Material Management PDF

MATERIAL MANAGEMENT ✓ Specifications It refers to a precise statement that responsible for planning, sourcing, purchasing, formulizes the requirements of the customer. It moving, sourcing, purchasing, moving, storing and may rel...

MATERIAL MANAGEMENT ✓ Specifications It refers to a precise statement that responsible for planning, sourcing, purchasing, formulizes the requirements of the customer. It moving, sourcing, purchasing, moving, storing and may relate to a product, process or service. controlling materials in an optimum manner. B SCOPE OF MATERIAL MANAGEMENT Value analysis: is concerned with the costs added Material Planning and Control due to inefficient or unnecessary specifications and Based on the sales forecasts and production plans, features. It makes its contribution in the last stage the materials planning, and control is done. of the product cycle, namely, the maturity stage. At Involves estimating requirements of arts, preparing this stage research and development no longer materials budget, forecasting the levels of make positive contributions in terms of improving inventories, scheduling the orders and monitoring the efficiency of the functions of the product or the production performance. adding new functions to it. Purchasing C Selection of sources in supply finalization in terms of purchase, placement of purchase orders, follow- Ergonomics (Human Engineering): The human up, maintenance of smooth relations with suppliers, factors or human engineering is concerned with approval of payment to suppliers, evaluating and man-machine system. Ergonomics is “the design of rating suppliers. human tasks, man-machine system, and effective accomplishment of the job, including displays for Stores Management presenting information to human sensors, controls This is a physical control of materials, preservation for human operations and complex man-machine of stores, minimization of obsolescence and damage systems.” through timely disposal and efficient handling, MATERIAL PLANNING AND CONTROL maintenance of stores records, proper location and stocking. Responsible for the physical verification of stocks is a scientific technique of determining in advance and reconciling them with book figures. the requirements of raw materials, ancillary parts Stores play a vital role in the operations of a and components, spares etc. as directed by the company. production program. It is a subsystem in the overall planning activity. There are many factors Inventory Management which influence the activity of material planning. Refers to the materials in stock. It is also called These factors can be classified as macro and the idle resource of an enterprise which micro systems. inventories represents those items. Which either stocked for sale or they are in the 1. Macro factors: Some of the micro factors which process of manufacturing, or they are in the form affect material planning are price trends, business of materials. cycles Govt. import policy etc. Other Related Activities (A three S) 2. Micro factors: Some of the micro factors that ✓ Standardization: means producing maximum variety affect material planning are plant capacity of products from the minimum of materials, parts, utilization, rejection rates, lead times, inventory tools, and processes. levels, working capital, delegation of powers and It is the process of establishing standards or units communication. of measure by which extent, quality, quantity, performance etc. may be compared and measured. ✓ Simplification: The context of simplification is closely related to standardization. Process of reducing the variety of products manufactured. It is concerned with the reduction of the product range assembly, parts, materials and design. TECHNIQUES OF MATERIAL PLANNING z To ensure the continuous flow of production through continuous supply of raw materials, components, tools etc. with repair and maintenance service. z To increase the asset turnover: The investment in inventories should be kept minimum in relation to the volume of sales. This will increase the turnover of the assets and thus the profitability of the company. z to develop an alternative source of supply: Exploration of alternative sources of supply of materials increases the bargaining ability of the buyer, minimization of cost of materials and increases the ability to meet emergencies. The basis for material planning is the forecast demand for the end products. z To establish and maintain good relations with the suppliers: Maintenance of good relations with the supplier helps in evolving a favorable image in the Forecasting techniques such as weighted average business circles. method, exponential smoothening and time series models are used for the same. PARAMETERS OF PURCHASING Bill of materials is a document which shows a list Right price: It is the primary concern of any of materials required, unit consumption location manufacturing organization to get an item at the code for a given product. right price. But right price need not be the lowest price. It is very difficult to determine the right An explosive chart is a series of bill of material price; general guidance can be had from the cost grouped in a matrix form so that combined structure of the product. requirements for different components can be done requirements of various materials are arrives Right quality: implies that quality should be at from the demand forecast, using bill of available, measurable and understandable as far materials, through explosion charts. as practicable. In order to determine the quality of a product sampling, schemes will be useful; is PURCHASING determined by the cost of materials and the technical characteristics as suited to the specific is an important function of materials management. requirements. The quality particulars