unit iii.pptx

8/14/2019 unit III.pptx

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MATERIALS MANAGEMANT


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MATERIALS MANAGEMENT

Materials are the key resources without whichproduction is not possible. They are also majorconstituent of the cost of product & henceproper control over materials function is

necessary.

Materials management is concerned withmaterial planning, market research for

purchase, procurement of materials & capitalgoods, receiving, store keeping, warehousing,inventory control, packaging & packing ofmaterials, materials movement, disposal of

scrap, surplus & obsolete materials etc.


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FUNCTIONS OF MATERIALS MANAGEMENT

Functions of

materials

management

Material

planning

Inventory

controlStore

keeping

Stores

accounting

TransportationDisposal

of surplus

material

Waste

management

Material

economic

s

Purchasing


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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


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CLASSIFICATION OF MATERIALS

Indirect

materials

Purchased

parts

Direct materials

WIPRaw materials

Tools,consumables,

accessories


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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


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OBJECTIVES OF MATERIALS MANAGEMENT

To maintain steady flow of materialsto

ensure uninterrupted production.

To achieve economyin cost of materials by

adopting cost reduction techniques.

To ensure consistency of qualityby

providing right materials, of right quantity, in

right quality, at right time.

To reduce inventory investment


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OBJECTIVES OF MATERIALS MANAGEMENT

To improve buyer

seller relationship

To maintain good recordsof purchase,stores, traffic etc.

To preserve materialsin stock to reducelosses due to pilferage, deterioration,obsolescence etc.

To minimise wastage & improveproductivityby reducing operating cost.

All this at lowest possible cost


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ACTIVITIES RELATED TO MATERIALS

MANAGEMENT

Materials planning (forecasting, sales projectioninto production planning & requirements as perquantities & time)

Make or buy decision (making in or purchasingfrom outside)

Purchasing (raw materials, parts, components,consumables etc.)

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

against pilferage, theft)


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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


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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 bydesign reviews, methods improvement )

Materials research (systematic formal & continuousanalysis of all factors eg. economic, market, suppliers,price, lead time analysis etc.)


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CODING OF MATERIALS

While purchasing wrong descriptions oridentifications 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.


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MATERIALS RESEARCH

It is a systematic & continuous analysis of allfactors affecting material function. It providescontinuous flow of info on various aspects of

materials like sources of supply, markettrends, price levels etc.

Eg. Earlier trend was to use copper as rawmaterial for cables. Now a days aluminium oralloys or cu-al combination is used to reducecost.


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FUNCTIONS OF MATERIALS RESEARCH

To identify alternative sourcesminimisingsupplier problems.

Eg. labour, lead time etc.

To locate cheaper sourceof supply maintainingquality standards.

To reduce variety among materials,components, parts etc.

To develop substitutematerialsimports

To organise & maintain purchasing library.


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SOURCE SELECTION

Indigenous/ foreign

Local/distant

Manufacturer/traders

Own employees

Sister companies

Lead time, quality, price, reliability

5Rs of buying : right time, right quantity, rightquality, right price, right source.


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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.


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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.


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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.


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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, Decisiontheory, Time series analysis etc.


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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 toarrive at the total requirement of each item.

This technique is best suited for the industries

having large no. of components.


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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 directmaterials.


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VALUE ANALYSIS

It is one of the major techniques of costreduction & cost prevention.

Definition: Valve analysis is an organised

approach to identify unnecessary costsassociated with any product, material part,component, system or service by analysis offunction & efficiently eliminating them,without impairing the quality, functionalreliability or its capacity to give service.


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USES OF VALUE ANALYSIS

Reduces cost of product.

Helps employees in better understandingtheir jobs.

Generates new concepts & ideasfor the R& D work.

Creates cost consciousnessamong

operating personnel. Provides information regarding function

wise expenditure.


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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 placefrom right source.


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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.


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CENTRALIZED PURCHASING DECENTRALIZED PURCHASING

The ordering is done forcumulative requirement

Get quantity discounts

Had single buying policy &

procedure Purchasing experts are

required

Purchase department may

not be located near theplant

Modern techniques of

communication is

necessary for effectiveoperation

For effective & profitableoperation, this type ispreferred by companies.

Same buying policies &guidelines can be used.

Process is fast if purchasedfrom local suppliers

If distance between twoplants is more, go for

decentralization. If plant has some unique

requirements then preferthis type


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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 getquantity benefits


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FUNCTIONS OF PURCHASING

Primary functions

Secondary functions

Optional functions


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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 ofmaterials

Performance evaluation & feedback

Disposal of surplus, obsolete & scrap material


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SECONDARY FUNCTIONS

Make or buy decision eg. Sundaram

Capital equipment & construction purchases

Inventory control

Purchase research

Management reports


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METHOD OF BUYING

Hand to mouth buying

Scheduled buying

Forward buying

Speculative buying

Contract buying

Blanket orders Tender buying


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METHOD OF BUYING

Seasonal buying

Group purchasing

Subcontracting

Purchasing through commission agents

Central purchase

DG & DDirectorate General of supplies &disposal


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5RS OF BUYING

Right quality

Right quantity

Right price

Right time

Right source


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Right quality

It includes Quality of design & Quality of

conformanceQuality of design refers to the qualityspecified by design department.

Quality of conformance refers to the extentto which the goods & services purchasedcomplies with the laid down specifications.

Right quantity

Quantity decisions are influenced byreplenishment methods & buying methods.


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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 butthe price which minimizes the overall cost.

The techniques used to determine price are

negotiation, tender system, learning curve

etc.


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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)


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PURCHASE CYCLE

It includes nine elements

Establishing & communicating need of

procurement

1.Purchase requisition

2.BOMBill of materials

Scrutinising purchase indents

Market research & selection of sources of

supply

Order preparation

Follow up with suppliers


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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


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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.


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APPLICATIONS OF FORECASTING

Inventory control/Production planning

Investment policy

Economic policy


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FORECASTING METHODS

Qualitative methods

Regression methods

Multiple equation methods

Time series methods


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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.


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WHEN MAKE OR BUY DECISION??????

New products

Unsatisfactory vendor performance

Fluctuating demands

Cost reduction studies


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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)


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IMPORT SUBSTITUTION

It refers to replacements of materials

imported from overseas supplier by material

from indigenous sources.


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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 manufacturingprogramme of a new venture

Spares of imported machines


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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


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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.


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CAPITAL PURCHASING

It includes purchasing of capital equipments

such as machines, service equipments,

inspection equipments etc.


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CHARACTERISTICS

Purchasing is nonrecurring as life is realtivelystrong.

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


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unit iii.pptx

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