Materials Management Intro

Materials Management

• Integrates material management into industrial operations
• Aims to reduce costs and efficiently handle materials across all operational stages and departments
• Involves purchasing, storage, inventory control, material handling, and standardization

Materials Management Definition

• Coordinates planning, sourcing, purchasing, moving, storing, and controlling materials
• Optimizes material flow to provide pre-decided customer service at minimal cost

Scope of Materials Management

• Material Planning & Control
• Purchasing
• Stores Management
• Inventory Management
• Other Related Functions, including standardization, simplification, specifications, value analysis, ergonomics, and Just-in-Time

Material Planning

• Scientifically determines raw material, parts, and component requirements in advance based on production programs
• Considers two factors: macro and micro

Material Planning Factors

• Macro factors: price trends, business cycles, government import policy
• Micro factors: plant capacity utilization, rejection rates, lead times, inventory levels, working capital, delegation of powers, communication

Techniques of Material Planning

• Begin with forecasting techniques and sales forecast
• Use Bill of Materials and Explosion Chart
• Identify product requirements, product mix, and product structure
• Determine material requirements and delivery schedules

Forecasting Techniques for Material Planning

• Weighted Averages
• Exponential Smoothing
• Trend Analysis.
• Correlation

Purchasing

• A key function in equipment, material, tool, and part acquisition for industry
• Managed by works managers in small industries
• Managed by separate departments in large manufacturing concerns

Objectives of Purchasing

• Supply raw materials, sub-contracted items, and spare parts continuously
• Reduce the final cost of finished goods

Purchasing Department Objectives

• Acquire materials, suppliers, and equipment at minimal cost
• Maintain continuous production flow
• Increase asset turnover
• Develop alternative supply sources
• Establish positive supplier relations
• Maximize integration across company departments
• Develop and train personnel
• Maintain efficient records and reporting

Parameters of Purchasing

• Success depends on procuring raw materials of the right quality, quantity, and source, at the right time and price
• A well known concept is the ten 'R's of efficient purchasing

Ten 'R's of Efficient Purchasing

• Right Price: competitive, but not necessarily the lowest
• Right Quality: Available, measurable, understandable
• Right Time: Requires lead time information and analysis
• Right Source: Dependable, provides uniform quality
• Right Quantity: Most important parameter in buying

More 'R's of Efficient Purchasing

• Right Attitude: Focus on value, not just price
• Right Contracts: Policies and procedures for capital and consumer items
• Right Material: Suitable for production needs
• Right Transportation: Cost-effective mode of transport
• Right Place of Delivery: Minimizes handling and transportation expenses

Purchasing Procedure

• A sequence of steps for completing a specific task
• Begins with recognition of the need

Steps in Purchasing Procedure

• Recognition of Need: Initiated by the requesting section
• Supplier Selection: Involves searching for and shortlisting potential sources
• Placing the Order: Sending a purchase order letter to the supplier

Completing the Purchasing Procedure

• Order Follow-up: Confirming the order and promised delivery
• Receiving and Inspection: The receiving department checks the materials
• Invoice Payment: Invoice is verified after goods are satisfactory

More Steps in Purchasing Procedure

• Records Maintenance: Crucial for efficient purchasing
• Vendor Relations Maintenance: Frequent transactions with key suppliers help maintain good relationships

Selection of Suppliers Importance

• A purchase department responsibility that can significantly affect the business' core goals

Sources of Suppliers

• Decision makers should be familiar with all supply sources and their terms
• Specialized trade directories can assist this

Supplier Source Options

• Trade directories
• Professional bodies/consultants
• Buyers' guides/purchase handbooks
• Manufacturer/distributor catalogs
• Advertisements in dailies and trade journals
• Trade fair exhibitions

Development of Approved Supplier List

• Involves a survey stage to identify potential sources for an 'Inquiry Stage'

Shortlisting Suppliers

• Suppliers are shortlisted based on the following criteria
  • Production facilities and capacity
  • Financial standing
  • Product quality
  • Timely supply capability
  • Technical competence
  • Manufacturing efficiency
  • General business policies
  • Industry standing
  • Competitive attitude
  • Interest in fulfilling buying orders

Evaluation and Supplier Selection Considerations

• Cost factors: price, transportation, installation, tooling, sales tax, excise duty, payment terms, cash discounts
• Delivery: routing and F.O.B. terms to determine transfer of title

Additional Supplier Evaluation Factors

• Design and specification factors, including compliance, deviations, dimensions, and sample performance
• Legal factors: warranty, cancellation, patent protection, liability, and legal compliance
• Vendor rating: Based on quality, service, and price

