ASSIGNMENT

ASSIGNMENT

NICMAR - SODE (PGPPM)

1. Name

-Ashutosh Kumar

2. Reg. No.

-212-08-31-10966-2141

3. Course No.

-PGPM 314. Course Title-MATERIAL AND LOGISTIC MANAGEMENTCONTENTSI. Materials management - DefinitionII. Goal & Quality control in Material managementIII. Enterprise Resource Planning & Bill of MaterialsIV. Costs in Material managementV. Logistics managementVI. Production, Military & Third party logisticsVII. Warehouse managementVIII. Inventory control & managementIX. Supply chain management-Definition, issues, models & usesX. References

Materials Management

Definition: Materials Management can be defined as that function of business that is responsible for the coordination of planning, sourcing, purchasing, moving, storing and controlling materials in an optimum manner so as to provide service to the customer, at a pre-decided level at a minimum cost.

Meaning: It is a business function for planning, purchasing, moving, storing material in a optimum way which help organization to minimize the various costs like inventory cost, material handling cost and distribution cost.

Materials managementis the branch of logistics that deals with the tangible components of asupply chain. Specifically, this covers the acquisition of spare parts and replacements,quality controlof purchasing and ordering such parts, and the standards involved in ordering, shipping, and warehousing the said parts.Areas of ConcentrationGoals & Objectives of material management: Three basic objectives are

Buying/purchasing

Storage

MovementThe goal of materials management is to consolidate and efficiently handle core services. It creates truck deliveries and service vehicle routes that reduce conflicts for vehicles and pedestrians. Delivery sites and loading docks are more effective and reduce redundancy. Cost is reduced when it comes to solid and hazardous waste removal, storage, and recycling. Utility infrastructure and service equipment relocation can improve aesthetics.

Buying/purchasing: Pay low price for best Value obtain, Negotiation, Vendor selection, Right quality on right timeStorage: Minimizing transport and handling cost, Adequate & proper Storage and preservation, Store as per requirementMovement/Distribution: Distribution of finished goods to customer, Disposal of raw material

PRIMARY OBJECTIVES: Low price

High inventory turn over

Low cost acquisition and possession

Continuity of supply

Consistency of quality Favorable supplier relation

Good recordSECONDARY OBJECTIVES: New materials and products

Economic make- or- buy

Standardization

Product improvement

Interdepartmental harmony

ForecastsIMPORTANCE OF MATERIAL MANAGEMENT Lower prices for material & equipment

Fasten inventory turnover

Continuity of supply

Reduce transportation cost

Reduce material obsolesce

Better inter-departmental cooperationScope of Material management:

Emphasize the acquisition aspect;

Inventory control and stores management,

To materials logistics, movement control and handling aspects.

Purchasing, supply, transportation, materials handling etc.,

Supply management or logistics management

Covers all the interrelate activities concerned with materials

MERITS OF MATERIAL MANAGEMENT Helps to save cost

Efficiency in work

Best control over inventory

Best utilization of resources

Reduce fault and damagesDEMERITS OF MATERIAL MANAGEMENT Continuous observation is required It requires good infrastructure facility which may need huge investment

Extra man power can requiredQuality AssuranceA large component of materials management is ensuring that parts and materials used in the supply chain meet minimum requirements by performingquality assurance(QA). While most of the writing and discussion about materials management is on acquisition and standards, much of the day to day work conducted in materials management deals with QA issues. Parts and material are tested, both before purchase orders are placed and during use, to ensure there are no short or long term issues that would disrupt the supply chain.This aspect of material management is most important in heavily automated industries, since failure rates due to faulty parts can slow or even stop production lines, throwing off timetables for production goals.

StandardsThe other major component of materials management will be gradual movement toward compliance. There are standards that are followed in supply chain management that are important to a supply chain's function. For example, a supply chain that uses just-in-time (JIT)or lean replenishment requires clarity. in the shipping of parts and material from purchasing agent to warehouse to place of destination. Systems reliant on vendor-managed inventories may begin to acquire up-to-date computerized inventories and begin to explore robust ordering systems for outlying vendors to place orders on.

Promoting SustainabilityMany business and institutional campuses have cluttered, noisy, and oftentimes inefficient service environments. Delivery trucks compete with pedestrians, loading docks are in plain sight, trash dumpsters sprout up, and lobbies, hallways, and stairwells are cluttered with unplanned storage. With forethought and creativity, these systems can reduce energy use and carbon emissions, minimize traffic congestion, streamline operational flows, and enhance esthetics.

Improving Circulation InfrastructureRedundancy can be reduced and effectiveness is increased when service points are clustered to reduce the amount of redundancy. An effective materials management program can also resolve island approaches to shipping, receiving, and vehicle movement. Solutions can include creating a new central loading location, as well consolidating service areas and docks from separate buildings into one. Developing better campus circulation infrastructure also means re-evaluating truck delivery and service vehicle routes. Vehicle type, size, and schedules are studied to make these more compatible with surrounding neighborhoods. This will reduce truck traffic, creating a safer environment for pedestrians and a more attractive environment for other uses.

Materials Management WeekEach year, an entire week is dedicated to celebrating resource and materials management professionals for their outstanding contributions to healthcare and the overall success of the supply chain. Sponsored by the Association for Healthcare Resource & Materials Management (AHRMM), National Healthcare Resource & Materials Management Week (MM Week) provides an opportunity to recognize the integral role materials management professionals play in delivering high-qualitypatient carethroughout the health care industry. In 2010 Material Management Week is October 4-10 October.

BenefitsAn effective materials management plan builds from and enhances an institutional master plan by filling in the gaps and producing an environmentally responsible and efficient outcome. An institutional campus, office, or housing complex can expect a myriad of benefits from an effective materials management plan. For starters, there are long-term cost savings, as consolidating, reconfiguring, and better managing a campus core infrastructure reduces annual operating costs. An institutional campus, office, or housing complex will also get the highest and best use out of campus real estate. An effective materials management plan also means a more holistic approach to managing vehicle use and emissions, solid waste, hazardous waste, recycling, and utility services. As a result, this means a greener, more sustainable environment and a manifestation of the many demands today for institutions to become more environmentally friendly. In fact, thanks to such environmental advantages, creative materials management plans may qualify for LEED Innovation in Design credits. And finally, an effective materials management plan can improve aesthetics. Removing unsafe and unsightly conditions, placing core services out of sight, and creating a more pedestrian-friendly environment will improve the visual and physical sense of place for those who live and work there.

