Material Management

By
Amruta S. Sambarekar
Dept. Of Pharmaceutics
M.Pharm Ist Year
M.M.C.P,Belgaum

1
INTRODUCTION

 It is an organizational concept, which has the

authority & responsibility of all activities,
principally concerned with the flow of materials in
the organization.

 Operations involved in the flow of materials are –

Purchasing, Inventory control, Receiving, Storing,
Production scheduling & Shipping of finished
products.

 Hence, material management works in liaison with

production, marketing, sales & quality control.
2
Objectives

 Maximizing the use of working capital.

 Lowering inventory investment & increasing the

inventory turnover by cutting the costs related to
purchases.

 Ensuring cooperation of all departments.

 Providing best services to the level of customer’s

delight.

3
 Functions of
material management

 Material planning & programming.

 Simplification, standardization & value analysis.

 Inventory control & management.

 Purchasing of materials in desired quantities without

delays.

 Receiving of incoming materials.

Storage, preservation & administration of materials.

4

Cont…

 Transportation (internal & external) & material

handling.

 Disposing of rejects & obsolete materials.

 Improving operation efficiency through training.

5
Materials – Quality & Quantity

 For the purchase of raw materials, 4 factors are

considered to be essential –
- Quality

- Quantity

- Price RS.

- Delivery time. DATE

DATE

 Optimizing these factors is the essence of the

material management. 6
 Quality

 It is defined as the suitability of an item to accomplish

the intended purpose.

 A quality standard is the description of an acceptable

quality of a particular item. Ex: quality of drugs &
excipients is expressed as per the standards of IP, BP,
USP, NF, BPC etc.

 Raw materials & components should satisfy the

following requirements –

-Efficiency with which the material can perform its

functions. 7
- Cost & estimated life of the material

- Power consumption in case of equipment.

 The quality of material used has direct relationship

with the end use of the product.

 In the purchasing context, quality is expressed as

the capability of doing a certain thing

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 Quantity
 The function of purchasing department is to buy the
right quantity.

 From inventory point of view, quantity standards are

decided on the following parameters –

- Maximum inventory
- Minimum inventory
- Standard order
- Reorder point

 The quantity is mainly based on the calculation of 9

economic order quantity (EOQ).

 Value analysis

 Value is defined as the lowest cost paid for reliably

providing the required function or service, at the
desired time & place with essential quality.

 Value analysis is a systematic study of every

element for its cost in a part, material or service to
make certain that it performs its function at lowest
possible cost.

 Primary objective of value analysis is to obtain the

same quantity of a product & to achieve the
required function at a lower possible cost. 10
 Benefits

 Cost of existing product decrease.

 Unnecessary expenditure can be identified &

eliminated in products, processes or services.

 Import substitution efforts get boosted.

 Greater profits accrue.

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 Types
 User value: Properties that accomplish use, work or
service. Ex: self-sealing tape.

 Esteem value: Properties that make the ownership

of that object very desirable value. Ex: gold tie-pin.

 Cost value: Properties that are the sum of labour,

material, overheads & other costs, required for
producing that object.

 Exchange value: Properties that make the objective

possible of being traded for other items. Ex: gold
ornaments. 12
Value ratio

 Function may be expressed in terms of performance,

reliability, appearance etc.

 It is expressed as Value = Function

Total cost

 Once a function is kept constant a value can be

improved by the following ways,

- Reducing the costs.

- Improving the function.
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 Cont…

- When function is increased with disproportionately

low increase in cost.

Unnecessary costs may be due to,

- Lack of information
- Lack of ideas
- Wrong beliefs ,habits and attitudes
- Changed circumstances

14
 Purchasing – Centralized &
Decentralized
 Purchasing is an activity of securing the materials,
supplies, equipment & services required in the
operations of an enterprise.

 Purchasing manager is responsible for the effective,

efficient & economic operations of the department.

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Functions Of Purchasing Department

 Ordering section places orders with the vendors.

