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MATERIALS MANAGEMENT Prepared by: Rohit Bansal Suraj Bansal Masters of Finance and Control

Materials Management CONTENTS        

Introduction Definition Objectives Functions Techniques and Technologies Procurement of equipments History sheet Importance/Advantages/Benefits

Material Management 

Material includes all the things from raw material to semi-finished and finished goods.

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It has great significance as it has direct relation with the efficiency of a system.

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Expense made on Materials is invested in inventories, storage, transportation, insurance etc.

Cont… 

Previously only Marketing and Manufacturing were considered as important activities of an enterprise.

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Material management has gained its importance due to costs involved and economizing the total activity.

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Material Management is basic function of business that adds directly to value of product.

Cont… 

MM covers various aspects of input process, like it deals with Raw-Materials, procurement of machines, other tools and necessary spares for the maintenance.

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It involves planning and programming for procuring of material and quality goods of desired quality and specification at reasonable price and at right time.

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It involves being up-to-date with market information, stores and stick control, inspection and transportation of materials.

Definition. 

According to American Production and Inventory Control Society (APICS) defines Material Management as : “The grouping of management functions sporting the complete cycle of material flow, from the purchase and internal control of production materials to the planning and control of work in

OBJECTIVES OF MM        

PRIMARY Right price Higher turnover Low procurement & storage cost Continuity of supplier Consistency in quality Good supplier relations Development of personnel Good information system

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SECONDARY Forecasting Inter-departmental harmony Product improvement Standardization Make or buy decision New materials & products Favorable reciprocal relationships

Functions of Material Management. 

Production Control

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Inventory Control

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Materials Handling

Production Control 

Function of production control aims at directing and regulating the movement of goods through the entire manufacturing cycle from the process of purchasing materials to producing the finishing production. Departments involved are: 1. 2. 3. 4.

Purchasing department Receiving department Raw materials inventory department Production department

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-in-process

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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

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Firms invest 25-35 percent of assets in inventory but many do not manage inventories well

Cont…. 

However, inventory control emphasizes cost minimization, where as production control focuses on materials availability. Inventory control function represent three departments: 1. 2. 3.

Raw materials inventory department. Production department. Finished goods inventory department.

Economic order quantity (economic model for inventory management) 

Economic order quantity is the level of inventory that minimizes the total inventory holding costs and ordering costs.

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Underlying assumptions      

The ordering cost is constant. The rate of demand is constant The lead time is fixed The purchase price of the item is constant i.e. no discount is available The replenishment is made instantaneously, the whole batch is delivered at once. EOQ is the level of the inventory where ordering cost and carrying cost remains equal.

Cont… 

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Total Cost function

Variables 

Q = order quantity

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Q * = optimal order quantity

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D = annual demand quantity of the product

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P = purchase cost per unit

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C = fixed cost per order (not per unit, in addition to unit cost)

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H = annual holding cost per unit (also known as carrying cost) (warehouse space, refrigeration, insurance, etc. usually not related to the unit cost)

MATERIALS HANDLING 

The primary objective of materials management is to move materials to the required location in a timely and cost-effective way without affecting the primary objective of the other two materials management functions. Departments in the materials handling: 1. 2. 3. 4. 5. 6. 7. 8.

Purchasing depart Receiving depart Raw materials inventory depart Production depart Finishing goods inventory depart Shipping Distribution centers Warehouses

MATERIAL FLOW PROCESS

Organization of MM department. 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

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

MM TECHNOLOGY AND TECHNIQUES TECHNOLOGIES ARE: 

Robots

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Automated storage and retrieval system AS/AR)

TECHNIQUES ARE: 

Kanban card systems

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ABC classification systems

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Just-in-time purchasing

Material Management Technologies 

ROBOTS 

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They are re-programmable and multifunctional manipulators designed to move materials, parts, tools and other specialized devices through variable programmed motion to perform a variety of tasks.

Types:  

Processing Pick and Place

Cont…. 

Automated Storage and Retrieval System 

They are computer controlled and mechanically operated materials handling systems.

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They ca perform more complex problems than ROBOTS

Techniques 

JIT Purchasing (Just In Time) 

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It advocates reduction in the size of the purchased to the extent so that the materials reach the production point directly

KANBAN System 

Under this technique firms used their store and other inventory items in a single use container like Trays or boxes

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Types   

Production Authorization Card Vendor Authorization Card Conveyance Authorization Card

Cont… 

ABC Classification System (Always Better Control) 

It is exercise control over all materials

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More attention paid to items with high usage value

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Materials classified into 3 materials   

“A” account for 60-70% of total cost “B” account for 10-30% of total cost “C” account for 5-15% of total cost

PROCURMENT OF EQUIPMENT Points to be noted before purchase of an equipment: • •

• • • • •

Latest technology Availability of maintenance & repair facility with minimum downtime. Post warranty repair at reasonable cost. Upgradeability Reputed manufacturer Low operating costs Installation

HISTORY SHEET OF EQUIPMENT          

Name of equipment Code number Date of purchase Name of supplier Name of manufacturer Date of installation Place of installation Date of commissioning Environmental control Spare parts inventory

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After sales arrangement Guarantee period Warranty period Life of equipment Downtime/uptime Cost of maintenance Unserviceable date Date of condemnation Date of replacement

Importance/Advantages/Ben efits 

Regular supply is ensured, aiding for uninterrupted production process.

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Procurement and transportation costs can be controlled and checked.

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Efficient stock and stores control minimizes waste.

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Pre-inspection of RM minimizes chance of rejection of final product.

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Timely supply and other inputs is ensured.

Importance/Advantages/Ben efits 

Best utilization of labor, capital and equipment is ensured.

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Congestion in stores and confusion can be avoided, resulting in better services.

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Manufacturing Cycle is reduced to min.

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Slight changes in material costs, changes the profit statement of the co.

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Shortages can be eliminated.

Conclusion 

MM is an important management tool which will be very useful in getting the right quality and right quantity of supplies at right time, having good inventory control and adopting sound method and of condemnation and disposal will improve the efficiency of the organization and also make the work atmosphere healthy in any type of organization, whether it is private, government ,small organization, big organization or households.

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Even a common man must know the basics of MM so that he can get the best of the available resources and make it a habit to adopt the principles of mm in all over daily activity.

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