Dredged Material ManagementThree management alternatives may be considered for dredged material: open-water disposal confined (diked) disposal, and beneficial use. Open-water disposal is the placement of dredged material in rivers, lakes, estuaries, or oceans via pipeline or release from hopper dredges or barges. Confined disposal is placement of dredged material within diked near shore or upland confined disposal facilities via pipeline or other means.

Potential environmental impacts resulting from dredged material disposal may be physical, chemical, or biological in nature. Because many of the waterways are located in industrial and urban areas, sediments often contain contaminants from these sources. Unless properly managed, dredging and disposal of contaminated sediment can adversely affect water quality and aquatic or terrestrial organisms. Sound planning, design, and management of projects are essential if dredged material disposal is to be accomplished with appropriate environmental protection and in an efficient manner.

Beneficial Use10 broad categories of beneficial uses have been identified, based on the functional use of the dredged material. They are:

Habitat restoration/enhancement (wetland, upland, island, and aquatic sites including use by waterfowl and other birds). Beach nourishment. Aquaculture. Parks and recreation (commercial and noncommercial). Agriculture, forestry, and horticulture. Strip mine reclamation and landfill cover for solid waste management. Shoreline stabilization and erosion control (fills, artificial reefs, submerged berms, etc.). Construction and industrial use (including port development, airports, urban, and residential). Material transfer (fill, dikes, leaves, parking lots, and roads). Multiple purpose

MATERIALS MANAGEMENT

INVENTORY CONTROL SYSTEM:

A good inventory management system has always been important in the workings of an effective supply chain. New technologies and collaborative methods of working with trading partners will revolutionize this practice. Those who embrace, implement, lead and master these new technologies and inventory management system methods will develop a significant competitive edge over rival firms in the marketplace.

To be used to effectively manage products within the supply chain, the Supply Chain Management inventory management system must have accurate product information in it.

Two Bin Systems:-

.The two-bin system is exactly that--a system that requires two storage containers. The containers will each hold a predetermined quantity of the same material. The quantities may be the same, or one may hold a larger quantity than the other.

Two bins of items are created:-

* The first bin is stacked on top of, or in front of, the second bin.

* A reorder card is placed on the bottom of each bin.

* Material is drawn from the first (or most accessible) bin only.

* When the first bin is empty, it is exchanged with the second bin.

* The reorder card is used to replace items in the first bin.

* Material is then drawn from the second bin while waiting for receipt of the material on order.

* When the new material arrives, it is placed in the empty bin, and the reorder card is returned to its proper place in the bin.

* The procedure is continued, with material being selected from one bin until it is depleted. The material is then replenished through use of the reordering card.

As long as the quantity of the material in each bin is the same, you can continue to deplete one bin; place the order for the replenishment amount, then deplete the second bin, and so forth. However, if the second bin has a smaller quantity of material than the first bin (there may be an advantage in doing this if the material is expensive and you do not want to have a high volume of material in stock when issuing are placement order), then the quantity in the second bin (called the reorder point quantity) must be sufficient to cover the time required to receive the material (ordering lead time).

For example, if it takes 2 weeks to receive new material, then the second bin must contain at least a 2-week supply of that material.

When the new material comes in, someone must withdraw a sufficient amount of material to replenish the reorder point quantity in the second bin, and then place the balance of the received material into the first bin. Users will then withdraw material from that bin.

The two-bin system is a simple procedure, mainly because we are not relying on a computer to tell us when to order. Instead, we are relying on our own eyes. Training is necessary to ensure that warehouse personnel know to reorder material when one bin is empty. Not doing training will likely lead to unanticipated stock outs.

The risk of stock outs can also be reduced through periodic audits of the items in the warehouse. Such audits can, for example, discover instances in which only one bin contains material, yet both reorder cards are still visible. In such cases, some type of action needs to be taken immediately to avoid a stock out.

The only analysis required in the two-bin system is the reorder point quantity to be placed in the second bin. Most companies are overly conservative with this quantity because they are fearful of running out of stock. As a result, they set this reorder point quantity too high, so material arrives before it is actually needed.

However, it is easy to periodically review the reorder point quantities and adjust when necessary. The easiest way to do this is to count the number of items remaining in the second bin when the new items arrive. If the remaining quantity exceeds a few days' supply and vendor deliveries are relatively consistent, the reorder point quantity should be reduced. Do this by reducing the quantity of material in the second bin.

The two-bin system is easy to implement and maintain, and it is typically just as

For example, if it takes 2 weeks to receive new material, then the second bin must contain at least a 2-week supply of that material. When the new material comes in, someone must withdraw a sufficient amount of material to replenish the reorder point quantity in the second bin, then place the balance of the received material into the first bin. Users will then withdraw material from that bin.

The two-bin system is a simple procedure, mainly because we are not relying on a computer to tell us when to order. Instead, we are relying on our own eyes. Training is necessary to ensure that warehouse personnel know to reorder material when one bin is empty. Not doing training will likely lead to unanticipated stock outs.

The risk of stock outs can also be reduced through periodic audits of the items in the warehouse. Such audits can, for example, discover instances in which only one bin contains material, yet both reorder cards are still visible. In such cases, some type of action needs to be taken immediately to avoid a stock outs.

The only analysis required in the two-bin system is the reorder point quantity to be placed in the second bin. Most companies are overly conservative with this quantity because they are fearful of running out of stock. As a result, they set this reorder point quantity too high, so material arrives before it is actually needed.

However, it is easy to periodically review the reorder point quantities and adjust when necessary. The easiest way to do this is to count the number of items remaining in the second bin when the new items arrive. If the remaining quantity exceeds a few days' supply and vendor deliveries are relatively consistent, the reorder point quantity should be reduced. Do this by reducing the quantity of material in the second bin.

The two-bin system is easy to implement and maintain, and it is typically just as effective as any complex computer driven system used to reorder parts.

EOQ :-

Inventory models for calculating optimal order quantities and reorder points have been in existence long before the arrival of the computer. When the first Model T Fords were rolling off the assembly line, manufacturers were already reaping the financial benefits of inventory management by determining the most cost effective answers to the questions ofwhen? & how much?Yes long before JIT, TQM, TOC, and MRP, companies were using these same (then unnamed) concepts in managing their production and inventory. I recently read Purchasing and Storing, a textbook that was part of a Modern Business Course at the Alexander Hamilton Institute in New York. The textbook published in 1931 (thats right 1931) was essentially a how to book on inventory management in a manufacturing environment. If youre wondering why I would want to read a 70-year-old business text, my answer would be that the fundamental concepts of managing a business change very little with time, and reading about these concepts in a vintage text is a great way to reinforce the value of the fundamentals. The occasional reference to The War (referring to WWI) also keeps it interesting and the complete absence of acronyms is refreshing.

