10.7 Materials management
Materials management and physical distribution are concerned with the means by which inputs get to the production site and the finished product gets to the customer. If we show this process from suppliers to customers, it could be displayed as in Figure 10.2.
Figure 10.2 The international supply chain
Source: Czinkota et al. 2005, p. 531.
We dealt broadly with procurement (shown as domestic/import sourcing in Figure 10.2) under the heading 'make-or-buy'. However, there are other support activities that go hand in hand with procurement. These are purchasing (if the inputs are bought rather than made), maintenance of buildings and equipment, and technical functions which provide the production facility with manufacturing specifications.
The procurement process ends with the supply of inputs to production, but the system must be geared to providing the right quantity of inputs. Is a materials inventory to be held or is there a just-in-time (JIT) system in operation? We will address JIT in the next section, but if an inventory is to be held, what level of stock is appropriate? Decisions such as these are germane to the position of the materials management cell in the organisation structure. The picture is illustrated by three diagrams from your textbook (Hill 2005, pp. 575-576):
- Figure 16.3 shows the complexity of the supply and distribution chain in an international business.
- Figure 16.4A shows the supply and distribution cells in a traditional organisation structure. The system is divided, with one component in each of the manufacturing and marketing departments.
- Figure 16.4B shows an organisation structure with materials management as a separate function.
Activity 10.2
- Identify the problems inherent in Figure 16.4A.
- How does the structure depicted in Figure 16.4B overcome these problems?
- Identify any problems inherent in Figure 16.4B.
We end this section with a comment similar to that used by Hill (2005): the heart of any modern materials handling system is electronic data interchange (EDI). Global EDI systems are now commonplace, but the US Army logistics system is perhaps the archetype. The database in the Pentagon has for many years had the capacity to arrange supply of a component required at any US military base in the world within 24 hours.
In your text
Hill 2005, Chapter 16, pp. 573-577.
The next section is about production and distribution technology. All the technology referred to in your textbook has been included in one section because it forms an integrated network. Your textbook deals with the topic in piecemeal fashion and there is a risk that the reader will see the just-in-time (JIT) system, for example, in isolation as a factor of supply. It is much more than that: JIT is a component of a complex interaction system.
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