![PROCUREMENT
1. Directorate general of supply & disposal
(DGS & D, Govt. Of India]
2. Medical stores depot (M. S.D. Government
of India, Ministry of H & FW]
3. Private or public sector undertakings.
4. Receiving donations.
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dharam](https://image.slidesharecdn.com/materialmanagement-240102150339-1c4a1684/85/MATERIAL-MANAGEMENT-for-management-students-11-320.jpg)
![Economic order of quantity
EOQ = Average Monthly Consumption X Lead Time [in
months] + Buffer Stock – Stock on hand
CARRYING
COST
PURCHASING
COST
ECONOMIC ORDER OF
QUANTITY(EOQ)
1/2/2024 23
dharam](https://image.slidesharecdn.com/materialmanagement-240102150339-1c4a1684/85/MATERIAL-MANAGEMENT-for-management-students-23-320.jpg)
![200000
500
20
199500
500
19
199000
500
18
198500
500
17
198000
500
16
197500
500
15
197000
500
14
196500
500
13
196000
1500
12
194500
1500
11
193000
1750
10
191250
2750
9
188500
4000
8
184500
4500
7
180000
5000
6
175000
7500
5
167500
7500
4
160000
20000
3
140000
50000
2
90000
90000
1
CUMMULATIVE
CUMMULATIVE
COST
COST [Rs.]
ANNUAL COST
ANNUAL COST
[Rs.]
ITEM
ITEM COST %
COST %
ITEM %
ITEM %
70 %
70 %
20 %
20 %
10 %
10 %
10 %
10 %
20 %
20 %
70 %
70 %
ABC
A
N
A
L
Y
S
I
S
WORK
SHEET
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dharam](https://image.slidesharecdn.com/materialmanagement-240102150339-1c4a1684/85/MATERIAL-MANAGEMENT-for-management-students-28-320.jpg)
![Maintenance sheet:
Annual maintenance contract [AMC]
Starting date
Expiry date
Service / repair description
Materials / spares used
Cost of repairs
In-house
Outside agency
1/2/2024 34
dharam](https://image.slidesharecdn.com/materialmanagement-240102150339-1c4a1684/85/MATERIAL-MANAGEMENT-for-management-students-34-320.jpg)
MATERIAL MANAGEMENT for management students
- 2. Definition It is concerned with planning, organizing and controlling the flow of materials from their initial purchase through internal operations to the service point through distribution. OR Material management is a scientific technique, concerned with Planning, Organizing &Control of flow of materials, from their initial purchase to destination. 1/2/2024 2 dharam
- 3. AIM OF MATERIAL MANAGEMENT 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 1/2/2024 3 dharam
- 4. PURPOSE OF MATERIAL MANAGEMENT •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 1/2/2024 4 dharam
- 5. Primary •Right price •High turnover •Low procurement •& storage cost •Continuity of supply •Consistency in quality •Good supplier relations •Development of personnel •Good information system Objective of material management Secondary •Forecasting •Inter-departmental harmony •Product improvement •Standardization •Make or buy decision •New materials & products •Favorable reciprocal relationships 1/2/2024 5 dharam
- 6. Economy in material management •Containing the costs •Instilling efficiency in all activities 1/2/2024 6 dharam
- 7. Four basic needs of Material management 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 minimize the inventory investment 4. To operate efficiently 1/2/2024 7 dharam
- 8. Basic principles of material management 1. Effective management & supervision It depends on managerial functions of • Planning • Organizing • Staffing • Directing • Controlling • Reporting • Budgeting 2. Sound purchasing methods 3.Skillful & hard poised negotiations 4.Effective purchase system 5.Should be simple 6.Must not increase other costs 7.Simple inventory control programme 1/2/2024 8 dharam
- 9. Elements of material management 1. Demand estimation 2. Identify the needed items 3. Calculate from the trends in Consumption during last 2 years. 4. Review with resource constraints 1/2/2024 9 dharam
- 10. Functional areas of material management 1. Purchasing 2. Central service supply 3. Central stores 4. The print shops 5. The pharmacy 6. Dietary & Linen services 1/2/2024 10 dharam
- 11. PROCUREMENT 1. Directorate general of supply & disposal (DGS & D, Govt. Of India] 2. Medical stores depot (M. S.D. Government of India, Ministry of H & FW] 3. Private or public sector undertakings. 4. Receiving donations. 1/2/2024 11 dharam