As you may have guessed, this 70-year-old book contained a section on Minimum Cost Quantity, which is what we now refer to as Economic Order Quantity (EOQ). I can imagine that in the 1930s an accountant (or more likely a room full of accountants) would have calculated EOQ or other inventory related formulas one item at a time in a dimly lit office using the inventory books, a mechanical adding machine and a slide rule. Time consuming as this was, some manufacturers of the time recognized the financial benefits of taking a scientific approach to making these inventory decisions.

So why is it that, in these days of advanced information technology, many companies are still not taking advantage of these fundamental inventory models? Part of the answer lies in poor results received due to inaccurate data inputs. Accurate product costs, activity costs, forecasts, history, and lead times are crucial in making inventory models work. Ironically, software advancements may also in part to blame. Many ERP packages come with built in calculations for EOQ which calculate automatically. Often the users do not understand how it is calculated and therefore do not understand the data inputs and system setup which controls the output. When the output appears to be "out of whack" it is simply ignored. This sometimes creates a situation in which the executives who had purchased the software incorrectly assume the material planners and purchasing clerks are ordering based upon the systems recommendations. I should also note that many operations will find these built-in EOQ calculations inadequate and in need of modifications to deal with the diversity of their product groups and processes.

Corporate goals and strategies may sometimes conflict with EOQ. Measuring performance solely by inventory turns is one of the most prolific mistakes made in the name of inventory management. Many companies have achieved aggressive goals in increasing inventory turns only to find their bottom line has shrunk due to increased operational costs.

EOQ is essentially an accounting formula that determinesthe point at which the combination oforder costs and inventory carrying costs are the least.The result is the most cost effective quantity to order. In purchasing this is known as the order quantity, in manufacturing it is known as the production lot size.

While EOQ may not apply to every inventory situation, most organizations will find it beneficial in at least some aspect of their operation. Anytime you have repetitive purchasing or planning of an item, EOQ should be considered. Obvious applications for EOQ are purchase-to-stock distributors and make-to-stock manufacturers, however, make-to-order manufacturers should also consider EOQ when they have multiple orders or release dates for the same items and when planning components and sub-assemblies. Repetitive buy maintenance, repair, and operating (MRO) inventory is also a good application for EOQ. Though EOQ is generally recommended in operations where demand is relatively steady, items with demand variability such as seasonality can still use the model by going to shorter time periods for the EOQ calculation. Just make sure your usage and carrying costs are based on the same time period.

Doesnt EOQ conflict with Just-In-Time? While I dont want to get into a long discussion on the misconceptions of what Just-In-Time (JIT) is, I will address the most common misunderstanding in which JIT is assumed to mean all components should arrive in the exact run quantities just in time for the production run. JIT is actually a quality initiative with the goal of eliminating wasted steps, wasted labor, and wasted cost. EOQ should be one of the tools used to achieve this. EOQ is used to determine which components fit into this JIT model and what level of JIT is economically advantageous for your operation. As an example, let us assume you are a lawn equipment manufacturer and you produce 100 units per day of a specific model of lawn mower. While it may be cost effective to have 100 engines arrive on your dock each day, it would certainly not be cost effective to have 500 screws (1 days supply) used to mount a plastic housing on the lawn mower shipped to you daily. To determine the most cost effective quantities of screws or other components you will need to use the EOQ formula.

The basic Economic Order Quantity (EOQ) formula is as follows:

The Inputs

While the calculation itself is fairly simple the task of determining the correct data inputs to accurately represent your inventory and operation is a bit of a project. Exaggerated order costs and carrying costs are common mistakes made in EOQ calculations. Using all costs associated with your purchasing and receiving departments to calculate order cost or using all costs associated with storage and material handling to calculate carrying cost will give you highly inflated costs resulting in inaccurate results from your EOQ calculation. I also caution against using benchmarks or published industry standards in calculations. I have frequently seen references to average purchase order costs of $100 to $150 in magazine articles and product brochures. Often these references trace back to studies performed by advocacy agencies working for business that directly benefit from these exaggerated (my opinion) costs used in ROI calculations for their products or services. I am not denying that some operations may have purchase costs in this range, especially if you are frequently re-sourcing, re-quoting, and/or buying from overseas vendors. However if your operation is primarily involved with repetitive buying from domestic vendors which is more common youll likely see your purchase order costs in the substantially lower $10 to $30 range.

As you prepare to undertake this project keep in mind that even though accuracy is crucial, small variances in the data inputs generally have very little effect on the outputs. The following breaks down the data inputs in more detail and gives insight into the aspects of each.

Annual Usage.

Expressed in units, this is generally the easiest part of the equation.You simply input your forecasted annual usage.

Order Cost.

Also known as purchase cost or set up cost,this is the sum of the fixed costs that are incurred each time an item is ordered. These costs are not associated with the quantity ordered but primarily with physical activities required to process the order.

For purchased items,these would include the cost to enter the purchase order and/or requisition, any approval steps, the cost to process the receipt, incoming inspection, invoice processing and vendor payment, and in some cases a portion of the inbound freight may also be included in order cost. It is important to understand that these are costs associated with the frequency of the orders and not the quantities ordered. For example, in your receiving department the time spent checking in the receipt, entering the receipt, and doing any other related paperwork would be included, while the time spent repacking materials, unloading trucks, and delivery to other departments would likely not be included. If you have inbound quality inspection where you inspect a percentage of the quantity received you would include the time to get the specs and process the paperwork and not include time spent actually inspecting, however if you inspect a fixed quantity per receipt you would then include the entire time including inspecting, repacking, etc. In the purchasing department you would include all time associated with creating the purchase order, approval steps, contacting the vendor, expediting, and reviewing order reports, you would not include time spent reviewing forecasts, sourcing, getting quotes (unless you get quotes each time you order), and setting up new items. All time spent dealing with vendor invoices would be included in order cost.

Associating actual costs to the activities associated with order cost is where many an EOQ formula runs afoul. Do not make a list of all of the activities and then ask the people performing the activities "how long does it take you to do this?" The results of this type of measurement are rarely even close to accurate. I have found it to be more effective to determine the percentage of time within the department consumed performing the specific activities and multiplying this by the total labor costs for a certain time period (usually a month) and then dividing by the line items processed during that same period.

It is extremely difficult to associate inbound freight costs with order costs in an automated EOQ program and I suggest it only if the inbound freight cost has a significant effect on unit cost and its effect on unit cost varies significantly based upon the order quantity.

