MATERIALS MANAGEMENT

MODULE-4

Concept of materials management

According to Bethel “Materials management is a term used to connote controlling the kind, amount , location, movement and timing of the various commodities used inn and produced by the industrial enterprise.”

An Integrated approach to materials management • Materials planning• Make or Buy decisions• Purchasing• Receiving and inspection• Storage• Inventory control• Distribution of materials• Transportation• Disposal of surplus, obsolete and scrap materials• Developing new sources of supply• Import substitution• Market research• Waste management

Objectives of Materials Management

• Is to minimize cost• Procure and provide material at lowest cost• Reducing investment tied yup in inventories• Purchase, receive , transport and store

materials efficiently and reduce related costs.• Continuous supply of materials• Cut down costs through simplification,

standardization , value analysis and import substitution

• Minimizing procedural delays in procuring materials

Functions of Materials Management• Materials planning• Purchasing of materials• Reducing store keeping and

warehousing• Inventory control• Standardization simplification and

value analysis• Transportation and material handling• Dispose of scrap surplus and obsolete

materials

Importance of Materials Management

• Planning and programming of materials

• Purchasing of materials• Inventory control• Store keeping• Stores accounting• Transportation• Materials economics• Waste management

Material Planning and Budgeting

• Basic• Govt. levies and taxes• Ordering• Inventory carrying• Packaging• Materials handling• Shipment• Insurance

Purchase functions and procedures

Acco to Alford and Beaty, “ Purchasing is the procurement of materials , supplies, machine tools and services required for the equipment, maintenance and operation of a manufacturing plant.”

The objectives of purchasing• Acquire materials at competitive price• Ensure supply of materials acco to production

requirements• Guarantee production of better quality

products at competitive price• To suggest better alternative materials for

production• To encourage standardization• To advice various depts on feasible prices ,

timely deliveries and improved performance• To maintain goodwill of the company by fair

dealing

The functions of purchase Department• Sources for supply of capital goods and

equipments• It studies market and keep track of new

developments• It supports engineering and user depts• It scrutinizes purchase intends• It conducts discussions and releases of

purchase order• It helps in pre delivery transcription and

shortage chasing of purchased items

• It coordinates with inward inspection • It sanctions suppliers statements for payments• It processes suppliers requests for increase in

price of production materials• It arranges discussions and meetings between

suppliers representatives and company officials• It disposes excess, outdated and leftover

materials• It handles management of raw materials and new

products in the market• It researches and studies the possibility of

substituting native materials for imported ones• Acts as a link between company's financial dept

and suppliers• It attends to journal activities like applying for

import license, quota etc.

The methods of purchase

1.Hand To Mouth Purchasing• Items are purchased only when there

is demand for those items• Items are purchased so that the

immediate requirements can be met• Items are generally purchased in small

quantities, but can be purchased in large quantities when required

• Competitive bids cannot be obtained due to lack of time

Suitability of this method • Sample items and products which are under

development• Items that are used rarely and not required to

be stocked• Items that have a limited shelf life and are not

stocked for a fear of perishability• Items that are bulky and need a lot of space for

storage

2.Scheduled PurchasingThe process of buying the items that are in the form of distributed deliveries according to the delivery schedule provided by the buyer to the supplier is termed as scheduled purchasing

Characteristics• Purchase order that covers annual requirements

of the company Is placed with the supplier.• The estimation of the procurement needs is

provided to the supplier .• Fresh delivery schedules are provided to the

supplier before the completion of the previous schedule

• Monthly deliveries are generally specified excluding perishable materials , bulky items and other items that are required in large quantities or where supplier has set up production facilities especially for the company.

3.Market purchasingThe purchasing of sufficient quantity of

items in advance when the price of these items are low is termed as market purchasing

Characteristics• Purchases are made to cover production

requirements for a considerable period• Quantity of items purchased is generally large• The atmosphere is usually favorable for

negotiation• Purchases are made when the price is low.

4. Speculative purchasingThe process of buying large quantities of

an item when its price is low so that tentative profits can be earned by selling them later at a higher price , is called speculative purchasing.

Characteristics• Purchase of an item is not related to the

company's production program.• Purchasing decisions in this method are not

based on quantity• The main aim of the this method is to earn

speculative profits• Large quantities are purchased depending upon

the financial situation of the company.

