Presentation on material management in IOM
- 2. Definition Material management is the process of planning, storing and providing appropriate material of the right quality, right quantity at the right place in the right time. According to IFPMM “It is total concept which has a definite organization, to plan and control all types of materials, its supply and its flow from the raw stage to the finished stage so as to deliver the product to the customer as per his requirement in time” The material cost constitute a major portion of the total manufacturing cost. Around 60 to 65% of the total cost of manufacturing is that of material
- 3. Functions of Material Management Material Planning Purchasing Procurement Stores management Inventory control Value analysis of costly material Smooth flow of material
- 4. Inventory It is detailed list of movable items which are required for manufacturing products and maintaining the equipment and machines in good working order. Raw Material (Direct material) Indirect Material Finished Goods Work-in-progress Good Inventory
- 5. Objectives of Inventory Management Operational Objectives To ensure continuous supply of materials, spares & finished goods so that production should not suffer. To avoid both over stocking & under stocking To minimize losses resulting from deterioration, obsolescence or price decline. Financial Objectives To maintain investment in inventories at the optimum level To keep material cost under control so as to reduce cost.
- 6. Objectives of Inventory Management Property Protection Objectives To safeguard inventory against theft, wastage, damage or unauthorized use. To ensure material actually lying in the stores are shown in stock ledger & value is correctly stated.
- 7. Inventory Analysis It is not practicable to have high degree of control on all items. So, it is desirable to group the items and subject each group of items to different controls based on their importance. Types of analysis ABC VED SDE HML FSN P B Nagargoje
- 8. ABC Analysis It is based on the principle of “Vital Few-Trivial more”. The goal of this is to categorize items which would be prioritized, managed or controlled in different ways. In this analysis inventory is classified into 3 categories Item ‘A’: Complex & expensive parts that require careful management & control. This are high value & low volume kind of item. Despite low volume, their annual consumption cost is high as these are vital few.
- 9. ABC Analysis Item ‘B’: Moderately Complex & expensive parts that require moderate level of management & control. This are moderate value & moderate volume kind of item. Item ‘C’: Low Complex & low expensive parts that require low level of management & control. This are low value & high volume kind of item like Trivial More. Class of Item % of Total Consumption Cost % of Total No. of Items A 70 to 75 10 to 20 B 15 to 25 20 to 30 C 5 to 10 50 to 70
- 10. Steps in ABC Analysis List all the items used in industry Obtain the cost data & consumption volume for each part Calculate Consumption cost: multiply item cost by quantity Arrange all items in descending order of the consumption cost. Calculate cumulative consumption cost Calculate cumulative consumption cost of each item in percentage. Plot a graph of cumulative percentage on Y –axis & cumulative percentage on X-axis.
- 11. EOQ (Economic Order Quantity) It is “Optimal quantity of order that minimizes total variable cost required to order & hold inventory. Two questions has to answered: How much should we order? How often should we order? Significance of EOQ: Used to review inventory system so as to monitored at all time To calculate reorder point and optimal quantity so as to get the material in JIT.
- 12. Contd… Assumption: Ordering cost is constant Rate of demand/consumption is constant Lead time is fixed Purchase price does not change Total quantity ordered is in one batch.
- 13. Cost incurred for EOQ Procurement Cost Each event of ordering has a certain cost like paperwork needs to filled out, peoples need to be contacted, told how much to order. When the inventory comes in, it has to be inspected and then stocked & invoices need to be prepared. Procurement cost are inversely proportional to EOQ. It includes Receiving Quotation Processing quotation & issuing PO Follow up & expediting PO Transportation Receiving, inspecting & stocking material Processing Vendor invoice
- 14. Cost incurred for EOQ Carrying (Holding) Cost These cost increase as you hold more & more inventory We need to take loans to pay for them & interest has to be paid. It may also obsolete or deteriorate with time. The more space you need to occupy Directly proportional to EOQ In includes Interest on capital investment Storage cost Record keeping Deterioration & obsolescence Insurance, theft, property tax etc
- 15. Analytical Method to calculate EOQ A- Annual Consumption P- Procurement Cost per Order C- Cost of item I- Cost of carrying inventory in percentage per period including interest, insurance, storage, obsolescence etc.. C*I- Annual inventory Carrying cost per item Q- EOQ PC=P*A/Q CC=Q/2*C*I
- 16. Purchase Procedure Purchasing is the procedure of acquiring goods, materials, components, equipment's, tools etc. Objectives of Purchasing To procure Right Material To ensure quality of material To procure material in right Quantity To procure material @ Reasonable Price To develop Reliable Source & maintain relationship To develop alternative Sources To Avoid duplication, Waste & Obsolescence Integration with other dept.
- 19. Requirement of the user department :-
- 20. Purchase Requisition Format
- 21. Contd… Send enquiry to the vendors :- The buyer releases the enquiry to the vendors. 3 vendors. Capability of making items as per the quality required. Essential to fill up the quality requirements of the item.
- 22. Contd… Get Quotations from Vendors :- • Buyer gets Quotations from different vendors. • Maximum 3 are selected. • He tabulates the quotations and finds the lowest quoting vendor suitable according to the buyers estimated cost.
- 23. Contd… Study and compare the quotations with our estimated costs :- The buyer selects 3 vendors. From these 3 vendors the lowest quoting member is chosen.
- 24. Contd… Negotiating the quoting to fix the price :- The buyer negotiates with the vendor to agree upon a certain amount. Both the buyer and the vendor conclude with a fixed negotiated price. Hence the order is placed to the right vendor.
- 25. Contd… Follow-up with the vendor :- Important function in the life of a buyer. Highly under valued and seen as unpleasant. Buyer has to have good skills to follow up. Rarely vendor supplies materials as he promises and as what is discussed and agreed amongst two parties.
- 26. Contd… Get and inspect the material :- The buyer get the material from the vendor. Buyer imports the materials from the vendor and inspects it accordingly. Inspection leads to “make sure no damage is occurred while transporting and it must be as per the booking of the buyer.” Inspection is mainly done by the purchase department professionals.
- 27. Contd… Stores credit the material :- After inspecting done by the buyer, the buyer stores the goods in the warehouse. Payments are made on cash or credit basis. i