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Home : Articles : Inventory : Materials Management

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MATERIALS MANAGEMENT

When manufacturing was in its infancy, companies found it difficult to keep a steady supply of the materials needed to keep the machines roaring and the products rolling off the assembly line. Some companies chose to order an abundance of stock which cost them more in warehouse space and sometimes left them holding a large quantity of unused inventory or they tried to predict accurately when they needed to re-order based on current production levels. While both methods sometimes paid off, neither took into consideration the variability of supply and demand. These situations were known as “Push” systems and were common up until World War II.

The opposite of “Push” systems are “Pull” systems. In a “Pull” system, reorders are based on need not on anticipation. For example, if a grocer has twelve cartons of orange juice for sale on the shelf and all but three of them are sold, he knows to go back into the warehouse and bring out another 9 cartons. He doesn't try to determine how long those cartons will last nor does he put out 30 cartons just in case. In manufacturing, “Pull” systems allow companies to save money on excess inventory and so they were popular, but they weren't full-proof. Delays in communication and slow lead-times sometimes prevented them from getting their supplies before they ran out.

During World War II, the concept of the reorder-point was developed. Researchers recognized the need for a materials management strategy that took into consideration the variability of supply and demand (as the “Pull” system does) but which allows for orders to be placed in plenty of time for the goods to arrive before the stock is depleted. The Reorder-Point takes into consideration lead-times for the creation of those materials so that companies don't wait until the last minute to reorder. Instead, when their stock reaches a certain level (determine through complex mathematical computations), they place an order.

As “Pull” systems were being refined by researchers, an additional advancement in materials management was devised. This advancement was called Period Batch Control, and it allowed businesses to set a fixed lead-time for their productions. Companies were able to do this by scheduling the creation of the different components that went into the finished product. For example, one week the supplies would arrive and two weeks later the components would be completed and would be moving on to be turned into sub-assembly parts.

Batch Control started off primitively, but in the 1970's the automotive industry saw incredible success by computerizing the scheduling necessary for developing these fixed lead-times. Today, batch control is central to Materials Requirements Planning (MRP) which uses software to determine these lead-times so that “Pull” systems can be more effectively accommodated.

Obviously, materials management has had a long history that began with an inefficient method of guessing how much stock would be needed. Today's improved, technology-based approach literally allows companies to tell vendors the moment they hit the reorder point and thanks to improved batch control strategies those reorder points are more accurate than ever as well. This combination of technology and proven effective materials management strategies have been an important asset to businesses since their development.

Efficient materials management not only keeps the business running smoothly but also helps companies maintain improved relationships with the members of their supply chains, cut down on their costs, and satisfy the demands of their customers. All of which have become increasingly important because of the competitive market most organizations are faced with today. These benefits are not optional; they have become mandatory for companies that have been successful in their fields.

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