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Material Management

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Material Management

  1. 1. Material Management By Amruta S. Sambarekar Dept. Of Pharmaceutics M.Pharm Ist Year M.M.C.P,Belgaum 1
  2. 2. INTRODUCTION  It is an organizational concept, which has the authority & responsibility of all activities, principally concerned with the flow of materials in the organization.  Operations involved in the flow of materials are – Purchasing, Inventory control, Receiving, Storing, Production scheduling & Shipping of finished products.  Hence, material management works in liaison with production, marketing, sales & quality control. 2
  3. 3. Objectives  Maximizing the use of working capital.  Lowering inventory investment & increasing the inventory turnover by cutting the costs related to purchases.  Ensuring cooperation of all departments.  Providing best services to the level of customer’s delight. 3
  4. 4. Functions of material management  Material planning & programming.  Simplification, standardization & value analysis.  Inventory control & management.  Purchasing of materials in desired quantities without delays.  Receiving of incoming materials. Storage, preservation & administration of materials. 4 
  5. 5. Cont…  Transportation (internal & external) & material handling.  Disposing of rejects & obsolete materials.  Improving operation efficiency through training. 5
  6. 6. Materials – Quality & Quantity  For the purchase of raw materials, 4 factors are considered to be essential – - Quality - Quantity - Price RS. - Delivery time. DATE DATE  Optimizing these factors is the essence of the material management. 6
  7. 7. Quality  It is defined as the suitability of an item to accomplish the intended purpose.  A quality standard is the description of an acceptable quality of a particular item. Ex: quality of drugs & excipients is expressed as per the standards of IP, BP, USP, NF, BPC etc.  Raw materials & components should satisfy the following requirements – -Efficiency with which the material can perform its functions. 7
  8. 8. - Cost & estimated life of the material - Power consumption in case of equipment.  The quality of material used has direct relationship with the end use of the product.  In the purchasing context, quality is expressed as the capability of doing a certain thing 8
  9. 9. Quantity  The function of purchasing department is to buy the right quantity.  From inventory point of view, quantity standards are decided on the following parameters – - Maximum inventory - Minimum inventory - Standard order - Reorder point  The quantity is mainly based on the calculation of 9 economic order quantity (EOQ).
  10. 10. Value analysis  Value is defined as the lowest cost paid for reliably providing the required function or service, at the desired time & place with essential quality.  Value analysis is a systematic study of every element for its cost in a part, material or service to make certain that it performs its function at lowest possible cost.  Primary objective of value analysis is to obtain the same quantity of a product & to achieve the required function at a lower possible cost. 10
  11. 11. Benefits  Cost of existing product decrease.  Unnecessary expenditure can be identified & eliminated in products, processes or services.  Import substitution efforts get boosted.  Greater profits accrue. 11
  12. 12. Types  User value: Properties that accomplish use, work or service. Ex: self-sealing tape.  Esteem value: Properties that make the ownership of that object very desirable value. Ex: gold tie-pin.  Cost value: Properties that are the sum of labour, material, overheads & other costs, required for producing that object.  Exchange value: Properties that make the objective possible of being traded for other items. Ex: gold ornaments. 12
  13. 13. Value ratio  Function may be expressed in terms of performance, reliability, appearance etc.  It is expressed as Value = Function Total cost  Once a function is kept constant a value can be improved by the following ways, - Reducing the costs. - Improving the function. 13
  14. 14. Cont… - When function is increased with disproportionately low increase in cost. Unnecessary costs may be due to, - Lack of information - Lack of ideas - Wrong beliefs ,habits and attitudes - Changed circumstances 14
  15. 15. Purchasing – Centralized & Decentralized  Purchasing is an activity of securing the materials, supplies, equipment & services required in the operations of an enterprise.  Purchasing manager is responsible for the effective, efficient & economic operations of the department. 15
  16. 16. Functions Of Purchasing Department  Ordering section places orders with the vendors.  Service section follows the progress of the purchase orders, its shipment by the vendor & its final receipt by the company.  Records-section maintains all records of quotations, costs, purchases etc. - Thus, purchasing involves control, coordination & communication 16
  17. 17. Centralized Purchasing  If a company has production operations at different places & if the nature of operations is similar, then centralized purchasing is preferred,  Advantages: - Invariably an efficient system. - Permits a greater degree of specialization for buying. - Bargaining capabilities are better. - Procuring becomes uniform & consistent materials are procured without price anomalies. - Duplication of efforts is eliminated. - Purchasing procedures & payment of invoices become simple. 17
