ABDUL NAZAR K.P. DEPT. OF MECHANICAL ENGINEERING GOVT.

COLLEGE OF ENGINEERING KANNUR

 CONCEPT,

PRINCIPLES AND PROCEDURES PLANNING AND PROCUREMENT PROCEDURES, SPECIFICATIONS INVENTORY CONTROL ABC ANALYSIS VED (VERY IMPORTANT AND ESSENTIAL DAILY USE) ANALYSIS CONDEMNATION

 THE

PLANNING AND CONTROL OF THE FLOW OF MATERIALS THAT ARE PART OF THE INBOUND LOGISTIC SYSTEM

TOTAL CONCEPT INVOLOVING AN ORGANIZATIONAL STRUCTURE FOR THE SYSTEMATIC FLOW AND CONTROL OF MATERIALS FROM IDENTIFICATION OF NEED THROUGH USAGE AND ACCOUNTING OF THE SAME

 MATERIAL

MANAGEMENT IS A SCIENTIFIC TECHNIQUE, CONCERNED WITH PLANNING, ORGANIZING &CONTROL OF FLOW OF MATERIALS, FROM THEIR INITIAL PURCHASE TO DESTINATION.

 SUPPORT

OPERATIONAL REQUIREMENTS MANAGE THE MATERIAL PROCESSES EFFIECIENTLY AND EFFECTIVELY

1. 2. 3. 4. 5.

The Right quality Right quantity of supplies At the Right time At the Right place For the Right cost

SELECT, DEVELOP AND MAINTAIN SOURCES OF SUPPLY Continuity of supply Consistency in quality DEVELOP STRONG RELATIONSHIP WITH OTHER GROUPS Good supplier relations Development of personnel Good information system

SUPPORT ORGANIZATIONAL GOALS DEVELOP INTEGRATED STRATEGIES THAT SUPPORT ORGANIZATIONAL GOALS

 MATERIAL

REQUIREMENT PLANNING AND

CONTROL PROCUREMENT INVENTORY CONTROL RECEIVING AND INSPECTION TRANSPORTATION MATERIAL HANDLING DISPOSAL OF MATERIALS VALUE ANALYSIS

1. TO

HAVE ADEQUATE MATERIALS ON HAND

WHEN NEEDED
2. TO

PAY THE LOWEST POSSIBLE PRICES,

CONSISTENT WITH QUALITY AND VALUE REQUIREMENT FOR PURCHASES MATERIALS

3. TO 4. TO 5.

MINIMIZE THE INVENTORY INVESTMENT OPERATE EFFICIENTLY

CO-ORDINATED INTER-DEPARTMENTAL EFFECT

 PROCUREMENT

REFERS TO A BUSINESS OR ORGANIZATION ATTEMPTING FOR ACQUIRING GOODS OR SERVICES TO ACCOMPLISH THE GOALS OF THE ENTERPRISE

ACQUIRE NEEDED SUPPLIES AS INEXPENSIVELY AS POSSIBLE

OBTAIN HIGH QUALITY SUPPLIES ASSURE PROMPT & DEPENDABLE DELIVERY DISTRIBUTE THE PROCUREMENT WORKLOAD TO AVOID PERIOD OF IDLENESS & OVERWORK

OPTIMIZE INVENTORY MANAGEMENT THROUGH SCIENTIFIC PROCUREMENT PROCEDURES

 Request

to purchase/requesition Supplier selection Purchase order Fulfillment Goods receipt Supplier invoice/payment

 DETERMINE
NEW

THE TYPE OF PURCHASE

MODIFIED REBUY

STRAIGHT REBUY

IDENTIFY

THE LEVEL OF PURCHASE

DETERMINE THE NECESSARY LEVELS OF INVESTMENT OF TIME ANDINFORMATION

PERFORM

THE PROCUREMENT PROCESS EVALUATE THE EFFECTIVENESS OF THE PROCUREMENT PROCESS

 COST

OF MATERIALS COST ON MATERIALS TIMELY DELIVERY

 IN

A PURCHASING CONTEXT, A SPECIFICATION CAN BE DEFINED AS A STATEMENT OF NEEDS. IT DEFINES WHAT THE PURCHASER WANTS TO BUY AND CONSEQUENTLY, WHAT THE SUPPLIER IS REQUIRED TO PROVIDE. CAN BE SIMPLE OR COMPLEX DEPENDING ON THE NEED.

