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SUBJECT: Purchasing System: Materials Transport

ALPHANUMERIC IDENTIFIER:

BRIEF DESCRIPTION: Materials handling relates to logistics in the transportation of goods from supplier to consumer. Logistics has been viewed as a narrow functional activity concerned with transportation, warehousing, inventory, and materials management. However, as organizations have reconfigured in response to new competitive pressures, dramatic changes in the relationship between manufacturing and logistics have occurred. Information exchange has increased the coordination and coexistence of manufacturing and logistics activities.

KEYWORDS: Logistics, material transport, materials handling

OVERVIEW:

Introduction

Materials handling relates to ordering, receiving, and kitting parts and components from suppliers; these can come from outside vendors, be internally sourced, or be fabricated from raw materials. Logistics of materials handling involves the scheduling and transport of component parts to and from inventory and delivery to the assembly line as needed. The sharing of information in the supply chain assures the fast and coordinated movement of materials in a just-in-time basis in the lean manufacturing environment. Continuous delivery of parts eliminates the need for costly inventory; however, information about orders must flow up the supply chain. Transport decisions can involve mode selection, shipment size, and routing and scheduling.

Importance to manufacturing

The goal of logistics is to get the right goods or services to the right place, at the right time, and in the desired condition, while making the greatest contribution to the firm. Although logistics spans the supply chain and provides goods to customers according to their needs, the purchasing decision directly impacts the flow of goods in a logistics channel. In this channel, the production requirements represent future demand. A materials manager typically meets this demand in two ways. Supplies may be timed to be available as they are needed for production. Or, components requirements for may be met from inventory.

Current practice and changes influencing the subject

Just-in-time scheduling is a philosophy of operation that is an alternative to the use of inventory for meeting the goal of having the right goods at the right place at the right time. This scheduling philosophy synchronizes the entire supply chain and is characterized by the following:

• Close relationships with a few suppliers and transport carriers
• Information that is shared between buyers and suppliers
• Frequent production/purchase and transport of goods in small quantities with resulting minimal inventory levels
• Elimination of uncertainties throughout the supply channel
• High-quality goals.

The increased level of information sharing by companies and their suppliers evidences the use of JIT. Companies are investing in new systems such as enterprise resource planning, electronic data interchange and Internet systems to exchange information such as inventory levels, forecasting data and production plans with their suppliers. This allows better and faster coordination of material movement.

Example

Boeing relies on hundreds of internal and external suppliers for the 5-6 million components required to build a large airplane. The goal is to put the right parts in the right airplane in the right sequence. Through an investment in enterprise resource planning (ERP) systems and Internet applications, Boeing can communicate with its suppliers and customers to reduce cycle times and reduce parts defects. The ERP system determines when Boeing does not have enough of a certain part in the assembly line, identifies the supplier and determines where that supplier’s part needs to be delivered. The parts are then strategically delivered to where they are needed on the assembly line.

Relationship to best practices and lean manufacturing:

Lean manufacturing can be characterized by increasing integration of manufacturing and transportation as well as by increased reliance on information exchange to link these processes. The development of the just-in-time delivery system assures continuity of production and requires an uninterrupted delivery of parts precisely as they are needed in the assembly process. Regular delivery of parts eliminates the need for costly inventory, but makes it necessary for suppliers to locate within easy trucking distance of the manufacturing site. Lean plants have shown drastic productivity and quality gains through shared information about production schedules among suppliers, customers and logistics providers.

REFERENCES:

• Ballou, Ronald H. Business Logistics Management. 4^th Ed. Prentice Hall, 1999.
• Greis, Noel P. and John D. Kasarda, "Enterprise Logistics in the Information Era," California Management Review, Vol. 39, No. 4, Summer 1997.
• Stein, Tom and Jeff Sweat, "Supply Chains," Information Week, Nov. 9, 1998.

ACKNOWLEDGEMENT: This is a March 29, 1999 revision by Gene Goodson of an assignment for OM742 contributed by XXX McCmbl.