  18. 18. Decentralized Purchasing  When different branches of a large organization require different types of materials, decentralized purchasing is preferred. Advantages:  Purchasing system, purchasing becomes more flexible & efficient  Procurement is faster.  Purchases made in local place, promotes better public relations. 18
  19. 19. Cont…  Control over purchases is no longer remote. Disadvantages:  Quantity of discounts offered is less & also involves duplication of efforts. 19
  20. 20. Vendor development  Vendor is a person who sells & supplies his products.  An intelligent purchasing process involves the rational selection of sources from which materials can be obtained. Considerable efforts are needed in identifying, developing & evaluating the prospective suppliers.  Factors to be considered in developing a vendor – - Quantity required to be purchased. - Time available for making such purchases. - If the material be required repeatedly or occasionally. 20
  21. 21. Cont…  Volume of the purchase of required materials.  Industry producing the required materials.  Commercial viability of the materials.  For the purchase of items that are of repetitive nature, a detailed evaluation procedure of suppliers is adopted.  For a one-time purchase, elaborate inquiries & evaluation procedures may not be necessary, unless the item is costly & has a high technological content, such as biological products. 21
  22. 22. Stage Name Development Survey stage Identifying the potential 1st sources of suppliers. Seeking information. Provisional vendors list. Enquiry stage Analysis of information in nd standard enquiry format. 2 Accreditation, FDA approval, ISO certification. Personal visits. Negotiations and Quality control specifications, rd clarification, credit, quantity 3 selection stage discounts. Experience and Performance appraisal, Quality, delivery time. 4th evaluation stage 22
  23. 23. Survey stage The following sources are considered for information,  Trade directories  Trade journals  Telephone directories  Supplier’s catalogue  Salesmen Other ways are like exchanging information between purchage departments of other companies, tracing of public tenders and advertisements in the press. A list of possible supplier is drawn and assessed then 23 further.
  24. 24. Enquiry Stage – Selection Of Potential Suppliers • 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. 24
  25. 25. Cont… 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 25
  26. 26. 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.  Finally, a list of approved vendors is drawn and accordingly purchase orders are placed with the approved vendors. 26
  27. 27. 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 o Categorical method o Weighted point method 27
  28. 28. Categorical Method The buyer sets up some category on which the evaluation of the vendor is done are following,  Supplies are as per quantity specified  Delivery as per schedule  Rigorous follow up is not necessary  Solve his raw material problem his own  Willing to accommodate when production schedules are changed suddenly  Helps in emergency  Reasonable pricing 28
  29. 29. Cont…  Each supplier is evaluated and number-score is calculated. The conversion score is as follows, 80-100 points Excellent 70-80 points Very good 60-70 points Good 50-60 points Average 40-50 points Very poor  Method provides an opportunity to discuss the performance with the vendors in clear terms.  Less expensive method. 29
  30. 30. Weighted Point Method  Involves a point rating based on the quality of goods received, the promptness of deliveries made & the quality of the service rendered by the vendor.  The performance of each factor is separately quantified. Quality - 50 points Delivery - 30 points Price - 20 points Total - 100 points 30
  31. 31. Cont… Numbers of lots accepted * Rating points Quality rating = Numbers of lots rejected No. of lots delivered in time Rating Delivery rating = * points Total no. of lots delivered Least offers received Price rating = * Rating points Supplier’s offer 31
  32. 32. 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.  Price is often quantified by terms, best price, lowest price, economic price. 32
  33. 33. Quotations :  It is a kind of an enquiry done to know whether the vendor can supply the desired material and if so, at what price.  They are not the purchase order. They just contain all the details including taxes and many other costs.  The highly used quotation techniques are Spot quotations Floating a limited enquire 33
  34. 34. 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 and takes a spot decision 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. 34
  35. 35. Cont…  A comparative statement helps in studying and comparing a different quotations at a glance. 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 35 # Closed tender or limited tender
  36. 36. Single Tender  It is invited from one reliable supplier, under certain conditions. Applicable to proprietary items, high quality items & also C-items such as clips, pins, pencils, etc., when items are required urgently Open Tender  Used when the value of purchase is high. & when supply sources are not known. Open tenders are very expensive.  It gives wide publicity & is open to any vendor. The vendor has to deposit an earnest money with the 36 tender information & tender number.