In manufacturing, the order cost would include the time to initiate the work order, time associated with picking and issuing components excluding time associated with counting and handling specific quantities, all production scheduling time, machine set up time, and inspection time. Production scrap directly associated with the machine setup should also be included in order cost as would be any tooling that is discarded after each production run. There may be times when you want to artificially inflate or deflate set-up costs. If you lack the capacity to meet the production schedule using the EOQ, you may want to artificially increase set-up costs to increase lot sizes and reduce overall set up time. If you have excess capacity you may want to artificially decrease set up costs, this will increase overall set up time and reduce inventory investment. The idea being that if you are paying for the labor and machine overhead anyway it would make sense to take advantage of the savings in reduced inventories.

For the most part, order cost is primarily the labor associated with processing the order; however, you can include the other costs such as the costs of phone calls, faxes, postage, envelopes, etc.

Carrying cost.

Also called Holding cost, carrying cost is the cost associated with having inventory on hand. It is primarily made up of the costs associated with the inventory investment and storage cost. For the purpose of the EOQ calculation, ifthe cost does not change based upon the quantity of inventory on hand it should not be included in carrying cost. In the EOQ formula, carrying cost is represented as the annual cost per average on hand inventory unit. Below are the primary components of carrying cost.

Interest. If you had to borrow money to pay for your inventory, the interest rate would be part of the carrying cost. If you did not borrow on the inventory, but have loans on other capital items, you can use the interest rate on those loans since a reduction in inventory would free up money that could be used to pay these loans. If by some miracle you are debt free you would need to determine how much you could make if the money was invested.

Insurance. Since insurance costs are directly related to the total value of the inventory, you would include this as part of carrying cost.

Taxes. If you are required to pay any taxes on the value of your inventory they would also be included.

Storage Costs.

Mistakes in calculating storage costs are common in EOQ implementations. Generally companies take all costs associated with the warehouse and divide it by the average inventory to determine a storage cost percentage for the EOQ calculation. This tends to include costs that are not directly affected by the inventory levels and does not compensate for storage characteristics. Carrying costs for the purpose of the EOQ calculation should only include costs that are variable based upon inventory levels.

If you are running a pick/pack operation where you have fixed picking locations assigned to each item where the locations are sized for picking efficiency and are not designed to hold the entire inventory, this portion of the warehouse should not be included in carrying cost since changes to inventory levels do not effect costs here. Your overflow storage areas would be included in carrying cost. Operations that use purely random need to classify your inventory based upon a ratio of storage space requirements to value in order to assess storage costs accurately. For example, let's say you have just storage for their product would include the entire storage area in the calculation. Areas such as shipping/receiving and staging areas are usually not included in the storage calculations. However. if you have to add an additional warehouse just for overflow inventory then you would include all areas of the second warehouse as well as freight and labor costs associated with moving the material between the warehouses.

Since storage costs are generally applied as a percentage of the inventory value you may open a new E-business called "BobsWeSellEverything.com". You calculated that overall your annual storage costs were 5% of your average inventory value, and applied this to your entire inventory in the EOQ calculation. Your average inventory on a particular piece of software and on 80 lb. bags of concrete mix both came to $10,000. The EOQ formula applied a $500 storage cost to the average quantity of each of these items even though the software actually took up only 1 pallet position while the concrete mix consumed 75 pallet positions. Categorizing these items would place the software in a category with minimal storage costs (1% or less) and the concrete in a category with extreme storage costs (50%) that would then allow the EOQ formula to work correctly.There are situations where you may not want to include any storage costs in your EOQ calculation. If your operation has excess storage space of which it has no other uses you may decide not to include storage costs since reducing your inventory does not provide any actual savings in storage costs. As your operation grows near a point at which you would need to expand your physical operations you may then start including storage in the calculation.

A portion of the time spent on cycle counting should also be included in carrying cost, remember to apply costs which change based upon changes to the average inventory level.So with cycle counting, you would include the time spent physically counting and not the time spent filling out paperwork, data entry, and travel time between locations.

Other costs that can be included in carrying cost are risk factorsassociated with obsolescence, damage, and theft. Do not factor in these costs unless they are a direct result of the inventory levels and are significant enough to change the results of the EOQ equation.

Variations

There are many variations on the basic EOQ model. I have listed the most useful ones below.

Quantity discount logic can be programmed to work in conjunction with the EOQ formula to determine optimum order quantities. Most systems will require this additional programming.

Additional logic can be programmed to determine max quantities for items subject to spoilage or to prevent obsolescence on items reaching the end of their product life cycle. When used in manufacturing to determine lot sizes where production runs are very long (weeks or months) and finished product is being released to stock and consumed/sold throughout the production run you may need to take into account the ratio of production to consumption to more accurately represent the average inventory level. Your safety stock calculation may take into account the order cycle time that is driven by the EOQ. If so, you may need to tie the cost of the change in safety stock levels into the formula.

Implementing EOQ

There are primarily two ways to implement EOQ. Both methods obviously require that you have already determined the associated costs. The simplest method is to set up your calculation in a spreadsheet program, manually calculate EOQ one item at a time, and then manually enter the order quantity into your inventory system. If your inventory has fairly steady demand and costs and you have less than one or two thousand SKUs you can probably get by using this method once per year. If you have more than a couple thousand SKUs and/or higher variability in demand and costs you will need to program the EOQ formula into your existing inventory system. This allows you to quickly re-calculate EOQ automatically as often as needed. You can also use a hybrid of the two systems by downloading your data to a spreadsheet or database program, perform the calculations and then update your inventory system either manually or through a batch program. Whichever method you use you should make sure to follow the following steps:

Test the formula. Prior to final implementation you must test the programming and setup. Run the EOQ program and then manually check the results using sample items that are representative of the variations of your inventory base.

Project Results.

You'll need to run a simulation or use a representative sampling of items to determine the overall short-term and long-term effects the EOQ calculation will have on warehouse space, cash flow, and operations. Dramatic increases in inventory levels may not be immediately feasible, if this is the case you may temporarily adjust the formula until arrangements can be made to handle the additional storage requirements and compensate for the effects on cash flow. If the projection shows inventory levels dropping and order frequency increasing, you may need to evaluate staffing, equipment, and process changes to handle the increased activity.

Maintain EOQ. The values for Order cost and Carrying cost should be evaluated at least once per year taking into account any changes in interest rates, storage costs, and operational costs.

A related calculation is the Total Annual Cost calculation. This calculation can be used to prove the EOQ calculation. Total Annual Cost = [(annual usage in units)/(order quantity)(order cost)] + {[.5(order quantity)+(safety stock)]*(annual carrying cost per unit)}This formula is also very useful when comparing quotes where vendors offer different minimum order quantities, price breaks, lead times, transportation costs.