- 12. Procurement cycle • Review selection • Determine needed quantities • Reconcile needs & funds • Choose procurement method • Select suppliers • Specify contract terms • Monitor order status • Receipt & inspection 1/2/2024 12 dharam
- 13. Objectives of procurement system •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 1/2/2024 13 dharam
- 14. CALL FOR OFFERS CALL FOR OFFERS YES YES DETERMINE DRUGS & DRUG REQUIREMENTS DETERMINE DRUGS & DRUG REQUIREMENTS DRUG REQUIREMENTS DRUG REQUIREMENTS DONATION SOURCE DONATION SOURCE GOVERNMENT PRODUCTION GOVERNMENT PRODUCTION DETERMINE DRUGS & DRUG REQUIREMENTS DETERMINE DRUGS & DRUG REQUIREMENTS PURCHASE REQUIREMENTS PURCHASE REQUIREMENTS OPEN TENDER OPEN TENDER RESTRICTED TENDER RESTRICTED TENDER NEGOTIATED TENDER NEGOTIATED TENDER DIRECT PURCHASE DIRECT PURCHASE REQUEST OFFERS FROM ELIGIBLE SUPPLIERS REQUEST OFFERS FROM ELIGIBLE SUPPLIERS LOCATE RELIABLE SUPPLIERS LOCATE RELIABLE SUPPLIERS CONTACT RELIABLE SUPPLIER CONTACT RELIABLE SUPPLIER EVALUATE & SELECT SUPPLIER EVALUATE & SELECT SUPPLIER EVALUATE OFFERS & SELECT SUPPLIERS EVALUATE OFFERS & SELECT SUPPLIERS NEGOTIATE PRICE & SUPPLY CONDITIONS NEGOTIATE PRICE & SUPPLY CONDITIONS ESTABLISH PRICE ESTABLISH PRICE PURCHASE ORDER / CONTRACT PURCHASE ORDER / CONTRACT PURCHASE ORDER / CONTRACT PURCHASE ORDER / CONTRACT PURCHASE ORDER / CONTRACT PURCHASE ORDER / CONTRACT PURCHASE ORDER / CONTRACT PURCHASE ORDER / CONTRACT DRUGS RECEIVED, CHECKED AGAINST PURCHASE ORDER / CONTRACT SPECIFICATIONS & CLEARED FOR DISTRIBUTION DRUGS RECEIVED, CHECKED AGAINST PURCHASE ORDER / CONTRACT SPECIFICATIONS & CLEARED FOR DISTRIBUTION ADJUST QUANTITIES ADJUST QUANTITIES ADJUST QUANTITIES ADJUST QUANTITIES YES NO YES NO NO NO NO YES YES FLOW OF PROCUREMENT DECISIONS FLOW OF PROCUREMENT DECISIONS 1/2/2024 14 dharam
- 15. Open tender •Public bidding, resulting in low prices •Published in newspapers •Term - 4 weeks •Quotations must be sent in the specific forms that are sold, before the time &date mentioned in the tender form •In technical items, ‘two packets or two bins’ system is followed. Offers are given in two separate packets. •Technical bid •Financial bid Cont…… 1/2/2024 15 dharam
- 16. •First technical bid is opened & short listed •Then financial bid of selected companies are opened & lowest is selected •Delayed tenders & late tenders are not accepted. But if, in case of delayed tenders, if the rate quoted is very less, then it can be accepted. •Quotations are opened in presence of indenting department, accounts & authorized persons of party •Validity of tenders – generally 90 days 1/2/2024 16 dharam
- 17. Earnest money 2 % of the tender amount or as decided has to be paid along with all quotations. In case of default 1/5 is withheld Restricted or limited tender From limited suppliers (about 10) Lead-time is reduced Better quality Negotiated procurement Buyer approaches selected potential Suppliers & bargain directly Used in long time supply contracts Direct procurement Purchased from single supplier, at his quoted price Prices may be high Reserved for proprietary materials, or low priced, small quantity & emergency purchases 1/2/2024 17 dharam
- 18. Rate contract Firms are asked to supply stores at specified Rates during the period covered by the Contract Spot purchase It is done by a committee, which includes an officer from stores, accounts & purchasing departments Risk purchase If supplier fails, the item is purchased from other agencies & the difference in cost is recovered from the first supplier 1/2/2024 18 dharam
- 19. Points to remember while purchasing •Proper specification •Invite quotations from reputed firms •Comparison of offers based on basic price, freight & insurance, taxes and levies •Quantity & payment discounts •Payment terms •Delivery period, guarantee •Vendor reputation (reliability, technical capabilities, Convenience, Availability, after- sales service, sales assistance) •Short listing for better negotiation terms •Seek order acknowledgement 1/2/2024 19 dharam
