MATERIALS MANAGEMENT AND INVENTORY

CONTROL MANAGEMENT
GROUP NO - 8
Name Roll no.
Rupam Katte 71
Shaily Kayal 72
Hrushikesh Kene 73
Ajit Khanjode 74
Ajay Kharbade 76
Vishwajeet Khot 77
Shubham Khule 78
Abraham Kiriyanthan 79
Amit Kirtane 80
INTRODUCTION

Cost • At what price to buy

Inventory management is done to get
1. The Right quality
• Whether to stock
Form
2. Right quantity of supplies RM,WIP,FG
3. At the Right time
• Where to
4. At the Right place Location produce/Store
5. For the Right cost
• How much to
Quantity produce/store
MIS can be used to streamline
different processes and optimise the
output by increasing efficiency
OBJECTIVES-MM

To ensure continuous and uninterrupted production or operation by maintaining steady

flow of material

To achieve above in efficient & economical manner

To effect economies in cost of manufacturing by purchasing material of right Quality ,

Quantity, Time , Source and Price.

To effect economies in cost incurred after purchase through – Storage, processing
,warehousing till Finished goods stage.

To reduce working capital requirement through proper and scientific Inventory 3

management
OBJECTIVES-MM (CONTD.)

To improve the quality of manufactured goods by use of better raw material or
components and thereby increase the competitiveness of such goods put on sale.

To increase the competitiveness of manufactured goods by reducing their price through
cost reduction and value analysis

To save on Forex by import substitution

To ensure co-operation among all departments to meet material management

objectives
4

To conserve material resources within organization – contributing to conservation of

TRADITIONAL INVENTORY MANAGEMENT

EOQ P System Q System

• Minimize cost • Periodic Review • Continuous review

• Changes with price • Dependency on • Variable Order cycle
breaks interval • External factors are
• Demand Constant over • Susceptible to ignored
a year changes in price
COMPLEXITY OF INVENTORY MANAGEMENT

Replenishment lead time

Carrying costs of inventory
Inventory forecasting
Inventory valuation
Available physical space for inventory
Quality management
Returns and defective goods
ROLE OF MIS IN AN INVENTORY SYSTEM
MIS is a planned System of collecting, processing, storing & disseminating data to carry
out functions of management

Reports on Inventory Costs

Reports on Inventory Levels

Value of Inventory

Timely, accurate & relevant information for decision making

MIS DECISION PROCESS

Information Flows

Data Flood

MIS User’s
Decisions
Processes Processes
METHODS OF INVENTORY CONTROL

 ABC analysis

 VED analysis

 FSN Analysis

 HML Analysis

 
ABC ANALYSIS

Type of Material Quantity Value

A (Always) 10%-20% 70%

B (Better) 20%-30% 20%

C (Control) 70%-80% 10%

ABC analysis is based on the relative importance of materials along with

 Material price

 Material’s credibility

 Availability status of materials

 Materials physical characteristics such as size and weight,

 Frequency of materials usage, etc

 
Depending on the situation and importance of above characteristics, classification is made.
VED ANALYSIS
V – Vital, E – Essential, D – Desirable. Concerns with a nuisance value to the
materials

In ABC analysis, annual consumption value; quantity of materials consumed and
unit cost plays a vital role.
criticality of the material or the nuisance value is not considered.
VED ANALYSIS
Nuisance Value

In case some material is not available, the whole production system may come to
standstill and involve high cost of loss of production

The investment in these materials may be small but for non – availability of the
item the costs or losses the company going to involve will be very high

These are critical items, which are required in adequate quantity

VED ranking may be done on the basis of the shortage costs of materials, which can
be either quantified or qualitatively expressed
COMBINATION OF ABC & VED ANALYSIS
• We can combine both and classify the materials depending on both the consumption value
and the criticality; it will give us a fruitful result. This can be done in nine ways

V E D

A AV AE AD

B BV BE BD

C CV CE CD
FSN ANALYSIS

• FSN: Fast moving, Slow moving & Non moving

• Based on the frequency of issues/use or rate of consumption from stores & is useful
in controlling obsolescence.

• Fast Moving (F) = more than once a month. 

 Slow Moving (S) = less than once a month. 
 Non-Moving (N) = not issued\used for more than 2 years.
FSN ANALYSIS
Date of receipt or last date of issue, whichever is later, is taken to
determine the no. of months which have lapsed since the last transaction

The items are usually grouped in periods of 12 months

It is also useful in facilitating timely control

 It helps spare parts management in establishing most suitable stores layout

 Attention of the management: Non-Moving items to enable decision as to

whether they are required in the future or they can be salvaged
HML ANALYSIS
Items are classified based on purchase price, viz. High, Medium & Low

Generally H items are focused for cost savings, indigenization, etc.