SPECIFICATIONS

 THE

SUCCESS OF THE PURCHASING ACTIVITY RELIES ON THE SPECIFICATION BEING A TRUE AND ACCURATE STATEMENT OF THE BUYERS REQUIREMENTS. FROM BEING A MEANS OF IDENTIFYING THE GOODS OR SERVICES REQUIRED, A SPECIFICATION WILL FORM PART OF ANY FUTURE CONTRACT THAT MIGHT RESULT FROM OFFERS RECEIVED.

APART

STATE THE REQUIREMENT CLEARLY, CONCISELY AND LOGICALLY IN FUNCTIONAL AND PERFORMANCE STATE WHAT THE ITEM WILL BE USED FOR; CONTAIN ENOUGH INFORMATION TO DECIDE AND COST THE GOODS OR SERVICES OFFERED AND AT WHAT LEVEL OF QUALITY PERMIT OFFERED GOODS OR SERVICES TO BE EVALUATED AGAINST DEFINED CRITERIA BY EXAMINATION, TRIAL, TEST ETC.

 STATE

THE CRITERIA FOR ACCEPTANCE OF GOODS OR SERVICES BY EXAMINATION, TRIAL, TEST OR DOCUMENTATION; PROVIDE EQUAL OPPORTUNITY FOR ALL POTENTIAL SUPPLIERS TO OFFER GOODS OR SERVICES WHICH SATISFIES THE NEEDS OF THE USER, INCLUDING GOODS OR SERVICES INCORPORATING ALTERNATIVE SOLUTIONS; FORM THE FUNDAMENTAL BASIS OF THE CONTRACT BETWEEN BUYER AND SELLER;

 FUNCTIONAL

SPECIFICATION SPECIFICATION

PERFORMANCE TECHNICAL

SPECIFICATION

 STOCK

OF ITEMS KEPT TO MEET FUTURE DEMANDS PURPOSE OF INVENTORY MANAGEMENT

HOW

MUCH TO ORDER WHEN TO ORDER

 RAW

MATERIALS PURCHASED PARTS AND SUPPLIES WIP ITEMS BEING TRANSPORTED TOOLS AND EQUIPMENTS

 ALL

THE PARTIES INVOLVED IN SATISFYING A CUSTOMER DEMAND

 WHENEVER

DEMAND OCCURS THE COMPANY HAS TO SUPPLY SEASONAL OR CYCLIC DEMANDS TAKE ADVANTAGE OF PRICE DISCOUNTS INVENTORY PROVIDES INDEPENDENCE BETWEEN STAGES AND AVOID WORK STOPPAGES INVENTORY PROVIDES INDEPENDENCE FROM VENDORS

 TO

SAFEGUARD AGAINST THE FLUCTUATIONS IN DEMAND, PRICE, SUPPLY CONDITIONS, LEAD TIMES, TRANSPORTATION CONTINGENCIES ETC. TO REDUCE MACHINE IDLE TIMES BY PROVIDING ENOUGH IN PROCESS INVENTORIES OF APPROPRIATE LOCATIONS TO TAKE ADVANTAGE OF QUANTITY DISCOUNTS TO DECOUPLE OPERATIONS TO REDUCE CLERICAL COSTS

 RAW

MATERIALS PURCHASED PARTS AND SUPPLIES WORK-IN-PROCESS (PARTIALLY COMPLETED) PRODUCTS (WIP) ITEMS BEING TRANSPORTED TOOLS AND EQUIPMENT

Copyright 2006 John Wiley & Sons, Inc.

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 Bullwhip
demand

effect

information is distorted as it moves away from the end-use customer higher safety stock inventories to are stored to compensate
Seasonal

or cyclical demand Inventory provides independence from vendors Take advantage of price discounts Inventory provides independence between stages and avoids work stop-pages

Copyright 2006 John Wiley & Sons, Inc.

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Dependent

Demand for items used to produce final products Tires stored at a Goodyear plant are an example of a dependent demand item Demand for items used by external customers Cars, appliances, computers, and houses are examples of independent demand inventory

Independent

Copyright 2006 Joh Wiley & Sons, Inc.