Use it! The EOQ calculation is "Hard Science", if you have accurate inputs the output is the most cost-effective quantity to order based upon your current operational costs. To further increase inventory turns you will need to reduce the order costs. E-procurement, vendor-managed inventories, bar coding, and vendor certification programs can reduce the costs associated with processing an order. Equipment enhancements and process changes can reduce costs associated with manufacturing set up. Increasing forecast accuracy and reducing lead times which result in the ability to operate with reduced safety stock can also reduce inventory levels.

Site store and Reporting:

Storage fulfills valuable functions. It provides a break in the supply and transportation Chain, and/or the transit and consumption chain and is essential to participants operating in specific markets in a number of ways:

1. Storage allows the accumulation of larger quantities of material giving possible Advantages in economies of scale.

2. Storage can provide a security of supply, particularly in the case of imported cement that is shipped considerable distance to meet seasonal demands.

3. Storage during off-peaks periods allow manufacturing plants to operate throughout the year as demand for cement follows seasonal patterns.

4. Storage may present opportunities for market manipulation under certain Circumstances.While the value of storage as a marketing tool is not in doubt, the choice of which type of storage to select for a specific purpose is less clear-cut.

The storage facility's design, specifications and reclaim systems depend on a number of factors:

1. Protecting materials from the elements and environment protection.2. Product storage time - depending on annual throughput, it is important to select a reclaim system best suited to specific operations since the cost to load and reclaim the product adds a substantial investment to the storage installation3. The amount of product to be stored at a given time - certain storage designs are particularly economical for larger quantities.4. The amount of land space available for storage

The primary concern for storing Portland cement is to prevent exposure to moisture. Cement stored in damp air or moisture sets more slowly and has less strength than cement that is kept dry.

Bagged cement stored on a job site should be stacked closely together on pallets to reduce air circulation and to raise the cement above any moisture sources; it should also be covered with tarpaulins or other water-proof covers for further protection from moisture.

If possible, store cement inside a structure to further reduce the potential for moisture exposure, but never place the cement directly next to an exterior wall. The relative humidity within the structure should be reduced as much as possible. Bulk storage of cement in silos is the preferred method of storing cement for concrete production.

The following recommendations can ensure the safe, clean and trouble-free operation of cement silos.

The sizing of a cement silo depends upon the demand placed on it. Ideally one should aim for a storage capacity of at least 2 days. Extra capacity should be included in the silo to allow for variations in the supply timetable.The silo should be erected securely and inspected regularly. It is important that all connections are kept free of hardened cement. Silos and supply lines should be clearly marked to display the type of cement which they contain. Split silos should indicate the contents of each sector of the silo. Proper vehicle access to the silo is essential. With vehicles up to 15 metres long and 40 tonnes in weight, adequate ground strength and manouvering room are required. Lighting is required if deliveries are to be made outside daylight hours. Advance planning will facilitate delivery at specified times. The level of cement in the silo should always be checked before filling begins. Ensure that the time between filling of the silo and shutting off the cement supply is kept to a minimum to avoid overfilling.

The bulk density of fresh cement varies from 1000 to 1350 kg/m3. The capacity of a silo may therefore be reduced by over 25% with `

It is therefore advisable to be conservative when estimating the weight of cement required to fill a silo.

The Materials Management component of the Compiere open source ERP (Enterprise Resource Planning) business solutions software addresses a broad range of issues around your material inventory: products, price lists, inventory receipts, shipments, movements, and counts within a company, its organizations, as well as to and from suppliers and customers.Product

A 'Product' in the Compiere ERP system is something that can be sold and/or purchased, (or something that can be stored) and it has to have a Price. The main examples of Products in the inventory management software are:1. Items

2. Services

3. Resources

4. Expense Types

An 'Item' in Compiere is a physical good that can be sold. 'Services' are not restricted in terms of availability whereas 'Resources' are restricted. 'Expenses' can be billed, for eg: a consultant who incurs some travel expenses can be invoiced to the customer. A Product can also be described as a "collection of items with similar attributes." One of the attributes of a product is its storage location as defined by warehouses and locators. The warehouse is the point of service. A warehouse may have more than one locator. Each Locator has up to five user-defined dimensions such as aisle, bin, rack, level, bay, etc. Another attribute for Products in the Compiere ERP system is the 'Product Category.' Product Categories enable you to group products with similar characteristics, pricing structures, accounting rules and reporting. For example, by using the controls of the Compiere ERP business solutions software you can globally set or change a discount structure for a Product Category. All products in that category inherit the revised discount structure.

Product Catalog

The Product Catalog organizes all of your products for simplified searching based on product attributes. For example, you may use the Product Catalog to search for all products that are "shirts," "yellow" and "short-sleeved." The Product Catalog optionally details product bills of material and substitutes.

Price Lists

Multiple Price Lists are supported for all purchased and sold items. Compiere's ERP business solutions software has a Purchase Price List functionality, which allows simple control of discounts from suppliers. The system provides general and customer specific sales price lists. Price Lists are date controlled to allow special sales initiatives.

Bill of Materials

A Bill of Materials (BOM) is a product structure that lists the parts and components that constitute the product in the context of an assembly, kit, or model. It contains one or more Products, Services, or BOMs. The number of components a Bill of Materials may contain is unlimited. A Bill of Materials has to be "cycle-free", which means that a BOM cannot refer to itself or parts (e.g. found in recipes in the chemical industry). Compiere's ERP system maintains the following types of Bill of Materials:

Stocked The available quantity represents what actually is stocked, not what could be produced. If the price is 0.00, the price is dynamically calculated (i.e. sum of the individual parts).

Non-Stocked The available quantity of a non-stored Bill of Materials is dynamically calculated on an item to item base and represents what could be available. Non-Stocked BOMs are mainly for data entry convenience. When processing the order or invoice, individual order lines are generated for each product sold. The price of a non-stocked BOM is always the summary price of its individual parts.

Distribution and Multi-Warehouse Control

Compiere's ERP business solution supports multiple warehouses with user-defined locations within each warehouse for recording stock locations in shelves and bays (Bin Locations). With the Compiere inventory management software, a physical warehouse can be broken into multiple logical warehouses such as receiving, quality assurance and testing, bulk storage and picking. Priorities can be set to ensure that picking takes place from bin locations in a prescribed sequence. Inventory movements can be effected between bin locations and warehouses. Movements between warehouses can be configured to produce appropriate shipping documentation, and manage 'in transit' stock.

Inventory counts and Inventory valuation adjustments are managed by recording the difference between the book stock quantity and the count quantity. Stock used for internal purposes can be written-off to record the stock decrement and related adjustments in the General Ledger.