HML analysis helps an organization to take decisions on:

 Assessing the security requirements and the type of storage for high priced items

 The frequency of stock checking is decided on the basis of the cost item

 A control on purchases and buying policies can be exercised by the company.

INVENTORY CONTROL
MODELS
INVENTORY CONTROL MODELS
SINGLE PERIOD V/S MULTI PERIOD
Single Period
• In a single-period model, the items
unsold at the end of the period is not
carried over to the next period.
• The unsold items, however, may have
some salvage values.
• Example- Perishable product, Seasonal
products such as bathing suits, winter
coats, etc. Newspaper and magazine
Multi Period
• In a multi-period model, all the
items unsold at the end of one
period are available in the next
period.
• Example- Computer, Furniture
etc.
• It can be divided into P system
and Q system
 MULTI PERIOD
FIXED PERIOD REVIEW
P System SYSTEM :
1.2 P SYSTEM
1 • Methodology
0.8
• Review Inventory periodically
• If stock < Max level, order the
0.6 difference

0.4 • Advantages
• Simplicity
0.2
• Very low cost of operations
0
0 5 10 15 20 25 30 • Where Used
• C class Inventory or low value items
 MULTI PERIOD FIXED QUANTITY
Q System REVIEW:
1 Q SYSTEM
0.9 • Methodology
0.8
• Watch the stocks continuously
0.7
• The moment stocks fall below
0.6
ROL, Order EOQ
0.5

0.4 • Advantages
0.3 • Tight control over inventory
0.2
• High Service Level
0.1

0
• Where Used
0 5 10 15 20 25 30
• High & Medium Value Items: A
and B class
 PROBABILISTIC V/S DETERMINISTIC
DEMAND
Deterministic Demand
Probabilistic Demand

• Probability of each demand state is • It is based on the assumption that there

is no uncertainty associated with
found
demand and replenishment of inventory
• Profit calculated and best option
chosen • Factors affecting Demand
• Bread at Kirana Store • Demand
• Newspapers at Paper stall • Supply
• Price
• Demand is determined by evaluating
the factors
 ECONOMIC ORDER QUANTITY
% Increase in cost Vs Volume
• EOQ – Economic Order 50%

Quantity 45%

• Fixed consumption rate 40%

35%
• No volume discount on

% increase in cost
30%
purchase
25%
• Ordering cost independent of 20%
quantity 15%

• Infinite shelf life 10%

5%

0%
800
900
1000
1250
1414
1500
1750
2000
2500
2828
3000
3500
4000
4500
5000
 FIXED PRICE VS VARIABLE PRICE
Fixed Price Variable Price
• The purchase cost does not depend • Order Quantity Dependent Purchase Cost
on order quantity and remains fixed
• As order quantity increases, prices drop and so does
for any quantity
material cost and ordering cost
• Inventory Cost increases as order
quantity increases • Inventory Cost increases as order quantity increases

Order Quantity V/S Total Price

2500000

2250000

2000000

1750000

1500000
1503166718311995215923232487265128152979
DEPENDENT V/S INDEPENDENT OF
INVENTORY ITEMS
• Independent Demand - Demand
Dependent on factors external to the
organisation, e.g. Demand for bicycles as
seen by Hero Cycles.
• Dependent Demand - Demand Dependent
on factors internal to the organisation,
e.g. Demand for bicycle handles and
sprocket wheels as seen by Hero Cycles.
 DEFINITION- MATERIALS MANAGEMENT

 An organizational concept in which a single manager has authority and

responsibility for all activities principally concerned with flow of material into the
organization
• Purchasing
• Production
• Planning & Scheduling
• Incoming Traffic
• Receipt & Stores
• Inventory Control
• Disposal of Surplus , obsolete and Scrap Material
• Value Analysis
28

• Import Substitution
• Standardization & Variety reduction
 AIM

To get
1. The Right quality
2. Right quantity of supplies
3. At the Right time
4. At the Right place
5. For the Right cost

29
PURPOSE

• To gain economy in purchasing

• To satisfy the demand during period of replenishment
• To carry reserve stock to avoid stock out
• To stabilize fluctuations in consumption
• To provide reasonable level of client services

30
OBJECTIVES - MM

PRIMARY SECONDARY
• Right price • Forecasting

• High turnover • Inter-departmental harmony

• Low procurement & storage cost • Product improvement

• Continuity of supply • Standardization

• Consistency in quality • Make or buy decision

• Good supplier relations • New materials & products

• Development of personnel • Favourable reciprocal relationships

31
Basic principles
It depends on managerial functions of
• Planning
• Organizing
• Staffing
• Directing
• Controlling
• Reporting
• Budgeting

