Materials Management: KK5

materials in operations

• businesses need to ensure they have enough materials on hand to produce their output

• without enough materials, production may need to stop

• having too many materials, can also cause inefficiencies

operations management ensures that:

• materials arrive at the right place

• materials arrive on time

• the business has the right quantities of materials

• the materials are the right quality

issues with having not enough materials

• can be challenging to meet customer demand

• being out of stock can result in unhappy customers and loss of sales

• can slow production and increase waiting times - increasing costs

issues with having too much inventory

• inventory can become damaged, lost, may perish, or become obsolete while being stored

• storage takes up space and/or costs money

• inventory ties up money that can’t be used in other areas of the business

strategies to help improve the effectiveness and efficiency of operations in the area of materials

• forecasting

• master production schedule

• materials requirement planning

• just in time

forecasting

involves using data from past and present which can be analysed to predict the future demand for a good or service, so decisions can be made on materials requirements

what type of data can be used for forecasting?

• qualitative data can be used: consumer surveys, expert opinions, questionnaires

• quantitative data can be used: algorithms, software, statistics, sales data

strengths of forecasting

improves efficiency:

• ensuring enough materials are on hand, leading to continuous flow (reducing waiting times)

• minimises wastage - reduces the amount of stock perishing/becoming obsolete/damaged

improves effectiveness

• helps the operations meet customer demand

• enhances the ability to respond to changes in the market

limitations of forecasting

• forecasting, to some degree, will always be inaccurate, making use of historical data does not necessarily guarantee that past events will continue into the future — it is always possible that unforeseen or unexpected events will occur.

• time consuming to monitor data and trends

master production schedule

• MPS is a plan that describes what is to be produced, in what quantities, where and when

• MPS allows the business to plan how many materials they require to meet the production needs

strengths of mps

improves efficiency:

• streamlines production processes by providing a clear plan and schedule for production (planning resources)

• can reduce lead times as materials are on hand at the right time

• reduces overproduction

improves effectiveness:

• meeting customer demand by aligning production with market demand

• allows the business to plan their resources, reducing costs and improving profits

disadvantages of mps

• can result in less flexibility if there are quick changes to production required

• maintaining and monitoring the mps can take dedicated staff, increasing costs

materials requirement plan

• mrp is an itemaised list of all materials involved in production to meet the orders

• mrp considers:

  • what needs to be produced and the quantities

  • materials already on hand

  • lead time

advantages of mrp

improve efficiency:

• ensuring materials are on hand so there is continuous flow

• minimises wastage

improve effectiveness:

• reduces delays, helping meet customer demand

• can lead to reduced costs (reduced storage costs, reduced wasted money on materials becoming wastage)

disadvantages of mrp

• requires accurate data to be effective

• costs involved in implementing mrp can be significant

just in time

• jit is where the amount of materials arrive just as they are needed for production

• materials are not idle for long periods of time

• deliveries will occur more regularly as fewer materials are on hand at a given time

advantages of jit

improve efficiency

• reduces storage costs

• minimises wastage

improve effectiveness

• allowing the business to be more responsive to market conditions and changing customer needs/wants

• improved product quality

• less money tied up in idle stock

disadvantages of jit

• highly dependent on suppliers

• vulnerable to supply chain disruptions

• increased risk of stockouts

• increased delivery costs