Seasonal purchasing• The process of buying an item as per its annual

requirements during its season is termed as seasonal buying.

• Items are purchased in a particular season only• Items are purchased in a small size but are

required in large quantity• Purchased at cheapest rates• Purchased directly from the producers of the

goods

• Responsibility of the Purchase Department is to achieve the maximum advantage by locating the producers of the items and discussing the price and other terms mentioned in the contract.

Group purchasing• The process of buying items of insignificant value in a

single purchase order is termed as group purchasing.• Items that are required in small quantities are divided

into some basic groups according to the source of purchase

• Items of every classified group will have fixed inventory levels

• For every group there is a purchase order that covers various items that are present within the group

• Stocks on hand are reviewed at regular intervals• If the stocks of some items have degraded as to the

recorder level, then replenishment action is taken for those items.

Sub contractor purchasing• The process of employing another firm to

perform some of the manufacturing operations or to provide certain parts and sub assemblies that are required to be incorporated into the buyers end product is termed as subcontract purchasing.

• When company receives a bigger order• When the company ponders on certain items of

the assembly and buys other items from other buyers.

• When company does not have any required manufacturing facilities, it gets certain operations done by other firms.

Responsibilities of purchasing dept.

• To establish and choose subcontractors that can supply parts of good quality

• Subcontractors should be within the close propinquity of the firm

• For every component , the purchasing department should select more than the subcontractor

• The buyers should keep a detailed quality assurance system with the subcontractor that is in conformity with the complete manufacturing process and inspection criteria.]

• The dept should ensure that its own quality control staff have fully understood the production specifications and inspection standards related to the component that is subcontracted.

• Subcontractors should be selected after through discussions with them regarding the capacity requirement of the buyer and the capacity available with the subcontractors

• The purchasing dept should make the subcontracting decisions on the basis of cost benefit analysis

A Central Purchase Organization

• The central purchase organization is a large firm in the public or private sector that may have section –wise stores at different places.eg SRTC, nationalized banks , cooperative banks

• Every store should make its own purchase• The central stores should make purchases and in

turn , supply material to the section wise stores• Helps in obtaining quantity discounts, lower rate

and better contract terms • Reducing the risk of mismanagement• Suitable to obtain the required items according to

the specifications by directly contracting with the manufacturers

• Avoid purchase at higher price.

The Purchasing Procedure• Intending a purchase requirement• Inspecting purchase intends• Market study and selection of sources of supply• Order preparation• Follow up with suppliers• Receiving materials• Inspection of goods• Storage and record keeping]• Invoicing and payment• Scrutiny of invoices

Inventory Control• It includes the tasks and activities that help

maintain the inventory levels of the organization. The most important inventory control decisions are:

1. How much of an item is to be ordered during inventory replenishment

2. When to replenish the inventory of that item?Objectives of Inventory Control

• Minimizing blocked capitals in inventories• Reducing surplus stocks• Ensuring proper control over inventory

Types of inventory

• Raw Materials Inventory• Work –In –progress (WIP) Inventory• Finished goods Inventory• Replacement Parts Inventory• Supplies Inventory• Transportation InventoryAdditional risks• Manufacturing• Wholesale• Retail

Reorder Point , Safety Stock and Lead Time

• Maximum stock level• Minimum stock level• Reorder level• Danger warning level• Safety/buffer stock level• Stock out level

Safety stock

• To meet the uncertainties arising from fluctuating demands, fluctuating lead times, unforeseen situations ,etc ., an extra stock is invariably maintained for each item in the inventory.

• the extra stock is termed as buffer stock or safety stock .

• Safety stock arise due to variations in consumption rates and variations in lead times

The factors influencing the determination of safety stock• Nature of the item• Annual usage• Lead time of manufacture• Stock out cost• Seasonality• Risk of obsolesce/deterioration• Macro/ environmental issues.

Safety stock is a function of two parameters:• Consumption rate• Lead time

Just In Time (JIT) System

• JIT can be defined as an operations management philosophy . Its dual objectives are:

• To reduce waste• to increase productivity• JIT increase profits and return on investment by bringing

down levels of inventory and variability , improving quality of product, bringing down lead times of production and delivery, and reducing other costs like those related to setting up of machines equipment breakdown.

