Unit IV.pptx
- 1. MATERIALS MANAGEMENT Materials management is concerned with management functions supporting the complete cycle of material flow, from the purchase and internal control of production materials to planning and control of work in process, to warehousing, shipping and distribution of the finished product. An effective materials management process ensures that the right kinds of materials are at the right place whenever needed. Materials management is concerned with planning, directing and controlling the kind, amount, location, movement and timing of various flows of materials used in and produced by the process. Objectives of Materials Management: Materials management objectives are categorized into: 1. Primary objective 2. Secondary objectives
- 2. 1. Primary Objectives: “Making available (supply) of materials in specified quantity and quality at economic cost and maintaining the continuity of supply. Minimization of investments in materials and inventory costs, and assuring high inventory turnover.” 2. Secondary Objectives: Secondary objectives help to achieve the primary objectives. The secondary objectives can be stated as: 1. Purchasing the items from a reliable source at economic price. 2. Reduction of costs by using various cost reduction techniques such as variety reduction, standardization and simplification, value analysis, inventory control, purchase research etc. 3. Co-ordination of the functions such as planning, scheduling, storage and maintenance of materials.
- 3. Scope of Materials Management:
- 4. Planning Approaches for Materials Management: Functional managers apply the basic concepts of planning in making daily business decisions. These managers usually use following planning approaches for taking decisions regarding materials management activities: 1. Budgeting 2. Purchasing Research 3. Project Planning 4. Annual Operating Plan
- 5. PURCHASING In the words of Alford and Berry “Purchasing is the procuring of materials, supplying machine tools and services required for the equipment maintenance and operation of manufacturing plant”. Purchasing in a sense is the task of buying goods of right quality, in the right quantities, at the right time, at the right sources, and at the right price. To summarise, the objectives of Scientific purchasing are: 1. To procure the needed materials at a competitive price of the right quality, in the right quantity and at the right time. 2. To maintain continuity of supply to ensure production schedule at minimum inventory investment. 3. To ensure the production of goods of better quality at a competitive price by procuring materials that best suit the product and the purpose for which they are intended. 4. To suggest better substitutes to materials which are currently being used with a view to lower the cost and maintain quality of products. 5. To render assistance in standardization, variety reduction, value analysis, make or buy decisions and other cost reduction programs. 6. To assist in fixing probable price and delivery schedule. 7. To create a goodwill and enhance the company's reputation for being fair and maintaining integrity through its dealings with the suppliers. 8. To enable the company, to maintain competitive position and earn a fair return on its investment.
- 6. Functions of Purchasing Department: Some important functions of purchasing department are: 1. Locating, selecting and developing qualified sources of supply. 2. Scrutinizing purchase indents and deciding the method of purchase. 3. Floating enquires, processing quotations, conducting negotiations and realizing purchase orders. 4. Pre-delivery, follow-up and shortage chasing. 5. Coordinate with inward inspection including timely return of defective materials back to suppliers. 6. Endorsing suppliers invoices for payment. 7. Processing suppliers’ request for price increase including renegotiation of price. 8. Attending on to suppliers’ representatives and traveling salesman. 9. Arranging for meeting between suppliers’ representatives and company officials. 10. Disposal of surplus, obsolete and scrap materials. 11. Advising the management with regard to new materials, new products, forward buying, etc.
- 7. Duties of Purchasing Department: Finding and Approving Suppliers Purchasing at Least Total Cost: Receipt of Quotations Ensuring Delivery of Goods and Services at Right Time Warning all Concerned against Delay in Delivery Verifying invoice presented by suppliers Assisting in pricing
- 8. PURCHASING POLICY AND PROCEDURE Every authority delegated with the financial powers of procuring goods in public interest shall have the responsibility and accountability to bring efficiency, economy, and transparency in matters relating to public procurement and for fair and equitable treatment of suppliers and promotion of competition in public procurement. The procedure to be followed in making public procurement must conform to the following yardsticks: The specifications in terms of quality, type etc., as also quantity of goods to be procured, should be clearly spelt out keeping in view the specific needs of the procuring organizations. The specifications so worked out should meet the basic needs of the organization without including superfluous and non-essential features, which may result in unwarranted expenditure. Care should also be taken to avoid purchasing quantities in excess of requirement to avoid inventory carrying costs
- 9. VENDOR RATING TECHNIQUES As per modern vendor-buyer partnership approach, several tools and techniques are being utilized by organizations to rate and evaluate performance of their vendors Some of the metrics that can be considered are: Correct quantity On-time delivery Price/cost of product Willingness to participate in your firm’s new product development and value analysis Willingness to share sensitive information Presence of certification or other documentation Quality level Service level Flexibility to respond to unexpected demand changes Communication skills/systems (phone, fax, e-mail, Internet)
- 10. Value and Value Analysis The value of a product will be interpreted in different ways by different customers. Its common characteristic is a high level of performance, capability, emotional appeal, style, etc. relative to its cost. This can also be expressed as maximizing the function of a product relative to its cost: Value = (Performance + Capability)/Cost = Function/Cost
- 11. STORES MANAGEMENT Store is an important component of material management since it is a place that keeps the materials in a way by which the materials are well accounted for, are maintained safe, and are available at the time of requirement. Storage is an essential and most vital part of the economic cycle and store management is a specialized function, which can contribute significantly to the overall efficiency and effectiveness of the materials function. Literally store refers to the place where materials are kept under custody.
