IntroductionToday logistics is understood as a management approach that handles, in a systemic and integrated way, all activities directly or indirectly related to an organization's physical, financial and information flows. As we saw in the lesson on the history of logistics, it went through a phase of fragmentation, in which each activity was managed in isolation, until it reached the total integration of its functions. The figure below summarizes this path. [2]Evolution of logistics: from the fragmentation of the 1960s to the integrated logistics of the 2000sNotice that, in partial integration, the activities come together in two large blocks: on one side materials management (demand study, purchasing, order planning, production and materials planning), on the other physical distribution (finished goods inventory, distribution planning, order processing, packaging and customer service). Warehousing, transportation and materials handling appear in both. In this lesson we will study the first block: what materials management is, how it is organized and whom it interacts with inside the company.Materials managementMaterials management deals with the flow of materials (raw materials, components, inputs) from outside into the company, that is, with supply, including the sources of supply. Its objective is usually summarized like this: provide the right material, at the right place of operation, at the right time and in usable condition, at the lowest possible cost. Many people know it as inventory management, but it goes further: it includes the stockroom, the storage and handling of materials, purchasing and control.It can be studied from the perspective of three equally important areas: [1]Purchasing management: its main objective is to ensure the supply of the goods and services needed for production and for the company's other activities. It starts with the search for suppliers able to deliver with quality, on time and to specification.Inventory management: its main objective is to guarantee that the materials needed for the company to operate are available, avoiding shortages and production stoppages.Distribution center management: its objective is to receive, store and supply the material bought by purchasing and planned by inventory management, meeting users' requests in the right quantities and at the right time.The table below shows each area, its duties and its strategy.ManagementDutiesStrategyInventoryExamines inventories to see the need for replenishment;Indicates the quantities to replenish and the delivery deadlines.Match inventory levels to the needs of the users of the various materials, at the lowest possible cost, without compromising the expected service levelPurchasingResearches and selects suppliers (in the public sector, runs the bidding processes);Decides on acquisitions;Negotiates supply terms;Signs contracts with suppliers.Meet the replenishment needs planned by inventory management, in the quantities and deadlines it setsDistribution centerReceives materials;Stores materials;Keeps physical control of materials;Supplies materials to users.Physical control of the stored materialsThe three areas are interconnected and form a cycle: inventory plans (how much and when to replenish), purchasing negotiates and contracts (from whom and on what terms) and the distribution center coordinates the physical side (receives, stores, delivers and reports what went out, which feeds inventory planning again).A common confusion is to think that purchasing is a financial area. Whoever pays the bills (accounts payable and receivable) is financial management; the act of buying, that is, choosing the supplier, negotiating and contracting, belongs to materials management.Responsibilities and objectiveThe main responsibilities of materials management are:supply the company, through purchasing, with all the materials it needs to operate;evaluate other companies as potential suppliers;supervise the stockrooms;control inventories;establish an adequate storage system;coordinate inventory counts.Its main objective is to make the most of the company's resources. In other words, to avoid waste, which shows up in many forms: excess inventory, purchases of unnecessary or low-quality materials, shortages that stop production, materials that spoil or become obsolete on the shelf.To do this, it performs four basic functions:classification (and coding) of materials;purchasing;stockroom;inventory control.“A well-structured materials management makes it possible to obtain competitive advantages through cost reduction, lower inventory investment, better purchasing terms through negotiation with suppliers, and the satisfaction of customers and consumers with the products offered by the company”- GONÇALVES, PauloThe stockroom clerk noticed that the stock of screws was almost gone, but nobody had defined when or how much to replenish, and the production line stopped. According to the division of tasks in materials management, which area failed to do its job?Answer: Inventory management — it is the area that examines inventories, sees the need for replenishment and indicates quantities and deadlines. Purchasing can only act after inventory says what to replenish; the distribution center, here, even did its part by noticing the shortage.Which of these activities does NOT belong to materials management?Answer: Paying the supplier's invoice on the due date — payment belongs to financial management (accounts payable). Negotiating and contracting, which many people think is financial, is a purchasing task within materials management.Organization and structureThere is no single organization chart. In small companies, the same person buys, receives and controls inventory; in large companies, each area has its own manager, often grouped under a supply, logistics or operations directorate. Two structural decisions appear in almost every company:whom materials management