are normally obtained from the indents. buying of equipments ,materials, tools, parts etc. required for industry. Right time: For determining the right time, the purchase manager should have lead time The importance of the purchase function varies information for all products and analyze its with nature and size of industry. In small industry, components for reducing the same. Lead time is this function is performed by works manager and the total time elapsed between the recognition of in large manufacturing concern; this function is the need of an item till the item arrives and is done by a separate department. provided for use; the entire duration of the materials cycle and consists of pre-contractual OBJECTIVES OF PURCHASING administrative lead time, manufacturing and transporting lead time and inspection lead time. These are the inputs in the manufacturing operations. The minimization of the input cost increases Right source: The source from which the material productivity and resultantly the profitability of the is procured should be dependable and capable of operations. supplying items of uniform quality. The buyer must  decide which item should be directly obtained from PURCHASING PROCEDURE the manufacturer. Source selection, source development and vendor rating play an important Recognition of the need: role in buyer-seller relationships. In emergencies, open market purchases and bazaar purchases are The initiation of procedure starts with the restored to. recognition of the need by the needy section. The demand is lodged with the purchase department Right quantity: The right quantity is the most in the prescribed Purchase Requisition Form important parameter in buying. Concepts, such as, forwarded by the authorized person either economic order quantity, economic purchase directly or through the Stores Department. The quantity, fixed period and fixed quantity systems, purchase requisition clearly specifies the details, will serve as broad guidelines. But the buyer has such as specification of materials, quality and to use his knowledge, experience and common quantity, suggested supplier, etc. sense to determine the quantity after considering factors such as price structure, discounts, The Selection of the supplier: availability of the item, favorable reciprocal relations, and make or buy consideration. The process of selection of supplier involves two basic aspects: searching for all possible sources and short listing out of the identified sources. Right attitude: Developing the right attitude too, is necessary as one often comes across such The complete information about the supplier is statement: ‘Purchasing knows the price of available from various sources, such as, trade everything and value of nothing’; ‘We buy price directories, advertisement in trade journals, direct and not cost’; ‘When will our order placers become mailing by the suppliers, interview with suppliers, purchase managers?’; ‘Purchasing acts like a post salesmen, suggestions from business associates, box’. Therefore, purchasing should keep ‘progress’ visit to trade fair, participation in industries as its key activity and should be future-oriented. convention, etc. Identification of more and more sources helps in selecting a better and Right contracts: The buyer has to adopt separate economical supplier. It should be noted that the policies and procedures for capital and consumer low bidder is not always the best bidder. items. He should be able to distinguish between indigenous and international purchasing procedures. He should be aware of the legal and contractual aspects of international practices. Right material: Right type of material required for the production is an important parameter in purchasing. Techniques, such as value analysis will enable the buyer to locate the right material. Right transportation: Right mode of transportation have to be identified as this forms a critical segment in the cost profile of an item. It is an established fact that the cost of the shipping of ore, gravel, sand, etc., is normally more than the cost of the item itself. Right place of delivery: Specifying the right place of delivery, like head office or works, would often minimize the handling and transportation cost. Placing the order: Once the supplier is selected the next step is to place the purchase order. Purchase order is a letter sent to the supplier asking to supply the said material. At least six copies of the purchase order are prepared by the purchase  section and each copy is separately signed by the objectives of the business enterprise. Different purchase officer. strategies are required for acquiring different types of materials. The selection of supplier for Follow-up of the order: Follow-up procedure should standardized products will differ from non- be employed wherever the costs and risks standardized products. resulting from the delayed deliveries of materials are greater than the cost of follow-up procedure, SOURCES OF SUPPLIER the follow-up procedure tries to see that the purchase order is confirmed by the supplier and The best buying is possible only when the decision then delivery is promised. It is also necessary to maker is familiar with all possible sources of supply review the outstanding orders at regular intervals and their respective terms and conditions. and to communicate with the supplier in case of need. The purchase department should try to locate the appropriate sources of the supplier of various Receiving and inspection of the materials: The receiving types of materials. This is known as ‘survey stage’. department receives the materials supplied by the vendor. The quantity is verified and tallied with the A survey of the following will help in developing purchase order. The receipt of the materials is the possible sources of supply: recorded