Enterprise resource planning (ERP) is the cornerstone of production materials management in a production-focused business entity. Proactive production materials management starts by integrating sales information for the final product into the ordering process for raw materials and externally sourced sub-assemblies.
Best practices in production materials management start with coherent information flow. From an accurate demand forecast by sales, to accurate Bill of Materials, to accurate Master Planning System algorithms, the chain of information cannot have weak links.
The Gold Standard
Japanese manufacturing companies developed Just in Time systems to support the most effective production materials management. There is no excessive inventory anywhere in the system. The only inventory on site is those raw materials or sub assemblies required for that day’s production.
To achieve this, significant and sustained improvements are required versus older industry standard practices. Vendors must be certified or qualified to meet exacting performance standards. Supply chains must be virtually transparent, often through the use of e procurement and such real time visibility tools as RFID tracked shipments.
The Functional Standard
Typically, most production materials management systems fall short of the gold standard. How short determines how successful and efficient you can consider them. Organizations meeting the functional standard balance shelf space with the benefits of the economic ordering quantities that might naturally result from low cost country sourcing.
JIT systems tend to focus on domestic sourcing because local suppliers are more reliable. There are simply fewer potential failure points in a supply chain when the logistics tail is short. Strategic sourcing methodology is the keystone of production materials management. SAP materials management systems are the tool to execute.
The functional standard allows for companies to make conscious decisions about balancing costs and risks of inventory management. ERP systems and the sap materials management systems that provide their backbone play a critical in successfully integrating master production system (MPS) needs data with Master Resource Planning (MRP) raw material data.
There are still many small to medium companies using traditional materials management processes that put them at risk. Either the company falls short on the materials needed for production, necessitating expensive expedited orders, or develops an excess of raw materials requiring storage space and additional handling.
The Road Forward
One of the reasons that SAP materials management software is so preeminent is its full integration of enterprise functions from purchasing through sales and distribution. By having a single coherent platform to support production, as well as other supply chain needs, companies are well positioned for gains in efficiency.