 Service section follows the progress of the purchase

orders, its shipment by the vendor & its final receipt
by the company.

 Records-section maintains all records of quotations,

costs, purchases etc.

- Thus, purchasing involves control, coordination &

communication 16
 Centralized Purchasing

 If a company has production operations at different places &

if the nature of operations is similar, then centralized
purchasing is preferred,

 Advantages:

- Invariably an efficient system.

- Permits a greater degree of specialization for buying.
- Bargaining capabilities are better.
- Procuring becomes uniform & consistent materials are
procured without price anomalies.
- Duplication of efforts is eliminated.
- Purchasing procedures & payment of invoices become
simple. 17
Decentralized Purchasing

 When different branches of a large organization

require different types of materials, decentralized
purchasing is preferred.

Advantages:

 Purchasing system, purchasing becomes more

flexible & efficient
 Procurement is faster.
 Purchases made in local place, promotes better
public relations.
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Cont…

 Control over purchases is no longer remote.

Disadvantages:

 Quantity of discounts offered is less & also involves

duplication of efforts.

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 Vendor development

 Vendor is a person who sells & supplies his products.

 An intelligent purchasing process involves the
rational selection of sources from which materials can
be obtained. Considerable efforts are needed in
identifying, developing & evaluating the prospective
suppliers.
 Factors to be considered in developing a vendor –
- Quantity required to be purchased.
- Time available for making such purchases.
- If the material be required repeatedly or
occasionally.
20
 Cont…

 Volume of the purchase of required materials.

 Industry producing the required materials.
 Commercial viability of the materials.

 For the purchase of items that are of repetitive

nature, a detailed evaluation procedure of suppliers
is adopted.

 For a one-time purchase, elaborate inquiries &

evaluation procedures may not be necessary, unless
the item is costly & has a high technological
content, such as biological products.
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Stage Name Development
Survey stage Identifying the potential
1st sources of suppliers.
Seeking information.
Provisional vendors list.
Enquiry stage Analysis of information in
nd standard enquiry format.
2
Accreditation, FDA approval,
ISO certification.
Personal visits.
Negotiations and Quality control specifications,
rd clarification, credit, quantity
3 selection stage
discounts.
Experience and Performance appraisal,
Quality, delivery time.
4th evaluation stage
22
Survey stage

The following sources are considered for information,

 Trade directories
 Trade journals
 Telephone directories
 Supplier’s catalogue
 Salesmen

Other ways are like exchanging information between

purchage departments of other companies, tracing of
public tenders and advertisements in the press.

A list of possible supplier is drawn and assessed then23

further.
Enquiry Stage – Selection Of
Potential Suppliers

• After getting the information of the suppliers, detailed

analysis of the supplier is being carried out. A
comparison is being made between the different
suppliers on basis of the following points,

• Technological competition,
• service competition,
• price competition,
• delivery time.

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Cont…

The following aspects can be verified by the first hand

visit:-

• Internal facilities of the vendor

• Financial adequacy, stability and reputation of the
vendor
• Location of vendor’s factory
• After sales service
• Industrial relations

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Negotiation and selection stage

 The vendors who clear the enquiry stage are

selected and negotiations are being carried out with
them.

 The various aspects such as credit, quantity

discount, quality specifications are being discussed.

 Finally, a list of approved vendors is drawn and

accordingly purchase orders are placed with the
approved vendors.
26
Experience and evaluation stage

 The buyer evaluates and appraises the performance

of the vendor.

 The objective is to improve the performance of the

vendors.

Few ways of evaluating a vendor are

o Categorical method
o Weighted point method

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 Categorical Method

The buyer sets up some category on which the evaluation

of the vendor is done are following,

 Supplies are as per quantity specified

 Delivery as per schedule
 Rigorous follow up is not necessary
 Solve his raw material problem his own
 Willing to accommodate when production schedules
are changed suddenly
 Helps in emergency
 Reasonable pricing 28
Cont…

 Each supplier is evaluated and number-score is

calculated. The conversion score is as follows,

80-100 points Excellent

70-80 points Very good
60-70 points Good
50-60 points Average
40-50 points Very poor

 Method provides an opportunity to discuss the

performance with the vendors in clear terms.
 Less expensive method. 29
Weighted Point Method

 Involves a point rating based on the quality of

goods received, the promptness of deliveries made
& the quality of the service rendered by the vendor.
 The performance of each factor is separately
quantified.

