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Materials management is defined as the coordination function responsible for planning and

controlling materials through the supply, production and distribution focus areas including manufacturing planning and control i.e. planning and control of the flow of materials through the manufacturing process, and physical supply / distribution i.e. all activities involved in moving goods, from the supplier to the beginning of the production process, and from the end of the production process to the consumer.

Manufacturing planning and control includes:

§ Production Planning – Planning the production function to meet the demand of the marketplace by establishing priorities with matching capacity via forecasting, master planning, materials requirements planning and capacity planning.

§ Implementation and Control – The action of production plans via production activity control and purchasing.

§ Inventory Management – Inventories are materials and supplies carried on hand either for sale or to provide materials or supplies to the production process. They provide a buffer between demand and production.36

The lubricants supply chain has distinct manufacturing planning and control along with

physical supply / distribution systems which includes both bulk and packaged raw materials

which feed into the manufacturing process as well as bulk and packaged lubricants products for distribution to customers (determined by codification and abstraction of bulk or packaged raw materials and products).

Bulk raw materials and products are stored in storage tanks as inventory based upon the expectations of sales forecasts and the resulting production plan, along with buffer / safety

stock for use during times of shortages of imported raw materials. The packaged raw

materials are stored in 210L drums or tanks, and the packaged products for distribution to customers in various container sizes viz. 500 ml tins, 1L or 5L plastic bottles, 20L pails and 210L drums.

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The lubricants supply chain necessitates a forecast and resulting production plan of products for impending customer orders, to be available at various depots throughout South Africa for subsequent delivery.

If market intelligence and associated sales forecasts (depicting expected product availability to the market and customers) deviate significantly from actual demand placed on manufacturing, then forecast accuracy for product family groups need to be calculated and considered in the creation of the production plan.

If forecast accuracy for a particular product family group is historically low then a factor needs to be added to the production plan for the particular product group until such time as forecast accuracy improves, typically beyond a target of 80% accuracy. Seasonality needs to be considered and forecast accuracy for the same period in the prior year is also a factor when adjusting the forecast based upon forecast accuracy.

The level of buffer / safety stock to safeguard against product stock-outs also needs to be taken into consideration in the production plan. Each product group will have a defined level of buffer / safety stock which needs to be available at either the manufacturing plant or warehouse/depot, sometimes even at the customer site for scarce products e.g. wire rope lubricants which requires oxidised bitumen (which in turn is a scarce product in South Africa due to the older refinery configurations in the South African market where bitumen is treated as a by-product of crude oil refining).

Manufacturing includes processes, machinery, equipment, labour skills and material; each of

which has to be organised to make the ‘right goods at the right time as economically as possible’. A good planning and control system is required as it is complex to determine which products to make, which facilities to use, what currently exists and what is needed. A consideration of priority (demand) and capacity (resources), and how to resolve conflict between them is required. Priority indicates what products are needed, how many and when whereas capacity refers to the manufacturing capability to produce the goods and services required, which in turn depends upon available machinery, labour and financial resources as well as the availability of material from suppliers.

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For the lubricants supply chain, building additional capacity for manufacturing is a long term process, typically 2 years or more depending on the design of manufacturing line(s). The build of manufacturing line(s) requires significant capital outlays after a feasibility study and subsequent approval of a business case as justification.

One of the legislated pre-requisites before building new lubricants manufacturing line(s) is an Environmental Impact Assessment (EIA) which can take 12-18 months for approval by the legislative authorities in South Africa i.e. Department of Water Affairs.

The manufacturing planning and control system consists of the strategic business plan, production plan, master production schedule, master requirements plan and purchasing and production activity control. Codification will take place during information gathering for the various plans, abstraction for the creation of the plans and diffusion for the communication and implementation and tracking/monitoring of plans along with decision making for managing interventions as required e.g. emergency orders, overtime, etc.

Each of these levels varies in the degree of time span and detail as follows:

§ Business Plan – The goals and objectives the company expects to achieve within a longer time horizon. It depicts the broad direction of the firm and shows the type of business the firm wants to do in the future.

§ Production Plan – Satisfies market demand based upon the available resources of the company by indicating quantities of each product group to be produced in each period, resources required (equipment, material and labour) in each period and their availability. § Master Production Schedule – Quantity of end items (models) per period, dependent upon

the manufacturing and purchasing lead times.

§ Materials Requirements Plan – Production and purchase of components used in making the end items, depicting quantities needed and when required in manufacturing.

§ Purchasing and Production Activity Control – Purchasing is required to establish and control the flow of raw materials into the manufacturing process, whereas production activity control is responsible for planning and controlling the flow of work.37

Knowledge can be conceptualised as a set of probability distributions held by an agent and orienting his or her actions.38 The creation of the knowledge assets depends upon accurate and

reliable information for the creation of the various plans and schedules. For example, forecasting not only depends on information but also knowledge of the knowledge agent.

37 _{Arnold JRT, Chapman SN, Clive LM, 1998. p15} 38

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Each of the activities as depicted in Figure 3.1 below will be defined in terms of the

lubricants supply chain in the subsequent sections of the thesis.

Figure 3.1: Materials Management Source: Arnold JRT, Chapman SN, Clive LM, 1998.

PRODUCTION PLAN SALES FORECAST MASTER PRODUCTION SCHEDULE MATERIALS REQUIREMENTS PLAN PURCHASING PRODUCTION ACTIVITY CONTROL BUSINESS PLAN ORDER ENTRY AND PROMISE Final Assembly Schedule RESOURCE PLAN ROUGH CUT CAPACITY PLAN CAPACITY REQUIREMENTS PLAN CAPACITY CONTROL

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