on the specially designed receiving slips or forms which also specify the name of the vendor and DEVELOPMENT OF APPROVED LIST OF SUPPLIERS the purchase order number. It also records any discrepancy, damaged condition of the consignment or inferiority of the materials. It is known as ‘Inquiry Stage’. Here a short listing is made out of the given sources of suppliers in terms of production facilities and capacity, Payment of the invoice: When the goods are financial standing, product quality, possibility of received in satisfactory condition, the invoice is timely supply, technical competence, manufacturing checked before it is approved for the payment. efficiency, general business policies followed, The invoice is checked to see that the goods were standing in the industry, competitive attitude, and duly authorized to purchase, they were properly interest in buying orders etc. ordered, they are priced as per the agreed terms, the quantity and quality confirm to the order, the calculations are arithmetic correct etc. EVALUATION AND SELECTION OF THE SUPPLIER Maintenance of the records: Maintenance of the The purchase policy and procedure differ records is an important part and parcel of the according to the type of items to be purchased. efficient purchase function; most of the purchases are repeat orders and hence the past records Cost factors: Price, transportation cost, installation serve as a good guide for future action. cost if any, tooling and other operations cost, incidence of sales tax and excise duty, terms of payment and cash discount are considered in cost Maintenance of vendor relations: The quantum and frequency of the transactions with the same key factor. suppliers provide a platform for the purchase department to establish and maintain good Delivery Routing and F.O.B. terms are important in relations with them. Good relations develop mutual determining the point at which the title to the trust and confidence in the course of the time, goods passes from vendor to the buyer and the which is beneficial to both the parties. The responsibility for the payment of the payment efficiency of the purchase department can be charges. measured by the amount of the goodwill it has with its suppliers Design and specification factors: Specification compliance, specification deviations, specification SELECTION OF SUPPLIERS advantages, important dimensions and weights are considered in line with the demonstration of sample, experience of other users, after sale is the responsibility of the purchase department. It can contribute substantially to the fundamental services etc.  Legal factors: Legal factors include warranty, stationery etc. The next two digits indicate the sub- cancellation provision, patent protection, public groups, such as, ferrous, non-ferrous etc. liability, federal laws and reputation compliance. Dimensional characteristics of length, width, head diameter etc. constitute further three digits and Vendor rating: The evaluation of supplier or vendor the last digit is reserved for minor variations. rating provides valuable information which help in Whatever may be the basis, each code should improving the quality of the decision. In the vendor uniquely represent one item. rating three basic aspects are considered namely quality, service and price. It should be simple and capable of being understood by all. STORES MANAGEMENT Stores play a vital role in the operations of a Codification should be compact, concise, consistent and flexible enough to accommodate new items. company INVENTORY CONTROL OR MANAGEMENT It is in direct touch with the user departments in its day-to-day activities. Inventory generally refers to the materials in stock. The most important purpose served by the stores is to provide uninterrupted service to the It is also called the idle resource of an enterprise. manufacturing divisions. Inventories represent those items which are either stocked for sale or they are in the process of FUNCTIONS OF STORES manufacturing, or they are in the form of materials, which are yet to be utilized. The interval To receive raw materials, components, tools, between receiving the purchased parts and equipment’s and other items and account for them. transforming them into final products varies from To provide adequate and proper storage and industries to industries depending upon the cycle preservation for the various items. time of manufacture. It is, therefore, necessary to 3. To meet the demands of the consuming hold inventories of various kinds to act as a buffer departments by proper issues and account for the between supply and demand for efficient operation consumption. of the system. 4. To minimize obsolescence, surplus and scrap through proper codification, preservation and Thus, effective control on inventory is a must for handling. smooth and efficient running of the production 5. To highlight stock accumulation, discrepancies cycle with least interruptions. and abnormal consumption and effect control measures. Reasons for Keeping Inventories 6. To ensure good housekeeping so that material handling, material preservation, stocking, receipt To stabilize production: The demand for an item and issue can be done adequately. fluctuates because of the number of factors, e.g., 7. To assist in verification and provide supporting seasonality, production schedule etc. The information for effective purchase action. inventories (raw materials and components) should CODIFICATION be made available to production as per the demand failing which results in stock out and the production stoppage takes place for want of It is one of the functions of stores management. materials. is a process of representing each item by a number, the digit of which indicates the group, the sub-group, the type and the dimension of the item.. To take advantage of price discounts: Usually the codification, manufacturers offer discounts for bulk buying and The first two digits represent the major groups, to gain this price advantage the materials are such as raw materials, spare parts, sub-contracted bought in bulk even though it is not required items, hardware items, packing material, tools, oil, immediately. Thus, inventory is maintained to gain economy in purchasing.  