MATERIALS

MANAGEMENT

MATERIALS MANAGEMENT

Short range decisions about supplies, inventories production levels, schedules and distribution.

MATERIALS MANAGEMENT CYCLE

Acquisition of raw materials Distribution storage

Storage

conversion

TASKS OF MATERIALS MANAGEMENT Supplier selection

Issuing purchase releases Inbound transportation Initiating purchase request Inventory control on sight Assigning priorities to work

Outbound transportation
Inventory control at distribution centers

MAKE OR BUY DECISIONS

The factors for make or buy decisions include Available capacity Expertise Quality considerations Nature of demand Cost

PURCHASING

The management of acquisition process which includes deciding which suppliers to use, negotiating contract and deciding whether to buy locally or centrally

THE ACQUISITION PROCESS

Recognize need Select suppliers Place orders Track orders

Receive orders

OUT SOURCING

Out sourcing is buying goods or services from outside sources instead of making the goods or services within house.

REASONS OF OUTSOURCING
Outside sources can provide materials better cheaper and more efficiently because of economy of scale Expertise and knowledge

Supplier may hold a patent on a necessary part

Outsourcing gives added flexibility

Outsourcing enables the company to focus on core activities

RISKS OF OUTSOURCING

Loss of control

Greater dependency on suppliers

Not possessing ability to perform in house

INFORMATION ON EXTERNAL SOURCES OF SUPPLY

Industrial advertisement in news papers and periodicals Supplier catalogues Supplier salesman

Trade journals
Telephone directory yellow pages Trade directories

Enquiries through advertisement

Records of past purchases

JIT
JIT (Just in Time ) is both a philosophy and a set of methods for manufacturing. JIT emphasises : 1. Waste Reduction and Adding Value 2. Total Quality Control 3. Devotion to Customers JIT is a manufacturing system whose goal is to optimise processes and procedures by continuously pursuing waste reduction.

JIT
7 Wastes 1. Overproduction reduce set up time, synchronise time and quantity between processes, compacting layout. Make only what is needed now. 2. Waiting - balance uneven loads, synchronise workflow, use flexible workers and equipment. 3.Transportation - reduce through correct choice of location, layout, material handling. 4. Processing - question each parts requirement, then process (Is it required?)

JIT
7 Wastes

5. Stocks/Inventory - reduce load times, reduce stocks, reduce other wastes 6. Motion 7. Defective/poor quality products

JIT Purchasing
1. Purchase lot size 2. Selecting suppliers

JIT Purchasing Small lots with frequent purchasing

Single source in nearby area with long term contract Zero % of defect acceptable Eliminate

Traditional Purchasing Large lots with less frequent deliveries

Multiple sources & short term contracts

3. Evaluating suppliers 4. Receiving inspection 5. Negotiating & bidding process

2% reject acceptability

Buyer is responsible for counting & inspection Lowest price

Quality & fair price

JIT Purchasing
JIT Purchasing
6. Mode of transport On time delivery Delivery schedule left to buyer Loose. Suppliers to innovate. Buyer relies more on performance specs than on product specs Less delivery time & quantity level can be changed by telephone calls Small standard containers

Traditional Purchasing
Delivery schedule left to suppliers. Concern for cost Rigid specs

7. Product specification

8. Paper work

More

9. Packaging

Big size

SUPPLIER SELECTION Factors for supplier selection include Lead time & on time delivery

Quality & quality assurance

Flexibility Location Price Product or service changes Reputation & financial stability Dependency of supplier on other buyers

SUPPLIER AUDITS As a means of supplier feed back Areas covered in audits Management style Quality assurance Materials management Design process Procedures

Scope of improvement

SUPPLIER CERTIFICATION

Detailed examination of the policies & capabilities of a supplier

Advantages

Inspection & testing activities can be eliminated

Less risk of problems with supplied goods

SUPPLIER PARTNERSHIP
Stable relationship with relatively few reliable suppliers who can

Provide high quality supplies

Maintain precise delivery schedules

Remain flexible to changes

Suppliers can be a source of ideas that contribute to competitiveness of an organization.

