I Is TotCl MClteriCl MClnClgement & (~apman Hall Materials Management/logistics Series [ugene l. Magad, Series [ditor William Rainey "arp~r (ollP9~ Total Materials Management: Achieving Maximum Profits through Materials/Logistics Operations, Second Edition by Eugene L. Magad and John M. Amos International Logistics, by Donald Wood, Anthony Barone, Paul Murphy & Daniel Wardlow Global Purchasing: Reaching for the World, by Victor Pooler Practical Handbook of Warehousing, Third Edition, by Kenneth B. Ackerman Handbook of Customer Service Operations, by Warren Blanding Transportation Logistics Dictionary, by Joseph L. Cavinato Lift Truck Fleet Management and Operator Training, by Bud Cohan Bulk Materials Handbook, by Jacob Fruchtbaum Practical Handbook of Industrial Traffic Management, Seventh Edition, by Leon Wm. Morse Look for these Forthcoming Titles MRP II, by John W. Toomey Distribution: Planning and Control, by David F. Ross Automatic Identification, by T.H. Allegri, P.E. Tot<ll MClteri<lls M<ln<lgement Achieving Maximum Profits Through Materials/logistics Operations S[(OND [DillON l. [ugene M~g~d Professor, Materials/Logistics Management, William Rainey ~arper College Jo~n M. Amos Adjunct Professor, Industrial and Manufacturing Systems fngineering, Kansas State University Professor fmeritus, fngineering Management, University of Missouri-Rolla CHAPMAN & HALL New York· Albany. Bonn. Boston· Cincinnati· Detroit· London· Madrid. Melbourne Mexico City. Pacific Grove. Paris· San Francisco· Singapore· Tokyo· Toronto. Washington Cover Design: Andrea Meyer, emDASH inc. Copyright © 1995 Softcover reprint of the hardcover 1st edition 1995 Chapman & Hall For more information, contact: Chapman & Hall Chapman & Hall 115 Fifth Avenue 2-6 Boundary Row New York, NY 10003 London SEI 8HN England Thomas Nelson Australia 102 Dodds Street Chapman & Hall GmbH South Melbourne, 3205 Postfach 100 263 Victoria, Australia D-69442 Weinheim Germany Nelson Canada 1120 Birchmount Road International Thomson Publishing Asia Scarborough, Ontario 221 Henderson Road #05-10 Canada, M I K 5G4 Henderson Building Singapore 0315 International Thomson Editores Campos Eliseos 385, Piso 7 International Thomson Publishing-Japan Col. Polanco Hirakawacho-cho Kyowa Building, 3F 11560 Mexico D.E Mexico 1-2-1 Hirakawacho-cho Chiyoda-ku, 102 Tokyo Japan All rights reserved. No part of this work covered by the copyright hereon may be reproduced or used in any form or by any means-graphic, electronic, or mechanical, including photocopying, recording, taping, or information storage and retrieval systems-without the written permission of the publisher. 1 23456789 10 XXX 01 0099979695 Library of Congress Cataloging-in-Publication Data Magad, Eugene L. Total materials management: achieving maximum profits through materials/logistics operations / by Eugene L. Magad and John M, Amos.-2nd ed. p. cm.-(Materials management/logistics) Includes bibliographical references and index. ISBN-13: 978-1-4684-6452-8 e-ISBN-13: 978-1-4684-6450-4 DOl: 10.1007/978-1-4684-6450-4 1. Materials management. I. Amos, John M. II. Title. III. Series. TS161.M34 1995 94-47971 658.7--dc20 elP British Library Cataloguing in Publication Data available Please send your order for this or any Chapman & Hall book to Chapman & Hall, 29 West 35th Street, New York, NY 10001, Attn: Customer Service Department. You may also call our Order Department at 1-212-244-3336 or fax your purchase order to 1-800-248-4724. For a complete listing of Chapman & Hall's titles, send your requests to Chapman & Hall, Dept. BC, 115 Fifth Avenue, New York, NY 10003. . Contents Preface / xi PART 1. MATERIALS/LOGISTICS MANAGEMENT CONCEPT AND ORGANIZA TION / 1 1. Introduction to Total Materials/Logistics Management :3 History and Evolution of Materials/Logistics Management 3 Subfunction Activities / 12 Achieving World Class Competitiveness / 15 Benefits of Total Materials/Logistics Management / 20 Summary / 29 Bibliography / 30 2. Organization of Total Materials/Logistics Management / 32 Key Elements for Materials/Logistics Management Organization 32 Types of Effective Organization / 36 Organizational Trends / 47 Relationships of