• In JIT excess capacity is used as a substitute of buffer inventories for hedging against problems that may arise

• JIT is useful generally for repetitive manufacturing process.

• The basic elements of JIT were developed in the 1950’s by Toyota, and it was known as the Toyota Production System(TPS). JIT was used in several Japanese plants by the early 1970’s.

• The JIT concept is built around the philosophy that inventory is evil

• But it is not just a method to reduce inventories. It is a method to produce what is needed and when needed and not more.

JIT is fundamentally based on two tenets:a) Elimination of wasteb) Respect for humans

• a) Elimination of waste:Shigeo Shingo , a prominent management guru who promoted the use of JIT in manufacturing listed the “ famous seven wastes” as follows:

1. Waste of over production2. Waste of waiting3. Waste of transportation4. Waste of stocks5. Waste of motion6. Waste of making defects7. Waste of processing ( when the product should

not be made or the process should not be used)

Respect for Humans• Expanded job scope• Factory layout• Automation and process redesign• Employee empowerment

JIT process- below shows a normal operation in a factory

• Receiving Receiving Inventory

materials inspection

Sub work in progress final assembly1 Inventory assembly Inventory

Standard factory operations

Receiving materials final assembly

Factory operations using JIT

The advantages of using JIT• Reduction in set-up times• Improvement in quality• Steps in production process• Emphasis on maintenance• Reduction in inventory• Consolidation of the supplier base

KANBAN SYSTEM

• KANBAN means Signboard in Japanese• It is the name given to the small cards attached

to containers which hold a standard quantity of a single part number .

• To understand KANBAN system , imagine two work centers A and B . Work center A produces a part which is kept in a bin . Work center B uses the parts from that bin . When the bin gets empty, it is a signal for work centre A to refill it . This empty bin is the KANBAN signal

Two-card KANBAN system• In practice, companies use systems consisting

of two types of KANBAN cards.• A move card to authorize the movement of

parts from one work center to the next• A production card to authorize the production of

parts by the work center

Managing Vendors

Definition• “ the performance capabilities of suppliers to

maintain the schedule of supplies to purchasers in a properly organized manner.”

Vendor- managed inventory control• VMIC is a refined system of supply chain

management • where the buyers authorize specific range of

materials , parts or assemblies to the vendors , for provisioning and making them.

• The vendors are made responsible to decide the “provisioning –action- figure”(PAF) and “ordering quantity”(OQ)

• VMIC is a refined system of supply chain , achieved after a reasonable time of experience and development of a fairy good degree of mutual faith.

The basic essence of businessMany factors play a role in achieving a degree of acceptance of the prices by the buyers . They are enumerated as follows:

• Need of the buyer• Urgency of the need• Prevalent market rate• Degree of the demand• Supply position• Brand image and quality• Nature of the goods• Cost effective rates

Categories of vendors

• Retailers• Wholesale traders• Manufacturers• Distributors• Marketers• Commission agents• Facilitators• Organizers• Event managers• Special service providers

Rating and Selection

• Vendor sourcing• Reliability• Suitability• Financial capacity• Latest technical knowledge• Initiative• Advisory support• Past experience• Loyalty value• Service standard records

Purpose of purchases• Personal and private purposes• Purchase of organizations• Public purchases1. Transparency2. Fairness3. Value4. Quality

Enlistment as Indian agents• As per the “compulsory enlistment scheme” of

the department of expenditure ,Ministry of Finance , it is compulsory for Indian agents , who desire to quote directly on behalf of their foreign principles , to get themselves enlisted with the central purchase organization.

• Section 143 deals with stockists , retailers and agents of foreign companies who want to be enlisted as partners

Necessity of registration • High status• Automatic registration in other departments• Management• Receipt of limited tenders• Sale of goods directly under rate contract• Direct procurement during emergencies• Reserved items• Purchase of goods without quotation• Limited tender enquiry• Single tender enquiry• Maintenance contract• Earnest money or bid security• Advance payments

Eligibility criterion for registration • Well established dealers• Reputed management• Financial status of the company• Brand image• Registration of advisors/consultants• Services sector• Reliability• Capability to supply at short notice• Maintenance

Categories of vendors eligible for registration

• Technical vendors• General stores suppliers• Specialized service sector• Consultancy services