32
IMPORTANCE-MM

• Basic objective of management – to manage

4 M’s-Men ,Material ,Money & Machines
>>Common to all Time – built in.
• (Production cost) + Profit=Revenue
i.e. (Material Cost + Labour cost) + Profit = Revenue
• Material cost = 40-60% of total production cost.
• Every rupee saved adds directly to the revenue
• Material is money of the company locked up till realized by sale ( after conversion or otherwise)
33
IMPORTANCE-MM
• Profit /Capital= ROI
• To Improve ROI- Increase P keeping C constant
or
Reduce C keeping P constant
1. Increase P keeping C constant-
 Increase sales volumes-units
 Increase units produced
 Increase unit Price
 Reduce unit cost
2. Reduce Capital
 FC
 WC- work on this i.e. Inventory ( almost 80 % of WC locked in Inventories)
 FC/WC= 60/40 generally

34
 INTEGRATED APPROACH-MM
• To improve materials productivity – a well coordinated and
integrated approach is essential with respect to following activities:
1. Materials Planning
2. Make or buy decision
3. Purchasing
4. Receiving and inspection
5. Storage
6. Inventory control
7. Distribution of Material
35
INTEGRATED APPROACH-MM

8. Waste management
9. Insurance Management
10. Developing new source
11. Import
12. Disposal of Surplus ,Obsolete and Scrap material
13. Transportation- Incoming & out going
14. Material research- economic analysis, market analysis, price analysis, lead time analysis ,
Transportation analysis , lead time analysis, Supplier analysis

36
MATERIAL MANAGEMENT ORGANIZATION
SOME BASICS OF ORGANIZATION & ORGANIZATION CHART

• Organization is to be structured to meet the objectives of the company

• Organization must have depth & structural arrangement set up in logical

manner

• All activities related to each other should be grouped under one department

• Activities may be grouped product wise ,customer wise, facilities wise or

using any other criterion

• There should be clear demarcation of activities

• Span of control
 MATERIAL MANAGEMENT ORGANIZATION
 Principles of Organization
• Principle of Unity of Direction
(related activities in one group)
• Principle of Unity of Command
(Superior - Subordinate
relationship)
• Authority and responsibility
properly balanced
• Span of control
Organization charts:-
 Define superior /subordinate relationships & Chain
of commands
 Status of department in the organization
 Degree of centralization
 Internal Structure of the department
Status of the department in the Organization depend on
1. The Managements perception of importance of MM
2. Variety & complexity of items
3. Material cost as % of Product Cost
MM ORGANIZATION -BASIC
Managing Director

Director-
Director- Director – Director –
Sales & Marketing
Operations Commercial Finance

Production Head Maintenance Head Materials Head Commercial Head Finance Head Accounting Head Head sale Head -Marketing

Contracts
Management

Legal
MM ORGANIZATION BASED ON LOCATION

Corporate
Material Head

Material Manager Material Manager

Material Manager
Plant B Plant C
Plant A (reporting for (reporting for
(reporting for day to day day to day
day to day functions to functions to
functions to Works Manager) Works Manager)
Works Manager)
MM ORGANIZATION BASED ON FUNCTION

Material Head

Stores
Purchase Traffic
& Inventory
In-charge In-Charge
In- charge

Store Keeper StoreKeeper-

Buyer 1 Buyer 2 Imports
-Store A storeB
SUB-SYSTEMS OF MATERIAL
MANAGEMENT

Material
Purchase Order Receipts
Procurement Requirement
Follow up Accounting
System Planning
System System
System

Material Issue Bill Passing and

Inventory
Requisition Payment
Control System
System System
Procurement Receipts
System accounting MRP system
system

Purchase
Order follow
up system

Bill passing Material issue Inventory

requisition control
and payment system system
system

Purchase Stock MRP and

Function accounting Control
Function 43
Function
REPORTS AT DIFFERENT LEVELS
Price Forecast Purchase Budget

Vendor Rating ABC Analysis

Strategic

Inventory Levels Movement Analysis

Tactical Materials Accounting Outstanding payment

Bill of material Stock Verification

Operational
Items below safety level
CENTRALIZED V/S DE-CENTRALIZED MATERIAL MANAGEMENT

Decision is on basis of actual requirement and objective

It depend on location type of material purchased & numerous other factors
There are actually three possibilities :

