Material Management in the Manufacturing Industry - Coursework Example

Material Management in the Manufacturing Industry 2007 Introduction Supply 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 Methods In 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). Through an efficient inventory management, costs may be reduced greatly by reducing the time taken to move materials from one stage of production to the next and also be minimizing waste. However, for this to be effective, proper scheduling of orders and deliveries need to be maintained. This becomes particularly difficult for seasonal products. For a modern JIT, the cornerstones are effective communication between work teams at different processes, scheduling, systematic manner of problem solving and quality improvements. While JIT was introduced in the 1980s in order to control waste, the modern-day JIT II achieves customer orientation and partnership in the supply chain. Emerging Trends in the Industry The emerging trends of material management are based on globalization and collaboration with suppliers. According to Peter Drucker’s (1965) management principles, competitiveness of organizations depends on effective supply chains or networks down the value chain. Drucker (1965) said, “The only model of a business we can so far truly design—the only operational system, in other words—is that of the business as physical distribution, as a flow of materials... Physical distribution is thus today's frontier in business. It is the one area where managerial results of great magnitude can be achieved" (quoted in Ontario Institute). The supply chain management becomes all the more crucial with globalization, free trade and outsourcing, which has made the logistics functions of an organization international. From its use to enhance efficiency, SCM is now looked upon as a means to drive competitive advantage (Ballou, 2006, cited in Ontario Institute). For an effective supply chain, the use of information technology is increasingly becoming crucial. The collaborative supply networks that have been successful, like Dell Computers and Hewlett Packard, have smoothened the information flow by sophisticated information technology (Scott, 1993, cited in Academic Mind). Traditionally in an inter-company collaborative network, companies are concerned with inward and outward movement of material and not the internal communication with the organization (Mintzberg, 1979, cited in Academic Mind). JIT has been implemented in US manufacturing industries to manage the inventory in order to reduce costs and to improve product quality, process and layout flexibilities, productive equipment maintenance and supplier and customer relationships (Yasin et al, 1997, Cowton and Vail, 1994, Cobb, 1993 and Sakakibara et al, 1993 cited in Winata & Mia). Since the effectiveness of JIT is dependent on the flow of information within the organization as well as with the network of suppliers, the Management Accounting System (MAS) has been found to be crucial (Winata & Mia, 2004). The information flow consists of feedback on defects, wastage, production, costs, inventory levels, idle time, breakdown, stoppages, capacity utilization, market shares and sales (Ansari, 1997, Yasin et al, 1997, Cobb, 1993, Cowton & Vail, 1994, cited in Winata & Mia, 2004). The critical element of JIT is the flow of communication between the members of the supply chain (Fitzgerald, 1999, cited in Winata & Mia, 2004). The effectiveness of MAS in turn depends on the use of IT. Source: Ontario Institute Challenges and Issues The main challenge with implementing the JIT is the implementation of MAS, which provides quantitative and qualitative, financial and non-financial feedback on target and actual income, capacity utilization, wastage, defects, etc. However, it has also been seen that with the implementation of JIT, managers’ use of MAS also increases (Winata & Mia, 2004). An organization that implements MAS and IT communication simultaneously is likely to have a successful JIT program. Increasingly, the IT that is used for tracking material through the supply chain is becoming more and more sophisticated. For example, a computer-based manufacturing system that tracks the material in the warehouse and beyond through a global positioning system reduces the need for manual tracking (patentstorm, 1998). In this method, a wireless equipment with a positioning system is installed in each material shipment, the itinerary loaded in a computer, regularly querying the position on the computer and adjusting the manufacturing schedules accordingly. This would automatically inform the production supervisor of the changes in schedule required. The computerized material handling system may also e further refined to include data on manufacturing cost, material demand, supplier site, shipping demand and frequency, transit time, container cost, shipment options, etc. so that container movement may be optimized and efficient warehousing