Materials/Logistics Management to Other Management Functions / 49 Requirements of the Materials/Logistics Manager / 55 Summary / 58 Bibliography / 59 PART 2. PLANNING AND CONTROL OF MATERIALS/LOGISTICS MANAGEMENT / 61 3. Materials/Logistics Management Strategies / 63 Strategies for Materials/Logistics Management / 64 Materials/Logistics Management Strategy Process / 71 Forecasting Demand / 76 Implementing Strategies / 81 Strategies and Controls / 88 Methods for Developing Strategic Information 90 Relationships with Other Management Functions / 97 Summary / 99 Bibliography / 10 1 4. The Integration of Inventory Control in Materials/Logistics Management / 103 Reasons for Inventories / 103 v vi CONTENTS Inventories Affecting Materials/Logistics Management / 108 Inventory Information for Materials/Logistics Management Decisions / 110 Inventory Management Techniques for Materials/Logistics Management / 117 Affects of Inventory Management on Materials/Logistics Management / 128 Relationships with Other Materials/Logistics Management Subfunctions / 135 Relationships with Other Management Functions 137 Summary / 141 Bibliography / 142 5. Applying Production Control in Materials/Logistics Management / 144 Production Control Strategies Related to Achieving Total Materials/ Logistics Management / 144 Production Control Systems / 150 Influence of Control Systems / 165 Effects of Materials/Logistics Management in Designing Production Control Systems / 167 CRP and Capacity Control Measures / 171 Increasing Efficiency / 174 Relationships with Other Materials/Logistics Management Subfunctions / 175 Relationships with Other Management Functions 178 Summary / 181 Bibliography / 182 6. Just-In-Time (JIT) / 183 HT Overview / 183 Benefits / 185 Human Resource Management / 192 Total Quality Commitment / 193 Facilities Design / 196 Purchasing / 199 Equipment Utilization / 201 HT Applications in Service & Distribution Industries / 205 Summary / 208 Bibliography / 209 7. Utilizing Material Requirements Planning and Distribution Requirements Planning for Materials/Logistics Management / 211 Material Requirements Planning (MRP) Benefits to Materials/Logistics Management / 212 CONTENTS vii Material Requirements Planning Concepts / 218 Materials/Logistics Management Information from MRP / 223 Materials/Logistics Management with MRP System / 227 Distribution Requirements Planning (DRP) / 232 Relationships with Other Management Functions / 238 Summary / 241 Bibliography / 242 PART 3. PROCUREMENT, MATERIALS FLOW, AND DISTRIBUTION / 245 8. Purchasing / 247 Purchasing Objectives Related to Achieving Total Materials/Logistics Management / 247 Significant Purchasing Activities / 252 Legal Aspects of Purchasing / 270 Value Analysis / 272 International Sourcing / 274 Ethical Standards / 280 Relationships with Other Materials/Logistics Management Subfunctions / 283 Relationships with Other Management Functions / 285 Summary / 288 Bibliography / 289 9. Receiving and Stores / 291 Receiving and Stores Objectives Related to Achieving Total Materials/ Logistics Management / 291 Significant Receiving and Stores Activities / 296 Relationships with Other Materials/Logistics Management Subfunctions / 319 Relationships with Other Management Functions / 322 Summary / 324 Bibliography / 325 10. Materials Handling / 327 Materials Handling Objectives Related to Achieving Total Materials/ Logistics Management / 328 Materials Handling Principles / 336 Materials Handling Problem Analysis / 341 Typical Equipment and Applications / 353 Relationships with Other Materials/Logistics Management Subfunctions / 362 Relationships with Other Management Functions / 366 viii CONTENTS Summary / 369 Bibliography / 370 11. Physical Distribution / 371 Physical Distribution Objectives Related to Achieving Total Materials/ Logistics Management / 371 Significant Physical Distribution Activities / 377 Transportation Management / 399 International Physical Distribution / 406 Analysis of Operations / 409 Relationships with Other Materials/Logistics Management Subfunctions / 411 Relationships with Other Management Functions / 413 Summary / 415 Bibliography / 417 PART 4. IMPLEMENTATION AND