Material Management in the Manufacturing Industry2007IntroductionSupply chain management involves the planning the production process to meet customer requirement, selection of suppliers, the actual production process, testing and packaging and finally the delivery of the product to the factory gate. Koss (2000) defines the supply chain as the process of supplying materials at the manufacturing plant to the delivery of finished products to dealers for sale. The supply chain management is the integrated network or organizations involved in the movement of materials and the related flow of information from supply to the consumption so that there is value addition at the customer point.
As Emmett and Crocker (2006) says, “the 'supply chain' is the process that integrates, coordinates and controls the movement of goods, materials and information from a supplier through a series of intermediate customers to the final consumer. ” Material management, or logistics, that is moving and storing of material within the network of warehouses and to customer points, is the most important part of supply chain management. By an efficient material management strategy, it is possible to reduce the time to move material from one process to another as well as to maintain the minimum inventory, thereby reducing costs of inventory-holding.
In this paper, I will discuss the methods of moving and storing materials in the manufacturing industry and the emerging trends that are crucial for our company. I will then discuss the challenges and issues involved with the emerging methods and recommend a strategy that could be effective for the supply chain management in our company. Current MethodsIn the 1980s, the Japanese manufacturing industry introduced Continuous Improvement Process as the basic principle of quality management.
As part of this process, which aimed to identify and solve problems systematically so that there is continuous improvement at every stage of production, the “Just-in-Time” (JIT) inventory management or “lean manufacturing” practices were developed. By this method, materials reach the manufacturing process just when the production process begins, eliminating the cost and time to hold material. This not only prevents companies from holding material that may become obsolete if there are changes in customer requirements or production processes. It reduces the need for having capital stuck in raw material and finished product inventory as also optimize the transportation requirements. The pioneer in JIT, Toyota Motor Corporation, has been revamping its ordering, production and delivery of products so that the average time to deliver cars from the factories in North America to dealers is reduced from 70 days to 14 (Fahey, 2004, cited in academicmind).
In order to achiever this, Toyota uses a software that connects dealers with factories and the latter with suppliers. This makes the value chain transparent down the supply chain. Dell Computers is another company that has an innovative material management policy.
Dell has integrated the value chain so efficiently that the company does not require any raw material warehouse of its own to stock the inventory and even though the chain starts off after order booking by the customer, the entire production process can follow just-in-time principles. Incorporated in 1984, Dell has reached the pinnacle of success, being now the top retailer of computers, beating IBM, HP, Gateway and Compaq, all of which have followed the conventional build-to-stock model rather than Dell’s build-to-order model Achtemeyer, 2002).
Since Dell follows build-to-order and just-in-time policies, the inventory remains in the suppliers’s books till Dell puts the order. Intel is the only exception since its market strength is large enough to force Dell take over its inventory before acquiring the final customer (Byrnes, 2003). Dell has integrated the direct-selling model intricately with the supply chain. Even though the company assembles 80,000 PCs a day, it does not have any warehouse, the assembly factories hold inventories for a maximum of two days while the entire operation inventory is a maximum of 72 hours (Byrnes, 2003).
As the company sells 90 percent of its products through the direct model, it mostly receives payments from its customers immediately online or through the credit card. It then places orders on the component vendors and proceeds on the assembly but pays to the suppliers only 36 days after the product is shipped to the customer. As a result, the cash-conversion ratio for Dell is negative 36. On the other hand, other PC makers pay suppliers immediately for the components, assemble them and receive payment from customers on delivery.
The process takes roughly 30 days hence the cash-conversion ratio is typicall positive 30 days for the other PC-makers (Byrnes, 2003).