An On-Line Integrated Materials Management System

With multiple production facilities and with a number of distribution centers and warehouses throughout the country, Booth Fisheries developed a network-based management information system with on-line order entry. In the four years since it was first put into operation, different optimising modules to integrate production, distribution, and inventory control have been developed and implemented. The results have been quite dramatic and include: reduction of the number of outside warehouses from 44 to 8; reduction of total finished goods inventory, at all distribution centers and warehouses, from 8.6 weeks to 4 weeks of supply; reduction of ‘out-of-stock’ items from 11% to under 3% of sales; with improved transportation policies, an annual reduction of over 9% in transportation costs; and larger production run sizes with better control amounted to an 8% reduction in production costs.The entire materials management system has evolved around the concept of a dynamic shadow price for all resources. Every resource has an imputed price, and trade-offs are evaluated on the basis of a simple linear equation. This concept is operationally simple, understandable and robust, and yet uses extensive analysis to develop optimal shadow prices. It also has the advantage that it can be manually updated on the ‘floor’ with changing operating conditions.The success of the system has been in its effectiveness in changing the operating policies of the company and its use as a control rather than information system.