Complete Complete de- Combination of

centralization centralization two systems
INVENTORY CONTROL MANAGEMENT
SOFTWARES
INVENTORY CONTROL MANAGEMENT

• An inventory control system is a process for managing and locating objects or

materials. In common usage, the term may also refer to just the software components.
• Modern inventory control systems often rely upon barcodes and radio-frequency
identification (RFID) tags to provide automatic identification of inventory objects.
• To record an inventory transaction, the system uses a barcode scanner or RFID reader to
automatically identify the inventory object, and then collects additional information
from the operators via fixed terminals (workstations), or mobile computers.
 SOFTWARES
POS Maid

The various softwares

can be custom made for a Chronos
particular company or eStock
inFlow
Card
can be purchased from Inventory
Inventory
developers and adopted
with certain
Software
ICM
modifications.

BS1 ABC
Enterprise Inventory
Accounting Software
TYPES OF REPORTS YOU CAN
GENERATE IN INVENTORY
MANAGEMENT
WHAT A REPORTING DASHBOARD LOOKS
LIKE
COMMONLY USED ENQUIRIES IN INVENTORY
MANAGEMENT
1. Transaction Enquiry: This is ideal for anyone who wants to view a list of
transactions based on the filters available. This filters include: transaction
type, warehouse, product or reference.
2. Margin Enquiry: This report is ideal for anyone who wants to view sales,
credit lines, turnover and profit information.
3. Sales Enquiry: This report can provide you with simple sales information,
regardless of their status (parked, completed or deleted). You can use a
number of filters to refine your search.
4. Backorder Enquiry: This is ideal for admin staff to manage the creation and
deployment of shipments.
TYPES OF REPORTS (MICROS)
1. Stock status reports: As and when the orders are placed, the number of
stock required to be shipped will be turned into ‘Stock Committed’ status.
2. Warehouse user activity report: Keeping track of what’s happening in
your stock storage house is of much importance. User Activity Log tracks
every action of a user in a inventory management network so that the
activities can be retrieved for future reference.
3. Consumers-based orders: Customers order history can be retrieved to
know each customer-specific demands, time of purchase and average order
value so that you can have you stocks replenished accordingly.
4. Sales reports: Orders can be analyzed based on sales reps which provides
a clarity over every individual’s sales performance.
TYPES OF REPORTS (MACROS)
1. Product Movement Summary Report – shows the Products’ traffic in the
Inventory System within a given period of time. It includes the Quantities
On Hand, number of products that went In and Out of the inventory, Cost
and Stock On Hand.
2. Product Movement Details Report – shows the Products’ detailed traffic
in the Inventory System within a given period of time. It includes
Reference numbers and which location it went in and went out.
3. Balance Sheet – shows the summary of each account’s financial position
including Opening & Closing Balances.
4. Job Costing Details – shows the list of materials sent to a job within a
given period of time. Report details include Quantity, Price and applicable
3 GREAT INVENTORY MANAGEMENT REPORTS FOR SMALL
BUSINESSES
1. Inventory Ranking Report: Ranks your products in descending order by
gross margin generated over the past year and compares the profitability with
holding cost: useful to see which products are occupying more space in your
warehouse and more value on your balance sheet than justified. 
2. Inventory “Hits” Report: “Hits” means the number of times over the
reporting period that the item has appeared on an invoice; this is compared
with the holding value and costs, to identify products that appear very
infrequently while constituting a significant chunk of inventory on hand.
Ideally used in conjunction with the ranking report.
3. Daily Average Sales Reports: Shows average daily sales (in units) over
different periods. This helps to uncover trends. Also helps identify products
where reorder levels and purchasing policies should be reviewed.
CASE STUDY 1: JK TYRES
COMPANY INTRODUCTION

• Leading automotive tire, tubes and flaps manufacturing company based in

Delhi
• Based in over 80 countries across all 6 continents
• 22nd-largest tire manufacturer in the world, producing 32 million tires a year
in 12 manufacturing plants
THE PROBLEM

• Highly dependent on its 3500 dealers and more than 400 field sales personnel
• No connectivity to enterprise systems for sales personnel, dealers, and distributors
• Dealer dissatisfaction and lost sales due to a significant lag in sales information
• Need for dealers to rely on the back office for transaction information such as
account statements and orders
• Lack of real-time order and sales information, leading to suboptimal planning
THE SOLUTION

• To rectify the problem, the company decided to digitize its front office operations
• Using SAP Cloud Platform, the company rolled out a comprehensive portal that
provides dealers & sales personnel alike with clear , real-time transparency into
operations
• generate orders more quickly and accurately with real-time stock visibility
• check the status of invoices and orders on demand, and
• operate far more efficiently in a cloud-based networked environment.
BENEFITS

