Introductionto Materials Management

Introduction to Materials Management

Producción I

IITI

MC. Ma. del Pilar C. León Franco

Introduction

The wealth of contry is mesure by its gross national product.

A production function

Usefull productsTransform

Services

Products

Raw materialTransform More Value

Issues

Introduction

To get the most value out of our resources, we must design production processes that make products most efficiently,

OperationPlanning for

Controlling resources Labor

Capital

Material

Introduction

The principal activity of management plans and controls is through the flow of materials.

Flow Materials

Right materials

Right quantities

Right time

Process OK

Operating environment

Operation Management

GovernmentRegulation as environment, safety, product liability

Economy:Influence the demand for a company´s products

CompetitionForeign competitors.

Customer:

-A Fair Price

-Higher quality products and service

-Delivery time

-Better pre-sales and after-sales service

-Product and volume flexibility

Quality:Exceeds the customers´expectations

Operating environment

Order Qualifiers: Customer requirement (price, quality, delivery and so forth)

Order Winners: Competitive characteristics or combination of characteristics, that persuade a company´s customer to choose its products or services .

Manufacturing strategy

A highly market-oriented company will focus on meeting or exceeding customer expectations and on order winnings strategy.

Delivery lead time: Is the time from receipt of an order to the delivery of the product.


Engineer to order:

Customer´s specifications require unique engineering design or significant customization. Delivery lead time is long because it includes not only purchase lead time, but design lead time as well.


Make to order: Manufacturer does not start to make the product

until a customer´s order is received.

Assemble to order: Product es made from standard components that

the manufacturer can inventory and assemble according to a customer order. (not design time and inventory is ready for ensambly)


Make to stock: Supplier manufactures the foods and sells from

finished goods inventory. Delivery lead time is shortest.


Design ShipAssembleManufacturePurchase

Delivery Lead time

Engineer to order

ShipAssembleManufactureInventory

Delivery Lead time

Make to order

ShipAssembleManufacture Inventory

Delivery Lead time

Make to stock

ShipAssembleManufacture Inventory

Delivery Lead time

Assemble to Order

The supply chain ConceptS

U

P

P

L

I

E

R

ManufacturerDistrubution

System

C

U

S

T

U

M

E

R

Dominate flow of demand and design information

Dominat flow of products and services

Physical Supply

Manufacturing Planning and Control

Physical Distribution

The supply chain Concept

Factors: Includes activities and processes to supply a

product or service to final customer. Any number of companies can be linked in the

supply chain A customer can ve a supplier to another customer

so the total chain can have a number of supplier/customer relationship

The supply chain Concept

Factors: While the distribution system can be direct from

supplier to customer, depending on the products and markets, it can contain a number of intermediaries (distribution) such as wholesalers, warehouses, and retailers.

Product or services usually flow from supplier to customer and design and demand information usually flows from customer to supplier. Rarely is not so.

Supply Chain Concepts

Historical perspective Attention on the issues that were internal to the

companies. 1970 JIT (Mutual analysis for cost reduction, Mutual

product design and reduced inventory in process) 1980 Supply chain Concepts

Explosive forth in computer capability Large growth in global competition Technological capabilities for products and process


Historical perspective 1980 Supply chain Concepts

Explosive growth in computer capability Large growth in global competition Technological capabilities for products and process More companies are subcontracting their work to

suppliers,


Entire set of activities from raw material production to final customer purchase as linked chain of activity. Flow materials Flow of information , mostly electronically Fund transfers.

Conflicts in Traditional Systems Maximized departmental objectives without

considering the effect they would have on other parts of the system.

The principal objectives: Provide best costumer service Provide lowest production cost Provide lowest inventory investment Provide lowest distribution cost

Conflicted with marketing, production and finance departments because each has different responsible.

Conflicts in Traditional Systems Actions:

Marketing High inventories Interrupt production Extensive and costly distribution system

Finance Reduce inventory Decrease the number of plants and warehouse Produce large quantities using long production runs Manufacture only to customer order

Conflicts in Traditional Systems

Production Make long production runs of relatively few products Maintain high inventories of raw materials and WIP so

productions is not disrupted by shortages.

Conflicts in Traditional SystemsFUNCTION OBJETIVE IMPLICATION

Marketing High Revenues High Custumer

High Product Availability Low Service

ProductionLow Production Cost

Many Disruptions

High Level ProductionFew to production

Long Production Runs

FinanceLow Investment and Costs

High Inventories

Fewer Fixed Costs Low

Low Inventories

Materials Management

Department responsible for the flow of material, from supplier through production to costumer. (some times include distribution planning and control and logistic management).

Objectives: Maximize the use of the firm´s resources. Provide the required level of customer service

Manufacturing Planning and Control MPC is responsible for the planning and

control of the flow of materials through the manufacturing process.