  37. 37. Negotiations  It is done to arrive at the mutual understanding through bargaining on the essentials of a contract such as delivery, specifications, prices & terms.  The purpose is for fixing & finalizing prices of materials, terms & conditions.  Negotiations are essential in the following conditions, - Prices are related to large volumes or large value. - Terms & conditions are required for large volumes. - Contract is desired for a longer period. 37
  38. 38. cont….  Variations in quantity to be purchased are possible.  Changes in drawings & specifications are necessary.  When supplies can be obtained from only one source.  Changes in transportation, packaging & delivery points are to be decided. - 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 38
  39. 39. Discounts  Discounts are defined as the cash concessions offered by the vendor in the payment price, on the goods purchased, in order to enhance the volume of business opportunities.  Reasons for offering discounts????? ! When there is a bulk purchase. ! When the bills are cleared immediately. ! And also to maintain the good relation with the buyer 39
  40. 40. Cont…  Cash discount: It is a method of offering discounts discount depending on the time of payment made on the delivery. Payment in days Cash discount % 90 nil 60 1 30 2 Immediate 3 40
  41. 41.  PURCHASE CYCLE 41
  42. 42. 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. 1) 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 Feb 11, 2013 42 Dept of Pharmaceutics
  43. 43. 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 payement - Place of delivery - Delivery period - Gurantee period -Validity of tender Feb 11, 2013 43 Dept of Pharmaceutics
  44. 44. 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. Feb 11, 2013 44 Dept of Pharmaceutics
  45. 45. Quotations & analysis prices and terms, negotiations, finalization 45
  46. 46. Cont… Delivery of materials Checking of invoice Materials & reports, analysis with purchase order Payment made 46
  47. 47. Stores management  Location of stores  Stores layout should be planned to achieve following objectives: Minimum wastage of spaces Maximum ease of operation Minimum other operational costs Minimum handling costs 47
  48. 48. General functions of the stores department  Maintenance of stocks (materials and tools) in stores  Maintenance of hygiene, sanitation and pest control  Maintenance of material handling equipment 48
  49. 49. Specific functions of Stores Department  Receiving, inspecting and recording of raw materials  Arranging for QC of raw materials  Positioning and storage  Issuing and recording  Receiving and dispatching of finished goods 49
  50. 50. Optional functions of Stores Department:  Dispensing, maintenance of weights and measures: A centralized weighing section is recommended which avoids the duplication of weighing facilities  Screening of materials: A material screening section should be constructed in close proximity to the central warehousing area. 50
  51. 51. SALVAGING AND DISPOSAL OF SCRAP AND SURPLUS  The words ‘scrap’ and ‘surplus’ denotes waste and to that extent these account for the loss of profits Mistakes in procurement Wrong planning decisions Wasteful processes in production Inevitable waste during the adjustments of the equipment Overall absence of efficiency. 51
  52. 52. Scrap  Scrap refers to ferrous scrap, which is not related to pharmaceutical industry. Commonly it refers to waste material of all kinds.  The responsibility of disposing scrap and surplus is usually assigned to the purchase department because it has fair idea about the market, price trends. 52
  53. 53. Salvaging  The processing of materials for advantageous use or disposal of company’s property which is no longer economically useful in its present position.  Waste materials are properly collected and stored at one place  Recoverable materials are stored in a scientific way as other items are stored.  Materials are stored in terms of quality or specifications  Waste is investigated for suitability to recover or avoid them. 53
  54. 54. PLANT MATERIAL HANDLING Material handling involves the movement of materials manually or mechanically either individually at a time or in batches within the plant 54
  55. 55. Risks associated with improper handling  Increase in cost of raw materials and finished products  Delay in production schedule and long production cycle  Waste of machine time and personnel time  Increase in in-process inventories  Damage or loss of material and employee safety liabilities  Customers dissatisfaction 55
