MATERIALS MANAGEMANT

MATERIALS MANAGEMENT

Materials are the key resources without which production is not possible. They are also major constituent of the cost of product & hence proper control over materials function is necessary. Materials management is concerned with material planning, market research for purchase, procurement of materials & capital goods, receiving, store keeping, warehousing, inventory control, packaging & packing of materials, materials movement, disposal of scrap, surplus & obsolete materials etc.

FUNCTIONS OF MATERIALS MANAGEMENT

Material planning

Material economic s

Purchasing Waste managemen t Store keeping

Inventory control

Functions of materials management

Transportation

Disposal of surplus material

Stores accounting

WAYS TO IMPROVE ROR

Increase profit keeping capital constant Increase units sold Increase units produced Increase unit price Reduce unit cost Reduce capital keeping profit constant

CLASSIFICATION OF MATERIALS
Indirect materials Tools, consumables, accessories

Direct materials

Raw materials

WIP

Purchased parts

COSTS INVOLVED IN MATERIALS

Basic cost of materials Government levies & taxes Ordering cost Inventory carrying costs Packaging & packing cost Material handling costs Freight cost Insurance cost Wastage cost

OBJECTIVES OF MATERIALS MANAGEMENT

To maintain steady flow of materials to ensure uninterrupted production. To achieve economy in cost of materials by adopting cost reduction techniques. To ensure consistency of quality by providing right materials, of right quantity, in right quality, at right time. To reduce inventory investment

OBJECTIVES OF MATERIALS MANAGEMENT

To improve buyer seller relationship To maintain good records of purchase, stores, traffic etc. To preserve materials in stock to reduce losses due to pilferage, deterioration, obsolescence etc. To minimise wastage & improve productivity by reducing operating cost. All this at lowest possible cost

ACTIVITIES RELATED TO MATERIALS MANAGEMENT

Materials planning (forecasting, sales projection

into production planning & requirements as per quantities & time)

Make or buy decision (making in or purchasing

from outside)

Purchasing (raw materials, parts, components,

consumables etc.)

Receiving & inspection (incoming) Storage (right storage, proper preservation, security
against pilferage, theft)

ACTIVITIES RELATED TO MATERIALS MANAGEMENT

Inventory control (by selective inv. Techniques, JIT,

MRP I, MRP II)

Distribution of materials (fastest) Transportation (cost effective & efficient) Disposal of surplus, obsolete & scrap materials Developing new sources of supply Import substitution

ACTIVITIES RELATED TO MATERIALS MANAGEMENT

Insurance management (for materials in transit &

stored)

Materials cost reduction & cost control (various

techniques like value analysis, variety reduction, transportation models, critical path analysis, learning curve, line of balancing, JIT, MRP etc.)

Waste management (minimum rework/rejection by

design reviews, methods improvement )

Materials research (systematic formal & continuous

analysis of all factors eg. economic, market, suppliers, price, lead time analysis etc.)

CODING OF MATERIALS
While purchasing wrong descriptions or identifications results in wrong purchases. Word descriptions are usually too long & can cause errors. Comparatively codes are shorter & can minimise errors. Eg. roll no.s, pan card no. pin code etc In industry for eg. for raw material R, tools T, WIP W, spares S etc.

MATERIALS RESEARCH
It is a systematic & continuous analysis of all factors affecting material function. It provides continuous flow of info on various aspects of materials like sources of supply, market trends, price levels etc. Eg. Earlier trend was to use copper as raw material for cables. Now a days aluminium or alloys or cu-al combination is used to reduce cost.

FUNCTIONS OF MATERIALS RESEARCH

To identify alternative sources minimising supplier problems. Eg. labour, lead time etc. To locate cheaper source of supply maintaining quality standards. To reduce variety among materials, components, parts etc. To develop substitute materials imports To organise & maintain purchasing library.

SOURCE SELECTION
Indigenous/ foreign Local/distant Manufacturer/traders Own employees Sister companies Lead time, quality, price, reliability 5Rs of buying : right time, right quantity, right quality, right price, right source.

MATERIALS PLANNING

It is the scientific way of determining the requirements of raw materials, BOC & others & ensuring their availability in right quantities, at right time with minimum inventory.

LACK OF MATERIALS PLANNING CAUSES :

Causes over or under ordering, overinvestment or shortages, stock outs. Leads to unwanted emergency orders which cause high costs. Increases workload on departments like purchase, receiving, incoming etc.

FACTORS AFFECTING MATERIAL PLANNING

Internal factors Eg. Technology, market demand & supply, lead time, working capital available, storage facilities, inventory norms etc. External factors Eg. National economy, price trends, credit policy, direct & indirect taxes etc.

TECHNIQUES OF MATERIALS PLANNING

Bill of materials Materials Requirement Planning(MRP I) Inventory control techniques Past consumption analysis technique Operation research techniques : Exponential smoothing, Linear programming, Decision theory, Time series analysis etc.

Bill of materials BOM is the detail structure of the product which provides details such as part number, description, quantity required, material specifications etc. For determining the materials requirements, each product is split into its basic requirements. The quantity required per item is multiplied by the quantity of the product to be produced to arrive at the total requirement of each item. This technique is best suited for the industries having large no. of components.

Materials Requirement Planning It is the scientific technique for planning the ordering & usage of materials at various levels of production for monitoring the stocks during these transactions. Past consumption analysis technique This technique is used for planning of indirect materials such as tools, lubricants, stationary, electric supplies etc as well as direct materials.

VALUE ANALYSIS
It is one of the major techniques of cost reduction & cost prevention. Definition: Valve analysis is an organised approach to identify unnecessary costs associated with any product, material part, component, system or service by analysis of function & efficiently eliminating them, without impairing the quality, functional reliability or its capacity to give service.

