Ch.1Ch.1-- Introduction: Materials Management

Prof. PrashantB. Kalaskar Syllabus •• Evolution, Importance, Scope and Objectives of Materials Management •• Interface of Material Management with other functions. •• Concept of Logistics and Supply Chain Management •• Evolution to 4PL

Prof. PrashantB. Kalaskar Introduction to Material Management •• MaterialsMaterials--AA keyresource in any manufacturing activity •• Cost of production depends upon the materials and hence material management is important •• Low level of inventory may interrupt manufacturing •• High level of inventoryinventory,, excessive investments •• Optimum inventory of materials is a crucial phenaomenon

Prof. PrashantB. Kalaskar Definition of Material Management ‘’ The process of controlling the kind, amount, location, movement & timing of various resources used in & produced by the industrial enterprise ’’.

‘’ Material management is an approach for planning, organizing, and controlling all those activities principally concerned with the flow of materials into an organisation.’’

Prof. PrashantB. Kalaskar Definition of Material Management

• 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, (6) procurement, (7)inspection, (8) quality control, (9) packaging, (10)storage, (11) inventory control, (12) distribution, and (13)disposal. • Also called materials planning.

Prof. PrashantB. Kalaskar Evolution of MM •• During WWWW--I,I, materials supply got hapmeredhapmered.. •• Last 3 decades of industrial revolution and advancement in technology lead industry to mass production and marketing •• Increasing population & income levels fueld MM •• Resource conservation & effective utilization focused from 70’s •• Concept of TQM •• In IndiaIndia,, Armed forces brought the concept of MM in the nameof logistic management

Prof. PrashantB. Kalaskar Importance of MM •• If we analyze the total cost of any production, nearly 60 to 70% is because of materials. •• Only the rest is for labourlabour,, overhead and profit. •• So any reduction in the material cost, new techniques to reduce the cost, give rise to maximization of profits •• Profitabilty is the maximum ROI, aim of any organization

Prof. PrashantB. Kalaskar Importance of MM • Rate of Return (ROR)= Return - Capital Rate of Return (ROR)= ------X 100 Capital

120-100 Ex.- ROR= ------X 100 = 20% 100

Prof. PrashantB. Kalaskar Objectives of MM • The fundamental objectives of the Materials Management function ( 5 R’s)- • Of the Right quality • In the Right quantity • At the Right time • From the Right source • At the Right place

Prof. PrashantB. Kalaskar Objectives of MM •• Management objectives of MM areare-- • 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 deteriorations , obsolescence and pilferage • 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

Prof. PrashantB. Kalaskar Objectives of MM •• Management objectives of MM areare-- •• To develop reliable alternate sources of supply to promote a competitive atmosphere in performance and pricing. •• To hire, develop, motivate and train personnel and to provide a reservoir of talent •• To develop and maintain good supplier relationships in order to create a supplier attitude and desire to furnish the organization with new ideas , products, and better prices & services

Prof. PrashantB. Kalaskar Objectives of MM •• Management objectives of MM areare-- •• To achieve a high degree of cooperation and coordination with other departments •• To maintain good records and controls that provide an audit trail and ensure efficiency and honesty •• To participate in Make or Buy decisions.

Prof. PrashantB. Kalaskar Logical Fun

Prof. PrashantB. Kalaskar Scope 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. • 4. Inventory Control. • 5. Receiving, Inspection and Dispatching. • 6. Standardization and Variety Reduction. • 7. Materials Handling. • 8. Disposal of Scrap and Surplus, Material Preservation.

Prof. PrashantB. Kalaskar Interface of Material Management with other 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 technology Output may be Tangible or Intangible product This process involves 3 activities- - Inputs (Materials) supply - Conversion process (Manufacturing) - Distribution of product (Marketing) Prof. PrashantB. Kalaskar Interface of Material Management with other functions External Environment ( Suppliers and Customers)

Inputs Output Men Products (Goods or Materials Services) Money Profits and Machines customer Management satisfaction

Manufa cturing

Internal Resources- Finance, Marketing, HR, MIS, Production

Prof. PrashantB. Kalaskar Logistics & SCM Concept 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)

Supply Chain-- A supply chain is a network of facilities and 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) Prof. PrashantB. Kalaskar Facilities

• The sequence of supply chain begins with basic suppliers and extends all the way to the final customer • Warehouses • Processing centers • Distribution centers • Retail outlets • Offices

Prof. PrashantB. Kalaskar Functions and Activities in SCM

• Forecasting • Purchasing • Inventory management • Information management • Quality assurance • Scheduling • Production and delivery • Customer service

Prof. PrashantB. Kalaskar Fun 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 bar bar kyo phone karte ho Student- Sun ke accha lagta hai..

Prof. PrashantB. Kalaskar 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 within the boundaries of a single organization. • Supply chains refer to networks of companies that work together and coordinate their actions to deliver a product to market.

Prof. PrashantB. Kalaskar 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 activities such as marketing, new product development and customer service.