  56. 56. APPLICATION OF MATERIAL HANDLING EQUIPMENT  Production department: As the cost of labour and cost of the basics have been increasing, there is a chance of squeezing profit margins.  Store department: For the movement and lifting of materials in stores, shuttle car or hand operated mobile trucks are used. 56
  57. 57. FUNCTIONS OF MATERIAL HANDLING  Handling of unit load  Placement of equipment  Appropriate material handling techniques 57
  58. 58. SELECTION OF MATERIAL HANDLING SYSTEMS  Nature of materials to be moved  Plant building and layout  Type of material flow pattern  Type of production  Cost of material handling equipment  Handling costs  Life of equipment 58
  59. 59. MAINTENANCE OF MATERIAL HANDLING EQUIPMENT  Preventive maintenance is one of the best techniques suggested for the material handling equipment. Inspection Repairs Overhaul 59
  60. 60. UNIT LOAD, PALLETISATION AND CONTAINERIZATION It is easier and faster to move a hundred small parts by grouping them into one unit than moving them individually one by one. These are collectively known as Unit-load. 60
  61. 61.  Pallet is one unit load Unit load & palletizaton these are moved to the production department by suitable handling system.  Depending on the types of item to be transferred, a suitable pallet can be designed. for example, items of irregular in shape are liable to be damaged by crushing, for such items, a post pallet is useful. small items can be placed in a wire mesh-box. 02/11/13 61
  62. 62.  Containerization uses  Containerization the principle of unit load. in this system, a big metal container is filled with a number of small products. many such containers are placed on a truck or trailer that is pulled by tractor or truck. such containers can be loaded on railway trailers & transported. 02/11/13 62
  63. 63. TYPES OF MATERIAL HANDLING SYSTEMS  Conveyors  Slides  Fork- lift Trucks  Chute  Cranes  Lifts  Hoists  Tractors and Trailers 63
  64. 64. Conveyors  Belt conveyors are used in transporting containers (bottles) for filling, capping, sealing, labeling, pasting, visual inspection in production of injectables, liquid orals, ointments and jellies.  Other conveyors- Pneumatic conveyor, roller conveyor, slat conveyor, wheel conveyor, apron conveyor, pusher conveyor, bar conveyor and bucket conveyor. 64
  65. 65. Belt conveyors 65
  66. 66. Fork- lift Trucks It consist of forks attached to a column of the truck. fork can be lifted upto the desired height with material(boxes) on them. the material can be stacked at the proper place very close to the roof in warehousing & shinning area. Fork-lift trucks are used for short distance(40 to 70 meters) travel. These are used for indoor applications. 66
  67. 67. Fork- lift Trucks 67
  68. 68. Cranes Cranes are employed for lifting & lowering of bulky items, packages & boxes. these find applications in heavy engineering industry & generally in intermittent type of production. 68
  69. 69. Cranes 69
  70. 70. Slides Chute and Lifts • Slides can be straight, spiral & vibrating, & made up of wood or steel. These transfer small jobs that can slide down under gravity. Vibrating slides transport material up & inclined.(Example,cigar-ette factories ) • Chutes generally deliver the feed material directly onto the conveyor to reach the destination further. Spiral chutes are used for transporting sealed vials from aseptic area to packing section using gravity principle. • Lifts are used to transport material up in multi-storeyed Plants. It is a fast & flexible equipment for floor to floor Travel. 70
  71. 71. Slides Chute and Lifts 71
  72. 72. Tractors and Trailers Three wheeled or four wheeled tractors are employed & fitted with an IC engine drive. These are used for outdoor applications. Trailers are loaded with the material & attached to the tractor. It can be either uncoupled from the tractor or the material can be dumped in respective stations. 72
  73. 73. Tractors and Trailers 73
  74. 74. IMPORTANT QUESTIONS 1. What is HRD ? Explain about personnel training of job spec ification. (Oct ’06, May 11) 2. Explain centralised & decentralised purchase procedure (Oct’06, May 11) 3. Describe the material management in pharmaceutical industries(Oct’09) 4. Explain the various material handling systems & maintainance of material equipments in p’ceutical industries.(May’ 10) 5. Explain personnel training, job specifications , job enlargment & labour welfare. (Oct’09) 6. Explain stores management in p’ceutical industry. (May 10) 74
  75. 75. REFERENCES •CVS Subramanyam, Pharmaceutical Product and Management, Published by- Vallabh Prakashan, Page no :- 260 – 282 •Prof. S.A. Sherlekar, V.S. Sherlekar Modern business organization & Management systems approach, by Himalaya publishing house, 5th edition,–5.58.   75
  76. 76. Thank You 76