Quality - 50 points
Delivery - 30 points
Price - 20 points
Total - 100 points
30
 Cont…

Numbers of lots accepted * Rating points

Quality rating =
Numbers of lots rejected

No. of lots delivered in time Rating

Delivery rating = * points
Total no. of lots delivered

Least offers received

Price rating = * Rating points
Supplier’s offer

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Buying Techniques

 Purchasing of material , machinery and services is

done by purchasing department.

 For buying the material company has to pay up a

price, the value that a seller sets on his goods in the
market is called as the price of that good.

 Price is one of the greatest variables in the

purchasing of material.

 Price is often quantified by terms, best price, lowest

price, economic price.
32
Quotations :

 It is a kind of an enquiry done to know whether the

vendor can supply the desired material and if so, at what
price.

 They are not the purchase order. They just contain all the
details including taxes and many other costs.

 The highly used quotation techniques are

Spot quotations
Floating a limited enquire

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 Spot Quotations

 This is basically used for the small items not related

to the technical purpose.

 The prospective buyer goes to the market and gets

the quotations from the different suppliers and takes
a spot decision

Floating A Limited Enquire

 This method is used when the value of the purchase is

small. In this technique the reliable vendors are called
upon and asked to provide the quotations.
34
Cont…
 A comparative statement helps in studying and
comparing a different quotations at a glance.

Tenders

 It is a written letter or a published document that is

aimed at finding the price for procuring certain materials.

 Tenders are invited from recognized firms. A few types

of tenders are:

# single tender
# Open tender 35

# Closed tender or limited tender

Single Tender

 It is invited from one reliable supplier, under certain

conditions. Applicable to proprietary items, high
quality items & also C-items such as clips, pins,
pencils, etc., when items are required urgently

Open Tender

 Used when the value of purchase is high. & when

supply sources are not known. Open tenders are very
expensive.

 It gives wide publicity & is open to any vendor. The

vendor has to deposit an earnest money with the 36

tender information & tender number.

 Negotiations

 It is done to arrive at the mutual understanding

through bargaining on the essentials of a contract
such as delivery, specifications, prices & terms.

 The purpose is for fixing & finalizing prices of

materials, terms & conditions.

 Negotiations are essential in the following conditions,

- Prices are related to large volumes or large value.
- Terms & conditions are required for large volumes.
- Contract is desired for a longer period.
37
cont….

 Variations in quantity to be purchased are possible.

 Changes in drawings & specifications are necessary.
 When supplies can be obtained from only one
source.
 Changes in transportation, packaging & delivery
points are to be decided.

- It is a kind of win-win situation. Both the parties try to

benefit to the maxima through the negotiation.
- It is not a kind of bargaining but a mutual understanding
between the two parties 38
 Discounts

 Discounts are defined as the cash concessions offered

by the vendor in the payment price, on the goods
purchased, in order to enhance the volume of business
opportunities.

 Reasons for offering discounts?????

! When there is a bulk purchase.

! When the bills are cleared immediately.
! And also to maintain the good relation with the buyer
39
Cont…

 discount It is a method of offering discounts

Cash discount:
depending on the time of payment made on the
delivery.