Material Receipts and Replenishment

Using the Compiere ERP business solution, shipment documentation can be created in batches, or individually on a per order basis. Goods received from vendors can be compared directly with the purchase order or the vendor invoice.

The inventory management software shows 'available to promise', after considering reserved inventory for future customer shipments and expected vendor receipts.

Material Replenishment lists are created based on inventory replenishment rules, past sales, or targeted inventory levels. Requisitions or Purchase Orders can also be automatically generated from the Material Replenishment report. Optionally, you can also replenish a warehouse from another warehouse.

Costing of Product and Services

The Costing functionality in the Compiere ERP system is flexible and comprehensive. Users can customize it to meet their unique business needs, such as specifying the level of detail to track. Users can have multiple parallel costing methods. These can include Standard and Actual costs. Product costs may be composed of both Material and non-Material costs.

Compiere's ERP business solution maintains the information for the following costing methods:

Standard Costing

Actual Costing (Last PO, Last Invoice, LIFO, FIFO) and Average (PO, Invoice)

Costs can be recorded at three levels: Company, Organization, or Batch/Lot. You can also specify a different costing method or level for a Product Category. This allows the maximum flexibility for financial analysis. You may switch the costing method used any time. The information is very valuable to compare trends. Costs are maintained in your accounting currency.

Using different costing methods (Standard, Actual, or Average) can result in different financial results. The Compiere ERP supports more than one costing method, e.g. for legal accounting and business decision-making.

The following general information is maintained per Product and Accounting Schema:

Current Cost (based on Standard or Actual Costing)

Last Purchase Order Price (converted)

Last AP Invoice Price (converted)

Total lifetime Invoice Quantity and Amount (resulting in lifetime average cost)Logistics management

Logisticsis the management of the flow ofgoods,informationand other resources between the point of origin and the point of consumption in order to meet the requirements of consumers (frequently, and originally,militaryorganizations). Logistics involves the integration of information,transportation, inventory,warehousing, material-handling, andpackaging, and occasionallysecurity. Logistics is a channel of thesupply chainwhich adds the value of time and place utility. Today the complexity of production logistics can be modeled, analyzed, visualized and optimized by plant simulation software.

Origins and definitionThe term "logistics" comes from the Greek "logos" () meaning speech, reason, ratio, rationality, language, phrase and more specifically from the Greek work "logistiki" () meaning accounting and financial organization. Logistics is considered to have originated in the military's need to supply themselves with arms, ammunition and rations as they moved from their base to a forward position. In ancient Greek, Roman and Byzantine empires, there were military officers with the titleLogistikaswho were responsible for financial and supply distribution matters.

The Oxford English dictionary defineslogisticsas:The branch ofmilitary sciencehaving to do with procuring, maintaining and transporting material, personnel and facilities.Another dictionary definition is: "The time-related positioning of resources." As such, logistics is commonly seen as a branch ofengineeringwhich creates "people systems" rather than "machine systems."

Military logisticsILSIntegrated Logistics Supportis a discipline used in military industries to ensure an easy supportable system with a robust customer service (logistic) concept at the lowest cost and in line with (often high) reliability, availability, maintainability and other requirements as defined for the project.

Inmilitary logistics,logistics officersmanagehow and when to move resources to the places they are needed. In military science, maintaining one's supply lines while disrupting those of the enemy is a crucialsome would say the most crucialelement ofmilitary strategy, since an armed force without resources and transportation is defenseless. The defeat of the British in theAmerican War of Independence, and the defeat of the Axis in the African theatre ofWorld War II, have been largely attributed to logistical failure.The historical leadersHannibal Barca,Alexander the Great, and theDuke of Wellingtonare considered to have been logistical geniuses. Another field within logistics is calledMedical logistics.

Logistics managementLogistics management is that part of thesupply chainwhich plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customer & legal requirements. A professional working in the field of logistics management is called alogistician.

TheChartered Institute of Logistics & Transport (CILT)was established in theUnited Kingdomin 1919 and was granted aRoyal Charterin 1926. The Chartered Institute is one of theprofessional bodiesor institutions, for the logistics and transport sectors, that offersprofessional qualificationsor degrees in logistics management.

Third-party logisticsThird-party logistics involves the utilization of external organizations to execute logistics activities that have traditionally been performed within an organization itself.[1]According to this definition, third party logistics includes any form of outsourcing of logistics activities previously performed in-house. If, for example, a company with its own warehousing facilities decides to employ external transportation, this would be an example of third party logistics. Logistics is one of the emerging business areas in many countries.

Warehouse management system and warehouse control systemAlthough there is some functionality overlap, the differences between warehouse management systems (WMS) and warehouse control systems (WCS) can be significant. To put it simply, the WMS plans a weekly activity forecast, based on such factors as statistics, trends, and so forth, whereas a WCS acts like a floor supervisor, working in real time to get the job done by the most effective means. For instance, a WMS can tell the system its going to need five of SKU A and five of SKU B, hours in advance, but by the time it acts, other considerations may have come into play or there could be a potential logjam on a conveyor. A WCS can prevent that problem by working in real time and adapting to the situation by making a last-minute decision based on current activity and operational status. Working synergistically, WMS and WCS can resolve these issues and maximize efficiency for companies that rely on the effective operation of their warehouse or distribution center.

Business logisticsLogistics as a business concept evolved only in the 1950s. This was mainly due to the increasing complexity of supplying one's business with materials and shipping out products in an increasingly globalised supply chain, calling for experts in the field who are called Supply Chain Logisticians. This can be defined ashaving the right item in the right quantity at the right time at the right place for the right price in the right condition to the right customerand is the science of process and incorporates all industry sectors. The goal of logistics work is to manage the fruition ofproject life cycles,supply chainsand resultant efficiencies.

In business, logistics may have either internal focus (inbound logistics), or external focus (outbound logistics) covering the flow and storage of materials from point of origin to point of consumption (seesupply chain management). The main functions of a qualified logistician include Inventory management,purchasing,transportation,warehousing, consultation and the organizing andplanningof these activities. Logisticians combine a professional knowledge of each of these functions so that there is a coordination of resources in an organization. There are 2 different forms of logistics. One optimizes a steady flow of material through a network oftransportlinks & storage nodes. The other coordinates asequenceof resources to carry out some project.

Production logisticsThe term is used for describing logistic processes within an industry. The purpose of production logistics is to ensure that each machine and workstation is being fed with the right product in the right quantity and quality at the right point in time. The issue is not the transportation itself, but to streamline and control the flow through the value adding processes and eliminates non-value adding ones. Production logistics can be applied in existing as well as new plants. Manufacturing in an existing plant is a constantly changing process. Machines are exchanged and new ones added, which gives the opportunity to improve the production logistics system accordingly. Production logistics provides the means to achieve customer response and capital efficiency.

