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10 CHAPTER 1 Introduction to Business Processes

(c) raw materials, such as the tires, tubes, and wheels that are used to make
the wheel assemblies. We examine the major material types in greater detail in
Chapter 2.
The purpose of material planning is to match the supply of materials with
the demand. The demand for fi nished goods is based on external factors such
as customer tastes and preferences, economic conditions, and competitors’
actions. The demand for the other materials is dependent on the demand for
fi nished goods. Consequently, organizations use different data and processes
to plan for different types of materials.
The supply of materials is a function of many internal and external fac-
tors. For example, the supply of materials procured externally (e.g., raw mate-
rials) depends on availability from vendors as well as the lead time, which is
the time between placing the order and receiving the shipment. Internally, the
supply depends on available production capacity in the factories.
The outcome of material planning is the development of strategic and
operational plans that match supply with demand as closely as possible. Excess
supply will result in increased inventory costs, which are the expenses associ-
ated with storing materials. Insuffi cient supply will result in a situation called
stock-out in which the company cannot meet its customers’ demands. Both
situations can undermine a company’s productivity and profi ts.
Material planning is infl uenced by the fulfi llment process, which provides
sales data that companies use to forecast demand for fi nished goods. It is also
infl uenced by procurement and production, which provide data on lead times
and capacities, and by IWM, which provides data on material availability. In
turn, material planning will trigger procurement and production processes to
ensure that demand is met and IWM processes to ensure that materials are
stored until needed.

INVENTORY AND WAREHOUSE MANAGEMENT—STORE
Inventory and warehouse management (IWM) is concerned with the storage
and movement of materials. For a business to operate effi ciently, it is essen-
tial that materials be stored so that they can be quickly and easily located
when needed. This is especially true for large warehouses where thousands
of different materials are stored in large quantities. In addition, companies
must be able to move the materials quickly and effi ciently to wherever they
are needed.
Figure 1-7 depicts four scenarios related to material storage and move-
ment. Quadrant A (top left) shows a request for materials that will be used
in the production process. These materials must be located and then issued
to the production fl oor. In Quadrant B, the warehouse receives materials from
the production process and then prepares them for storage. This process can
include such steps as sorting and determining an appropriate storage location.
Finally, the materials are moved into the selected locations. A similar process
is used for materials that are received from a vendor via the procurement pro-
cess (Quadrant C). Finally, when a customer order is processed by the fulfi ll-
ment process, the warehouse must locate the materials and prepare and send
shipments to the customer (Quadrant D).
These examples also clearly illustrate the integration between IWM and
procurement, production, and fulfi llment. We will discuss integration points
with other processes in later chapters.

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