Materials & Logistics Management Introduction

7/29/2019 Materials & Logistics Management Introduction

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Ch.1Ch.1-- Introduction:Introduction:

Prof.Prof. PrashantPrashant B.B. KalaskarKalaskar


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SyllabusSyllabus Evolution, Importance, Scope and ObjectivesEvolution, Importance, Scope and Objectivesof Materials Managementof Materials Management

Interface of Material Management with otherInterface of Material Management with other

functions.functions.

oncep o og s cs an upp y a noncep o og s cs an upp y a nManagementManagement

Evolution to 4PLEvolution to 4PL



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Introduction toIntroduction to MaterialMaterial ManagementManagement

MaterialsMaterials-- AA keykey resourceresource inin anyany manufacturingmanufacturing

activityactivity

CostCost of productionof production dependsdepends uponupon thethe materialsmaterials andand

hencehence materialmaterial managementmanagement isis importantimportant

HighHigh levellevel ofof inventoryinventory, excessive, excessive investmentsinvestments

OptimumOptimum inventoryinventory ofof materialsmaterials isis a cruciala crucial

phenaomenonphenaomenon



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DefinitionDefinition ofof MaterialMaterial ManagementManagement

The process of controlling the kind, amount, location,

movement & timing of various resources used in &

produced by the industrial enterprise .

Material mana ement is an a roach for lannin

organizing, and controlling all those activitiesprincipally concerned with the flow of materials into

an organisation.



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DefinitionDefinition ofof MaterialMaterial ManagementManagement

The planning and control of the functions supporting the

complete cycle (flow) of materials, and the associated flow

of information. These functions include-

(1) identification, (2) cataloging,

(3) standardization, (4) need determination, (5) scheduling,

(7)inspection, (8) quality control,

(9) packaging, (10)storage,

(11) inventory control, (12) distribution, and (13)disposal.

Also called materials planning.



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EvolutionEvolution of MMof MM DuringDuring WWWW--I,I, materialsmaterials supplysupply gotgot hapmeredhapmered..

Last 3Last 3 decadesdecades ofof industrialindustrial revolutionrevolution andand

advancementadvancement inin technologytechnology leadlead industryindustry to massto massproduction and marketingproduction and marketing

IncreasingIncreasing population &population & incomeincome levelslevels fueldfueld MMMM

Resource conservation & effectiveResource conservation & effective utilizationutilization focusedfocusedfromfrom 70s70s

Concept of TQMConcept of TQM

InIn IndiaIndia,, ArmedArmed forcesforces broughtbrought the concept of MM inthe concept of MM inthethe namename ofof logisticlogistic managementmanagement



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Importance of MMImportance of MM

If we analyze the total cost of any production,If we analyze the total cost of any production,

nearly 60 to 70% is because of materials.nearly 60 to 70% is because of materials.

Only the rest is forOnly the rest is for labourlabour, overhead and profit., overhead and profit.

So any reduction in the material cost, newSo any reduction in the material cost, new

,,

maximization of profitsmaximization of profits

ProfitabiltyProfitabilty isis the maximum ROI,the maximum ROI, aimaim ofof anyany

organizationorganization



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Importance of MMImportance of MM Rate of Return (ROR)=

Return - Capital

Rate of Return (ROR)= ---------------------- X 100

Capital

-

Ex.- ROR= --------------- X 100 = 20%

100



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Objectives of MMObjectives of MM

The fundamental objectives of the Materials

Management function ( 5 Rs)-

Of the Right quality

In the Right quantity

From the Right source

At the Right place



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Management objectives of MM areManagement objectives of MM are--

To buy at the lowest price , consistent with desired quality and

service To maintain a high inventory turnover , by reducing excess

storage , carrying costs and inventory losses occurring due to

e er ora ons , o so escence an p erage

To maintain continuity of supply , preventing interruption of

the flow of products and services to users

To maintain the specified material quality level and a

consistency of quality which permits efficient and

effective operation



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To develop reliable alternate sources of supply toTo develop reliable alternate sources of supply to

promote a competitive atmosphere in performance andpromote a competitive atmosphere in performance andpricing.pricing.

To hire, develop, motivate and train personnel and toTo hire, develop, motivate and train personnel and to

provide a reservoir of talentprovide a reservoir of talent To develop and maintain good supplier relationships inTo develop and maintain good supplier relationships in

order to create a supplier attitude and desire to furnishorder to create a supplier attitude and desire to furnish

the organization with new ideas , products, andthe organization with new ideas , products, andbetter prices & servicesbetter prices & services



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To achieve a high degree of cooperation andTo achieve a high degree of cooperation and

coordination with other departmentscoordination with other departments

To maintain good records and controls that provide anTo maintain good records and controls that provide an

audit trail and ensure efficienc and honestaudit trail and ensure efficienc and honest

To participate in Make or Buy decisions.To participate in Make or Buy decisions.



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LogicalLogical FunFun



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Scope of MMScope of MM Materials Management strives to ensure that, the material cost

comprising the total product cost be the least. In order to

achieve this, the control is exercised in the following fields.