To meet the demand during the replenishment The quantity of inventory item consumed during period: The lead time for procurement of materials the year and multiply it by unit cost to obtain depends upon many factors like location of the annual usage cost. source, demand supply condition, etc.; is maintained The items are then arranged in the descending to meet the demand during the procurement order of such annual usage cost. replenishment) period. The analysis is carried out by drawing a graph based on the cumulative number of items and 4To prevent loss of orders (sales):In this cumulative usage of consumption cost. competitive scenario, one has to meet the delivery schedules at per cent service level, means they cannot afford to miss the delivery schedule which A-Item: Very tight control, the items being of high may result in loss of sales. To avoid the value. The control need be exercised at higher organizations, have to maintain inventory. level of authority. To keep pace with changing market conditions: The B-Item: Moderate control, the items being of organizations have to anticipate the changing moderate value. The control need be exercised at market sentiments and they have to stock middle level of authority. materials in anticipation of non-availability of materials or sudden increase in prices C-Item: The items being of low value, the control can be exercised at gross root level of authority, INVENTORY CONTROL i.e., by respective user department managers. is a planned approach of determining what to HML analysis, in this analysis, the classification of order, when to order and how much to order and existing inventory is based on unit price of the how much to stock so that costs associated with items. They are classified as high price, medium buying and storing are optimal without interrupting price and low-cost items. production and sales. Inventory control basically deals with two problems: VED analysis, in this analysis, the classification of (i) When should an order be placed? (Order level), and existing inventory is based on criticality of the items. They are classified as vital, essential and ii) How much should be ordered? (Order quantity). desirable items. It is mainly used in spare parts inventory. TECHNIQUES OF INVENTORY FSN analysis, in this analysis, the classification of ABC analysis, existing inventory is based on consumption of the items. They are classified as fast moving, slow The classification of existing inventory is based on moving and non-moving items annual consumption and the annual value of the items. SDE analysis, in this analysis, the classification of existing inventory is based on the items. GOLF analysis this analysis, the classification of existing inventory is based sources of the items. They are classified as Government supply, ordinarily available, local availability and foreign source of supply items. SOS analysis. In this analysis, the classification of existing inventory is based on the nature of supply of items. They are classified as seasonal and off- seasonal items.  For effective inventory control, combination of the Disadvantages of Standardization techniques of ABC with VED or ABC with HML or VED with HML analysis is practically used. Following are the disadvantages of standardization: INVENTORY MODEL 1. Reduction in choice because of reduced variety and consequently loss of business or customer. ECONOMIC ORDER QUANTITY (EOQ 2. Standard once set, resist change and thus Inventory models deal with idle resources like men, standardization may become an obstacle to machines, money and materials. These models are progress. concerned with two decisions: how much to order (purchase or produce) and when to order so as to 3. It tends to favor only large companies. minimize the total cost. For the first decision—how much to order, there 4. It becomes very difficult to introduce new are two basic costs considered namely, inventory models because of less flexible production facilities carrying costs and the ordering or acquisition and due to high cost of specialized production costs. equipment As the quantity ordered increases, the inventory SIMPLIFICATION carrying cost increases while the ordering cost decreases. The ‘order quantity’ means the quantity is the process of reducing the variety of products produced or procured during one production cycle. manufactured. Simplification is concerned with the reduction of product range, assemblies, parts, is calculated by balancing the two costs. materials and design. is that size of order which minimizes total costs of carrying and cost of ordering. i.e., Minimum Total Cost occurs when Inventory Carrying Cost = Ordering Cost. STANDARDIZATION means producing maximum variety of products from the minimum variety of materials, parts, tools and processes. VALUE ANALYSIS It is the process of establishing standards or units Value engineering of measure by which extent, quality, quantity, value, performance etc., may be compared and as “an organized creative approach which has its measured objective, the efficient identification of unnecessary cost-cost which provides neither quality nor use ADVANTAGES nor life nor appearance nor customer features. Benefits to Design Department Focuses engineering, manufacturing and purchasing attention to one objective-equivalent performance ) Fewer specifications, drawings and part list have at a lower cost. to prepared and issued. ) More