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Material Management as Part of Logistics

Logistics can be defined as the management of business operations, including the acquisition, storage, transportation, and delivery of goods along the supply chain. The supply chain can be defined as a network of retailers, distributors, forwarder, storage facilities, and suppliers that participate in the sale, delivery, and production of particular product.

From these definitions it is clear that materials managements is an integral part of the logistics function within SAP. There are three flows that are important when we look at MM in the supply chain. These are:
– The material flow
– The information flow
– The financial flow

The material flow describes the movement of materials from the vendor to the company and then on to the customer. Today companies are integrating with suppliers and customers, not just interfacing. Therefore any improvements companies can provide to the visibility of their material flow will allow them to be flexible and responsive to their customers. Customers will want to do business with companies who are responsive. Those companies will also be able to gain a competitive advantage and increase market share by being more flexible , quicker, more dependable.

The information flow includes the transmitting of orders (including EDI,fax,etc) and updating the status of all deliveries. Companies that can show customers and vendors viability by using real time information have a distinct competitive advantage over others.

The financial flow includes the accounting documents that are created at each material movement .

How does SAP help clients to manage this supply chain to gain a competitive advantage?

SAP R/3 software provides a company with the ability to have the correct materials at the correct time, with the correct quantity at the most quantitive cost. The competitive advantage is achieved when the company can manage the process. This involves managing the company’s relationship with its vendors and customers, it also involves controlling their inventory, forecasting customer demand, and receiving timely information with regards to all aspects of the supply-chain transactions.

When we break this down and look at the modules involved in the management of the supply chain, we can see that although materials management is an integral part of logistics, it is only part of the big picture.

The Logistics function in SAP includes the following:
Material Management (MM)
Sales and Distribution (SD)
Quality Management (QM)
Plant Maintenance (PM)
Production Planning (PP)
Project System (PS)
Finance (FI)
Warehouse Management (WM)
Logistics Information System (LIS)

There is additional functionality in the Logistics area, such as Batch Management, Handling Unit Management, Variant Configuration Engineering Change Management, Environmental, Health, and Safety (EHS). These can be important in the Logistics area, depending on the individual customer requirements.

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What is SAP ?

SAP is the acronym for Systems, Applications, Products. It is an ERP system that provides users with a soft real-time business application. It was founded in 1972 by five former IBM employees in Mannheim, Germany and now a market and technology leader in supply chain and procurement software.

top-five-vendors-and-market-shares-for-supply-chain-management-2014

data-table

SAP grew the fastest of the top five vendors, achieving 19.9% growth from 2013 to 2014

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Source: Forbes

It provides comprehensive solutions for companies of all sizes and all industry sectors. SAP is number-one vendor of standard business-application software and the third largest software supplier in the world. SAP delivers scalable solutions that enable its customers to further advance industry best practices. SAP is constantly developing new products that allow their customers to respond to dynamic market conditions and help them maintain competitive advantage.

In 1979, SAP released its mainframe product called R/2, Materials Management was a core module of this release. SAP dominated the German market, and in the 1980s SAP developed a broader market in the rest of Europe. In 1992, SAP developed the client/server application that we all know now as R/3. This allowed SAP to bring the software to the US market and within few years SAP become the gold standard for ERP software.

When business choose SAP as their enterprise application software, they identified the integration of the modules as a key advantage. Many other software companies used a best-of-breed approach and developed highly complex interfaces to integrate the separate software packages. Supporting and maintaining just one system rather than several systems with different hardware platforms has yielded a significant cost saving for companies.