The Procurement and Supply Manager's Desk Reference, + Website, 2nd Edition

CHAPTER 18

Material Management and Supply Operations

Controlling the flow, storage, and stocking levels of materials is another of the key functions of supply management. Organizations, particularly those engaged in manufacturing operations, consider material management a core competency because production processes and materials go hand in hand. The effective flow of materials can, and often does, significantly affect the overall productivity—and thus the costs—of the manufacturer.

Because, in many instances, there is a great deal of capital invested in stored inventory, how the inventory is controlled and managed can also affect the organization's profitability. When profit is viewed as a return on the investment, it becomes clear that maximizing that return will depend largely on how rapidly existing inventory can be consumed and converted back into cash. Obviously, if all other conditions are equal, the organization with the smallest ratio of inventory to sales is the organization that will likely be the most profitable.

In this chapter, we will examine the various methods of controlling inventory so that it can be used as a valuable resource to support operations rather than as a black hole for cash. These controls include strategies and methods for ordering and stocking materials, as well as effective processes for disposing of inventory that is no longer needed.

Inventory Control and Management Systems

Organizations that own and manage inventory are constantly seeking ways ...