reports to: the industrial directorate (more common in factories, close to production), the administrative or financial directorate, or its own logistics/supply directorate, which is the form consistent with the idea of integrated logistics;centralize or decentralize: buy and stock through a central unit (more negotiating power, standardization) or at each site (more speed and local knowledge). We will see the advantages of each form in the lesson on the purchasing function.Strategy, in turn, is the balance between cost and service level: too much inventory is expensive; too little causes shortages. This balance is defined by the inventory policy, the subject of the next lesson.Interface with other areasMaterials management interacts heavily with the other sectors of the company: [1]Finance: provides the funds to buy the materials needed to produce goods and services, and wants as little capital as possible tied up in inventory.Production: provides the forecasts of use of the inputs, raw materials and components needed to make the products.Sales: the key element in defining how much will be produced and, consequently, how much of each item (inputs, raw materials, components) must be supplied.Human resources: supplies the area with people qualified and trained for the job.Distribution logistics: organizes optimized processes to deliver finished products according to customers' needs and expectations.Information technology: keeps the records and information that all sectors need, at every stage of the supply flow, both for production and for supplying the market.How to improve inventory managementDemand forecasting techniques: allow inventory to match expected consumption (see the lessons on demand forecasting).Shorter replenishment time (lead time): safety stock depends on replenishment time; the shorter the time, the less inventory is needed (see the lesson on lead time and safety stock).Just-in-time (JIT) deliveries: synchronize the flow of materials with demand, so that material arrives close to the time it is used.How to improve purchasing managementSupplier register: a register built from a careful study of each supplier's capabilities is a key factor in guaranteeing scheduled deliveries and giving flexibility to supply.Negotiation: has a direct impact on cost reduction.Long-term contracts: the idea is to turn suppliers into partners. Contracts of, for example, three to five years, with special clauses, give the supplier security and the buyer a stable supply.How to improve distribution center managementLocation of distribution centers: reduces transportation costs and service time.Layout: a good layout, which can be studied with simulation software such as Arena, allows materials to be stored, located and shipped quickly, without the paths of workers and equipment crossing.Handling and transport equipment: the right equipment for each material reduces costs and accidents (see the lesson on warehouse equipment).A company wants to reduce the safety stock of an imported component without increasing the risk of stockouts. Which of the measures below acts directly on this?Answer: Switching to a reliable domestic supplier with a much shorter replenishment time — safety stock covers uncertainty during the replenishment time; the shorter and more predictable that time, the less safety stock is needed. Increasing the order size affects cycle stock, not safety stock.Positions and functions in practiceA survey of companies in the Greater Florianópolis area, in Brazil, recorded the names of logistics-related positions (the number next to each position is how many companies used that name) and then asked which activities belong to each group of positions. [2] The two figures below (in Portuguese) are the basis for exercise 6, at the end of the lesson.Logistics-related positions found in the survey: inbound logistics, production and operations support, outbound logisticsActivities of each logistics groupIn the survey, the activity kanban control of production supply appears in which logistics group?Answer: Production and operations support logistics — kanban regulates the supply of the lines based on consumption, inside the factory; it is neither buying from suppliers (inbound) nor delivering to customers (outbound).References[1] GONÇALVES, Paulo Sérgio. Administração de materiais. Rio de Janeiro: Elsevier.[2] PLATT, Allan Augusto; CURY, Ricardo Martins. Panorama da logística na indústria da Grande Florianópolis. Revista de Administração, n. 1, 2010.ExercisesEasy1) What are the three areas of materials management, and what is the main objective of each?2) What are the four basic functions of materials management?3) Say whether each activity belongs to materials management or to another area of the company (and which one):a) paying the supplier's invoice on the due date;b) negotiating a volume discount with the supplier;c) coordinating the annual stockroom inventory count;d) recruiting and training a new stockroom clerk;e) indicating how much of an item to replenish and the delivery deadline.4) What is the main objective of materials management? Name three forms of waste it seeks to avoid.5) Name one advantage of centralizing purchasing and one advantage of decentralizing it.Hard6) Look at the two figures in the section Positions and functions in practice. Group the positions in the first figure into inbound logistics, production support and outbound logistics, and say which activities in the second figure belong to each group. Which of these groups corresponds to the materials management studied in this lesson?7) For each problem below, say which area of materials management is involved (inventory, purchasing or distribution center) and which of the improvement measures seen in the lesson is the most suitable:a) freight for deliveries to the stores is high because the distribution center is 400 km from most of them;b) two suppliers often deliver outside specification and late;c) an item with stable consumption is sometimes overstocked and sometimes out of stock, because replenishment is decided by eye;d) in the warehouse, forklifts cross the paths of order pickers and there have already been accidents.8) An imported component is consumed at a rate of 40 units per day and has a replenishment time of 60 days. The company uses a simple rule: it keeps a safety stock equal to 25% of consumption during the replenishment time.a) What is the safety stock today?b) If the company switches to a reliable domestic supplier, with a replenishment time of 15 days, and keeps the same rule, what will the new safety stock be?c) If keeping one unit in stock costs R$ 12 per year, how much does the switch save per year in safety stock alone?