Structure of a vendor organization

• Head office• Administrative office• Planning and designing• Marketing and sales• Production and quality assurance• Materials department

Important ingredients of strategic plans

• Existing market• Sourcing of materials• Strategic policy plan• Product design and development• Sales promotion

Strategic considerations to start vendors enterprise

• Investment planned• Investments made• Sourcing of investment• Technical requirements• Type and range of products• Development plans

Tactical considerations

• Service sector• Manufacturing• Local procurement• Import of goods

Formulation of sales strategy

• Aims and objectives• Capacity planning• Execution plan• Priority planning• Target fixation• Checks and controls

Strategic levels in vendor management

• Corporate level• Intermediate level • Operational level

Development of sales strategy

• Product quality models• Variety of designs• Innovative goods• Improvement in service standards

Strategic development ladder• Related fields• Value addition• Decision making in sales of goods1. Operational decisions2. Tactical decisions3. Strategic decisions

Need for vendor development• Marketing difficulties• Uncertainty of getting the orders• Procurement difficulties• Right sourcing and costing of stores• Tough competition• Reduction in profitability• Induction of new technology• Applicability of new management techniques• Fear of rejection of stores or products supplied• Maintaining correct delivery schedules• Uncertainty of payment schedules• Taxation policy of the government• Investment constraints

Objective and means of vendor management

• Creating reliability, trust and dependability factors in the suppliers

• Developing a dedicated suppliers team• Imparting technical training about the new technology

equipment required by the buyers• Focusing on minimizing the supply lead time• Involving suppliers in technology details of new product• Creating suppliers service support centers at buyers

location• Conducting educative seminars• Providing loans or part of payment in advance to help

in investment• Making part investments on partnership basis• Improving suppliers delivery system• Improving the buyer seller relationship

Adaptive vendor development techniques• Increased need of cost effectiveness• Globalization of marketing systems• Enhancement of knowledge base• New technology advancements• Use of internet• Awareness of market trends• Competitive marketing strategy• Wider publicity options• Cheaper and faster transportation systems• Outsourcing• Creation of offset printer units

Integrated approach to vendor management

• Intra-enterprise integration• Inter-enterprise integration

Essentials components of vendor development

• Procurement• Inventory control• Manufacturing, fabrication and

assembling• Transportation• Warehousing• Marketing and sales• Delivery system• Payments

C - resourcesO - manufacturingM - fabrication, assemblyP -procurementO - inventory controlN - transportationE - warehousingN - marketing and salesT - delivery systemS - payments

Modern progressive trends of sales• From single vendor to multi vendor approach• From supply centered to demand centered• From general supplier to specialized goods

supplier• From cost reduction to cut down expenses• From distributorship to improved market

strategy• From home market to globalization• From demand scheduling to responsive

approach

Modern concepts of vendor management• Brand image management• Quick responsive marketing• Important ingredients

Important factors of vendor management

• Procurement of logistics• Demand forecasting• Warehousing and materials handling• Customer oriented supplies• Negotiation , a tool to cost effectiveness• Competitive strategy in vendor management• Manufacturing and logistics management• Outsourcing• Inventory control management

Stages and levels of vendor management• Planning and designing• Forecasting1. Internal forecast2. External forecast• Procurement level• Production level• Quality assurance and packaging• Transportation and distribution

Considerations of provisioning• Relevant information• Past experience• Seasonal stores• General information• Aggregate planning

Goals of aggregate planning• Optimum production capacity• Optimum use of resources• Alternate uses• Minimize wastages

Cost analysis

• Minimizing the wastages• Controlling the extra expenditure• Payments to staff employed,

including the overtime• Cost of planned inventory• Any emergency procurement• Production rate charges of the

specific order

Modern international practices• Latest business strategies in supply chain

management• Use of internet made global trade easy• Supportive governments• Decision making• Concept of vendor management changed to

vendor development• Suppliers deciding competitive edge• Quality production levels• Lifetime clause

Fundamental problems

• Supply lead time may not be acceptable to the client

• Manufactured goods by the vendors take longer time

• Not being able to adhere to the fixed delivery schedules

• The customer may not be willing to do forecasting

• Lack of ability to adopt the vendor managed inventory

• The lead time taken is considered as the overall response time

• Irregular and insufficient information flow• Stockless manufacturing units

Thank uuuuu ……. Folks!!!!