Production logistics is getting more and more important with the decreasing batch sizes. In many industries (e.g. mobile phone) batch size one is the short term aim. This way even a single customer demand can be fulfilled in an efficient way. Track and tracing, which is an essential part of production logistics - due to product safety and product reliability issues - is also gaining importance especially in the automotive and the medical industry.

Professional logisticianAlogisticianis aprofessionallogistics practitioner. Professional logisticians are often certified by professional associations. Someuniversities & academicinstitutionstrain students as logisticians, by offeringundergraduateandpostgraduateprograms. The termLogistics Managementis that part ofSupply Chain Managementthatplans,implements, andcontrolstheefficient,effective, forward, and reverse flow and storage ofgoods,services, and relatedinformationbetween thepoint of originand thepoint of consumptionin order to meet customers requirements.

Logistics Management SoftwareSoftware is used forlogistics automationwhich helps the supply chain industry in automating thework flowas well as management of the system. There are very few generalized software available in the new market in the said topology. This is because there is no rule to generalize the system as well as work flow even though the practice is more or less the same. Most of the commercial companies do use one or the other of the custom solutions.

But there are various software solutions that are being used within the departments of logistics. There are a few departments in Logistics, namely: Conventional Department, Container Department, Warehouse, Marine Engineering, Heavy Haulage, etc.

Software used in these departments:

Conventional department: CVT software / CTMS software

ContainerTrucking: CTMS software

Warehouse: WMS /WCS

Improving Effectiveness of Logistics Management:

Logistical Network, Information, Transportation, Sound Inventory Management, Warehousing, Materials Handling & Packaging

SUPPLY CHAIN MANAGEMENT:

What is a supply chain? : A supply chain is a network of facilities and distribution options that performs the functions of:

1. Procurement of materials2. Transformation of these materials into intermediate and finished products3. The distribution of these finished products to customers

Implementation: Supply chain management is a two-way based strategy to link across enterprise business operations to achieve a shared vision of market opportunity.

1) Supply chain management is a collaborative effort that combines many parties or processes in the product cycle.

2) Supply chain management can cover the entire product cycle from the introduction of raw materials to the point at which the consumer purchases the product.

COMPONENTS OF SUPPLY CHAIN MANAGEMENT: Plan: Companies need a strategy for managing all the resources that go toward meeting customer demand for their product or service.

Source: Selection of Suppliers. Pricing, delivery and payment processes with suppliers. Processes for managing goods and services inventory, including receiving and verifying shipments, transferring them to the manufacturing facilities and authorizing supplier payments.

Make: Schedule the activities necessary for production, testing, packaging and preparation for delivery

Deliver: Coordination of receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments.

Return: Responsive and flexible network for receiving defective and excess products back from their customers and supporting customers who have problems with delivered products.

Issues in Supply Chain Management:

The classic objective of a supply chain is to be able to have:

the right products

in the right quantities

at the right place

at the right moment

at minimal cost

Bullwhip effect

Distortion of information about the demand for a product as it passes from one entity to the next across the supply chain.

More accuracy from the Supply chain management system can help in overcoming the bullwhip effect.

With Perfect information about demand and production, a firm can implement an effective just-in time (a Japanese concept), delivering goods in the right amount and at the right time as they are needed.

INFORMATION TECHNOLOGY IN SCM:

Inaccurate information can cause minor fluctuations in demand for a product to be amplified as one moves further back in the supply chain. Minor fluctuations in retail sales for a product can create excess inventory for distributors, manufacturers, and suppliers.

E-enabled SCM is emerging as a core strategy.

Importance of IT in supply chain management.

E-business has enhanced both supply chain efficiency & responsiveness.

SCM software:SCM software, or Supply Chain Management software addresses one or more issues, mainly the planning, sourcing, production, delivery and return of goods. Supply Chain Management software involves real-time data from all links of the chain, with the internet being a vital ingredient to greater supply chain visibility. SCM software will allow companies to track demand, supply, manufacturing status, logistics and distribution of their products

Quicker customer response & fulfillment rates

Greater productivity & low rate

Reduced inventory throughout the chain

Improved forecasting precision

Enhanced inter operational communication and co-operation

Fewer suppliers & shorter planning cycle

More reliable financial system

DEVELOPMENTS IN SUPPLY CHAIN MANAGEMENT: Creation Era, -> Term SCM was introduced in early 1980s

Integration Era -> Developed through 1990s by introduction of ERP systems, this era continued to develop into 21st century based on internet based collaborative systems

Globalization Era -> Expansion of supply chains over national boundaries and into other continents

Specialization Era -> Phase-I: Outsourced manufacturing & Distribution . Late 1990s industries began to focus on core competencies, sold off non core operations and outsourced those functions to others

Specialization Era -> Phase-II: SCM as Service, Establishment of specialized companies for handling different tasks of supply chain management

Supply Chain Management 2.0 (SCM 2.0) : -> Web 2.0 based SCM

SYSTEMS OF SUPPLY CHAIN MANAGEMENT: - Classified into two types:

a). Supply chain planning system:

1). Generate demand forecasts for a product.

2). Develop sourcing and manufacturing plans for that product

3). Make adjustments to production and distribution plans

4). Share that information with relevant supply chain members.

One of the most important supply chain planning functions is demand planning, which determines how much product a business needs to make to satisfy all of its customers' demands

b). Supply chain execution system:

Physical flow of products through distribution centers and warehouses to ensure that products are delivered to the right locations in the most efficient manner.

Today, using intranets and extranets, all members of the supply chain can instantly communicate with each other, using up-to-date information to adjust purchasing, logistics, manufacturing, packaging, and schedules.

Concurrent supply chain system (SCM through Internet)

Concurrent supply chain is where information flows in many directions Simultaneously among members of a supply chain network.