Payment in days Cash discount %

90 nil
60 1
30 2
Immediate 3

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 PURCHASE CYCLE

41
 Purchasing cycle and procedure
 The purchasing department of the company is responsible
for the purchase of all the raw materials as well as the
requirements.
The following steps are followed in the purchasing cycle.
1) Recognition of need and receipt of requisition: The
requisition includes the following information:-
- Name
- Quality and quantity specifications
- Date by which material is required
- Place at which material is to be delivered
Feb 11, 2013 42

Dept of Pharmaceutics
 2)Selection of potential sources of supply
3) Making request for quotation
4) Receipt and analysis of quotations
- Material specifications and quality
- Price of the material
- Taxes
- Terms of payement
- Place of delivery
- Delivery period
- Gurantee period
-Validity of tender
Feb 11, 2013 43

Dept of Pharmaceutics
5) Selection of right source of supply
6) Issuing the purchase order
7) Follow-up of the order
8) Receipt of materials,reports and analysis
9) Checking and approving of vendor’s invoice for payment
10) Closing of completed order
11) Maintenance of record and file
Purchasing cycle flow chart has been given in the
following slide.
Feb 11, 2013 44

Dept of Pharmaceutics
Quotations & analysis prices and terms, negotiations,
finalization

45
 Cont…

Delivery of materials

Checking of invoice Materials & reports, analysis

with purchase order

Payment made

46
Stores management

 Location of stores
 Stores layout should be planned to achieve
following objectives:
Minimum wastage of spaces
Maximum ease of operation
Minimum other operational costs
Minimum handling costs

47
 General functions of
the stores department

 Maintenance of stocks (materials and tools)

in stores

 Maintenance of hygiene, sanitation and pest

control

 Maintenance of material handling equipment

48
 Specific functions of Stores
Department

 Receiving, inspecting and recording of raw

materials
 Arranging for QC of raw materials
 Positioning and storage
 Issuing and recording
 Receiving and dispatching of finished goods

49
Optional functions of
Stores Department:

 Dispensing, maintenance of weights and

measures: A centralized weighing section is
recommended which avoids the duplication of
weighing facilities
 Screening of materials: A material screening
section should be constructed in close
proximity to the central warehousing area.

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 SALVAGING AND DISPOSAL OF SCRAP AND
SURPLUS

 The words ‘scrap’ and ‘surplus’ denotes waste

and to that extent these account for the loss of
profits
Mistakes in procurement
Wrong planning decisions
Wasteful processes in production
Inevitable waste during the adjustments of
the equipment
Overall absence of efficiency.
51
 Scrap

 Scrap refers to ferrous scrap, which is not related

to pharmaceutical industry. Commonly it refers
to waste material of all kinds.

 The responsibility of disposing scrap and surplus

is usually assigned to the purchase department
because it has fair idea about the market, price
trends.

52
 Salvaging

 The processing of materials for advantageous use or

disposal of company’s property which is no longer
economically useful in its present position.
 Waste materials are properly collected and stored at
one place
 Recoverable materials are stored in a scientific way as
other items are stored.
 Materials are stored in terms of quality or
specifications
 Waste is investigated for suitability to recover or avoid
them. 53
 PLANT MATERIAL HANDLING

Material handling involves the movement of

materials manually or mechanically either
individually at a time or in batches within the
plant

54
 Risks associated with improper
handling

 Increase in cost of raw materials and finished

products
 Delay in production schedule and long production
cycle
 Waste of machine time and personnel time
 Increase in in-process inventories
 Damage or loss of material and employee safety
liabilities
 Customers dissatisfaction
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 APPLICATION OF MATERIAL HANDLING
EQUIPMENT

 Production department: As the cost of labour and

cost of the basics have been increasing, there is
a chance of squeezing profit margins.

 Store department: For the movement and lifting of

materials in stores, shuttle car or hand operated
mobile trucks are used.

56
 FUNCTIONS OF MATERIAL HANDLING

 Handling of unit load

 Placement of equipment

 Appropriate material handling techniques

57
 SELECTION OF MATERIAL HANDLING
SYSTEMS

 Nature of materials to be moved

 Plant building and layout
 Type of material flow pattern
 Type of production
 Cost of material handling equipment
 Handling costs
 Life of equipment

58
 MAINTENANCE OF MATERIAL HANDLING
EQUIPMENT

 Preventive maintenance is one of the best

techniques suggested for the material handling
equipment.