CONTROL OF MATERIALS/ LOGISTICS MANAGEMENT / 419 12. Automation / 421 Materials/Logistics Management Systems / 421 Improving Materials/Logistics Management Operations Through Re- engineering / 426 Materials/Logistics Management Information Systems / 428 Decisions Techniques for Materials Logistics Management / 434 Computer Aided Manufacturing (CAM) / 438 Materials/Logistics Management in Flexible Manufacturing Systems (FMS) / 450 Relationships with Other Materials/Logistics Management Sub functions / 459 Summary / 461 Bibliography / 463 13. Managing a Successful Materials/Logistics Management Operation / 465 Defining and Zeroing in on Operational Problems / 465 Politics / 477 Marketing Materials/Logistics Management Strategies / 482 A Successful/Productive Materials/Logistics Operation / 487 Materials/Logistics Management of the Future-Profit Center 493 Future Materials/Logistics Management Strategies / 498 Summary / 503 Bibliography / 504 CONTENTS ix 14. Control of Materials/Logistics Management Functions / 507 The Control Concept I 507 Budgets I 514 Work Standards I 517 Efficiency Indices I 521 Management by Objectives I 526 Summary I 533 Bibliography I 534 15. Financial Considerations Related to Materials/Logistics Management / 535 Role of Financial Officer I 535 Basic Financial Statements I 539 Financial Ratio Analysis I 545 Cash Flow I 551 Long-Term Investment Decisions I 556 Terminology I 560 Summary I 562 Bibliography I 563 Appendix A: Professional Societies I 565 Index I 567 Preface In an ever-changing world where every operation is affected by some other operation, which may even be in another part of the world, everyone is becoming more specialized. Materials/logistics management is faced with an even more demanding business environment, requiring the function to respond and provide services never before realized. Today, and in the future, materials/ logistics management is a vital part of every company's organization. The function is an important part of our educational process. Materials/logistics management has received minor attention in the past, such as in the service sector of our economy. Service industries are now recognizing the importance and contribution of materials/logistics to their "bottom line" profits. The 2nd edition includes all of the basic functions of materials/logistics management. Logistics is emphasized as well as materials management be cause the term logistics is becoming more accepted. Today, many organiza tions include logistics in their organizational structure, often composed of the same subfunctions as materials management. These terms are even used interchangeably by companies and professionals when viewing their opera tions. With the increasing importance of materials/logistics managers in all sectors of the economy, there is a growing need for individuals educated in the discipline. Often, these personnel are being retrained from other occupations. In addition, it is important that personnel working in all other major company functions have basic knowledge of materials/logistics management in order to effectively perform their roles. This would include manufacturing, marketing, finance, engineering, quality assurance, and other major functions. Therefore, the book covers these basic relationships; any form of study that excludes these functional relationships offers too narrow a perspective of materials/ logistics management. Unfortunately, many oftoday's problems (even legal) in both manufacturing and service organizations are due to the lack of adequate attention to the materials/logistics management function. The authors have designed this book for both advanced undergraduate and graduate courses, for company on-the-job development programs, and for individuals who study independently to improve their competency in the various subfunctions of materials/logistics management. This text has been enhanced by including proven concepts with examples based upon the authors consulting business experience, with explanation to clarify these concepts. The book provides a formal system in studying these concepts, especially relating them to other major functions and relationships, xi