process. This includes overseeing a placement and movement of related tangible items. The basic elements associated with materials management are quality control and inventory management. Some analysts consider spare parts as one of the major elements as well. Materials management is vital in huge production and distribution environments. The prime objective of this type of management is to maximize quality service and to minimize the cost; to be able to fulfill customer demands at required place and time and to be able to manage this at minimum cost. Material management’s function here is to devise trade offs between the services’ level and their cost, generally costs increase with the increased service level; hence materials management key role is to set a combination of inputs efficient enough to provide maximized services at minimized cost.
Prime concepts associated with materials management are; Production Planning System, Material Requirements Planning, Master Scheduling, Production Activity Control, Capacity Management, Purchasing, Inventory Fundamentals, Forecasting, Order Quantities, Physical Inventory and Warehouse Management, Independent Demand Ordering Systems, Products and Processes, Physical Distribution, Total Quality Management , Lean Production. Discussed below are five of these concepts in an effort to bring these concepts together and to determine the relation between these concepts.
Production Planning System
The production planning system is concerned with planning the three ‘Ws’ and 1’H’ of production; that is what, when where and how to produce. The system involves all the procedures required to avoid any issues and inefficiency in the smooth operation of the plant or process. Production planning is about identifying techniques of forecasting each and every step in a series of individual operations, ensuring that each step is taken at the right place, at right direction, in the right degree and on right time at maximum efficiency level. In short, the production planning system involves foreseeing, anticipating bottlenecks and devising the necessary procedures to ensure uninterrupted flow of production The production planning department works out the route, order and schedule of work, determines the required machine tools, arranges the operatives and workplace materials. An ideal production planning would aim to enhance the operating efficiency by stabilized production procedure and to facilitate customer service.
In order to implement the plan of production effectively, the managers need to have substantial knowledge regarding the related inputs for instance;
- Information on various classes and types of equipment and tools required for production.
- Engineering data with comprehensive analysis of the product, operations, methods and processes through which each class or component of the product must pass, assembly method and the nature and level of required inspection.
- Machine analysis with complete information regarding the capacity and speeds of the machines, per day, per week or per month output rate and the max plant capacity/ day for each operation.
- Material analysis report carrying complete knowledge about the kind, quantity and quality of the required raw material.
- Information regarding the power consumption and production, internal logistics and material handling service.
- Job description and level of skill and qualification required to effectively perform the assigned job.
Production planning is basically done on three levels i.e. Factory, Process and Operation planning. At factory level planning is done on the schedules of building and arranging equipment and machines required for the manufacturing process. The departments at the workplace and other coordination concerns are also managed at factory planning level. Then comes the process planning, here the factory plans are categorized and the location, duration and sequence of the operations are determined. Finally the operations planning level; this level monitors the required methods, selected work centers, designing the required tools. It also is concerned about the proper and timely implementation of the operations.
A detailed planning process that involves tracking the manufacturing outputs and matching this with the customer order, in order to adhere to the requirements of the final product is generally known as master scheduling in material management. Master scheduling is done right after the completion of the process of sales and operations process, the results of which are used to lay out the final or master plan. This process determines when to start the production of a specific product, the deadlines, delivery dates and manufacturing capacity for new customer demand. In order to layout a successful master schedule, a master schedule record has to be maintained, this record shall carry information on company’s planning strategies and systems, forecasted demand, projected inventory, number of booked orders, quantity available to accept new projects, and the over all production quantity. The span that covers a period which is at minimum equal to the required time for the accomplishment of the plan is called the planning horizon. The planning horizon is normally longer, as with longer horizons there is better visibility and more efficient management.
The objectives of the master schedule are to balance the available material, equipment and labor with the demand set by the market. And to maintain the expected level of customer service through smart planning to be able to meet the delivery requirements of the customer or by maintaining the required level of inventory. In addition to that master schedule aims to make the most efficient use of the equipment, labor and material.
The required information to develop an effective master schedule is derived from the production plan, from the forecasts for individual final products, from customers’ original orders for replenishment of the stock. Inventory and blocking levels, time fence policy, distribution requirement details, intra-plant and interplant orders, bills of materials and actual supply and production levels also contribute to the inputs for the master schedule. All the information gathered from these resources is squeezed to get a comprehensive master schedule with defined project inventory status, future availability of the finished goods and information for ensuring future orders.
One of the most important functions that the master schedule performs is producing the information on the deadlines. The master schedule provides the marketing department the information to be used when negotiating the final delivery dates for the customers. Sales department, with this knowledge can better offer the delivery dates based on the available quantity to promise, also known as available-to-promise (ATP) inventory.
Another important concept in master scheduling is the time fence. In order to manage the schedule, the company freezes a certain period which is known as the ‘Demand Time Fence’. This is done to save cost of the changes done in the master schedule due to any reason.
Material Requirement Planning
Material requirement planning or MRP works out a schedule carrying the information on the required components at each assembly level and calculates the timing of when those components would be needed. In material management as well as generally there exist two types of demand, dependent demand and independent demand. As the name explains independent demand is not related to or concerned with the demand for other products, in case of the master schedule the item are independent demand articles hence a forecast is required. Whereas the dependent demand items are those required for the higher level products or assemblies thus can be calculated. The material requirement planning does this calculation.
