Chapter 6

Managing
Materials Flow
Reported by:
Mary Jane Atas
Ivy Gonzaga
Jonalyn Porto
Nikki Rose Vergara
What is Materials Management?

-it is part of logistics process which

encompasses the administration of raw
materials, subassemblies, manufactured
parts, packing materials and in-process
inventory.
 Scope of Materials Management

Materials management is typically

comprised of four basic activities:

1. Anticipating materials requirements.

2. Sourcing and obtaining materials.
3. Introducing materials into the organization.
4. Monitoring the status of materials as a current
asset.
 Functions performed by materials managers
include purchasing, inventory control of raw
materials and finished goods, receiving,
warehousing, production scheduling and
transportation.
The specific objectives of materials
management are closely tied to the firm’s main
objectives of achieving an acceptable level of
profitability or return on investment (ROI) and
remaining competitive in an increasingly
competitive marketplace.
The objectives of integrated materials
management:
Company Objectives

Objectives of
Materials mngt.

High level Quality Low level Support

Low Costs
of service assurance of tied-up of other
capital functions
To optimize
To optimize To maintain
materials
response and improve To optimize To support
costs, capital
toward the quality capital sales and
costs and
production of material tied up in design/
overhead
and markets inventories development
expenses
 Integral aspects of materials management
includes:

1. Purchasing and Procurement

2. Production control
3. Inbound traffic and transportation
4. Warehousing and Storage
5. Data and Information systems
6. Inventory Planning and Control
7. Materials disposal
Purchasing and Procurement

The terms purchasing and procurement are

often used interchangeably, although they do
differ in scope.
*PURCHASING generally refers to the actual
buying of materials and those activities associated
with the buying process.
*PROCUREMENT is broader in scope and
includes purchasing, traffic, warehousing and all
activities related to receiving inbound materials.
Production Control

Production control is an activity traditionally

positioned under manufacturing, although a few
firms place it under logistics. It’s position in the
firm’s organizational chart is not crucial so long as
both manufacturing and logistics have input into
the production planning and control activities.
Inbound Logistics

One of the most important activities of

materials management is working with the
logistics function to manage inbound traffic and
transportation. Materials manager must be aware
of the available transport modes and
combinations, government regulations that affect
the firm’s transportation carriers, private versus
for-hire carrier issues, leasing, evaluation of
mode/carrier performance and the cost-service
trade-offs involved in the inbound movement of
product.
Warehousing and Storage

Raw materials, components parts and

subassemblies are placed in STORAGE until they
are required by the production process. Unlike the
WAREHOUSING of finished goods, which usually
occurs in the field, items awaiting use in
production are usually stored on-site, that is, at
the point of manufacture; or they are delivered on
an “as needed” basis by a just-in-time (JIT)
supplier.
Data and Information Systems

The materials manager needs direct access

to the organizations information system to
properly administer materials flow into and within
the organization.
Modern information technology will offer
opportunities for the fast and safe transmission
and processing of extensive amounts of data, both
internally for users within the company and
externally for suppliers and customers.
Inventory Planning and Control

Inventory planning and control of raw

materials, component parts, subassemblies and
goods-in-process are just as important as the
management of finished goods inventory.
Concepts such as ABC Analysis, inventory carrying
costs and economic order quantity (EOQ) are
directly applicable to materials management.
Materials Disposal

One of the most important areas of

materials management that a firm often overlooks
or considers minor is the disposal of scrap, surplus,
recyclable or obsolete materials. During the last
few years, this area, referred to as reverse
logistics, has gained significant importance
because of increased public awareness of the
environment, more stringent government
legislation and a better recognition of the
opportunities it offers in return.
 FORECASTING..

Predicting the future is important because it

allows logistics executives to primarily be
proactive rather than reactive.
Forecasting attempts to predict the future
through quantitative or qualitative methods, or
some combination of both. The essence of
forecasting is to aid in logistics decision making.
Why forecast?

1. Increasing customer satisfaction

2. Reducing stockouts
3. Scheduling production more efficiently
4. Lowering safety stock requirements
5. Reducing product obsolescence costs
6. Managing shipping better
7. Improving pricing and promotion management
8. Negotiating superior terms with suppliers
9. Making more informed pricing decisions
Types of forecasts:

*Demand Forecast. Investigation of the

firms demand for the item, to include current and
projected demand, inventory status, and lead
times. Also considered are competing current and
projected demands by industry and product end
use.
 *Supply Forecast. Collection of data
about current producers and suppliers, the
aggregate projected supply situation, and
technological and political trends that might affect
supply.

*Price Forecast. Based on information

gathered and analyzed about demand and supply.
Provides a prediction of short- and long-term
prices and the underlying reasons for those trends.
Forecasting Time Frames:

*Long-term forecasts usually cover more

than three years and are used for long range
planning and strategic issues. These will be
performed in broad terms; that is, sales by product
line or division, throughout capacity by ton per
period or dollars per period.
 *Midrange forecasts usually range from
one to three years and address budgeting issues
and sales plans. Again, these might predict more
than demand.

*Short-term forecasts are most

important for the operational logistics planning
process. They project demand into the next
several months and, in some cases, more than a
year ahead. These are needed in units, by actual
items to be shipped, and for finite periods of time
—monthly or perhaps weekly.
 Total Quality Management..

All people involved in logistics must

understand their role in delivering a level of
quality to suppliers, internal operations and
customers. TQM focuses on continuous
improvement through employee involvement and
top-level management support. Studies have
shown that quality is more important than cost
within materials management, especially in
outsourcing and supplier selection decisions.
 TQM and logistics are interrelated.
“Managing logistics within incorporating the costs
of quality is just as shortsighted as looking at the
management of quality without considering the
role of logistics.” Thus, it is important that the flow
of materials be administered and controlled
utilizing the concepts of TQM.
 Administration and Control of
Materials Flow

The administration and control of materials

flow requires that firms measures, report and
improve performances.
In measuring the performance of materials
management, a firm should examine a number of
elements including supplier service levels,
inventory, prices paid for materials, quality levels
and operating costs.
 Service levels can be measured using
several methods, including order cycle time and fill
rate for each supplier and the number of
production delays caused by materials being out of
stock.

Inventory is an important aspect of

materials management. It can be controlled by
considering the amount of slow-moving inventory
and comparing actual inventory levels and
turnover within targeted and historical levels.
 Materials price level measures include
gains and losses resulting from forward buying, a
comparison of prices paid for major items over
several time periods, and a comparison of actual
prices paid for materials with targeted prices.

Measures that can be used in the area of

Quality control are the number of product
failures caused by defects in materials and the
percentage of materials rejected from each
shipment from each supplier.
 As an overall measure of performance,
management can compare the actual budget
consumed by materials management to the
targeted budget determined at the beginning of
the operating period.
Once the company has established
performance measures for each component in the
materials management process, data must be
collected and results reported to individuals in
decision-making positions.
The End!