Material Management - Definition

1. Material Management - Definition It is defined as an organizational concept, which has the authority and responsibility of all activities, concerned with the flow of materials in the organization.

2. Objectives and importance • Efficient use of the working capital. • Lowering inventory investment and increasing the inventory turnover. • Responding to the market changes related to any product. • Ensuring the cooperation of all departments. • Providing best services to the king of the market i.e customer.

3. Principles of material handling • Least handling is the best handling. • Lengths and number of move to be minimized. • Unit loads • Minimize the distance.

4. Principles of material handling • The design of the container.e.g. shippers are used for storing finished bulk. & for raw materials as per the property of materials they are stored- plastic containers ( light weight containers) • Re-handling and back tracking of the materials should be avoided. • The materials handling service should not interfere with the production flow.

5. Classes of materials • Raw materials:- These are materials that are used in the product which is in an unprocessed condition. • Purchased Parts:- These are the items used in the assembly of the product.

6. Classes of materials • In-progress materials:- They are called ‘work in progress’ inventories. These goods require further processing. • Finished materials:- These are fully manufactured goods, inspected and ready for delivery to the customers. • Supplies:- These are consumable goods used in the process of manufacturing.

7. Functions of material management

8. Materials-Quality & Quantity • Four factors affecting the purchase of raw materials are 1) Quality :- The suitably of an item to accomplish the intended work. The raw materials should satisfy the following requirements. • Efficiency of the material. • Cost and the shelf –life. • For equipments, power consumption and power requirement.

9. Quantity From the inventory point of view, quantity standards are decided on the following parameters; Maximum inventory Minimum inventory Standard order Reorder point 3) Price 4) Delivery Date

10. Value Analysis • Definition:- It is a systematic study of every element for it’s cost in a part, material or service to make certain that it performs it’s function at the lowest possible cost. • Benefits of value analysis:- • Decrease in existing cost of the product or service. • Unnecessary expenditure is identified and eliminated. • Product value improves for new materials and processes. • More profits.

11. Value ratio Mathematical representation of the value can be done as Function Value = Reasons for unnecessary costs:- • Lack of information • Lack of ideas • Changed circumstances • Wrong beliefs, habits and attitudes Total cost

12. Value Analysis Technique In this technique (n) number of questions are applied, like:- • what must I do? • What else does the item do? • What does it cost? • What else will the job do? • What will be alternative costs?

13. Centralized :-the purchasing procedure of materials for different department is done together from one purchasing department. This is seen in small organizations. Advantages Efficient system Bargaining capabilities increased Good raw material obtained at lower price Decentralized:- different department purchase their requirement seperately. This is basically seen in large organizations. Advantages Flexible purchasing system Procurement is faster Purchasing

14. Vendor development The supplier or the person who sells the required materials or services for the production is known as a vendor. The purchase of raw materials/service from a specific vendor is known as the vendor development. There are four stages of vendor development:-

15. Four stages of vendor development

16. 1) Survey stage The following sources are considered for information • Trade directories :- e.g. Yellowpages.eindiabusiness.com • Trade journals:- e.g. Pharmatimes • Telephone directories • Supplier’s catalogue • Salesmen Other ways are like interchanging of information with other companies, tracing of public tenders and advertisements in the press.

17. 2)Enquiry stage After getting the information of the suppliers, detailed analysis of the supplier is being carried out. A comparison is being made between the different suppliers on basis of the following points:- • Technological competition, • service competition, • price competition, • delivery time.

18. 2)Enquiry stage The following aspects can be verified by the first hand visit:- • Internal facilities of the vendor • Financial adequacy, stability and reputation of the vendor • Location of vendor’s factory • After sales service • Industrial relations

19. 3)Negotiation and selection stage • The vendors who clear the enquiry stage are selected and negotiations are being carried out with them. • The various aspects such as credit, quantity discount, quality specifications are being discussed.

20. 4) Experience and evaluation stage • The buyer evaluates and appraises the performance of the vendor. • The objective is to improve the performance of the vendors. Few ways of evaluating a vendor are:- • Categorial method • Weighted point method • Cost ratio method

21. Categorial method Grading The buyer sets up some category on which the evaluation of the vendor is done. Specimen of supplier’s evaluation form is given below.

22. Weighted point method Here the rating points are divided between quality, delivery and price. For eg quality – 50 points delivery- 30 points price – 20 points so total is 100 points. The rating can be obtained by following equation.

23. Weighted point method Quantity rating = (no. of lots accepted/ no. lots received) ×rating points Delivery rating = (no of lots delivered on time/ no of lots delivered) × rating points Price rating =(least offer received/ supplier’s offer) × rating points

24. Buying techniques Purchasing of material , machinery and services is done by purchasing department. For buying the material company has to pay up a price, the value that a seller sets on his goods in the market is called as the price of that good. Price is one of the greatest variables in the purchasing of material.

25. How is the purchasing done???? • Quotations :- It is a kind of an inquiry done to know whether the vendor can supply the desired material and at what price. • They are not the purchase order. They just contain all the details including freight, taxes and many other costs. • The highly used quotation techniques are • Spot quotations • Floating a limited enquire

26. How is the purchasing done???? • Spot quotations:- this is basically used for the small items not related to the technical purpose. The prospective buyer goes to the market and gets the quotations from the different suppliers. • Floating a limited enquire:- this method is used when the value of the purchase is small. In this technique the reliable vendors are called upon and asked to provide the quotations.