• Allow distributors and dealers to perform key business transactions such as order
generation, goods receipt creation, real-time stock visibility, and daily reporting
• Track the effectiveness of the sales scheme, leading to better management of funds
• Support primary sales to distributors and secondary sales to end customers on the same
platform, eliminating the need for third-party billing systems
• Enhance control of intermediate pricing strategies, leading to their optimal realization
• Optimize sales and supply chain planning with complete visibility of secondary sales data
RESULTS

• 20% improvement in forecast accuracy

• 2.5 days reduction in days sales outstanding
• 2% reduction in inventory levels
• Increased sales efficiency by 22.5%
 CASE STUDY 2

Achieve Global – Inventory

Management Case Study
COMPANY INTRODUCTION

• AchieveGlobal, a division of The Times Mirror Company, is an exciting

combination of three of the world’s best-known training and consulting
organizations: Kaset International, Learning International and Zenger Miller.

• The company helps organizations achieve business results through superior

sales, customer service, leadership and teamwork.

• The company’s main activities involve coordinating training courses, and

providing materials and supplies relating thereto.
 THE CHALLENGE
• The company has a complex inventory model, with highly configurable kits, bills
of materials and third party warehousing.

• The warehouse staff have no knowledge of the constraints and rules regarding kits
and assembled packages.

• In addition, the company has a number of complex, multi-layered customer

contracts.
THE SOLUTION

• AchieveGlobal Canada selected Blue Link and its Solutions Accounting.

• An intensive project was mounted to

 perform a detailed needs analysis
 develop custom features for the unique inventory and contract requirements
 test and train end users
 define business procedures, and
 perform extremely complex data conversion
 THE SOLUTION

• Achieve was able to go live on time with real, up to date converted data, and all
the necessary complex business rules were accommodated by
 using the strengths of Solutions Accounting and the Microsoft Access environment
 tapping in to the Excel skills already existent at Achieve
 the tight integration between Solutions Accounting and Excel

• Inventory, kitting and bill of materials requirements were handled using built-in
Solutions Accounting features
 THE SOLUTION

• Limited functionality screens were added for remote access by the third party
warehouse.

• The company’s complex contract structure was analyzed in depth, resulting in a

simplified business definition that still provided the same end result.

• This definition was then imposed on the Solutions Elite contract-pricing module.
 MANAGERS’ COMMENTS

• According to Denise Edwards, AchieveGlobal Canada’s Manager, Fulfillment

and Logistics: “Due to the immense flexibility of Solutions Accounting and the
knowledgeable staff at Blue Link, we were able to customize the system to meet
our needs.”

• Carolyn Crawford, Manager, Accounting and Administration, adds: “We found

your design; support and implementation team provided us with a quick
response, while taking the time to step back and address the business needs.”
Q 1. HOW CAN ABC ANALYSIS HELP
ORGANIZATIONS IMPROVE INVENTORY
HANDLING?
• When ABC analysis is applied to an inventory situation, it determines the
importance of items and the level of controls placed on the item.
• By dividing a company’s inventory into different classifications– A, B, C;
managers can focus on the items that account for the majority of the inventory.
The adaptation of Pareto’s Law of the vital few and trivial many follows a
pattern:
• A inventory accounts for about 20% of the items and 80% of the dollar usage
• B inventory accounts for about 30% of the items and 15% of the dollar usage
• C inventory accounts for about 50% of the items and 5% of the dollar usage
Q 2. EXPLAIN IN BRIEF DIFFERENT
MODELS OF INVENTORY CONTROL.

• Once items are shipped through the distribution network, inventory is

replenished. This is especially true for make-to-stock situations. Several
models are available to help determine how much inventory should be
brought in to restock the products or parts.
• All models are classified into two major types:
• Deterministic Models
• Probabilistic Models
Q 3. WHAT ARE THE TYPES OF REPORTS
GENERATED IN INVENTORY MANAGEMENT?
• Stock status reports: As and when the orders are placed, the number of stock required to be shipped will be
turned into ‘Stock Committed’ status.
• Warehouse user activity report: Keeping track of what’s happening in your stock storage house is of much
importance. User Activity Log tracks every action of a user in a inventory management network so that the
activities can be retrieved for future reference.
• Consumers-based orders: Customers order history can be retrieved to know each customer-specific
demands, time of purchase and average order value so that you can have you stocks replenished accordingly.
• Sales reports: Orders can be analyzed based on sales reps which provides a clarity over every individual’s
sales performance.