WHAT IS MATERIAL MANAGEMENT?

Definition: A process encompassing acquisition, shipping, receiving, evaluation, warehousing and distribution of goods, supplies and equipment

The scope of material management lies on :1. Material Planning.2. Material Obtaining.3. Material Controlling.4. Material Storing.5. Material Handling.

OBJECTIVE OF MATERIAL MGMT 1. Maintain steady flow of material. 2. Achieve economy in terms of

material. 3. Ensure consistency of quality. 4. Reduction of inventory cost. 5. Conservation of the materials. 6. Minimize operational cost. 7. Improve competitive strength of

the co.

Materials management functions

Material planning and programming

Purchasing and outsourcing

Inventory control

Storekeeping and warehousing

Codification

CONTINUES…………………

Standardization and evaluation of all products

Transportation and material handling

Inspection and quality control

Cost reduction through value analysis

Disposal of surplus / obsolete material

Distribution

THE MATERIAL CYCLE

Design Stage

Sourcing Stage

Planning Production

Ordering Process

Receiving Process

Inventory Control

Final Stage

INVENTORY CONTROL

Inventory generally refers to the material in stock. It is also the idle resource of an enterprise . Inventories are those items which are either stocked for sale or they are in the WIP or they are in the form of raw materials.

TYPES OF INVENTORIES

1. RAW MATERIAL INVENTORIES.

2. BOUGHT OUT PARTS INVENTORIES.

3. WIP INVENTORIES.

4. FINISHED GOODS INVENTORIES.

5. MAINTANENCE, REPAIR & OPERATING STORE.

6. TOOLS INVENTORIES.

REASONS FOR KEEPING INVENTORIES

1. TO STABALIZED PRODUCTION.

2. TO TAKE ADVANTAGE OF PRICE DISCOUNT.

3. TO MEET THE DEMAND DURING THE REPLISHMENT PERIOD.

4. TO PREVENT LOSS OF ORDER.

5. TO KEEP PACE WITH CHANGING MARKET CONDITION.

A.B.C. ANALYSIS ABC analysis is a basic tool which helps the mgmt

to place their efforts where the results would be useful to the greatest possible extent. First important step in inventory mgmt is to have a selective approach to fix up inventory levels, order quantities & the extent to which the control can be exercised.

ABC ( Always Better Control ) analysis is an effective tool for such selective control. This technique involves the classification of inventory items into three categories A,B and C in descending order of annual consumption and monetary value of each items.

A.B.C. Continues………

COMPARISON OF A, B & C ANALYSIS

CATEGORY PERCENTAGE OF ITEMS

PERCENTAGE OF MONETARY VALUE

A 5-10 (%) 75-85 (%)

B 10-15 (%) 10-15(%)

C 70-80 (%) 5-10(%)

CLASS ‘A’ ITEMS CLASS ‘B’ ITEMS CLASS ‘ C’ ITEMS

1. Close control required

1.Moderate control required

1. Loose control required

2. Size of order is based on calculated requirement.

2. Size of the order based on their consumption.

2. Size of the order based on their level of inventory.

3. Procured from many sources.

3. Procured from 2 or 3 sources.

3. Procured from 2 sources.

4. More effort is made to reduce lead time.

4. Moderate effort to reduce lead time.

4. Minimum effort to reduce lead time.

CONTINUES………………….

‘A’ ITEMS ‘B’ ITEMS ‘C’ ITEMS

5. Close check on schedule revision are required.

5. Some check on changes are required on need.

5. No checks are required against any need.

6. Frequent ordering is required.

6. Less frequent ordering is required.

6. Bulk ordering is required.

7. Accurate forecast needed

7. Less accurate forecast needed

7. Approximate forecast needed.

8. Low safety stock for less than two weeks.

8. Large safety stock up to two to three months.

8. Large safety stocks more than three months.

9. High consumption value.

9. Avg consumption value.

9. Low consumption value.

CLASSIFICATION OF A,B & C OF MATERIALS

The following information known about a group of items. Classify them in A, B & C classification.

MODEL/NUMBER Annual consumption Unit Price (In paise)

501 30,000 10

502 2,80,000 15

503 3,000 10

504 1,10,000 5

505 4,000 5

506 2,20,000 10

507 15,000 5

508 80,000 5

509 60,000 15

510 8,000 10

SOLUTION………………………Model

Number(1)

Annual Consumpti

on(2)

Unit Price ( In Paise)

(3)

Usage Value

(In Rs.)(4)=(3)*(2)

Ranking(5)

501 30,000 10 3000 6

502 2,80,000 15 42,000 1

503 3,000 10 300 9

504 1,10,000 5 5,500 4

505 4,000 5 200 10

506 2,20,000 10 22,000 2

507 15,000 5 750 8

508 80,000 5 4,000 5

509 60,000 15 9,000 3

510 8,000 10 800 7

CONTINUED…………………Now computing cumulative total no. of items & their usage values we are classifying the materials :

Rank

(1)

Model No.

(2)

% of Items

(3)

Cumulative Usage

Value(Rs.)(4)

Cumulative % In

(Rs.)

(5)

Category

(6)

123

502506509

102030

42,00064,00073,000

48.073.083.0 A

4567

504508501510

40506070

78,50082,50085,50086,300

90.094.098.098.6

B

8910

507503505

8090100

87,05086,35087,550

99.499.6100

C

VED ANALYSIS VED ( VITAL-ESSENTIAL-DESIRABLE )

analysis represents classification of items based on their criticality.

VITAL- This category encompasses those items for want of which production would come to halt.

ESSENTIAL- Items whose stockout cost is very high.

DESIRABLE –Items which do not cause immediate halt in production or their stockout cost nominal & cause very minor disruption for a short duration.

CONTINUED……………………. VED analysis categorization plan : Assign points/weightage to the factors according to

their importance for the company. Examples of the weightage to the above four factors may be 30, 30, 20 & 20 points. FACTOR FIRST

DEGREESECOND DEGREE

THIRD DEGREE

1. Stock out cost (30)

Above Rs. X (30)

Between Rs. X & Y (60)

Above Y (90)

2. Lead time for procurement (30)

1-4 weeks (30)

4-8 weeks (60)

Over 8 weeks (90)

3. Nature of items (20)

Produced to commercial std. or off the shelf (20)

Produced to suppliers design (40)

Produced to buyers design or proprietary items (60)

4. Source of supply (20)

Availability Local ( 20 )

Outstation ( 40 )

Imported , quota items(controll-ed)supply (60)

Typical categorization plan

POINTS CLASSIFICATION

100 – 160

161 – 230

231 - 300

DESIRABLE

ESSENTIAL

VITAL

F-S-N ANALYSIS F-S-N analysis is based on the

consumption figure of items. The items under this analysis are classified into three groups : F ( fast moving ) ,

S ( slow moving ) & N ( non moving ).

To conduct this analysis the last date of receipt or the last date of issue whichever is later taken into account and the period, usually in terms of no. of months, that has elapsed since the last movement is recorded.

Importance of F-S-N analysis It helps to identified : 1. active items which require to review

regularly.

2. surplus items whose stocks are higher than their rate of consumption.

3. non moving items which are not being consumed. The last two categories are viewed further to decide on disposal action to deplete their stocks & thereby release co.’s productive capital