Objective of an efficient materials management

The objective of an efficient materials management is to provide

• the right materials (tools, work tools, spare parts, supplies)

• at the right time• at the right place• in the right amount• and the right quality.

Measure of effectivenessThe materials management must subordinate all acts to economic efficiency!

Measure of efficiency

The stages on the way to efficient materials management

1. Precise definition of objectives

2. Specification of requirements

3. Choice of methods and instruments

4. Measurement of performanceAim

Starting point

Specification of requirements

Concrete order requisition

Defined availability

Specified quality requirement

Organization

Storage strategies

Procurement strategies

Storage locations

Storage quantity

Minimal costs

Influencing factors

Technology Market Regulations

Maintenance requirements

Maintenance strategy

Requirements for the maintenance materials management

determine

determines

determines

Clarification of requirements and definition of the design

• Implementation of an plant structuration• - with identification of risks• - and determination of reaction times

• Determination of value and consumption frequency• Determination of procurement opportunities

What is needed where and how fast do i need it?

How is it most favourable to provide?

The principal issues of an efficient materials management

• Stock storage or order if required?• Where is to be stored?• What are the safety stocks?• When is the order initiation?• How big should be the procurement quantities?

Determinants of storage strategy

Procurement costs

Reaction timesProcurement

market

Contribution margins

Storage costs

Buffer capacities

Storage possibilities

Standards Consumption pattern

Store or order if required?

Assessment of production lossesPrerequisites:• No personal injury, no environmental- or product damage and no damage

to the system caused by the loss of production• Assessment of risk of customer loss

- Revenues minus variable costs, taking into acount existing buffer capacities

-Cost of storage bins and warehouse management- Imputed Interest-Possibly calculatory depreciation

Which contribution margins can escape us?

What storage costs we save?

Decisions by comparison of contribution margins and inventory costs

- +

Storage locations

• In any case a central warehouse management system• Fundamentally a central warehouse due to lower costs• For material with low value for regularly recurring activities

(usually operating materials and working aids) hand bearings close by the respective point of use are justifiable

Central warehouse-Low administrative costs-Lower storage amount-Higher inventory turnover-Higher utilization

Decentralized storage-Short transport routes-Short transportation times

Importance of stock materials

Determination of the importance of stock materials based on the ABC-analysisProcedure1. Determination of the annual consumption value (the product of value and consumption frequency) of the stock materials2. Sorting of the material in descending order by annual consumption value3. Determination of the cumulative annual consumption values4. Drawing of reasonable limits

10-15% of the materials 70-80% of the value A-materials

30-40% of the materials 15-20% of the value B-materials

50-60% of the materials 5-10% of the value C-materials

Concentration of effort on A-materials, referring to optimal inventory levels and inventory tracking

Example of an ABC-analysis

Material Consumption value

Cumulated share of the number of materials[%]

Cumulated share of consumption value[%]

Classification

4 580 10,0 48,54 A

7 250 20,0 69,46 A

2 160 30,0 82,85 B

10 100 40,0 91,21 B

6 30 50,0 93,72 C

8 25 60,0 95,82 C

5 20 70,0 97,49 C

9 15 80,0 98,74 C

1 10 90,0 99,58 C

3 5 100,0 100,00 C

0 10 20 30 40 50 60 70 80 90 1000

10

20

30

40

50

60

70

80

90

100

4

7

2

10 6 8 5 9 1 3

Cumulated share of the number of materials

Cum

ulat

ed sh

are

of c

onsu

mpti

on v

alue

Determination of ordering times

consumption curve

Reorder point

Safety stock level

t

stock

Replenishment time Buffer

Regular Consumption

order

incoming goods

Sporadic consumption

- Predictable time of need Order at the time of need

- Random time of need Storage strategy in consideration of efficiency

Order quantity

Large quantities…• …offer price advantages through high discounts• …mean lower specific transport costs• …lead to low specific ordering costs• …lead to high storage costs• …represent a high capital commitment (and high imputed

interest on the average stock)• …increse the risk of technical obsolescence of inverntories

because of the low stock turnoverSmall quantities…• …behave exactly reverse

Determination of the optimal order quantity

Order quantity

Order value

Order costs / year

Transport costs / year

Storage costs / year

Capital costs / year

Total costs / year

1 100 3000 10000 50 5 13055

3 300 1000 3333 150 15 4498

5 500 600 2000 250 25 2875

10 1000 300 1000 500 50 1850

15 1500 200 667 750 75 1692

25 2500 120 400 1250 125 1895

50 5000 60 200 2500 250 3010

100 10000 30 100 5000 500 5630

Example-Value per piece 100 €-Annual requirement 100 pieces-Constant consumption

-Order costs 30 €-Transport costs 100 €-Storage space 100 € / year-Imputed interest rate 10 %

Economic order quantity

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 250

500

1000

1500

2000

2500

3000

3500Total costs / year

Order- and transport costs

Storage- and capital costs

Optimum

Graphical determination of the optimal order quantityco

sts

order quantity

Potentials to reduce costs in materials management

• Check requirements to maintenance due to market requirements periodically and orientate the materials management towards the requirements

• Check online-order opportunities with fixed delivery promises• Conduct regular inventory analysis with professional

warehouse management systems• Consider potentials from the standardization already at the

construction of new plants

Conclusion

The assessment of efficiency is possible only under definition and considerations of the objectives

The objectives result from the requirements of the primary process (Production). Market, technology and regulations determine the maintenance strategy

The maintenance strategy determines the requirements to the materials management. Without knowledge or specification of the strategy no efficient materials management!

As market conditions change dynamically, the materials management must be reviewed regularly in terms of their effectiveness and efficiency

An efficient design of materials management in maintenance is possible only under the following principles: