MATERIALS

MANAGEMENT
 Management

Management refers to the establishment and

attainment of objectives. The basic resources six
Ms Men, Materials Machine, Methods, Money
and Market are brought together and
integrated. Further they are planned, organized ,
coordinated, processed harmoniously and
controlled with a view to achieve the end
results.
 Materials Management
It is a distinct process of management covering all
aspects pertaining to
Cost of Materials
Timely supply of quality material.
Materials utilization

It is defined as an organizational concept, which

has the authority and responsibility of all
activities, concerned with the flow of materials
in the organization.
Objectives & Importance's
Reduce overall Cost of Production
Increase Productivity
Efficient use of resources
Profit maximization & Wealth maximization
Improve quality
Enhance better working conditions
Ensure customer satisfaction and retention
Efficient use of the working capital.
Lowering inventory investment
Increasing the inventory turnover.
Ensuring the cooperation of all departments.
Forecast future budgets
Planned orders
Reduce wastages and defects
Functions of Materials Management
Materials Planning : Estimating requirements preparing MRP
Forecasting inventories scheduling of orders monitoring production

Materials Sourcing : Identifying suppliers choosing the right

supplier - Planning supply chain systems estimating transportation
costs scheduling follow up

Inventory Control: Planning of control systems - Exercise

control through control systems maintain the inventory levels

Budgeting: Estimating working capital requirements

Stores Management: Physical control of materials stores

maintenance minimize obsolescence disposal of waste
maintenance of records stock control
Benefit of Integrated Materials Management
Centralized Authority & Responsibility
Well coordinated Efforts resulting in
Better inventory planning
Faster inventory turnover
Assured Material availability
Efficient coordination
Better communication
Better Buyer- Supplier relations
Reduced materials handing costs.
Smooth flow of materials
Improved productivity
Increased profitability
How to measure the effectiveness of Materials
Management system
A better inventory turnover
Reduced stock outs
A reduced lead time
Reduced paper work
A minimum handling of materials.
Reduced storage & preservation costs.
A better materials planning.
A better result oriented communication,
judicious inventory control & speedy
solutions to materials problems.
 Material Classes
Raw materials:- These are materials that are used in the
product which is in an unprocessed condition.

Purchased Parts:- These are the items used in the

assembly of the product.

In-progress materials:- They are called work in progress

inventories.These goods require further processing.

Finished materials:- These are fully manufactured goods,

inspected and ready for delivery to the customers
PURCHASING (6 Rs)
Purchasing in modern industrial environment
does not refer to mere buying of materials.

Purchasing is the procurement of

RIGHT QUANTITY of material,
of RIGHT QUALITY,
at RIGHT PRICE,
to be supplied at RIGHT TIME ,
at RIGHT PLACE,
from RIGHT SOURCE
 The Prime function of Purchasing is that of
being sensitive to the external supply market
situation and also of feeding back this
information to the other functions of the
organization.
The objective of purchasing is to obtain correct
equipment, materials, supplies, and services in
the right Quantity, of the right Quality, from the
right Origin, at the right Time and Cost.
THE PURCHASE SYSTEM
The control of purchasing should be set out in a
written Purchasing manual which:
a) Assign responsibilities for and within the
purchasing function;
b) Defines the manner in which suppliers are
selected to ensure that they are continually
capable of supplying the requirements in terms
of materials and services;
C) Indicates the appropriate purchasing
documentation written orders, specifications
and certificates of conformity required in any
modern purchasing activity.
PURCHASE PROCESS
Develop options: Locate possible vendors,
Quantity and price considerations
Evaluate & decide: Listing pros and cons of
options, Examine consequences of selecting
various alternatives measuring against criteria of
evaluation; Testing against overall objectives and
selecting the best option(s).
Implement: Initiate action to carry out the
decision taken, Monitoring the implementation
of decision, Review the decision if necessary.
Purchase Process Cycle
Establish Purchase Need

Prepare a Requirement Plan

Identify the Suppliers

Prepare a Purchase plan

Select a supplier

Make a Purchase order

Follow Up

Receive and Inspect

Store and record

Pay the Bill

 Buying Methods
Contract Buying The buyer and the seller directly enters into a
contract to either buy or sell goods.

Sub Contract buying A party which agrees to perform all the

roles of a main contractor

Centralized Buying One department takes up the responsibility

of procuring the required materials for all its manufacturing units.

Open Order Purchase order is issued once a year but the price or
quantity is not specified.

Blanket Order Purchasing through middlemen

 Tendor Buying Buying through issue of Public notice

Public Buying Issue of notice by government to public

undertakings

Speculative Buying to gain advantage of speculative prices

Forward Buying Buying in advance when the prices are

low.

Seasonal buying

Outsourcing

International Buying
 Stores Management
Deals with physical storage of goods

Functions
Receive materials
Classify and codify
Inspect and record
Store
Supply
Maintain
Update
Types
Inward

Finished Goods

Blonded

Warehouse

Special

Scrap
General Information
FIFO
LIFO
HIFO Supply of stock to the plant
NIFO
Stock Efficiency
Transportation
Logistics Management Business planning
framework for the management of
materials, services and capital flows.
 VENDOR RATING

The method adopted by the supplier to

price his goods.
 VENDOR ANALYSIS
Vendor Analysis is the process of evaluating
the sources of supply.

The main factors for selecting a vendor are:

Price, Quality, Services, location, Inventory
policy of supplier & flexibility
Supplier Certification
It is a detailed examination of the policies
and capabilities of a supplier. ISO 9000
QMS is most widely used international
certification.
Suppliers Audit
Periodic Audits of supplier are helpful in
getting current information on suppliers
production capabilities, quality and
delivery problems etc. Supplier audits are
also important first step in the supplier
certification program.
Simplification
Most frequently, simplification means
reducing the number of standard items a
firm uses in its product design and carries
in its inventory.
For example, no of types of grease were
reduced to Six from earlier twenty seven
types. Number of bearings and fasteners
reduced by 50%
 Value Analysis (VA)
The systematic and critical assessment by
an organization of every feature of a
product to ensure that its cost is no
greater than is necessary to carry out its
functions
Evolution

VA had its genesis during the war years of the early

1940s. By the mid 1960s Values analysis was
established as the corner stone of most purchasing
research and cost reduction programs in major
manufacturing firms.

During World War II many critical materials and

components were difficult to obtain, and most
manufacturers were required to specify numerous
substitutes in their design and production activities.
 In 1954, the U.S. Navys Bureau of Ships adopted a
modified version of General Electrics Value analysis
concept in an attempt to reduce the cost of Ships and
related equipment. In applying the concept, the Navy
directed its efforts primarily at cost guidance during
the initial engineering design. Stage and called the Value
Engineering program.

Value Engineering (VE), even though it embodied the

same concepts and techniques as GEs value analysis
(VA) program, In an operational sense however, the
two terms typically are used synonymously in industry
today only the timings differ.
Concept
The technique of V.A. represent a potentially powerful
set of tools which can be used by management in
controlling materials costs. The fundamental objective of
all V.A. activities is the procurement (or manufacture) of
materials representing the Best Buy in terms of the
function to be performed. V.A is the systematic and
thorough approach used in attaining this objective.

Function (f)
Value = ..
Cost (c)
Value Engineering (VE)

A systematic and organized approach to provide

the necessary functions in a project at the
lowest cost.Value engineering promotes the
substitution of materials and methods with less
expensive alternatives, without sacrificing
functionality. It is focused solely on the functions
of various components and materials, rather
than their physical attributes. Also called value
analysis
 V.E vis -a- vis V.A

As practiced in U.S.firms for many years, V.A

techniques were most widely used in programs
designed to engineer unnecessary costs out of
existing products.

Finally the most progressive firms began to follow

the Navys V.E programs, that applied the V.A
concept during the early states of the new
product design process to obtain the greatest
benefits.
 The V.E concept finds its most unique use in two
types of companies

Those companies that produce a limited number of units

of a very expensive product.
Those companies that produce mass products requiring
expensive tooling.
The Federal Acquisitions Regulations U.S stipulate that
most defense procurement contracts must be subjected
to V.E studies prior to initial productions.

VA/VE Tools

Design Analysis of the required produce part or material.

Cost Analysis of the required produce, part or material.
 Analysis of each component attempts to
answer four specific questions :-

Can any part be eliminated without impairing the

operation of the complete unit ?
Can the design of the part be simplified to reduce its
basic cost?
Can the design of the part be changed to permit the use
of simplified or less costly production methods
Can less expensive but equally satisfactory materials be
used in this part ?
The Values Analysis Check List -
National Association of Purchasing Management suggests first
determine the functions of the item & then determine the
following

Can the item be eliminated

If the item is not standard, can a standard item be used?

If it is a standard item, does it completely fit the application, or is it a misfit ?

Does the item has greater capacity than required ?

Can the weight be reduced ?

Is there a similar item in inventory that could be substituted ?

Are closer tolerances specified than are necessary ?

The Values Analysis Check List(Contd)
Is unnecessary machining performed on the item

Are unnecessarily fine finishes specified ?

Is Commercial quality specified ? (Commercial quality is usually

most economical.)

Can you make the item less expensively in your plant ? If you are
making it now, can you buy it for less?

Is the item properly classified for shipping purposes to obtain

lowest transportation rates ?

Can cost of packaging be reduced ?

Are suppliers being asked for suggestions to reduce cost ?

Cost Analysis

It involves the investigation of a suppliers probable cost

of producing a given product. The analyst constructs
estimated elemental costs for materials, labour,
manufacturing, overhead & general overhead.

An experienced analyst, with the use of wage data,

material price lists and various industry time standards
can determine a total theoretical cost which reasonably
approximates the actual cost. To this figure is added a
reasonable point of margin.
Cost Analysis(contd)
Though cost analysis is used in negotiating an original

procurement, it has become useful in V.A. in two ways

Cost analysis is conducted for currently purchased

items whose costs appear excessive.

It serves as a means of locating high cost parts

which should be subject to design analysis.
Generalized procedure model of the value analysis :-
Standardization: The Materials Way
It consists of reducing the varieties of materials stocked in the
inventory to a workable minimum; by fixing Sizes, Shapes,
Dimensions, and other Quality characteristics of the
materials. By combining materials into Standard groups it will
no more be necessary to keep as high a level of inventory of
items as was necessary when there was a variety of items in
the stock.

With less variety and more standardization, the advantages

are:
i) The purchase cost expected to be lowering down.
ii) Reduced stocks to be maintained for current consumption as
well as for safety stocks.
iii) As a result, the amount of paper work is reduced in addition
to streamlining Materials planning process.
Objective of Standardization: ISO Way
International organization for Standardization has
stated the Objective as to facilitate international
exchange of goods & services and to develop mutual
co-operation in the sphere of Intellectual, Scientific,
Technological and Economic activity.

The objective of Standardization has following four

dimensions:
1. Manufacturer
2. Trader
3. User
4. Society
Scope of Standardization
1.Technological factors such as Specification,
Tolerance & Limits, Testing.
2.Disciplines such as Engineering, Agriculture,
Education etc.
3.Legal aspects such as Forms, Contracts,
Labeling etc.
4.Sectoral areas such as Company Industry,
National, International etc.
Application of Standardisation
1. Units and Measurement
2. Safety of Persons and Goods
3. Products and Processes: Definition and Selection
of characteristics of product testing methods,
Specification of characteristics of production for
defining their quality, Regulation of variety,
Interchangeability etc.
4.Variety Reduction (simplification) and
rationalization.
5. Inspection and Sampling
6. Nomenclature and Codification
 INVENTORY
Typically Inventory implies a list of ITEMS held in
stock. Stock implies the Quantity of a particular
item on hand.

Inventory is a STOCK of Materials used to facilitate

Production or to satisfy Customer demands. It
include Raw-materials, Work-in-progress and
Finished goods.

Inventory acts as a BUFFER between the demand

and supply rates of different nature.

Inventories are VITAL to the successful functioning

of Manufacturing & Retailing organisations.
INVENTORY MANAGEMENT
The maintenance, upkeep and assurance of
adequate supply of something in order to meet an
expected pattern of distribution of Demand for a
given financial investment.

Inventory Management is a key Operations

responsibility because it greatly affects Capital
requirements, Costs, and Customer service.
Inventories need efficient Management, as generally,
a Substantial share of its funds is invested in them.
TYPES OF INVENTORY
Raw Material and Production Inventories: These are
raw materials and other supplies, parts and components
which enter into the product during the production process
and generally form part of the product.

In-process Inventories: These are semi-finished WIP, and

partly finished products formed at various stages of
production. Also named as Decoupling Inventories to
decouple or disengage different parts of the production
system.

MRO Inventories: Maintenance, repairs and operating

supplies which are consumed during the production process
and generally do not form part of the product itself are
referred to as MRO Inventories. e.g. oils and lubricants,
machinery and plant spares, tools and fixtures etc.
Movement Inventories: It is also named as Transit or Pipeline
inventories. It arises because of the time necessary to move stocks from
one place to another.

Anticipation Inventories: In case of seasonal variations in the

availability of some raw materials, it is convenient and also economical
to build up stocks where consumption patterns may be reasonably
uniform and predictable. Such inventories are carried to meet
predictable changes in demand

Lot-size Inventories: It is a common practice to buy some raw

materials in Large quantities than are necessary for immediate need in
order to avail quantity discounts and lowering down costs of buying,
receiving, inspection, transport and handling. It is also termed as Cycle
inventories.

Fluctuation Inventories: In order to cushion against unpredictable

fluctuation in demand these are maintained. The general practice of
serving the customer well is the reason for holding such Inventories. But
they are not absolutely essential in the sense that such stocks are always
uneconomical.
 INVENTORY CONTROL SYSTEM
Inventory control system is either Manual or Computerized or a
combination of two. It performs following functions:

Every Inventory system requires a method of record keeping, which must

support the accounting needs of the organization and the inventory
management function.

It requires the Perpetual (never ending or changing) records be kept by

recording every disbursement and receipt. In some other cases, periodic
counts e.g. annual of the inventory may be required.

Whatever the exact method used, every Inventory control system

requires a suitable transaction accounting to follow with.
CONTROL TECHNIQUES
ABC Inventory Classification: Materials Management involves
thousand of individual transactions each year. To do their job effectively,
materials managers must avoid distraction of unimportant details and
concentrate on significant matters.
Inventory control procedures should isolate those items that require precise
control from those that do not. SIC can indicate where the Manager should
concentrate his efforts.

Physical Inventory control still remains a problem in inventory management and

the ABC control concept, when applied in this area (to inspection, storage,
frequency of cycle checks, etc.) still remain valid.

ABC analysis leads to classification of Inventory items on the basis of their USAGE
in monetary terms.

A High consumption value items .

B Moderate consumption value items.
C Low consumption value items.
VED Analysis: VED Analysis is also the same in principle. The only
difference is that it finds out which materials and parts are valuable, which
are essential, and which are desirable.

Inventory items are classified on the basis of their criticality to the

production process or other services.

V Vital items without which the production process would come to a

standstill.
E Essential items whose stock-out might cause temporary losses in
production.
D Desirable items which are required but do not immediately cause a
loss of production.
This is also essentially meant for a sizeable reduction in inventory.

HML Analysis: Similar to the ABC analysis except that the items are
classified on the basis of Unit Cost rather than their Usage value.

H stands for High cost per unit.

M stands for Medium cost per unit.
L stands for low cost per unit.
SDE Analysis: SDE Analysis works on the criteria of availability
of items.
S stands for Scarce items
D stands for Difficult to obtain
E stands for Easily available

GOLF Analysis: This analysis is based on the Source of Supplies

G stands for Government Sources
O stands for Ordinary Sources
L stands for Local Sources
F stands for Foreign Sources
This is meant for deciding Procurement of materials from
different sources.
S-OS Analysis: This analysis is based on the nature of
Supplies.
S stands for Seasonal items
OS stands for Off-seasonal items

XYZ Analysis: XYZ analysis is based on the criteria of

Closing Inventory value of different items.

X Items whose Inventory value is high.

Y Items whose Inventory value is neither too high nor too
low.
Z Items with Low investments in them.
 TITLE BASIS MAIN USES
ABC Usage value To control on the Significant
Analysis few & the Insignificant many

FSN Analysis Consumption To control Obsolescence

pattern of the
Component

VED Criticality of the To determine the Stocking

Analysis Component Levels of Spare parts

HML Unit Price of the To control purchases

Analysis Material

SDE Analysis Problems faced in Lead-time analysis and

Procurement Purchasing Strategies
TITLE BASIS MAIN USES

SOS Nature of Procurement/ Holding

Analysis Supplies Strategies for Seasonal
items like Agricultural
products

GOLF Source of Procurement Strategies

Analysis material

XYZ Value of items To review the Inventories

Analysis in Storage and their Uses at
Scheduled intervals
 INVENTORY CONTROLREVIEW SYSTEM
Continuous Review System: A Continuous Review System
provides one way to handle random demand. When the stock
position drops to the reorder point R, a fixed Quantity Q is
ordered. The time between orders will vary depending on
actual demand. The value of Q is set equal to EOQ. The value
of R is based on the Service level desired.

Periodic Review System: A Periodic Review System

provides another way to handle random demand. The stock
position is reviewed at fixed intervals P, and an amount is
ordered equal to the Target Inventory T minus stock position.
The amount ordered at each review period will vary
depending on actual demand. The value of P is set by use of
the EOQ and the value of T is based on the service Level
desired.