The Internet could create a "digital logistics nervous system" throughout the supply chain to permit simultaneous, multidirectional communication of information about participants' inventories, orders, and capacities

SUPPLY CHAIN MODELS:

Push-based model (also known as build-to-stock) : Earlier supply chain management systems were driven by a push-based model (also known as build-to-stock) In this model production master schedules are based on forecasts or best guesses of demand for products, and products are "pushed" to customers SHAPE \* MERGEFORMAT

Pull-based model (or demand-driven model or build-to-order):

With Web-based tools, supply chain management follows a pull-based model (or demand-driven model (or build-to-order), in which actual customer orders or purchases trigger events in the supply chain

SHAPE \* MERGEFORMAT

BENEFITS OF SUPPLY CHAIN MANAGEMENT: Timely Product Supplies

Accurate Pricing Discounts

Simplified and faster payment process

Online information (Purchases, sales, inventory, financials)

Less duplication of work for Human Resource

Better warehousing and transportation management

Better plant maintenance

Easy access to data / information

Inventory Control

Once goods are purchased, they represent an inventory used during the construction process. The general objective of inventory control is to minimize the total cost of keeping the inventory while making tradeoffs among the major categories of costs: (1) purchase costs, (2) order cost, (3) holding costs, and (4) unavailable cost. These cost categories are interrelated since reducing cost in one category may increase cost in others. The costs in all categories generally are subject to considerable uncertainty.

Purchase Costs

The purchase cost of an item is the unit purchase price from an external source including transportation and freight costs. For construction materials, it is common to receive discounts for bulk purchases, so the unit purchase cost declines as quantity increases. These reductions may reflect manufacturers' marketing policies, economies of scale in the material production, or scale economies in transportation. There are also advantages in having homogeneous materials. For example, a bulk order to insure the same color or size of items such as bricks may be desirable. Accordingly, it is usually desirable to make a limited number of large purchases for materials. In some cases, organizations may consolidate small orders from a number of different projects to capture such bulk discounts; this is a basic saving to be derived from a central purchasing office.

The cost of materials is based on prices obtained through effective bargaining. Unit prices of materials depend on bargaining leverage, quantities and delivery time. Organizations with potential for long-term purchase volume can command better bargaining leverage. While orders in large quantities may result in lower unit prices, they may also increase holding costs and thus cause problems in cash flow. Requirements of short delivery time can also adversely affect unit prices. Furthermore, design characteristics which include items of odd sizes or shapes should be avoided. Since such items normally are not available in the standard stockpile, purchasing them causes higher prices.

The transportation costs are affected by shipment sizes and other factors. Shipment by the full load of a carrier often reduces prices and assures quicker delivery, as the carrier can travel from the origin to the destination of the full load without having to stop for delivering part of the cargo at other stations. Avoiding transshipment is another consideration in reducing shipping cost. While the reduction in shipping costs is a major objective, the requirements of delicate handling of some items may favor a more expensive mode of transportation to avoid breakage and replacement costs.

Order Cost

The order cost reflects the administrative expense of issuing a purchase order to an outside supplier. Order costs include expenses of making requisitions, analyzing alternative vendors, writing purchase orders, receiving materials, inspecting materials, checking on orders, and maintaining records of the entire process. Order costs are usually only a small portion of total costs for material management in construction projects, although ordering may require substantial time.

Holding Costs

The holding costs or carrying costs are primarily the result of capital costs, handling, storage, obsolescence, shrinkage and deterioration. Capital cost results from the opportunity cost or financial expense of capital tied up in inventory. Once payment for goods is made, borrowing costs are incurred or capital must be diverted from other productive uses. Consequently, a capital carrying cost is incurred equal to the value of the inventory during a period multiplied by the interest rate obtainable or paid during that period. Note that capital costs only accumulate when payment for materials actually occurs; many organizations attempt to delay payments as long as possible to minimize such costs. Handling and storage represent the movement and protection charges incurred for materials. Storage costs also include the disruption caused to other project activities by large inventories of materials that get in the way. Obsolescence is the risk that an item will lose value because of changes in specifications. Shrinkage is the decrease in inventory over time due to theft or loss. Deterioration reflects a change in material quality due to age or environmental degradation. Many of these holding cost components are difficult to predict in advance; a project manager knows only that there is some chance that specific categories of cost will occur. In addition to these major categories of cost, there may be ancillary costs of additional insurance, taxes (many states treat inventories as taxable property), or additional fire hazards. As a general rule, holding costs will typically represent 20 to 40% of the average inventory value over the course of a year; thus if the average material inventory on a project is $ 1 million over a year, the holding cost might be expected to be $200,000 to $400,000.

Unavailability Cost

The unavailability cost is incurred when a desired material is not available at the desired time. In manufacturing industries, this cost is often called the stockout or depletion cost. Shortages may delay work, thereby wasting labor resources or delaying the completion of the entire project. Again, it may be difficult to forecast in advance exactly when an item may be required or when an shipment will be received. While the project schedule gives one estimate, deviations from the schedule may occur during construction. Moreover, the cost associated with a shortage may also be difficult to assess; if the material used for one activity is not available, it may be possible to assign workers to other activities and, depending upon which activities are critical, the project may not be delayed.

4.9 Tradeoffs of Costs in Materials Management.

To illustrate the type of trade-offs encountered in materials management, suppose that a particular item is to be ordered for a project. The amount of time required for processing the order and shipping the item is uncertain. Consequently, the project manager must decide how much lead time to provide in ordering the item. Ordering early and thereby providing a long lead time will increase the chance that the item is available when needed, but it increases the costs of inventory and the chance of spoilage on site.

Let T be the time for the delivery of a particular item, R be the time required for process the order, and S be the shipping time. Then, the minimum amount of time for the delivery of the item is T = R + S. In general, both R and S are random variables; hence T is also a random variable. For the sake of simplicity, we shall consider only the case of instant processing for an order, i.e. R = 0. Then, the delivery time T equals the shipping time S.

Since T is a random variable, the chance that an item will be delivered on day t is represented by the probability p(t). Then, the probability that the item will be delivered on or before t day is given by:

4.1

If a and b are the lower and upper bounds of possible delivery dates, the expected delivery time is then given by:

4.2

The lead time L for ordering an item is the time period ahead of the delivery time, and will depend on the tradeoff between holding costs and unavailability costs. A project manager may want to avoid the unavailable cost by requiring delivery on the scheduled date of use, or may be to lower the holding cost by adopting a more flexible lead time based on the expected delivery time. For example, the manager may make the tradeoff by specifying the lead time to be D days more than the expected delivery time, i.e.4.3

where D may vary from 0 to the number of additional days required to produce certain delivery on the desired date.

In a more realistic situation, the project manager would also contend with the uncertainty of exactly when the item might be required. Even if the item is scheduled for use on a particular date, the work progress might vary so that the desired date would differ. In many cases, greater than expected work progress may result in no savings because materials for future activities are unavailableReferences: Defining Supply Chain Management.Journal of Business Logisticspages 1-26 - 2001, VOL 22; PART 2. ISSN 0735-3766 http://enr.construction.com/ - Going Green Through Materials Management.

Knowing When a WMS or WCS Is Right for Your Company".Supply & Demand Chain Executive. BY John T.Phelan Jr.

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