time is available to develop new designs or is concerned with the costs added due to to improve established design. inefficient or unnecessary specifications and (Better resource allocation. features. It makes its contribution in the last stage (Less qualified personnel can handle routine design of product cycle, namely, the maturity stage. work. Value is not inherent in a product, it is a relative term, “The application of human biological sciences along and value can change with time and place. It can be with engineering sciences to achieve optimum measured only by comparison with other products mutual adjustment of men and his work, the which perform the same function. Value is the benefits being measured in terms of human relationship between what someone wants and what he efficiency and well-being.” is willing to pay for it. In fact, the heart of value analysis technique is the functional approach human factors or human engineering is concerned with man-machine system. VALUE ANALYSIS FRAMEWORK Thus another definition which highlights the man- 1. What is the item? machine system is: “The design of human tasks, man-machine system, and effective accomplishment 2.What does it do? of the job, including displays for presenting information to human sensors, controls for human operations and complex man-machine systems. 3.What does it cost? focuses on human beings and their interaction with products, equipment facilities and environments 4.What else would do the job?? used in the work; seeks to change the things people use and the environment in which they use 5.What would the alternative cost be? the things to match in a better way the capabilities, limitations and needs of people STEPS IN VALUE ANALYSIS OBJECTIVES Identifying the function: Any useful product has some primary function which must be identified—a bulb to To enhance the efficiency and effectiveness with give light, a refrigerator to preserve food, etc. In which the activities (work) is carried out so as to addition, it may have secondary functions such as increase the convenience of use, reduced errors withstanding shock, etc. These two must be identified. and increase in productivity. Evaluation of the function by comparison: Value being a To enhance certain desirable human values relative term, the comparison approach must be used including safety reduced stress and fatigue and to evaluate functions. The basic question is, ‘Does the improved quality of life. function accomplish reliability at the best cost’ and can be answered only comparison. JUST-IN-TIME (JIT) MANUFACTURING Develop alternatives: Realistic situations must be faced, is a philosophy rather than a technique. By objections should overcome and effective engineering eliminating all waste and seeking continuous manufacturing and other alternatives must be improvement, it aims at creating a manufacturing developed. system that is response to the market needs. In order to develop effective alternatives and The phase just in time is used to because this identify unnecessary cost the following thirteen system operates with low WIP (Work-In- Process) value analysis principles must be used: inventory and often with very low finished goods inventory. Products are assembled just before they are sold, subassemblies are made just before they z Avoid generalities. are assembled, and components are made and fabricated just before subassemblies are made. z Get all available costs This leads to lower WIP and reduced lead times. ERGONOMICS (HUMAN ENGINEERING) According to Voss, JIT is viewed as a “Production has its origin in two Greek words Ergon meaning methodology which aims to improve overall laws. productivity through elimination of waste, and it is the study of the man in relation to his work. which leads to improved quality”.  JIT provides an efficient production in an organization and delivery of only the necessary parts in the right quantity, at the right time and place while using the minimum facilities” SEVEN WASTES Shiego Shingo, a Japanese JIT authority and engineer at the Toyota Motor Company identifies seven wastes as being the targets of continuous improvement in production process. By attending to these wastes, the improvement is achieved. Benefits of JIT Waste of over production is eliminated by reducing set-up times, synchronizing quantities and timing between processes, layout problems. Make only The most significant benefit is to improve the what is needed now. responsiveness of the firm to the changes in the market-places thus providing an advantage in competition. Following are the benefits of JIT: Waste of waiting eliminate bottlenecks and balance uneven loads by flexible work force and equipment. Product cost—is greatly reduced due to reduction of manufacturing cycle time, reduction of waste Waste of transportation establishes layouts and locations to make handling and transport and inventories and elimination of non-value-added unnecessary if possible. operation. Waste of processing itself question regarding the Quality—is improved because of continuous quality reasons for existence of the product and then why improvement programs. each process is necessary. Design—Due to fast response to engineering change, alternative designs can be quickly brought Waste of stocks reducing all other wastes reduces stocks. on the shop floor. Waste of motion study for economy and Productivity improvement. consistency. Economy improves productivity and consistency improves quality. Higher production system flexibility. Waste of making defective products develops the Administrative and ease and simplicity production process to prevent defects from being produced, so as to eliminate inspection. At each process, do not accept defects and makes no defects. Make the process fail-safe. A quantify process always yields quality product.