Materials management

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Materials management is a core supply chain function and includes supply chain planning and supply chain execution capabilities. Specifically, materials management is the capability firms use to plan total material requirements. The material requirements are communicated to procurement and other functions for sourcing. Materials management is also responsible for determining the amount of material to be deployed at each stocking location across the supply chain, establishing material replenishment plans, determining inventory levels to hold for each type of inventory (raw material, WIP, finished goods), and communicating information regarding material needs throughout the extended supply chain.

Contents

Supply chain materials management areas of concentration

Goals

The goal of materials management is to provide an unbroken chain of components for production to manufacture goods on time for customers. The materials department is charged with releasing materials to a supply base, ensuring that the materials are delivered on time to the company using the correct carrier. Materials is generally measured by accomplishing on time delivery to the customer, on time delivery from the supply base, attaining a freight, budget, inventory shrink management, and inventory accuracy. The materials department is also charged with the responsibility of managing new launches.

In some companies materials management is also charged with the procurement of materials by establishing and managing a supply base. In other companies the procurement and management of the supply base is the responsibility of a separate purchasing department. The purchasing department is then responsible for the purchased price variances from the supply base.

In large companies with multitudes of customer changes to the final product there may be a separate logistics department that is responsible for all new acquisition launches and customer changes. This logistics department ensures that the launch materials are procured for production and then transfers the responsibility to the plant materials management.

Materials management

The major challenge that materials managers face is maintaining a consistent flow of materials for production. There are many factors that inhibit the accuracy of inventory which results in production shortages, premium freight, and often inventory adjustments. The major issues that all materials managers face are incorrect bills of materials, inaccurate cycle counts, unreported scrap, shipping errors, receiving errors, and production reporting errors. Materials managers have striven to determine how to manage these issues in the business sectors of manufacturing since the beginning of the industrial revolution.

Materials management in construction

Materials typically account for a large portion of a construction project's budget. Materials may account for more than 70% of a construction project's cost. [1] Despite these statistics, when project budgets and efficiency are considered, labour and cost reduction are discussed. [2] Materials management often gets overlooked, even though successful projects are a result of a successful blend of labour, materials and equipment management.  When materials are tracked efficiently project time can be optimized, costs can be saved and quality can be maximized. [3]

There is a lack of efficient materials management in capital and investment construction projects, because each project is typically viewed as an individual effort, with each project needing a unique plan. The geographical location and technology needed for different projects will present distinctive challenges, [2] but in general all projects will have elements that can be predicted from previous construction projects.

Types of construction projects and how this effects materials management

Typically, the more technically challenging a project is, the more difficult materials management becomes; However, the need for transparent materials tracking is highlighted in these types of projects.

Residential construction projects- residential projects can be homes or apartment buildings, that are intended for living. [4] Managing material flows in these projects is usually easier, because typically engineering and construction teams as well as budgets are smaller, [4] in comparison to projects listed later in this article.  Also, technical specifications of projects don't vary as much as for example in heavy-industry construction projects.

Commercial construction projects- these types of projects include retail stores, your restaurants and hotels. [4] The complexity of the project and the needs for thorough material tracking will typically depend on the size of the project.


Specialized industrial construction projects- these projects are large-scale and technically complex. Examples of these types of projects include nuclear power plants, chemical processing plants, steel mills, pulp mills and oil refineries. The materials procured for these projects require specific engineering knowledge (i.e. piping, valves, motors, industrial tanks, fans, boilers, control valves etc.). [5] The importance of material tracking in these types of projects is extremely high, because the project network is large, materials are procured from all over the world and the construction sites are typically in remote locations with poor infrastructure.

Industrial construction projects- rxamples of industrial construction projects include warehouses and manufacturing facilities. [4] These types of projects tend to be slightly more complex than residential or commercial construction projects and they require more technical knowledge. This increases the need for efficient materials management.

Materials management in capital-heavy construction projects

Materials management is the process of planning and controlling material flows. It includes planning and procuring materials, supplier evaluation and selection, purchasing, expenditure, shipping, receipt processes for materials (including quality control), warehousing and inventory, and materials distribution. [6] After the construction project finishes, maintenance of materials can also be looked as a part of materials management.

Material management processes and functions in large-scale capital projects encompass multiple organizations and integrated processes. Capital project supply networks typically include project owners, main contractors, EPC/M contractors, material suppliers, logistics partners and project site contractors.