Special Purchasing Systems

• Forward Buying: Long-term commitments based on availability, finances, EOQ, discounts, and delivery
• Tender Buying: Public purchases through tenders to avoid favouritism

More Special Purchasing Systems

• Blanket Order System: Reduces expenses with a contract for specific items over a year at a fixed price
• Zero Stock: Supplier stores stock for firms Buyer and seller firms should be close to each other

More Special Purchasing Systems

• Rate Contract: Public sector practice where suppliers advertise a 'rate contract' for a period
• Reciprocity: Purchasing from customers as a preference, following principles of mutual benefit
• Systems Contract: Streamlines buying and selling to lower costs and ensure controls

Stores Management

• Provides continuous service to manufacturing divisions

Functions of Stores

• Receiving and accounting for raw materials, components, tools, and other items
• Providing secure storage and preservation

More Functions of Stores

• Meeting demands from consuming departments via correct issues and accounting
• Minimizing waste through codification, preservation, and handling
• Highlighting discrepancies and controlling consumption

Further Functions of Stores

• Ensuring effective material handling, storage, and issue
• Assisting in verification and purchase decisions

Codification

• Represents items with a number indicating group, subgroup, type, and dimension
• Should be compact, concise, consistent, and flexible

Objectives of Codification

• Grouping all items
• Proper placement of new items
• Classifying items by characteristics
• Assigning unique codes to prevent redundancy
• Revealing excessive variety and promoting standardization

More Objectives of Codification

• Establishing a shared language for item identification
• Setting key specifications
• Adhering to standards
• Enabling data analysis

Advantages of Codification

• Many firms have reduced the number of items.
• Systematic grouping of similar items
• Can avoid confusion caused by long descriptions
• Serves as starting point for simplification and standardization
• Helps in avoiding duplication

Inventory Control or Management

• Refers to materials in stock, also called the idle resource of an enterprise
• Includes items stocked available for sale

Reasons for Keeping Inventories

• To stabilize production
• To take advantage of price discounts
• To meet the demand during the replenishment period
• To prevent loss of orders
• To keep pace with changing market conditions

Inventory Control

• Plans what, when, and how much to order and stock to optimize costs without interrupting processes
• Addresses when to order (level) and how much to order (quantity)

Objectives of Inventory Control

• Guarantee adequate product supply to customers
• Reduce financial investment in inventories
• Facilitate efficient purchasing, storing, consumption, and accounting

More Objectives of Inventory Control

• Maintain timely inventory records
• Act quickly for replenishment
• Keep reserve stock for lead time variations
• Offer a foundation for planning

Standardization

• Involves maximizing product variety from minimal materials, parts, tools, and processes
• Establishes standards for measuring extent, quality, quantity, value, performance, etc.

Benefits of Standardization to Design Department

• Fewer specifications and part lists
• Can allow more time for new or improved designs
• More efficient resource allocation.
• Can allow less qualified personnel to handles routine tasks

Further Benefits of Standardization

• Increased parts interchangeability
• Better use of manpower and equipment
• Accurate delivery dates
• Better support for planning and stock control
• More effective training

Benefits of Standardization to Marketing Department

• Proven, cost-effective products for higher sales
• Increased profit margins
• Improved product delivery

Benefits of Standardization to Production Planning

• Provides scope for better layouts and processes
• Improved tool design
• Better resources
• Fewer pre-production steps

Benefits of Standardization to Production Control

• Well-established designs and methods
• Accurate deliveries
• Fewer delays from material, tools
• Less follow-up time for small batches

Benefits of Standardization to Purchase and Stock Control

• Less paperwork through standardized stock
• Improved storage and location
• Enhanced stock control techniques
• Favorable contracts through large orders

Benefits of Standardization to Quality Control

• Enables better inspection
• Clearly defined standards
• Staff produce consistent quality

Ergonomics (Human Engineering)

• Originates from Greek words meaning "study of man in relation to his work"
• Called "human engineering" in the USA
• Involves, use of sciences for mutual adjustment of men and work for productivity and well-being

Human Engineering Obectives

• Increase convenience, cut errors, and boost productivity
• Promote human values such as safety, stress reduction, and quality of life.

Just-In-Time (JIT) Manufacturing

• Aims to improve market response via continuous improvement and eliminating waste
• Designed to operate with minimal work-in-process and finished inventory

Benefits of JIT

• Greater responsiveness to market changes
• Overall reduced expenses
• Enhancing quality
• Quicker response and adaptation
• Increasing productivity
• More flexible production
• Easy administration