OBSTACLES

Supplier hesitant to enter into partnership

Supplier may have to increase his investment in

equipment

Cultures of buyer & supplier are different

VENDOR EVALUATION AND RATING

1. Evaluating the performance before the vendor has delivered anything.

2. Evaluating the performance of vendor after the deliveries have been made.

FACTORS FOR VENDOR EVALUATION

Reliability
Technical capabilities Convenience Availability After sales service

Sales assistance

QUALITY RATING

RQ = Q1 + Q2 X1 + Q3 X2 + Q4 X3 x 100

Q
Q Q1 Q2 Q3 quantity supplied quantity accepted quantity accepted with concession quantity accepted with rectification

Q4

quantity rejected

PRICE RATING
Rp = PL x 100 P

PL
P

lowest price quoted

price agreed by supplier

DELIVERY RATING RD = promised delivery time x 100

Actual delivery time of full consignment

QUANTITY RATING

Rqty = qty supplied within delivery time x 100

Quantity promised

SERVICE RATING Rs is assigned for all service factors so that

a1+ a2+ a3+ a4 = 100

COMPOSITE VENDOR RATING

f1RQ + f2 RP + f3 RD + f4 Rqty + f5 Rs

f1+f2+f3+f4+f5 = 1

VENDOR DEVELOPMENT

Communication of essential & helpful information

like design, specifications, standards, practices etc. Communication of engineering changes Developing methods for detecting deviations from standard promptly

Helping the vendors in resolving quality problems

Rendering necessary technical assistance Providing quality data in lieu of incoming

inspection
Review vendors performance periodically & providing feedback

ETHICS IN PURCHASING

Do not accept gifts from vendors

Reject offers for favors like lunch, liquor week end resorts etc. Code of conduct should be laid down

Purchase managers should be selected on the basis of competency and should be rewarded suitably

CONTRACT NEGOTIATIONS

Negotiation are on the basis of

Price Delivery schedule Payment for freight Quality standards

Technical specifications

OBJECTIVES OF CONTRACT NEGOTIATION

Most economic purchase of materials Establish long term relations with suppliers

PURCHASE ORDER
A legal document that authorizes the supplier to produce the goods.

Represents buyers obligation to buy the material against the specified terms

Confirms approval of suppliers quotation by

ordering organization Needs acceptance and acknowledgement of supplier

PURCHASE ORDER SHOULD CONTAIN Name and address of organization Name and address of supplier Identification number Quantity Description of product Any relevant technical data Reference to any certification Price Delivery schedule Delivery instructions Cost allocation Purchasers signatures Conditions of business

STORES FUNCTIONS The major functions of stores are as follows Receipt Storage Retrieval Issue Records Housekeeping Control Surplus management Verification Coordination & cooperation

RECEIPT SYSTEM

The receipt system involves

Receipt of copy of purchase orders Receipt of advice note from supplier and consignment note from transporter Unpacking of goods received & checking quantity of goods as per packing list & its condition Preparing provisional goods inward note Inspection & testing against purchase

specifications
Preparation of clearance or rejection note Preparation of final goods inward note

STORAGE SYSTEMS

Closed store system

Open stores system

Random access stores system

STORE RECORDS SYSTEM

Two records are usually kept of materials and other goods received, issued or transferred.

Bin card
Shows details of quantities of each type of material received, issued and on hand each day. One card is attached to each bin on shelf containing the material Stores ledger Identical with bin card except that here money values are shown.

ISSUE SYSTEM

Receipt of program and bill of materials

Receipt of work order / material requisition

Issue against material requisition

STORE ACCOUNTING SYSTEMS FIFO system

LIFO system
Average cost system Market value system

Standard cost system

STOCK VERIFICATION SYSTEMS

To reconcile the store records and documents for

their accuracy and usefulness, Identification of areas deserving tighter document control, To backup the balance sheets, stock figures, and To minimize the pilferage and fraudulent practices

LAYOUT AND DESIGN OF STORES The space for receipt and inspection should be provided adjacent to the main stores.

Use of third dimension must be made effectively.

Different storage facilities should be situated in clearly defined lanes, so that items are quickly stored & located. Main lanes should usually be 1.5 to 3 meters wide, depending upon the type of material & the amount of traffic involved. Clear markings should be made at storage space to facilitate location & identification.

 The fast moving items should be stored near the dispensing window. The layout should permit the use of modern material handling equipment. Stores layout should encourage the FIFO Due space should be left for expansion purposes.

A pleasing and hygienic environment must be provided within store room

Adequate lighting arrangement should be provided.

Adequate safety arrangement should be provided.