Digital tools for materials management in construction

It is very common to use digital tools for materials management in capital projects. Materials requirement planning systems and procurement systems are well-liked in the industry. [5] Minimizing procurement costs through comparing bids is an essential part of reducing projects costs. Computer-based systems are an excellent tool during the purchasing process, because equipment specification, supplier selection, delivery time guarantees, shipping fees and multiple other aspects of procurements can be automatically compared on one platform. [5]

Material deliveries from the supplier to the construction site can be tracked using various tools. [6] For example, project freight forwards will typically have precise information on containers and deliveries sent to the construction site, but typically their systems lack insight into the specific materials and components within those deliveries. Details on packing lists will be attached to the packages in the delivery and they will typically be sent to the purchaser via email. Other ways of tracking deliveries include RFID-tagging packages or components. The downfall with this method is that suppliers or purchasers have to invest in RFID-tags. [7] Common materials data-bases for the project network can also be implemented to share data on material deliveries. [8]

Once the materials arrive at the construction site, receipt processes for the goods should be followed. The storage locations should be recorded, so that individual components are easy to locate as construction sites. Inventory of the goods should also be monitored (when goods are taken for assembly). [9] Storing procured materials appropriately is crucial for saving costs. For example, if electronical equipment is procured and delivered to the construction site in one lot to save costs on multiple delivery fees, the electrical equipment that is not needed for assembly immediately has to be stored in water-proof locations. [5] Digital tools can be used to plan for incoming deliveries and how to store them. The need for digital tools is furthermore highlighted, if materials are stored for example in contractor warehouses rather than the construction site. This way all project parties will know, where goods can be located.

See also

Related Research Articles

<span class="mw-page-title-main">Enterprise resource planning</span> Corporate task of optimizing the existing resources in a company

Enterprise resource planning (ERP) is the integrated management of main business processes, often in real-time and mediated by software and technology. ERP is usually referred to as a category of business management software—typically a suite of integrated applications—that an organization can use to collect, store, manage and interpret data from many business activities. ERP systems can be local-based or cloud-based. Cloud-based applications have grown in recent years due to the increased efficiencies arising from information being readily available from any location with Internet access.

<span class="mw-page-title-main">Supply chain management</span> Management of the flow of goods and services

In commerce, supply chain management (SCM) deals with a system of procurement, operations management, logistics and marketing channels, through which raw materials can be developed into finished products and delivered to their end customers. A more narrow definition of supply chain management is the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand and measuring performance globally". This can include the movement and storage of raw materials, work-in-process inventory, finished goods, and end to end order fulfilment from the point of origin to the point of consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain.

<span class="mw-page-title-main">Logistics</span> Management of the flow of resources

Logistics is a part of supply chain management that deals with the efficient forward and reverse flow of goods, services, and related information from the point of origin to the point of consumption according to the needs of customers. Logistics management is a component that holds the supply chain together. The resources managed in logistics may include tangible goods such as materials, equipment, and supplies, as well as food and other consumable items.

<span class="mw-page-title-main">Inventory</span> Goods held for resale

Inventory or stock refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation.

Logistics engineering is a field of engineering dedicated to the scientific organization of the purchase, transport, storage, distribution, and warehousing of materials and finished goods. Logistics engineering is a complex science that considers trade-offs in component/system design, repair capability, training, spares inventory, demand history, storage and distribution points, transportation methods, etc., to ensure the "thing" is where it's needed, when it's needed, and operating the way it's needed all at an acceptable cost.

<span class="mw-page-title-main">Supply chain</span> System involved in supplying a product or service to a consumer

A supply chain, sometimes expressed as a "supply-chain", is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers. Meanwhile, supply chain management deals with the flow of goods within the supply chain in the most efficient manner.

<span class="mw-page-title-main">Warehouse</span> Building for storing goods and giving services

A warehouse is a building for storing goods. Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are usually large plain buildings in industrial parks on the outskirts of cities, towns, or villages.

Vendor-managed inventory (VMI) is an inventory management practice in which a supplier of goods, usually the manufacturer, is responsible for optimizing the inventory held by a distributor.

Procurement is the process of locating and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. The term may also refer to a contractual obligation to "procure", i.e. to "ensure" that something is done. When a government agency buys goods or services through this practice, it is referred to as government procurement or public procurement.

Purchasing is the process a business or organization uses to acquire goods or services to accomplish its goals. Although there are several organizations that attempt to set standards in the purchasing process, processes can vary greatly between organizations.

A warehouse management system (WMS) is a set of policies and processes intended to organise the work of a warehouse or distribution centre, and ensure that such a facility can operate efficiently and meet its objectives.

A lead time is the latency between the initiation and completion of a process. For example, the lead time between the placement of an order and delivery of new cars by a given manufacturer might be between 2 weeks and 6 months, depending on various particularities. One business dictionary defines "manufacturing lead time" as the total time required to manufacture an item, including order preparation time, queue time, setup time, run time, move time, inspection time, and put-away time. For make-to-order products, it is the time between release of an order and the production and shipment that fulfill that order. For make-to-stock products, it is the time taken from the release of an order to production and receipt into finished goods inventory.