Inspection
Repairs
Overhaul

59
 UNIT LOAD, PALLETISATION AND
CONTAINERIZATION

It is easier and faster to move a hundred small

parts by grouping them into one unit than moving
them individually one by one. These are
collectively known as Unit-load.

60
 Pallet is one unit load Unit load & palletizaton
these are moved to the
production department
by suitable handling
system.
 Depending on the types
of item to be transferred,
a suitable pallet can be
designed. for example,
items of irregular in
shape are liable to be
damaged by crushing,
for such items, a post
pallet is useful. small
items can be placed in a
wire
02/11/13 mesh-box. 61
 Containerization uses  Containerization
the principle of unit
load. in this system, a
big metal container is
filled with a number of
small products. many
such containers are
placed on a truck or
trailer that is pulled by
tractor or truck. such
containers can be
loaded on railway
trailers & transported.

02/11/13 62
TYPES OF MATERIAL HANDLING
SYSTEMS

 Conveyors  Slides
 Fork- lift Trucks  Chute
 Cranes  Lifts
 Hoists  Tractors and Trailers

63
 Conveyors
 Belt conveyors are used in transporting
containers (bottles) for filling, capping, sealing,
labeling, pasting, visual inspection in
production of injectables, liquid orals, ointments
and jellies.

 Other conveyors- Pneumatic conveyor, roller

conveyor, slat conveyor, wheel conveyor, apron
conveyor, pusher conveyor, bar conveyor and
bucket conveyor.

64
Belt conveyors

65
 Fork- lift Trucks

It consist of forks attached to a column of the truck.

fork can be lifted upto the desired height with
material(boxes) on them. the material can be stacked
at the proper place very close to the roof in
warehousing & shinning area. Fork-lift trucks are
used for short distance(40 to 70 meters) travel. These
are used for indoor applications.

66
Fork- lift Trucks

67
 Cranes

Cranes are employed for lifting & lowering of

bulky items, packages & boxes. these find
applications in heavy engineering industry &
generally in intermittent type of production.

68
Cranes

69
 Slides Chute and Lifts
• Slides can be straight, spiral & vibrating, & made up of
wood or steel. These transfer small jobs that can slide
down under gravity. Vibrating slides transport
material up & inclined.(Example,cigar-ette factories )
• Chutes generally deliver the feed material directly onto
the conveyor to reach the destination further. Spiral
chutes are used for transporting sealed vials from
aseptic area to packing section using gravity principle.
• Lifts are used to transport material up in multi-storeyed
Plants. It is a fast & flexible equipment for floor to floor
Travel.
70
Slides Chute and Lifts

71
 Tractors and Trailers

Three wheeled or four wheeled tractors are

employed & fitted with an IC engine drive. These
are used for outdoor applications.

Trailers are loaded with the material & attached to

the tractor. It can be either uncoupled from the
tractor or the material can be dumped in respective
stations.

72
Tractors and Trailers

73
 IMPORTANT QUESTIONS
1. What is HRD ? Explain about personnel training of job
spec ification. (Oct ’06, May 11)
2. Explain centralised & decentralised purchase
procedure (Oct’06, May 11)
3. Describe the material management in pharmaceutical
industries(Oct’09)
4. Explain the various material handling systems &
maintainance of material equipments in p’ceutical
industries.(May’ 10)
5. Explain personnel training, job specifications , job
enlargment & labour welfare. (Oct’09)
6. Explain stores management in p’ceutical industry.
(May 10)
74
 REFERENCES

•CVS Subramanyam, Pharmaceutical Product and

Management, Published by- Vallabh Prakashan, Page no :-
260 – 282

•Prof. S.A. Sherlekar, V.S. Sherlekar Modern business

organization & Management systems approach, by Himalaya
publishing house, 5th edition,pg.no.5.38–5.58.

 www.google.com

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Thank You

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