MRP’s main objectives are to determine and prioritize the requirements, indentifying the components required to meet the master schedule and to calculate the time when the required components shall be made available. The MRP must evaluate what to order, when to order, the quantity to be ordered and the delivery schedule. As can be deduced the material requirement plan is derived from the master schedule plan hence can also be called a priority plan for the master schedule. The validity of the plan depends on the available capacity; therefore MRP also keeps a check on the availability of the capacity. This plan is further optimized by majorly two procedures of material management i.e. the purchasing and the PAC (Production Activity Control). Material requirement plan basically releases and receipts the dates and deadline for the orders.
The required inputs for an efficient material requirement plan are the bills of material, and the inventory records. The bill of material is the list of all the parts, intermediates, raw materials and sub assemblies that are used in constructing a parent assembly, with the required quantity of the material. The inventory records as the name indicates are the record of the inventory. Two types on inventory records are required for the MRP i.e. the planning factors and the necessary information on the status of the articles. The planning factors have the information about the quantity of the order, safety stock, lead times and scrap. All this information is maintained as inventory record and is used for material requirement planning.
Capacity management is related to the supply of essential resources, without which the priority plan is unworkable. In the language of material management capacity is the total amount or limit of work done in a specific limit of time. It includes the capability of the machine, worker, work center, equipment, or organization to deliver output per unit time. Most importantly capacity inot the quantity, it is a rate at which work is done.
Capacity planning is the system to determine the required resources to meet the master schedule and to devise methods and techniques to ensure the availability of that capacity. The process of monitoring the production output and comparing and contrasting it with the capacity plans is known as capacity control, this process also takes corrective measures wherever needed. Hence capacity management is the function of measuring, establishing, adjusting and monitoring the levels or limits of the capacity so as to execute all.
The capacity planning process is as follows;
- Determine the available capacity at every work station in each period of time.
- Load determination at each work station in individual time period, this may consist of two steps;
- Translating the master schedule into hours of required work at each work station
- Summing up the required capacities for every item on every work station in order to determine the work load on each work station.
- Work out the differences between the required and available capacities. It is better to adjust the available capacity to match the work load.
Total Quality Management (TQM)
Quality refers to user satisfaction that the products and services provided are satisfactory enough to meet the expectations of the customer. A service or product is a combination of characteristics that may be tangible or intangible, and the company expects the customer acceptance and willing to pay for that product or service. Hence in order to achieve quality, certain measures are taken which include product and quality policy, manufacturing, product design and final usage of the product. Quality management involves strategic decisions related to products as well as services. The prime quality level is hence specified by the management of the company in accordance with the needs and demands of the market segment. Performance, primary and secondary characteristics, features, conformance, warranty, service, aesthetics, price and perceived quality are few of the dimensions of quality.
Total quality management relies strongly on active participation of the members of a team or an organization in order to improve the products, processes, services and working culture and environment. TQM aims to deliver quality products and services to the customers at optimal prices, through increasing the quality and cutting down the prices, growth and profit increase which subsequently increases the employment and job security. The process works in the form of a wheel generally known as the ‘Deming Wheel’, which demonstrates cyclic TQM practices i.e. Plan, Do, Check and Act. These four processes are followed by one another in a circle to ensure total quality management.
Renowned business managers have devised six basic concepts relating to total quality management. These are;
- Involved and committed management: TQM being a continuous process needs to have highly involved and committed management and the process shall be the part of the culture of an organization.
- Concentrate on the Customer: Knowing the customer wants and focusing on his demands are vital so as to meet the low cost requirement. Therefore improving the processes and design to eliminate any discrepancies.
- Complete workforce involvement: Owning the organization solves many issues, TQM shall be considered the responsibility of every worker.
- Constant improvement: Processes and products shall continue to improve this will increase the quality and will reduce the cost.
- Performance management check and balance to be maintained at all time.
In general TQM covers the entire set up of a production line from cost to variation and process capability, process control, sample inspection, benchmarking and compatibility with JIT and MRPII practices as well as compliance with ISO 9000.
Bringing the Concepts Together
Material management is all about proper coordination of all the functions related to planning and controlling a smooth operation, aiming to maximize the utilization of the firm’s resources and to satisfy the customer demands providing highest level of deliverance. Production planning, master schedule, material requirement planning are the levels in the planning stages of the operation, whereas capacity management is a part of implementation stage. Total quality management however is the process that is integrated in every level and encompasses all the stages from planning through implementation of the operations. A demonstration of these processes is given below;
Production Plan Master Schedule Material Requirement Capacity Management
Total Quality Management
All these levels are interrelated and work on the basis of support and information forwarded in every step. For instance, the process starts with a business plan for which a production plan is required, on the basis of the information from the production plan a master schedule is prepared in order to ensure perfection in the planning process. These two are the parts of a master plan. Next to this is the material requirement planning, which is worked out in order to have complete knowledge on the required and available materials for the project. Once the planning process completes, the implementation of these plans begin, starting off with capacity management. In order to check and balance the workforce and the work load, available and required capacity is determined. Finally the TQM, as discussed above this process touches every level in the material management as providing the highest quality output is the basic objective of a firm to satisfy the customer requirements.
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