MPC

Implementation

and control

Inventory Management

Production

planning

Manufacturing Planning and Control Production planning

Meet the demand of the marketplace. It must establish correct priorities

Forecasting Master planning Material requirements planning Capacity planning

Manufacturing Planning and Control Implementation and control

These are responsible for putting into action and achieving the plans made by production planning.

Inventory Management: Inventories are material and supplies carried on

hand either for sales or to provide material or supplies to the production process

Manufacturing Planning and Control Inputs to de MPC System

MPC

Process specifications

Time needed to perform operation

Production description

Quantities required

Available

facilities

Inputs to the MPC System

Production description Show how the product will appear at some stage

of production. (Engineering drawings, specifications, Bill of materials)

Describe the components used to make the product

Describes the subassemblies at various stages of manufacture.


Process specifications Describe the steps necessary to make the end

product. They are a step-by-step set of instructions

describing how the product is made. Operations required to make the product Sequence of operations. Equipment and accessories required Standard time required to perform each operation


Time needed to perform operation Expressed in standard time which is the time

taken by an average operator, working at a normal pace, to perform a task.


Available facilities Manufacturing planning and control must know

what plant, equipment, and labor will be available to process work. This information is usually found in the work center file.


Quantities required: This information will come from forecasts,

customer orders, orders to replace finished-goods inventory and the material requirements plan.

Physical Supply/Distribution

Physical supply distribution includes all the activities involved in moving goods, from the supplier to the beginning of the production process, and from the end of the production process to the consumer. Transportation Distribution inventory Warehousing Packaging Materials handling Order entry


The objective is to be able to deliver what customer wants, when and where they want it, and so at minimum cost.

To achieve this objective, materials management must make trade-offs between the level of customer service and the cost of providing that service.


The overall concern of materials management is the balance between priority and capacity

Priority and capacity must be planned and controlled to meet customer demand at minimum cost.

Supply Chain Metrics

A metric is a verifiable measure stated in either quantitative or qualitative terms defined with respect to a reference point.

Metrics give us: Control by superiors Reporting of data to superiors and external groups Communication Learning Improvement


Metrics communicate expectations, identify problems, direct a course of action and motivate people.


Today production control works in a demanding environment shaped by six major challenges: Customer that are never satisfied A supply chain that is large and must be managed A product life cycle that is getting shorter and shorter A vast amount of data An emphasis on profit margins that are more squeezed An increasing number of alternatives.


A firm has a corporate strategy that states how it will treat its customers and what services it will supply.

Strategy

CustomerStrategy

Focus

StandardOperationalMetrics

Performance standars: Transforming company policies into objectives and specific goals


The necessary steps in implementing such a program are: Establish company goals and objectives Define performance State the measurement to be used Set performance standards Educate the user Make sure the program is consistently applied.

Summary

Manufacturing creates wealth by adding value to goods. To improve productivity and wealth, a company must first design efficient and effective systems for manufacturing. It must the manage these systems to make the best use of labor, capital and material. One of the most effective ways to doing this is through the planning and control of the flow of materials into, through and out of manufacturing.

Summary

There are 3 element to a material flow system: supply, manufacturing planning and control, and physical distribution. They are connected and what happens in one system affects the others.

Traditionally, there are conflict in the objectives of a company and in the objectives of marketing, finance and production. The role of material management is to balance these conflicting objectives by coordinating the flow of materials so costumer service is maintained and the resources of the company are properly used.


Dollars Porcent of Sales

Revenue (sales)

Cost of Goods Sold

Direct Material

Direct Labor

Factory Overhead

Total Cost of Goods Sold

Gross Profit

$1,000

$500

$900

$200

$200

$100

90

100

20

20

50

10



Revenue (sales)

Cost of Goods Sold

Direct Material

Direct Labor

Factory Overhead


Gross Profit

$1,000

$450

$840

$200

$190

$160

84

100

20

19

45

16

Reorganized materials managmen department, direct material can be reduce by 10% and direct labor by 5%

Example


Revenue (sales)

Cost of Goods Sold

Direct Material

Direct Labor

Factory Overhead


Gross Profit

100 %

60 %

95 %

25 %

10 %

5 %

90 %

100 %

25 %

10 %

55 %

10 %

Example

Profit = Sales – (direct material + direct labor + 0.25)

= Sales – (0.60 sales + 0.1 sales + 0.25)

= Sales – 0.7 sales – 0.25

0.1 = 0.3 sales – 0.25

Sales = 0.35 = 1.17

0.3

Sales must increase 17%.

Example

A)If the cost of direct material is 60%, direct labor is 10%, and overhead is 25% of sales, what will be the improvement in profit if direct material is reduce 5%?

B) How much will sale have to increase to give the same increase in profit? (Remember overhead cost is constant)

Business

Introductionto Materials Management