1. Introduction to Material Management
1.1 Introduction
o Wealth is measured by the output of goods and services produced in a given time.
Goods are physical objects and services are the performance of some useful function.
o A production function is needed to transform resources into useful goods.
o At each stage in the development of the final product, value is added, thus creating more wealth.
o To get the most value out of our resources, we design production processes that make products most efficiently.
o Once the processes exist, we need to manage the operation so it produces goods most economically.
o Managing the operation means planning for and controlling the resources used in the process: labor, capital and material.
o The major way in which management plans and controls is through the flow of materials; the right materials in the right quantities and at
the right time.
1.2 Operating Environment
o The most important factors affecting the environment in which we operate
are Government, Economy, Competition, Customers and Quality.
o Government regulation of business affects the way business is conducted.
o Economic conditions influence demand for products or services and availability of inputs.
o Companies face global competition. Transporting materials is less costly today. Global communications are fast, effective and inexpensive.
o Customers expect more from suppliers. Customer selection criteria include a fair price, quality products and services, reduction in delivery
lead-time, better pre and post sales service, and product and volume and flexibility.
o Quality must meet or exceed customer expectations.
Definitions
Order Qualifier - Minimum requirements that a supplier must meet to be a viable competitor
Order Winners - Competitive Characteristics that persuade a customer to choose a particular product or service
Delivery Lead Time - Time from the receipt of an order to the delivery of the product. (From the customer perspective may include order
prep time)
Manufacturing Strategies (Four Lead Time Strategies)
Pull Strategy (The Customer Pulls his needs)
o Engineer-To-Order ETO
Designed to customer specification
Products whose customer specifications require unique engineering design or significant customization. Each customer order requires a cost estimate,
and special pricing. These orders generally result in a unique set of components, bills of material, and production routings
o Make-To-Order MTO
Standard design, produced only upon order
A manufacturing process strategy where the trigger to begin manufacture of a product is an actual customer order or release, rather than a market
forecast. For Make-to-Order products, more than 20% of the value-added takes place after the receipt of the order or release, and all necessary design
and process documentation is available at time of order receipt.
Pull / Push Strategy
1
, o Assemble-To-Order ATO
Subassemblies produced, assembled upon order
" A production environment where a product or service can be made after receipt of a customer's order. The end item finished product is generally a
combination of standard components and custom designed components that meet the unique needs of a specific customer. Where options or
accessories are pre-stocked prior to customer orders, the term assemble-to-order is frequently used."
Push Strategy (the Company pushes its products to the markets)
Make-To-Stock MTS :
Finished product made prior to order
"Make to Stock - A production environment where end item products are usually finished before receipt of a customer order. Customer orders are
generally filled from finished goods inventories, and production orders are used to replenish finished goods inventories"
Operation Decision Making
Manufacturing Strategy and Lead Time
2
, 1.3 The Supply Chain Concept
The supply chain system contains three Basic Elements:
o Supply,
o Production
o Distribution
Supply chain includes all activities and processes to supply a product or service to a final customer.
Any number of companies can be linked in the supply chain. Sometimes called the Value Chain.
The total chain can have any number of supplier/customer relationships.
The chain includes intermediaries such as wholesalers, warehouses, and retailers
Product or services usually flow from supplier to customer and design and demand information usually flow from customer to supplier
Traditional SC
Traditionally, management focused on internal operating issues, constraints and parameters. Suppliers were considered adversaries.
Conflicts in traditional systems often appear because differing departments maximize departmental objectives without considering the
impact to other parts of the system.
Growth of SC concept
The first major change evolved through the explosive growth of Just-in-Time (JIT) concepts. Suppliers were viewed as partners
The growth of the supply chain concept continues to be influenced by
o The explosive growth in computer capability,
o Software applications (Enterprise Resource Planning) and the ability to link companies electronically (Internet),
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1.1 Introduction
o Wealth is measured by the output of goods and services produced in a given time.
Goods are physical objects and services are the performance of some useful function.
o A production function is needed to transform resources into useful goods.
o At each stage in the development of the final product, value is added, thus creating more wealth.
o To get the most value out of our resources, we design production processes that make products most efficiently.
o Once the processes exist, we need to manage the operation so it produces goods most economically.
o Managing the operation means planning for and controlling the resources used in the process: labor, capital and material.
o The major way in which management plans and controls is through the flow of materials; the right materials in the right quantities and at
the right time.
1.2 Operating Environment
o The most important factors affecting the environment in which we operate
are Government, Economy, Competition, Customers and Quality.
o Government regulation of business affects the way business is conducted.
o Economic conditions influence demand for products or services and availability of inputs.
o Companies face global competition. Transporting materials is less costly today. Global communications are fast, effective and inexpensive.
o Customers expect more from suppliers. Customer selection criteria include a fair price, quality products and services, reduction in delivery
lead-time, better pre and post sales service, and product and volume and flexibility.
o Quality must meet or exceed customer expectations.
Definitions
Order Qualifier - Minimum requirements that a supplier must meet to be a viable competitor
Order Winners - Competitive Characteristics that persuade a customer to choose a particular product or service
Delivery Lead Time - Time from the receipt of an order to the delivery of the product. (From the customer perspective may include order
prep time)
Manufacturing Strategies (Four Lead Time Strategies)
Pull Strategy (The Customer Pulls his needs)
o Engineer-To-Order ETO
Designed to customer specification
Products whose customer specifications require unique engineering design or significant customization. Each customer order requires a cost estimate,
and special pricing. These orders generally result in a unique set of components, bills of material, and production routings
o Make-To-Order MTO
Standard design, produced only upon order
A manufacturing process strategy where the trigger to begin manufacture of a product is an actual customer order or release, rather than a market
forecast. For Make-to-Order products, more than 20% of the value-added takes place after the receipt of the order or release, and all necessary design
and process documentation is available at time of order receipt.
Pull / Push Strategy
1
, o Assemble-To-Order ATO
Subassemblies produced, assembled upon order
" A production environment where a product or service can be made after receipt of a customer's order. The end item finished product is generally a
combination of standard components and custom designed components that meet the unique needs of a specific customer. Where options or
accessories are pre-stocked prior to customer orders, the term assemble-to-order is frequently used."
Push Strategy (the Company pushes its products to the markets)
Make-To-Stock MTS :
Finished product made prior to order
"Make to Stock - A production environment where end item products are usually finished before receipt of a customer order. Customer orders are
generally filled from finished goods inventories, and production orders are used to replenish finished goods inventories"
Operation Decision Making
Manufacturing Strategy and Lead Time
2
, 1.3 The Supply Chain Concept
The supply chain system contains three Basic Elements:
o Supply,
o Production
o Distribution
Supply chain includes all activities and processes to supply a product or service to a final customer.
Any number of companies can be linked in the supply chain. Sometimes called the Value Chain.
The total chain can have any number of supplier/customer relationships.
The chain includes intermediaries such as wholesalers, warehouses, and retailers
Product or services usually flow from supplier to customer and design and demand information usually flow from customer to supplier
Traditional SC
Traditionally, management focused on internal operating issues, constraints and parameters. Suppliers were considered adversaries.
Conflicts in traditional systems often appear because differing departments maximize departmental objectives without considering the
impact to other parts of the system.
Growth of SC concept
The first major change evolved through the explosive growth of Just-in-Time (JIT) concepts. Suppliers were viewed as partners
The growth of the supply chain concept continues to be influenced by
o The explosive growth in computer capability,
o Software applications (Enterprise Resource Planning) and the ability to link companies electronically (Internet),
3
