Material Management

Material Management Definition: Material Management may be defined as the function responsible for the co-ordination of planning, sourcing, purchasing moving storing and controlling materials in an optimum manner so as to provide a pre-decided service to the customer at a minimum cost.

Functions of Material Management

 Material

planning and Programming  Purchasing and procurement of material  Storing and administration  Inventory control  Value analysis, standardization and simplification  External transportation  Material handling ( Internal transportation)  Disposal of scrap, surplus and

 To

Objectives of Material Management

minimise material cost  To ensure continuous and uninterrupted production or operation by maintaining a steady flow of materials in efficient and economic manner.  To achieve economy in the cost of materials while purchasing, storing and processing  To improve quality  To increase competitiveness of products by reducing their price.  To ensure co-operation among all departments of the enterprises to meet material management objectives at corporate and functional levels.  To trace new sources of supply.

Advantages of Material Management  Better

accountability  Better co-ordination  Better performance  Adoptability of Electronic Data Processing (EDP)  Miscellaneous Advantages: team spirit.

Organization of Material Management Chief executive Personnel Manager

Purchase

Receiving

Financia l Manage r Stores Dept.

Storage

Material Manager

Material Handling

Issuing

Production Manager

Research

Marketing Manager

Shipping section

Inventory Control  Inventory

is the stock of any item or resource used in an organization and can include: raw materials, finished products, component parts, supplies, and work-inprocess  An inventory system is the set of policies and controls that monitor levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be  Firms invest 25-35 percent of assets in inventory but many do not manage

Types of inventories 1. 2.

4.

Direct inventories: materials and parts which finally goes into finished products Indirect inventories: necessary for Manufacturing. Raw material 

5.

Work-in-process  

6.

Undergone some change but not completed A function of cycle time for a product

Maintenance/repair/operating (MRO) 

7.

Purchased but not processed

Necessary to keep machinery and processes productive

Finished goods 

Completed product awaiting shipment

Necessity of inventory control 1.

To maintain independence of operations  

2. 3. 4.

To allow flexibility in production scheduling To meet variation in product demand To provide a safeguard for variation in raw material or parts delivery time 

5.

Provide “optimal” amount of cushion between work centers Ensure smooth work flow

Protect against supply delivery problems (strikes, weather, natural disasters, war, etc.)

To take advantage of economic purchase-order size

Lead Time ( Procurement Time) It is the time which the stock takes to reach from recorder point to minimum stock level. It may include following activities: 3. Raising of a purchase requisition. 4. Inquiries, quotations scrutiny and approval 5. Placement of an order on supplies. 6. Suppliers time to make the goods ready. 7. Transportation or clearing. 8. Receipt of goods at company stores. 9. Receiving inspection 10. Taking into stocks. In order to receive supplies before the stock reaches to zero level, it is necessary to order the material much in advance i.e. the stock available is sufficient and last during the lead time. 

Units in stocks

Order here to receive supply at C 300 ----------------------------------------

ROL=300

MB =NC = 15 Days = Lead time

200 100 0

A

M

B

N

C

Time in days

In fig. Recorder level (ROL) = Stock sufficient to last during lead time=300 units Suppose an item has a lead time of 15 days and monthly consumption of the item is 600 units, then a recorder must be placed at 300 units.

Stock-out



When there is shortage of material for production or services to be rendered it is called stock out.

Safety Stock

Safety stock is the lower limit of stock below which the stock should not be allowed to fall under normal circumstances. Factors affecting safety stock 5. Number of suppliers 6. Lead time 7. Criticality of the item 8. Annual usage 9. Type of items 10. Service level desired by management 11. Order quantity 12. Risk of deterioration 13. Space restrictions. 

The Material Flow Cycle Cycle time 95% Input

Wait for inspection

Wait to be moved

5%

Move Wait in queue Setup Run time for operator time time

Output

Inventory Costs  Holding  Costs

(or carrying) costs.

for capital, taxes, insurance, etc. (Dealing with storage and handling)

 Setup

(or production change) costs.

(manufacturing)  Costs for arranging

etc.

specific equipment setups,

 Ordering

costs (services & manufacturing)

 Shortage

(backordering) costs.

 Costs

 Costs

of someone placing an order, etc.

of canceling an order, customer goodwill, etc.

Techniques of Inventory control ABC Analysis

(Always Better Control) This is based on cost criteria. ABC analysis tends to segregate all items into three categories: A B and C on the basis of their annual usage.  To control and focus his attention only on few items  A-control inventories and show visible results in shorter span  Reduces clerical work

A-Items   c. d. e. f. g. h. i. j. k. l. m. n.

Small in numbers (10%)but consume large amount of resources (70%). Must have Tight control Rigid estimates of requirement As many sources as possible for each item Strict and close watch Low safety stock Frequently ordering or weekly deliveries Maximum follow up and expending Accurate forecasts in material planning Minimisation of waste, obsolete and surplus Central purchasing Maximum efforts to reduce lead time. Managed by top management.

B-Items           

These items are generally 20% of total items and represent 10-15% of total expenditure. Intermediate items. Not as detailed and rigid as A items. Moderate control and low safety stock Once in three months Monthly control reports Periodic follow-up Moderate value analysis Two or more reliable sources Estimates based on past data on present plans Can be handled by middle management



C-Items Larger in number but consume less amount of resources.

Must have c) Ordinary control measures d) Purchase based on usage estimates e) High safety stocks f) Bulk ordering once in a 6 months g) Minimum value analysis h) Two reliable sources of each item i) Group postings j) Decentralization purchasing k) Minimum clerical efforts. ABC analysis does not stress on items those are less costly but may be vital. 

Colour Coding A-item: Red colour B-item: Pink colour C-item: Blue colour

Steps in conducting ABC analysis 1. 2. 3. 4.

5.

6.

Prepare a list of items and estimate their annual consumption (Units) Determine unit price of each item Multiply each annual consumption by its unit price to obtain its annual consumption in Rs. Arrange items in the descending order of their annual usage starting with highest annual usage down to the smallest usage. Calculate cumulative annual usage and express the same as cumulative usage percentage. Also express number of items into cumulative item percentage. Plot cumulative usage percentage against cumulative item percentages and segregate the items into A,B and C categories.