Reverse logistics encompasses all operations related to the upstream movement of products and materials. It is "the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Remanufacturing and refurbishing activities also may be included in the definition of reverse logistics." Growing green concerns and advancement of green supply chain management concepts and practices make it all the more relevant. The number of publications on the topic of reverse logistics have increased significantly over the past two decades. The first use of the term "reverse logistics" in a publication was by James R. Stock in a White Paper titled "Reverse Logistics," published by the Council of Logistics Management in 1992. The concept was further refined in subsequent publications by Stock (1998) in another Council of Logistics Management book, titled Development and Implementation of Reverse Logistics Programs, and by Rogers and Tibben-Lembke (1999) in a book published by the Reverse Logistics Association titled Going Backwards: Reverse Logistics Trends and Practices. The reverse logistics process includes the management and the sale of surplus as well as returned equipment and machines from the hardware leasing business. Normally, logistics deal with events that bring the product towards the customer. In the case of reverse logistics, the resource goes at least one step back in the supply chain. For instance, goods move from the customer to the distributor or to the manufacturer.

Supply-chain optimization (SCO) aims to ensure the optimal operation of a manufacturing and distribution supply chain. This includes the optimal placement of inventory within the supply chain, minimizing operating costs including manufacturing costs, transportation costs, and distribution costs. Optimization often involves the application of mathematical modelling techniques using computer software. It is often considered to be part of supply chain engineering, although the latter is mainly focused on mathematical modelling approaches, whereas supply chain optimization can also be undertaken using qualitative, management based approaches.

<span class="mw-page-title-main">SAP ERP</span> Enterprise software

SAP ERP is an enterprise resource planning software developed by the German company SAP SE. SAP ERP incorporates the key business functions of an organization. The latest version of SAP ERP (V.6.0) was made available in 2006. The most recent SAP enhancement package 8 for SAP ERP 6.0 was released in 2016. It is now considered legacy technology, having been superseded by SAP S/4HANA.

<span class="mw-page-title-main">Order fulfillment</span> Response to a customer order in terms of design, manufacture and delivery

Order fulfillment is in the most general sense the complete process from point of sales inquiry to delivery of a product to the customer. Sometimes, it describes the more narrow act of distribution or the logistics function. In the broader sense, it refers to the way firms respond to customer orders.

<span class="mw-page-title-main">Supply chain network</span> Evolution of the basic supply chain

A supply-chain network (SCN) is an evolution of the basic supply chain. Due to rapid technological advancement, organizations with a basic supply chain can develop this chain into a more complex structure involving a higher level of interdependence and connectivity between more organizations, this constitutes a supply-chain network.

<span class="mw-page-title-main">Humanitarian logistics</span>

Although logistics has been mostly utilized in commercial supply chains, it is also an important tool in disaster relief operations. Humanitarian logistics is a branch of logistics which specializes in organizing the delivery and warehousing of supplies during natural disasters or complex emergencies to the affected area and people. However, this definition focuses only on the physical flow of goods to final destinations, and in reality, humanitarian logistics is far more complicated and includes forecasting and optimizing resources, managing inventory, and exchanging information. Thus, a good broader definition of humanitarian logistics is the process of planning, implementing and controlling the efficient, cost-effective flow and storage of goods and materials, as well as related information, from the point of origin to the point of consumption for the purpose of alleviating the suffering of vulnerable people.

Merge-in-transit (MIT) is a distribution method in which several shipments from suppliers originating at different locations are consolidated into one final customer delivery. This removes the need for distribution warehouses in the supply chain, allowing customers to receive complete deliveries for their orders. Under a merge-in-transit system, merge points replace distribution warehouse. In today's global market, merge-in-transit is progressively being used in telecommunications and electronic industries. These industries are usually dynamic and flexible, in which products have been developed and changed rapidly.

Third-party logistics is an organization's long term commitment of outsourcing its distribution services to third-party logistics businesses.

References

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  3. zfaridi. "Effective Materials Management in Construction Projects". www.nbmcw.com. Retrieved 2021-09-21.
  4. 1 2 3 4 "4 Types of Construction Projects (Plus Construction Careers)". Indeed Career Guide. Retrieved 2021-09-21.
  5. 1 2 3 4 "Project Management for Construction: Labor, Material and Equipment Utilization". www.cmu.edu. Retrieved 2021-09-21.
  6. 1 2 Kasim, Narimah (2015-05-31). "Intelligent Materials Tracking System for Construction Projects Management". Journal of Engineering and Technological Sciences. 47 (2): 218–230. doi:10.5614/j.eng.technol.sci.2015.47.2.11.
  7. Dharmapalan, Vineeth; O’Brien, William J (2018-12-01). "Benefits and challenges of automated materials technology in industrial construction projects". Proceedings of the Institution of Civil Engineers - Smart Infrastructure and Construction. 171 (4): 144–157. doi: 10.1680/jsmic.19.00009 .
  8. "Material Tracking System". LogiNets Oy. Retrieved 2021-09-21.
  9. Sarowar, Surdkar and Chaudhari, Pratik P., Komal S., and Chetana K. "Importance of Material Management on Construction Sites" (PDF). International Journal of Engineering Research in Mechanical and Civil Engineering.{{cite journal}}: CS1 maint: multiple names: authors list (link)

Further reading