- 12. Objectives of store management An efficient stores management has normally the following main objectives. To ensure uninterrupted supply of materials without delay to various users of the organization. To prevent overstocking and under stocking of the materials To ensure safe handling of materials and prevent their damage. To protect materials from pilferage, theft, fire and other risks To minimize the cost of storage To ensure proper and continuous control over the materials. To ensure most effective utilization of available storage space To optimize the efficiency of the personnel engaged in the store
- 13. CLASSIFICATION OF STORES Store can be of temporary nature which means that it has a limited life. Store can also be of permanent nature. Stores are classified basically in the following broad categories. Functional stores – Functional stores are named based on the function of the materials stored. Examples are fuels store, chemicals store, tools store, raw materials store, spare parts store, equipment store, refractories store, electric store, explosives store, and finished goods store etc. Physical stores – Physically stores can be centralized stores or decentralized stores. These stores are named based on the size and location of the store. Examples are central store, sub store, department store, site store, transit stores, receipt store, intermediate store, open yard store, and covered store etc.
- 14. FUNCTIONS OF A STORE Store personnel are responsible for carrying out the following functions. Receipt of incoming materials Supervision of unloading of materials and tallying of materials Checking for damages or shortages and preparation of the report Filling of ‘goods inward’, ‘day book’, or ‘daily collection’ register Completion of vendor’s consignment note (challan) Making arrangement for inspection and getting the inspection completed Preparation of ‘goods receipt note’ (GRN) Preparation of ‘goods rejection memo’ (in case of rejection of materials) Sending of materials to the respective stores Sending of the relevant documents to the respective departments Ensuring all storage and material handling facilities are in proper working order
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- 16. LAYOUT AND DESIGN OF STORES The efficient layout and design of stores is very important from the point of view of its functioning which is linked to the overall functioning of the plant. The planning and design of stores should be carried out with the following objectives in mind: To achieve maximum ease of operation with ready accessibility of major materials. To achieve minimum waste of space and flexibility of arrangement. Minimization of material handling requirements. Minimization of material deterioration and pilferage.
- 17. INVENTORY Inventory control is an activity of checking a shop’s stock and to maintain the inventory at desired levels, keeping in view the best economic interest of an organization. In simple words, inventory control is a process of ensuring that a business maintains the adequate quantity of stock to meet the forecasted demand with minimum holding cost.
- 18. OBJECTIVES OF INVENTORY CONTROL Customer service level Why do you produce goods? The answer is simple it is to sell the goods at a good price. In an open market, there are so many manufactures who may produce the same goods as you may. Cost of holding inventories Another objective of inventory control is to optimize the cost of ordering and carrying inventories. As we know that the overall objective of inventory control is to achieve satisfactory levels of customer service by keeping the inventory costs within reasonable bounds.
- 19. Advantages of inventory control Maintaining an optimum level of inventories Helps in laying the procurement process considering the wait- time, lead-time etc. Periodical inspection of inventories Guides us on storing and issuance of inventories from godowns. A systematic record of movement of materials. It helps to lay out plans for physical verification of inventories.
- 20. STEPS INVOLVED IN INVENTORY CONTROL Step 1: Deciding on the minimum levels of inventories Step 2: To decide on the re-order level Step 3: Choosing a sound inventory control method
- 21. INVENTORY CONTROL METHODS ABC analysis Here, the stock is divided into three sections namely A, B and C. A section consist of inventories that are high in value with low sales frequency or consumption Just in time (JIT) Here, the company maintains an inventory level that is required during production. Economic order quantity (EOQ) In this method, the company will get to know how much quantity of inventory should the company order at any point of time and when should they place the order considering the minimum level of inventory. Fast, slow, and non-moving (FSN) Here, the inventories are classified based on the movement. All the inventories are categorized as fast-moving, slow-moving, and non-moving. Basis the movement across the categories, the order is placed.
- 22. OVERVIEW OF JIT Objectives of JIT manufacturing: The specific goal of JIT manufacturing is to provide the right quality level at the right place. Customer demand always determines what is right. JIT tries to build only what internal and external customers want and when they want it. The more focussed objectives of JIT are: (i) Produce only the products (goods or services) that customers want. (ii) Produce products only as quickly as customers want to use them. (iii) Produce products with perfect quality. (iv) Produce in the minimum possible lead times. (v) Produce products with features that customers want and no others. (vi) Produce with no waste of labour, materials or equipment, designate a purpose for every movement to leave zero idle inventory. (vii) Produce with methods that reinforce the occupational development of workers
- 23. Overview of JIT manufacturing: JIT manufacturing includes many activities: (i) Inventory reduction: JIT is a system for reducing inventory levels at all stages of production viz. raw materials, work-in-progress and finished goods. (ii) Quality improvement: JIT provides a procedure for improving quality both within the firm and outside the firm. (iii) Lead time reduction: With JIT, lead time components such as set- up and move times are significantly reduced. (iv) Vendor control/Performance improvement: JIT gives the buying organisation greater power in buyer-supplier relationship
- 24. SIX SIGMA Six Sigma at many organizations simply means a measure of quality that strives for near perfection. Six Sigma is a disciplined, data-driven approach and methodology for eliminating defects (driving toward six standard deviations between the mean and the nearest specification limit) in any process – from manufacturing to transactional and from product to service. A Six Sigma defect is defined as anything outside of customer specifications To achieve Six Sigma, a process must not produce more than 3.4 defects per million opportunities. Four Phase Approach: Six Sigma will follow a four phase approach: 1. Measure - Determine the error or defect rate 2. Analyze - Understand the Process 3. Improve - Reach for a higher Sigma 4. Control - Monitor through measurement