(The lesson on lead time and safety stock shows the statistical formula; here the simplified rule is enough.)9) A company is going to launch a new product. Describe what information materials management needs to receive from sales, production, finance and information technology, and what it delivers back to each of these areas.10) A chain has 8 branches, and each one buys on its own 500 units per month of the same cleaning product, at R$ 10.00 per unit. By centralizing purchases, the chain would negotiate an 8% discount on the total volume, but would start spending R$ 1,500.00 per month to distribute the product from the central warehouse to the branches.a) What would the net saving be per month and per year?b) Name one factor, besides price, that weighs in favor of centralization and one that weighs against it, and say whether you would centralize.Answer key1) Purchasing management: ensure the supply of the goods and services needed for production and other activities. Inventory management: guarantee that the necessary materials are available, avoiding shortages and stoppages. Distribution center management: receive, store and supply the material bought and planned, serving users in the right quantities and at the right time.2) Classification (and coding) of materials, purchasing, stockroom and inventory control.3) a) Another area: financial management (accounts payable).b) Materials management: purchasing.c) Materials management: coordinating inventory counts is one of its responsibilities.d) Another area: human resources, which supplies the area with qualified people.e) Materials management: inventory management.4) To make the most of the company's resources. Forms of waste: excess inventory; purchases of unnecessary or low-quality materials; shortages that stop production; materials that spoil or become obsolete on the shelf.5) Centralizing: more negotiating power with suppliers (larger volume) and standardization of materials. Decentralizing: more speed and better knowledge of local needs and suppliers.6) Inbound logistics: supply manager, purchasing manager or coordinator, purchasing and import manager, purchasing director. Activities: inbound freight, raw material inventory, warehouse, supplier development and selection, purchasing, negotiations, receiving inspection, import and materials handling.Production support: production planning and control, stockroom, inventory control, operational support, methods and processes. Activities: interface between orders and production, kanban supply of production and planning of the order and production cycle.Outbound logistics: shipping, commercial, sales and distribution, commercial director. Activities: customer service level, handling and shipping of finished products, order flow, outbound freight and dispatch.The materials management of this lesson corresponds to inbound logistics and part of production support (stockroom and inventory control).7) a) Distribution center: study the location of the distribution center, to reduce transportation cost and service time.b) Purchasing: a supplier register built from a careful study of each supplier's capabilities (and, with those that pass, long-term contracts).c) Inventory: demand forecasting techniques, to match replenishment to expected consumption.d) Distribution center: review the layout, so that the paths of people and equipment do not cross, and use the right handling equipment.8) a) Consumption during the replenishment time: 40 × 60 = 2,400 units. Safety stock: 25% × 2,400 = 600 units.b) 40 × 15 = 600 units during the new lead time; 25% × 600 = 150 units.c) Reduction of 600 − 150 = 450 units; 450 × R$ 12 = R$ 5,400 per year.9) From sales, the forecast of how much will be sold, which defines how much will be produced and, consequently, how much of each material will be needed; in return, materials reports whether there is lead time and supply capacity to support those sales. From production, the list of inputs, raw materials and components and the forecast use of each one over time; in return, materials guarantees that the line is supplied at the right time. From finance, the funds (the budget) to buy and hold the materials; in return, materials delivers the purchasing plan and seeks the least capital tied up in inventory. From information technology, the registration of the new items and the records that all departments use; in return, materials keeps these records correct (receipts, issues, inventory counts).10) a) Total volume: 8 × 500 = 4,000 units per month, or 4,000 × R$ 10 = R$ 40,000. Discount: 8% × 40,000 = R$ 3,200 per month. Net saving: 3,200 − 1,500 = R$ 1,700 per month, or 1,700 × 12 = R$ 20,400 per year.b) In favor: standardization of the product and a single supplier register and contract. Against: the branches lose speed and autonomy, and a failure at the central warehouse hits all of them at once. Since the product is standardized, the volume is large and the net saving is positive, centralization is justified, as long as the central warehouse maintains the service level to the branches.
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