1. Materials Planning. 2. Purchasing.

3. Store Keeping.

. nven ory on ro .

5. Receiving, Inspection and Dispatching.

6. Standardization and Variety Reduction.

7. Materials Handling.

8. Disposal of Scrap and Surplus, Material Preservation.



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Interface of Material Management withInterface of Material Management with

other functionsother functions Resources can be classified as-

- Tangible & Intangible resources

In any production units, inputs are converted into

outputs i.e. final product

Conversion process varies with technologyOutput may be Tangible or Intangible product

This process involves 3 activities-

- Inputs (Materials) supply

- Conversion process (Manufacturing)

- Distribution of product (Marketing)



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Interface of Material Management withInterface of Material Management with

other functionsother functionsExternal Environment ( Suppliers and

Customers)

InputsMen

Materials

OutputProducts (Goods or

Services)


MachinesManagement

customersatisfaction

Manufa

cturing

Internal Resources- Finance, Marketing, HR,

MIS, Production


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LogisticsLogistics & SCM Concept& SCM ConceptLogistics:Logistics: Planning, implementing, and controlling the

efficient, effective flow and storage of goods and

materials between the point of origin and the point of

consumption. (from source up to within Organization)

u y nu y n-- su y c n s n wor o c s n

distribution system that perform the functions of

procurement of materials, transformation of these into

intermediate and finished products and then

distribution of finished products to the customers.

(From Source point up to distribution of

finished products up to end user)



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Facilities

The sequence of supply chain begins with basic

suppliers and extends all the way to the final

customer Warehouses

Processin centers


Distribution centers

Retail outlets

Offices


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Functions and Activities in SCM

Forecasting

Purchasing

Inventory management

Information management


Scheduling

Production and delivery

Customer service


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Fun MomentFun Moment

Ek Student roz Maths teacher ke

ghar phone lagata hai.Sir ki wife- Kitni bar tumhe bataya


hai, ke sir mar gaye hai, fir tum barbar kyo phone karte ho

Student- Sun ke accha lagta hai..


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Concept of Logistics & SCM There is a difference between the concept of

supply chain management and the traditional

concept of logistics. Logistics typically refers to activities that occur

Supply chains refer to networks of companies

that work together and coordinate their actions

to deliver a product to market.



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Concept of Logistics & SCM Traditional logistics focuses its attention on

activities such as procurement, distribution,maintenance and inventory management.

Supply chain management acknowledges all of

traditional logistics and also includes activitiessuch as marketing, new product development

and customer service.



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Concept ofConcept of LogisticsLogistics ManagementManagement

ThusThus logisticslogistics managementmanagement allowsallows--

Smooth flow of all types of materials

Satisfaction of consumer needs of goods Helps delivery of good quality products

Best ossible customer service at least ossible rates

Integration of various managerial functions oforganizations for optimization of resources

It enhances profitability and productivity to the

organization



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Concept ofConcept of LogisticsLogistics ManagementManagement The concept of logistics management can be

explained in four phases-

1) Independent Business Function Era

2) Limited Internally Integrated Business Function Era

u y nterna y ntegrate u sness unct on ra4) Externally Integrated Business Function Era



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1)1)-- Independent BusinessIndependent Business FunctionFunction EraEra (till 1950s)(till 1950s)

- This era emphasized on increasing productivity &

profitability

- Less manufacturers, hence mass production dominated

- Logistics was limited to warehousing of Raw Materials &

tansportat on o n s e goo s

- All business functions were indpendent.

- Warehousing of RM & finished goods were

fragmneted & hence high cost involved



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2) Limited Internally Integrated Business Function Era (1960-70)

The limitations & high cost of fragmented functioning led to this

concept of-

1) Material Management & 2) Physical Distribution

-- MaterialMaterial ManagementManagement-- delas with planning,implementing &

controllin flow of materials within or anization InboundInbound Lo isticsLo istics

-- PhysicalPhysical DistributionDistribution-- Planning, Implementing & Controlling all theactivities related to flow of finished goods ((OutboundOutbound LogisticsLogistics))

- The major objective was to control cost & output, so that

organizations can survive in cost based competitiveenvironment



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3)3) FullyFully InternallyInternally IntegratedIntegrated BuisnessBuisness FunctionFunction EraEra (1980s)(1980s)--

InIn thisthis eraera, business situations, business situations werewere moremore criticalcritical due todue to

internalinternal && externalexternal factorsfactors-- CostCost of transportationof transportation isis fuelfuel priceprice dependentdependent

InflationInflation waswas uncertainuncertain && associatedassociated withwith increasedincreased

interestinterest ratesrates ReducingReducing profitabilityprofitability due todue to increasedincreased productionproduction costscosts



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Main objective inMain objective in thisthis eraera waswas toto reducereduce toto costcost ofof

logisticslogisticsMM &MM & PhysicalPhysical distribution made as andistribution made as an integratedintegrated

functionfunction ofof logisticslogistics forfor smoothsmooth flow offlow of operationsoperations


SupplierInbound

LogisticsProduction

Outbound

LogisticsCustomer

Materials Management Physical Distribution

Logistics Management


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Interface b/nInterface b/n traditionaltraditional activitiesactivities ofof physicalphysical distributiondistribution& MM& MM withwith otherother functionalfunctional departmentsdepartments likelike finance,finance,

marketing, production planning, salesmarketing, production planning, sales forecastingforecasting,,

Customer services etc.Customer services etc.