- 20. Storage • Store must be of adequate space • Materials must be stored in an appropriate place • in a correct way • Group wise & alphabetical arrangement helps in • identification & retrieval • First-in, first-out principle to be followed • Monitor expiry date • Follow two bin or double shelf system, to avoid • Stock outs • Reserve bin should contain stock that will cover • lead time and a small safety stock Issue & use Can be centralized or decentralized 1/2/2024 20 dharam
- 21. Inventory control It means stocking adequate number and kind of stores, so that the materials are available whenever required and wherever required. Scientific inventory control results in optimal balance 1/2/2024 21 dharam
- 22. Functions of inventory control •To provide maximum supply service, consistent with maximum efficiency & optimum investment. •To provide cushion between forecasted & actual demand for a material 1/2/2024 22 dharam
- 23. Economic order of quantity EOQ = Average Monthly Consumption X Lead Time [in months] + Buffer Stock – Stock on hand CARRYING COST PURCHASING COST ECONOMIC ORDER OF QUANTITY(EOQ) 1/2/2024 23 dharam
- 24. •Re-order level: stock level at which fresh order is placed. •Average consumption per day x lead time + buffer stock •Lead time: Duration time between placing an order & receipt of material •Ideal – 2 to 6 weeks. 1/2/2024 24 dharam
- 25. ABC ANALYSIS (ABC = Always Better Control) This is based on cost criteria. It helps to exercise selective control when confronted with large number of items it rationalizes the number of orders, number of items & reduce the inventory. About 10 % of materials consume 70 % of resources About 20 % of materials consume 20 % of resources About 70 % of materials consume 10 % of resources 1/2/2024 25 dharam
- 26. ‘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 1/2/2024 26 dharam
- 27. ‘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 1/2/2024 27 dharam
- 28. 200000 500 20 199500 500 19 199000 500 18 198500 500 17 198000 500 16 197500 500 15 197000 500 14 196500 500 13 196000 1500 12 194500 1500 11 193000 1750 10 191250 2750 9 188500 4000 8 184500 4500 7 180000 5000 6 175000 7500 5 167500 7500 4 160000 20000 3 140000 50000 2 90000 90000 1 CUMMULATIVE CUMMULATIVE COST COST [Rs.] ANNUAL COST ANNUAL COST [Rs.] ITEM ITEM COST % COST % ITEM % ITEM % 70 % 70 % 20 % 20 % 10 % 10 % 10 % 10 % 20 % 20 % 70 % 70 % ABC A N A L Y S I S WORK SHEET 1/2/2024 28 dharam
- 29. ‘B’ ITEM Intermediate Must have: •Moderate control •Purchase based on rigid requirements •Reasonably strict watch & control •Moderate safety stocks •Managed by middle level management 1/2/2024 29 dharam
- 30. 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 V E D ITEM COST A AV AE AD CATEGORY 1 10 70% B BV BE BD CATEGORY 2 20 20% C CV CE CD CATEGORY 3 70 10% CATEGORY 1 - NEEDS CLOSE MONITORING & CONTROL CATEGORY 2 - MODERATE CONTROL. CATEGORY 3 - NO NEED FOR CONTROL 1/2/2024 30 dharam
- 31. 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. 1/2/2024 31 dharam
- 32. 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 1/2/2024 32 dharam
- 33. HISTORY SHEET OF EQUIPMENT: History sheet 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 1/2/2024 33 dharam
- 34. Maintenance sheet: Annual maintenance contract [AMC] Starting date Expiry date Service / repair description Materials / spares used Cost of repairs In-house Outside agency 1/2/2024 34 dharam
- 35. EQUIPMENT MAINTENANCE & CONDEMNATION Maintenance & repairs: Preventive maintenance Master maintenance plan Repair of equipment 1/2/2024 35 dharam
- 36. 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 1/2/2024 36 dharam
- 37. 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 1/2/2024 37 dharam
- 38. 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 1/2/2024 38 dharam
- 39. 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 1/2/2024 39 dharam
- 40. 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 will improve the efficiency of the organization & also make the working atmosphere healthy any type of organization, whether it is Private, Government ,Small organization, Big organization and Household. Even a common man must know the basics of material management so that he can get the best of the available resources and make it a habit to adopt the principles of material management in all our daily activities 1/2/2024 40 dharam