Prof. PrashantB. Kalaskar Concept of Logistics Management Thus logistics management allows--allows • Smooth flow of all types of materials • Satisfaction of consumer needs of goods • Helps delivery of good quality products • Best possible customer service at least possible rates • Integration of various managerial functions of organizations for optimization of resources • It enhances profitability and productivity to the organization

Prof. PrashantB. Kalaskar Concept of Logistics Management • The concept of logistics management can be explained in four phases- 1) Independent Business Function Era 2) Limited Internally Integrated Business Function Era 3) Fully Internally Integrated Buisness Function Era 4) Externally Integrated Business Function Era

Prof. PrashantB. Kalaskar Concept of Logistics Management 1)--Independent1) Independent Business Function Era (till 1950’s) - This era emphasized on increasing productivity & profitability - Less manufacturers, hence mass production dominated - Logistics was limited to warehousing of Raw Materials & tansportation of finished goods - All business functions were indpendent. - Warehousing of RM & finished goods were fragmneted & hence high cost involved

Prof. PrashantB. Kalaskar Concept of Logistics Management

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 -- Material ManagementManagement-- delas with planning,implementing & controlling flow of materials within organization ((Inbound Logistics)) -- Physical DistributionDistribution-- Planning, Implementing & Controlling all the activities related to flow of finished goods ((OutboundOutbound LogisticsLogistics)) - The major objective was to control cost & output, so that organizations can survive in cost based competitive environment

Prof. PrashantB. Kalaskar Concept of Logistics Management 3) Fully Internally Integrated Buisness Function Era (1980’s)-- (1980’s) In this eraera,, business situations were more critical due to internal & external factors-- factors °° Cost of transportation is fuel price dependent °° Inflation was uncertain & associated with increased interest rates °° Reducing profitability due to increased production costs

Prof. PrashantB. Kalaskar Concept of Logistics Management 3) Fully Internally Integrated Buisness Function Era (1980’s)-- (1980’s) V Main objective in this era was to reduce to cost of logistics V MM & Physical distribution made as an integrated function of logistics for smooth flow of operations

Inbound Outbound Supplier Production Customer Logistics Logistics

Materials Management Physical Distribution

Logistics Management

Prof. PrashantB. Kalaskar Concept of Logistics Management 3) Fully Internally Integrated Buisness Function Era (1980’s)-- (1980’s)

V Interface b/n traditional activities of physical distribution & MM with other functional departments like finance, marketing, production planning, sales forecastingforecasting,, Customer services etc.

Prof. PrashantB. Kalaskar Concept of Logistics Management 4) Externally Integrated Business Function Era (1990’s) - - 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 TQMTQM--TotalTotal QualityManagement throughZero defect products & quick services to the customers))customers

Prof. PrashantB. Kalaskar Value 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-

Prof. PrashantB. Kalaskar Third-Party Logistics (3PL)

Prof. PrashantB. Kalaskar Definition of Third-Party Logistics • Essentially, a third-party-logistics firm may be defined as an external supplier that performs all or part of a company’s logistics functions, so that companies can work on their core competency of Mfg. • 3PL’s are the external suppliers that perform all or part of a company’s logistics functions, including: – Transportation – Warehousing – Distribution – Financial services (Terms contract logistics and outsourcing are sometimes used in place of 3PL)

Prof. PrashantB. Kalaskar Third-Party Logistics

Prof. PrashantB. Kalaskar Third-Party Logistics

Prof. PrashantB. Kalaskar Types of 3PL Providers

– Transportation-based

– Warehouse/distribution-based

– Forwarder-based

– Shipper/management-based

– Financial-based

– Information-based firms

Prof. PrashantB. Kalaskar Transportation-Based

– Services extend beyond transportation to offer a comprehensive set of logistics offerings. –– Leveraged 3PLs use assets of other firms. –– NonNon--leveragedleveraged 3PLs use assets belonging solely to the parent firm. – Ryder, Schneider Logistics, FedEx Logistics, and UPS Logistics are examples of 3PLs.

Prof. PrashantB. Kalaskar 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 complex than for the transportation based providers. – DSC Logistics, USCO, Exel, Caterpillar Logistics, and IBM are examples of warehouse/distribution-based 3PLs.

Prof. PrashantB. Kalaskar 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.

Prof. PrashantB. Kalaskar Financial-Based

– Provide freight payment and auditing, cost accounting and control, and tools for monitoring, booking, tracking, tracing, and managing inventory. – Cass Information Systems, CTC, GE Information Services, and FleetBoston are examples of financial-based 3PLs.

Prof. PrashantB. Kalaskar InformationInformation--BasedBased

– Significant growth and development in this alternative category of Internet-based, business-to-business, electronic markets for transportation and logistics services. – Transplace and Nistevo are examples of information-based 3PLs.

Prof. PrashantB. Kalaskar 3PL, Why is it needed.. • Advantages o Cost reduction o Focus on core competency o Improved efficiency, service and flexibility o Industry-specific application – “build-to-order” systems and e-merchants • Disadvantages o Loss of control o Impact on in-house workforce

Prof. PrashantB. Kalaskar Companies that have used 3PL’s

Rank Shipper Company No. of 3PL’s Used

1 General Motors 43 2 Ford Motor Co. & Wal Mart 30 3 VolksWagen 28 4 Proctor & Gamble 22 5 General Electric 21 6 Siemens 19 7 BMW 17

Prof. PrashantB. Kalaskar Traditional Process

Vendor

Inputs Value Addition

Procurement Product

Distribution

Customer

Prof. PrashantB. Kalaskar Traditional Transportation

Plan Mfg. Prepare Transport Contracting Transporter Org. Specification Activities

Hire of Warehouse Warehouse

Appoint A Distributor Distribution

Payment Customer

Prof. PrashantB. Kalaskar Traditional System 3PL Concept

Prepare Own Plan Plan Specification Transport Distributn. Warehousing For 3PL Vehicle ^ Hire Part Plan Transport Transport Contracting Vehicle Activities ^ Ware House Mfg. 3PL Agency Distributor Org. Deliver to Distributor Payment All as per Specification Of Company Customer 3PL Appoint a Distributor Payment Evolution of 4PL

Logistics is a Science, the scope of which is ever expanding and quite soon it will expand to encompass various business functions and will become the Prime Driver of the business model of any organization

Prof. PrashantB. Kalaskar Contact DetailsDetails….….

• Can contact me on… 24 X 7 12 X 6 Mob- 7350520025, 9975770407 [email protected]

Prof. PrashantB. Kalaskar