The materials management cycle consists of the inflow of goods through materials acquisition whether it is by outright purchase or partially or fully on credit basis, plus internal transport and inventory management. The relevant strategies regarding purchasing transport and warehousing must include cost-effective methods in these functions. The materials flow Involves vendors and suppliers, and is integral to the operation of the business, Purchasing forecasts are directly based on production schedules or other internal usage plans, and highly integrated materials management is possible given a disciplined internal planning process.
The logistics activity in a company acts to co-ordinate the flow of material and the related information through the system. It has to co-ordinate production planning; delivery frequencie required matching sales demands and customer order frequencies. All this has to be achieved through shared information. This requires an integrated information system in which:
- Data entering one subsystem is also available to any other subsystem requiring it; for example, data concerning customer orders should be available to inventory control, production scheduling, sales forecasting, etc.
- All inter-related subsystems should have access to data in a common data base.
- Closely connected activities are integrated into the same procedure, order processing, credit checking and stock allocation.
A high degree of sharing of expensive capital equipment should be allowed for; for example, the central computer installation, the data base and the application packages, among others, can be shared among the various functions.
The logistics information system consists of two subsystems dealing with supplies and customers. The supply subsystem input consists of the materials requirements plan, indicating how many of what types of items are needed und when they are needed for production; this has to be checked against the standing inventory and any orders outstanding. If necessary, sources of supply for any extra materials needed will have to be decided upon and purchase orders generated. This process appears simple but a company may have a register of hundreds of suppliers and maintain an inventory with many thousands of stock-keeping units. Also a sharp look-out must be kept for possible shortages and the suppliers checked for their reliability, prices and service. At the same time, the inventory must be minimized while making sure that production is not held up due to a stock out. It is obvious that a sophisticated information system is necessary to balance all these factors simultaneously.
In many ways, the customer subsystem is the mirror image of the supply system. An order from a customer is the start of the process. Hundreds of such orders per day have to be monitored against customer records for creditworthiness and special terms or needs, among other things. After which stock has to be assigned to the order, replenishment of inventory catered for if necessary, delivery and invoices as well as other complementary activities arranged for, A host of other information regarding achievements of service levels, re-order levels, etc., has to be gathered at this point to assist in making demand forecasts.
These two subsystems come together in the manufacturing function and have to be integrated through production control so that the supply sub system generates what the customer subsystem demands. Many companies have installed materials requirements planning (MRP) systems. Basically these forecast the components and materials needed from the company’s master production schedule (MPS) and the bill of material (BOM) for each end product. The requirements are calculated by taking existing stock levels and orders already placed into account, as well as the times when the items will be needed and the supply lead times. A successfully implemented MRP system can reduce inventory levels, speed up changes in the production process to meet changes in demand and increase the level of service in meeting demand. The basic idea is simple but the control of such multiple activities has only become possible through the use of advanced computer technology.
Other methods such as the just-in-time (JIT) system can reduce inventory levels while maintaining service levels. The idea is that the materials needed should arrive just in time for their use in manufacture. Reliable lead times are necessary for these systems to work properly. A similar development in the distribution field is the distribution requirements planning (DRP) system. This starts from the demand for the finished product and produces requirements schedules at each level of the distribution chain. This is a ‘pull’ system in that the end demand ‘pulls’ the required products down the chain rather than a centrally decided production plan ‘pushing’ the products down the line. Since the emphasis is now on customer needs, the former makes more sense than the latter, though both have their advantages.
The latest innovation is a combination of the MRP and D RP systems into logistics requirements planning (LRP) systems, which will link the end demand through the whole chain back to the suppliers. This has a number of complex requirements which must be satisfied before such a system can be contemplated, including a high degree of dedication on the parts of the management and the whole organization.
Importance of Physical Distribution/ Marketing Logistics
Physical distribution/marketing logistics forms a pivotal part of the marketing task.
Confers Place and Time Utility on Products
It is physical distribution that confers place utility and time- utility to a product by making it available to the user at the right place and at the right time. Thereby, it maximizes the chance to sell the product and strengthen the company’s competitive position. If any product made in any place could be consumed in its entirety at the very place of production and at the very time of production, there would be no need for physical distribution of that product. But such products are very rare. In practice, almost every product gets consumed at places and times that are different from those of their manufacture. They have to be carried to places of consumption; they have to be stored; and they have to be distributed.
Importance of Physical Distribution/Marketing Logistics
- Ensures the physical flow of the product from the producer to the consumer. Without this flow, marketing cannot take place.
- Confers place and time utility on products
- Helps build clientele.
- Where production locations and markets are distanced, physical distribution becomes all the more crucial.
- “A promising area for cost reduction.
Where Production Locations and Markets are Distanced, Physical Distribution Becomes more Crucial
In some cases, production locations are totally dictated by considerations, like proximity to sources of raw material. As a result, the points of production might be far away from the markets for the product. In some cases, huge production capacities get established at a given location on co durations of technology and economies of scale. In all such cases, the product has to be marketed over an extended territory; it has to be transported over long distances, stored for a considerable length of time and sold. Then, there are products, which are impacted by the seasonality factor-either production is continuous but demand is seasonal. or demand is continuous but production is seasonal. Here too, physical distribution becomes particularly crucial. It has to perform the balancing act between production and consumption.
Helps Build Clientele: It is physical distribution that determines the customer service level to a large extent. As a result, it serves as a vital tool in building clientele/market for the product. And conversely ineffective physical distribution leads to loss of customers and markets.