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4)4) ExternallyExternally IntegratedIntegrated BusinessBusiness FunctionFunction EraEra (1990s)(1990s)-

- In this era business scenario became more critical dut to-

- Liberalization of world economy (Concept of TQM)- Rapid innovation in the field of technology

- Introduction of new inventory mgmnt. Techniques like- MRP,

JIT etc.- Increased quantum of competition

- Emergence of 3rd party logistics (3PL)

(Concept of TQM(Concept of TQM-- TotalTotal QualityQuality ManagementManagement throughthrough ZeroZero

defectdefect productsproducts & quick services to the& quick services to the customerscustomers))



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Value ChainValue Chain

Value chain are the activities that are done to provide

value to the ultimate consumers through-

- Making product available as per their needs & wants

- Making of Quality of products

- Making available raw materials for production.

- It can be dipicted as in following picture-



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Third-Party Logistics (3PL)



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Definition of Third-Party Logistics

Essentially, a third-party-logistics firm may bedefined as an external supplier that performs all orpart of a companys logistics functions, so thatcompanies can work on their core competency ofMfg.

3PLs are the external suppliers that perform all or ,

Transportation

Warehousing

Distribution

Financial services(Terms contract logistics and outsourcing are sometimesused in place of 3PL)



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Third-Party Logistics



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Types of 3PL Providers

Transportation-based

Warehouse/distribution-based

Forwarder-based

Shipper/management-based

Financial-based

Information-based firms



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Transportation-Based

Services extend beyond transportation to offer acomprehensive set of logistics offerings.

LeveragedLeveraged3PLs use assets of other firms.

NonNon--leveragedleveraged3PLs use assets belonging solely tot e parent rm.

Ryder, Schneider Logistics, FedEx Logistics, andUPS Logistics are examples of 3PLs.



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Warehouse/Distribution-Based

Warehouse/DistributionWarehouse/Distribution--BasedBased

Many, but not all, have former warehouse

and/or distribution experience. Transition to integrated logistics has been less

com lex than for the trans ortation based


providers. DSC Logistics, USCO, Exel, Caterpillar Logistics,

and IBM are examples ofwarehouse/distribution-based 3PLs.


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Forwarder-Based

Essentially very independent middlemen

extending forwarder roles.

Non-asset owners that capably provide a wide

range of logistics services.

AEI, Kuehne & Nagle, Fritz, Circle, C. H.Robinson, and the Hub Group are examples of

forwarder-based 3PLs.



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Financial-Based

Provide freight payment and auditing, cost

accounting and control, and tools formonitoring, booking, tracking, tracing, and

mana in inventor .

Cass Information Systems, CTC, GE InformationServices, and FleetBoston are examples of

financial-based 3PLs.



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InformationInformation--BasedBased Significant growth and development in this

alternative category of Internet-based,business-to-business, electronic markets for

trans ortation and lo istics services.

Transplace and Nistevo are examples ofinformation-based 3PLs.



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3PL, Why is it needed..3PL, Why is it needed.. Advantages

o Cost reduction

o Focus on core competency

o Improved efficiency, service and flexibility

o Industr -s ecific a lication

build-to-order systems and e-merchants

Disadvantages

o Loss of control

o Impact on in-house workforce



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CompaniesCompanies thatthat havehave usedused 3PLs3PLs

Rank Shipper Company No. of 3PLs Used

1 General Motors 43

2 Ford Motor Co. & Wal Mart 30

3 28


4 Proctor & Gamble 22

5 General Electric 21

6 Siemens 19

7 BMW 17


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TraditionalTraditional TransportationTransportation

Mfg.

Org.

Plan

Transport

Activities

Prepare

SpecificationContracting Transporter

WarehouseHire of Warehouse


Distribution

CustomerPayment

Appoint A Distributor

3PL C3PL C


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3PL Concept3PL Concept

Plan

Transport

Activities

Plan

Distributn.

Plan

Warehousing

Prepare

Specification

For 3PL

Own

Transport

Vehicle

Hire Part

Transport

Vehicle

Contracting

Traditional System

^

Mfg.

Org. Deliver to

Distributor

All as per

Specification

Of Company

Distributor

Customer

Payment

Payment

Appoint a Distributor

3PL Agency

3PL


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EvolutionEvolution of 4PLof 4PLLogistics is a Science, the scope of which is ever

expanding and quite soon it will expand toencompass various business functions and will

model of any organization



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Materials & Logistics Management Introduction