Material Cost Control

•Material = Money
•Buzz Word “Supply Chain”
Objective Get the FIVE ‘R’s right
Right Quality
Right Quantity
Right Time
Right Source
Right Price
 A Purchase Procedure

Receive Purchase Indent- Production & Stores

Selecting a Supplier
- Float a Tender
- receive a quotation
- Compare
Place an Order
Follow Up
Receive materials & Inspection
Settle excess or short supplies
Make Payments
SYSTEMS IN A MATERIAL CONTROL

•Vendor Development
•Vendor Rating
•Rate Contracts
•Consolidation & EOQ
•Just in Time
•Invest in Supplier
KRAs in a Materials Control

•Cost Reduction
•Import Substitution
•Negotiation with existing Suppliers
•Reduce Lead Time
•Improve Quality, Yield
 STORES CONTROL

Objective: To supply material for Production

and maintain stock levels and inventory

How they do it?

Receive Materials & issue a receiving report
Store them and maintain stores record
Receive stores requisition , issue material
Stock Taking
Intimate Purchase Department to Purchase
for reordering
 STORES CONTROL
Systems & Techniques
ABC Analysis
 Control Stock Levels- Minimum, Maximum,
Reorder level & Danger Level
Perpetual Inventory/ Periodic Inventory
Slow Moving / Non Moving
Ageing Analysis
Standardization
 Just in Time Purchasing
 ABC Analysis
Category ‘A’ items- Small in number,
high in usage value the vital few from a financial angle

Category ‘B’ items – Medium number,

medium usage value-’ ( normal items)

Category ‘C’ items- High number, low usage

(the trivial many )
 Graph showing ABC analysis

60

50
55%

40

30
35%

Value
20
10%

10 10 20 30 40 50 60 70 80 90 100
No. of Items
 Inventory Levels

Max.Level

Reorder Qty

Min.Level

Danger Level

Quantity
Time
 Uniform  Irregular Consumption
Consumption Maximum Level

INVENTORY LEVEL
I
N
V Reorder point
E
N
T Safety Stock
O
R
Lead Time
Y
Time Time
Reorder Point: = average expected consumption during lead time+
Safety Stock

Safety Stock = If consumption is more than average

consumption . . . safety stock is required.
 Reports Generated by Costing Dept on Materials

1. Ageing Analysis
2. Variance Reports, price , quantity
3. Out of Stock Effect of Over Stocking
4. Cost
5. No. of days Stock
Economic Order Quantity(EOQ)

It is an optimum size of order that

minimises the ordering cost with
carrying cost.
Objective is to manage & maintain
optimum level of inventory