27. How is the purchasing done???? • Tenders:- It is a written letter or a published document that is aimed at finding the price for procuring certain materials. Tenders are invited from recognized firms. A few types of tenders are: # single tender # Open tender # Closed tender or limited tender

28. How is the purchasing done???? • Single tender:- It is invited from one reliable supplier. This kind of tender is floated only when the itms are required urgently. • Open tender:- Also known as ‘ press tender’. This is used when the value of item to be purchased is very high. It is used to locate more suppliers. In this tender procured, a small amount of the deposit money is taken from the supplier so that they do not withdraw from the submitted rates.

29. How is the purchasing done???? • Closed tender or limited tender (Negotiations):- It is done to arrive at the mutual understanding between the supplier/vendor and the buyer.

30. How is the purchasing done???? What’s the need for negotiation? @ prices are related to large volumes or to a large value. @ terms and conditions are required for large volumes. @ contract is desired for a longer period. @ variations in quantity to be purchase are possible. @ when supplies or services can be obtained from only one source. @ when no acceptable quotations are received from the other vendors.

31. How is the purchasing done???? Process of negotiations:- It is a kind of win-win situation. Both the parties try to benefit to the maxima through the negotiation. It is not a kind of bargaining but a mutual understanding between the two parties.

32. How is the purchasing done???? • Discounts:- They are cash concessions offered by the vendor to the buyer, in order to enhance the volume of the business opportunities. Reasons for offering discounts????? ! When there is a bulk purchase. ! When the bills are cleared immediately. ! And also to maintain the good rapo with the buyer Types of discounts:- • Volume contracts. • Deals • Discounts • Consignment terms

33. How is the purchasing done???? # Volume contracts:- This kind of discount is offered proportionate to the volume of material ordered. # Cash discount:- Cash discount is given on the basis of the time of the payment done by the purchaser. The normal credit period is 90 days. # Cumulative discount:- It is a method of offering the discount on the basis of actual purchases and appropriate to the quantity range in a year.

34. Purchasing cycle and procedure • The purchasing department of the company is responsible for the purchase of all the raw materials as well as the requirements. The following steps are followed in the purchasing cycle. • Recognition of need and receipt of requisition: The requisition includes the following information:- - Name - Quality and quantity specifications - Date by which material is required - Place at which material is to be delivered

35. Purchasing cycle and procedure 2) Selection of potential sources of supply 3) Making request for quotation 4) Receipt and analysis of quotations - material specifications and quality - price of the material - taxes - terms of payemeny - place of delivery - delivery period - gurantee period - validity of tender

36. Purchasing cycle and procedure 5) Selection of right source of supply 6) Issuing the purchase order 7) Follow-up of the order 8) Receipt of materials,reports and analysis 9) Checking and approving of vendor’s invoice for payment 10) Closing of completed order 11) Maintenance of record and file Purchasing cycle flow chart has been given in the following slide.

37. Spell out of specifications & requirements Need recognition Official requisitions Specifications file Check specifications, prices/supplies Purchase records Supplier’s record Inquiry tender Select suppliers Quotations & analysis prices and terms, negotiations, finalisation Purchase order for supply Suppliers’ acceptance Follow-up

38. Contd …. Delivery of materials Checking of invoice with purchase order Materials & reports, analysis Payment made

39. Example of Materials and People Flow

40. Location of Stores : • Store should be located adjacent to the manufacturing area. • It depends up on nature and value of items to be stored and • frequency with which items are received and issued Objectives : • Minimum wastage of space • Maximum ease of operation • Minimum handling cost • Minimum other operational cost

41. Facilities of Store • Inspection center • Quarantine room • Washing room • Centralized weighing department • Adequate space

42. Functions of stores General function : • Maintenance of Stock (materials and tools) • Maintenance of hygiene, sanitation, and pest control • Maintenance of material handling equipment

43. Functions of stores Specific functions : • Receiving & recording of raw materials • Quarantine storage – Sampling & approval by QC • Positioning & Storage • Issuing & recording of materials • Receiving & Dispatching of finished goods • Distribution • Optional functions : • Dispensing, Maintenance of weights & measures

44. Material handling system • RightDefinition : Material handling uses the right method to provide the right amount of the right material at the right place, at the right time, in the right sequence, in the right position, in the right condition, and at the right cost.

45. Material handling system Involves handling, storing, and controlling material • The raw materials, in-process materials and finished goods are moved from one place to another in the plant. • Adds value through time and place utility • Impacts space requirement, profits, quality, safety, and productivity • On an average, 20% of production cost is spent on material handling system

46. Twenty Principles of Material Handling 1. Planning principle. Plan all material handling and storage activities to obtain maximum overall operating efficiency. 2. System principle.Integrate as many handling activities as is practical into a coordinated system of operations, covering vendor, receiving, storage, production, inspection, packaging, warehousing, transportation. etc.

47. Twenty Principles of Material Handling 3. Material flow principle. Provide an operation sequence and equipment layout optimizing material flow. 4. Simplification principle. Simplify handling by reducing, eliminating, or combining unnecessary movement and/or equipment. 5. Gravity principle. Utilize gravity to move material wherever practical.

48. Twenty Principles of Material Handling 6. Space utilization principle. Make optimum utilization of space . 7. Unit size principle. Increase the quantity, size, or weight of unit loads or flow rate. 8. Mechanization principle. Mechanize handling operations.

49. Twenty Principles of Material Handling 9. Automation principle. Provide automation to include production, handling, and storage functions. 10. Equipment selection principle. In selecting handling equipment, consider all aspects of the material being handled.

50. Twenty Principles of Material Handling 11. Standardization principle. Standardize handling methods as well as types and sizes of handling equipment. 12. Adaptability principle. Use methods and equipment that can best perform a variety of tasks and applications where special purpose equipment is not justified.