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Carrying cost Ordering cost

cost of holding an item in inventory cost of replenishing inventory temporary or permanent loss of sales when demand cannot be met

Shortage cost

Copyright 2006 John Wiley & Sons, Inc.

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Continuous system (fixed-orderquantity)

constant amount ordered when inventory declines to predetermined level

Periodic system (fixed-timeperiod)

order placed for variable amount after fixed passage of time

Copyright 2006 John Wiley & Sons, Inc.

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 EOQ
optimal

order quantity that will minimize total inventory costs

Basic

EOQ model Production quantity model

Copyright 2006 John Wiley & Sons, Inc.

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Demand is known with certainty and is constant over time No shortages are allowed Lead time for the receipt of orders is constant Order quantity is received all at once

Copyright 2006 John Wiley & Sons, Inc.

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Order quantity, Q Inventory Level

Demand rate

Reorder point, R

Lead time Order Order placed receipt

Lead time Order Order placed receipt

Time

Copyright 2006 John Wiley & Sons, Inc.

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Co - cost of placing order Cc - annual per-unit carrying cost

D - annual demand Q - order quantity Co D Q CcQ 2 CcQ 2

Annual ordering cost = Annual carrying cost = Total cost = Co D Q +

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Deriving Qopt TC = CoD Q + CcQ 2

Proving equality of costs at optimal point CoD Q

2

CoD C TC = + c Q Q2 2 0= Qopt = C0D Q2 + Cc 2

CcQ 2 2CoD Cc 2CoD Cc

Q =

2CoD Cc

Qopt =

Copyright 2006 John Wiley & Sons, Inc.

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Annual cost ($) Slope = 0 Minimum total cost

Total Cost

Carrying Cost =

CcQ 2

Ordering Cost = Optimal order Qopt

Copyright 2006 John Wiley & Sons, Inc.

CoD Q

Order Quantity, Q

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Cc = $0.75 per yard Qopt = Qopt = 2CoD Cc

2(150)(10,000) (0.75)

Co = $150 TCmin = TCmin = CoD Q

D = 10,000 yards + CcQ 2

(150)(10,000) (0.75)(2,000) + 2,000 2

Qopt = 2,000 yards

Orders per year = D/Qopt = 10,000/2,000 = 5 orders/year
Copyright 2006 John Wiley & Sons, Inc.

TCmin = $750 + $750 = $1,500

Order cycle time = 311 days/(D/Qopt) = 311/5 = 62.2 store days
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 Class
5

15 % of units 70 80 % of value
Class
30

% of units 15 % of value
Class
50

60 % of units 5 10 % of value

Copyright 2006 John Wiley & Sons, Inc.

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PART 1 2 3 4 5 6 7 8 9 10

UNIT COST $ 60 350 30 80 30 20 10 320 510 20

ANNUAL USAGE 90 40 130 60 100 180 170 50 60 120

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Copyright 2006 John Wiley & Sons, Inc.

PART

TOTAL PART VALUE

% OF TOTAL % OF TOTAL UNIT COST QUANTITY ANNUAL CUMMULATIVE VALUE % USAGE

9 $30,600 1 8 16,000 2 2 14,000 3 1 5,400 4 4 4,800 5 3 3,900 6 3,600 6 CLASS 5 3,000 7 10 2,400 A 8 7 1,700 B 9 C $85,400

10

35.9 6.0 $ 60 18.7 5.0 350 16.4 4.0 30 6.3 9.0 80 5.6 6.0 30 4.6 10.0 % OF 18.0 TOTAL 4.2 20 ITEMS VALUE 3.5 13.0 10 2.8 12.0 9, 8, 2 71.0 320 2.0 17.0 1, 4, 3 16.5 6, 5, 5107 10, 12.5

20

6.0 90 11.0 40 A 15.0 130 24.0 60 30.0 B 100 40.0 % OF 58.0 TOTAL 180QUANTITY 71.0 170 C 15.0 83.0 50 100.0 25.0 60 60.0 120
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Example 10.1

Copyright 2006 John Wiley & Sons, Inc.

A ITEMS Small in number, but consume large amount of resources Must have: Tight control Rigid estimate of requirements Strict & closer watch Low safety stocks Managed by top management

C ITEMS Larger in number, but consume lesser amount of resources Must have: Ordinary control measures Purchase based on usage estimates High safety stocks ABC analysis does not stress on items those are less costly but may be vital

ABC
A N A L Y S I S
WORK SHEET

I TE M %
%

I TE M TE

AN N U AL COST [ R s .]