and transporting large quantities of material (Covello et al, 2007). An automatic material storage system may comprise of an automated storage and retrieval system with sufficient storage space on the racks and one rack used for one type of material. The mechanical access installed against the means would run parallel to the storage racks with electronic labeling connected to the computer system that displays material access information. The material handling process would then comprise of two sets of material retrieval information: “quantity of material retrieval” and “delivery identification number”. Such an automated retrieval system enables efficient movement of large number of small shipments across the warehouses (William, 2003). An automated and integrated warehousing management system controls the movement and storage of materials by including light manufacturing, transportation and order management and accounting system. A good warehouse management system has a flexible location system, user-defined parameters for warehouse tasks and live data on movements. Warehouse management software is expensive and only organization that need to handle a complex web of a large number of material shipments need to use an automated system. The automated data collection from the system reduces cost of labor and increases the accuracy of the data. Customer service is also improved through reducing the cycle time. Inventory and the chances of idle inventory are reduced. However, setting up an exhaustive warehouse management system is complicated. It requires categorization of similar items and locations, exact dimensions, racks and storage will have to be categorized in terms of location, whether hazardous, whether finished good or raw material, etc. Recommendations For the company, I recommend that we have a fully integrated warehouse system. For this, we will have to categorize the different types of materials in terms of size and number of shipments, type of material, etc. Since the central warehouse is integrated with a number of warehouses that are geographically spread out, we need to have an automated tracking system that enables monitoring the movement and storage of materials. Conclusion In the current scenario, effective material management not only makes the supply chain efficient but also provides the organization competitive edge by reducing inventory costs and increasing customer satisfaction through minimizing cycle times and providing the customer the choice to alter orders. However, the process of movement and storage of materials in warehouses becomes complicated in a production process that goes through an intricate chain, often global. In such situations, detailed management accounting system and information technology for communication become essential. The movement and storage of materials may be automatically monitored through a computer system fitted with a global positioning system. A computerized warehouse management system makes it easy to locate materials when the warehouse deals with a large number of small shipments. However, an efficient warehouse management system requires careful planning of the racks and storage in terms of sizes and qualities of the shipments. Works Cited Academic Mind (2005). Just-In-Time Inventory Management Strategy & Lean Manufacturing, Retrieved from http://www.academicmind.com/unpublishedpapers/business/operationsmanagement/2005-04-000aaf-just-in-time-inventory-management.html Achtmeyer, William, F. (2002). Dell Computer Corporation, Center for Global Leadership, Tuck School of Business, Dartmouth, available at http://mba.tuck.dartmouth.edu/pdf/2002-2-0014.pdf Byrnes, Jonathan, Dell Manages Profitability, Not Inventory, Harvard Business School Working Knowledge of Leaders, available at http://hbswk.hbs.edu/item.jhtml?id=3497&t=dispatch Covello, Diane F., Alix, Yale & Ristas (2007). Method and system for managing material movement and inventory, Patent Storm, http://www.freepatentsonline.com/20070198313.html Emmett, Stuart and Barry Crocker (2006). The Relationship-Driven Supply Chain: Creating a Culture of Collaboration Throughout the Chain, Gower Technical Press. Ontario Institute, Supply Chain Management: a Discipline, a Field of Practice, http://www.ontarioinstitute.com/fieldofpractice.htm Patent Storm (1998). Method and system for optimized material movement within a computer based manufacturing system utilizing global positioning systems, November 10, http://www.patentstorm.us/patents/5835377-claims.html http://en.wikipedia.org/wiki/Supply_chain_management William, Grant (2003). Automated material storage and retrieval system for production lines. Retrieved from http://www.freepatentsonline.com/5903457.html Winata, Lanita and Mia, Lokman (2004). Linking Just-in-time Manufacturing, Information Technology for Communication and MAS Information: An Exploratory Study, http://s-cah-vishnu.infotech.monash.edu.au/dss2004/proceedings/pdf/80_Winata_Mia.pdf Read More