USES OF VALUE ANALYSIS

Reduces cost of product. Helps employees in better understanding their jobs. Generates new concepts & ideas for the R & D work. Creates cost consciousness among operating personnel. Provides information regarding function wise expenditure.

PURCHASE MANAGEMENT
Purchasing is a function of procuring goods & services from sources external to an organization. Purchasing is the task of buying goods of right quality, in the right quantities, at right time & at right place from right source.

IMPORTANCE OF PURCHASING
Materials cost is almost 50 to 60 % of companys income. For an organization, to earn a rupee is to save a rupee. A rupee saved before manufacturing is equal to a ten rupee sale. A sale is a one time sale while saving is a repetitive saving.

CENTRALIZED PURCHASING

DECENTRALIZED PURCHASING

The ordering is done for cumulative requirement Get quantity discounts Had single buying policy & procedure Purchasing experts are required Purchase department may not be located near the plant Modern techniques of communication is necessary for effective operation

For effective & profitable operation, this type is preferred by companies. Same buying policies & guidelines can be used. Process is fast if purchased from local suppliers If distance between two plants is more, go for decentralization. If plant has some unique requirements then prefer this type

CENTRALIZED PURCHASING

DECENTRALIZED PURCHASING

More control on quality Material transfer from one plant to another is easy, quick & economical. Obsolescence cost is less Inventory control is easy & less costly.

Larger plant can get quantity benefits

FUNCTIONS OF PURCHASING
Primary functions Secondary functions Optional functions

PRIMARY FUCTIONS OF PURCHASING

Receipt, scrutiny of purchasing items & determination of method of buying Search for suppliers Acquisition & analysis of suppliers proposals Selection of suppliers Follow up with suppliers for timely receipts of materials Performance evaluation & feedback Disposal of surplus, obsolete & scrap material

SECONDARY FUNCTIONS
Make or buy decision eg. Sundaram Capital equipment & construction purchases Inventory control Purchase research Management reports

OPTIONAL FUNCTIONS
Traffic Stores

METHOD OF BUYING
Hand to mouth buying Scheduled buying Forward buying Speculative buying Contract buying Blanket orders Tender buying

METHOD OF BUYING
Seasonal buying Group purchasing Subcontracting Purchasing through commission agents Central purchase DG & D Directorate General of supplies & disposal

5RS OF BUYING
Right quality Right quantity Right price Right time Right source

Right quality It includes Quality of design & Quality of conformance Quality of design refers to the quality specified by design department. Quality of conformance refers to the extent to which the goods & services purchased complies with the laid down specifications. Right quantity Quantity decisions are influenced by replenishment methods & buying methods.

Right quantity Eg. reorder level, two bin system hand to mouth buying, forward buying etc. Right price Right price does not mean the lowest price but the price which minimizes the overall cost. The techniques used to determine price are negotiation, tender system, learning curve etc.

Right time It implies the time at which the goods requested should be received. Right source Only right source can give goods of right quality, in the right quantities, at the right price & at the right time. It requires decisions as to what items should be purchased directly from the manufacturers, which items from dealers & which items from open market. It also requires analysis of transportation costs(distant & local supplier)

PURCHASE CYCLE
It includes nine elements Establishing & communicating need of procurement 1. Purchase requisition 2. BOM Bill of materials Scrutinising purchase indents Market research & selection of sources of supply Order preparation Follow up with suppliers

PURCHASE CYCLE
Receiving & inspection Inspection of goods Storage & record keeping Invoicing & payment 1. Receipt of suppliers invoice 2. Scrutiny of the invoices 3. Journal entries 4. Payment

FORECASTING
Forecasting is the estimation of the value of a variable at some future point in time. It helps in decision making & planning the future.

APPLICATIONS OF FORECASTING
Inventory control/Production planning Investment policy Economic policy

FORECASTING METHODS
Qualitative methods Regression methods Multiple equation methods Time series methods

MAKE OR BUY DECISION

The decision whether to make the product at the home plant or to be purchased from outside vendors is refered as Make or buy decision.

WHEN MAKE OR BUY DECISION??????

New products Unsatisfactory vendor performance Fluctuating demands Cost reduction studies

FACTORS AFFECTING MAKE OR BUY DECISION

Cost analysis Availability of production capacity Suppliers performance Quantity requirements Quality requirements More than one supplier policy Physical location (easily available)

IMPORT SUBSTITUTION

It refers to replacements of materials imported from overseas supplier by material from indigenous sources.

MATERIALS ARE IMPORTED BECAUSE

Non- availability in the country Shortfall in supply & demand Non- availability of quality material Lower cost of imported goods???????????? Imports under phase manufacturing programme of a new venture Spares of imported machines

BENEFITS OF IMPORT SUBSTITUTION

Ease of procurement Reduced cost of production Short lead time for procurement Saving of valuable foreign exchange Development of countrys own industry & trade Self reliance & lesser impact of international events

SEASONAL COMMODITIES
Basically there are two types in seasonal commodities. The commodities manufactured throughout the year & consumed seasonally. Eg. umbrella The commodities manufactured seasonally & consumed throughout the year. eg. grains The inventory levels are high for seasonal commodities.

CAPITAL PURCHASING

It includes purchasing of capital equipments such as machines, service equipments, inspection equipments etc.

CHARACTERISTICS

Purchasing is nonrecurring as life is realtively strong. Strategic decisions Large money & sanction of funds Committee decisions Requires detailed technical specifications Source selection is complex More lead time Negotiations Taxes After sales service