CU M M U L A TI V E C O S T [ R s .]

COST %

B ITEM Intermediate Must have: Moderate control Purchase based on rigid requirements Reasonably strict watch & control Moderate safety stocks Managed by middle level management

VED ANALYSIS Based on critical value & shortage cost of an item It is a subjective analysis. Items are classified into: Vital: Shortage cannot be tolerated. Essential: Shortage can be tolerated for a short period. Desirable: Shortage will not adversely affect, but may be using more resources. These must be strictly Scrutinized
CATEGORY 1 - NEEDS CLOSE MONITORING & CONTROL CATEGORY 2 - MODERATE CONTROL. CATEGORY 3 - NO NEED FOR CONTROL

SDE ANALYIS Based on availability Scarce Managed by top level management Maintain big safety stocks Difficult Maintain sufficient safety stocks Easily available Minimum safety stocks FSN ANALYSIS Based on utilization. Fast moving. Slow moving. Non-moving. Non-moving items must be periodically reviewed to prevent expiry & obsolescence HML ANALYSIS Based on cost per unit Highest Medium Low This is used to keep control over consumption at departmental level for deciding the frequency of physical verification.

PROCURMENT OF EQUIPMENT
Points to be noted before purchase of an equipment: Latest technology Availability of maintenance & repair facility, with minimum down time Post warranty repair at reasonable cost Upgradeability Reputed manufacturer Availability of consumables Low operating costs Installation Proper installation as per guidelines

HISTORY SHEET OF EQUIPMENT

Name of equipment Code number Date of purchase Name of supplier Name of manufacturer Date of installation Place of installation Date of commissioning Environmental control Spare parts inventory Techn. Manual / circuit diagrams / literatures

After sales arrangement Guarantee period Warranty period Life of equipment Down time / up time Cost of maintenance Unserviceable date Date of condemnation Date of replacement

Maintenance sheet: Annual maintenance contract [AMC] Starting date Expiry date Service / repair description Materials / spares used Cost of repairs In-house Outside agency

EQUIPMENT MAINTENANCE & CONDEMNATION

Maintenance & repairs: Preventive maintenance Master maintenance plan Repair of equipment

PREVENTIVE MAINTENANCE

Purchase with warranty & spares. Safeguard the electronic equipments with: (as per guidelines) Voltage stabilizer, UPS Automatic switch over generator Requirement of electricity, water, space, atmospheric conditions, etc. Must be taken into consideration Well equipped maintenance cell must be available All equipment must be operated as per instructions with trained staff Monitoring annual maintenance contracts. (AMC) Maintenance cell Communications between maintenance cell & suppliers of the equipment. Follow-up of maintenance & repair services Repair of equipment Outside agencies In-house facility

CONDEMNATION & DISPOSAL

Criteria for condemnation: The equipment has become: 1. Non-functional & beyond economical repair 2. Non-functional & obsolete 3. Functional, but obsolete 4. Functional, but hazardous 5. Functional, but no longer required

PROCEDURE FOR CONDEMNATION

1. Verify records. 2. History sheet of equipment 3. Log book of maintenance & repairs 4. Performance record of equipment 5. Put up in proper form & to the proper authority

DISPOSAL
1. Circulate to other units, where it is needed 2. Return to the vendor, if willing to accept 3. Sell to agencies, scrap dealers, etc 4. Auction 5. Local destruction

CONCLUSION
MATERIAL MANAGEMENT IS AN IMPORTANT MANAGEMENT TOOL WHICH WILL BE VERY USEFUL IN GETTING THE RIGHT QUALITY & RIGHT QUANTITY OF SUPPLIES AT RIGHT TIME, HAVING GOOD INVENTORY CONTROL & ADOPTING SOUND METHODS OF CONDEMNATION & DISPOSAL. IT IMPROVE THE EFFICIENCY OF THE ORGANIZATION & ALSO MAKE THE WORKING ATMOSPHERE HEALTHY IN ANY TYPE OF ORGANIZATION, WHETHER IT IS PRIVATE, GOVERNMENT ,SMALL, BIG ORGANIZATION OR HOUSEHOLD.