Material management is a scientific technique, concerned with Planning, Organizing & Control of flow of materials, from their initial purchase to destination.
Inventory generally refers to the materials in stock. It is also called the idle resource of an enterprise. Inventories represent those items, which are either stocked for sale or they are in the process of manufacturing or they are in the form of materials, which are yet to be utilized.
MATERIALS MANAGEMENT FUNCTIONS &
PRODUCTION & OPERATION
INVENTORY CONTROL :
Static & Dynamic models
Inventory control under constrains
Store functions & records
Spares parts and in- process inventory
Fundamental of supply chain management
It is concerned with planning, organizing and
controlling the flow of materials from their initial
purchase through internal operations to the service
point through distribution.
Material management is a scientific technique,
concerned with Planning, Organizing & Control of
flow of materials, from their initial purchase to
AIM OF MATERIAL MANAGEMENT
1. The Right quality
2. Right quantity of supplies
3. At the Right time
4. At the Right place
5. For the Right cost
PURPOSE OF MATERIAL MANAGEMENT
•To gain economy in purchasing
•To satisfy the demand during period of replenishment
•To carry reserve stock to avoid stock out
•To stabilize fluctuations in consumption
•To provide reasonable level of client services
The functions of materials management
can be categorized in the following ways:
(as shown in Fig.)
1. Material Planning and Control
3. Stores Management
4. Inventory Control or Management
7. Value Analysis
9. Just-in-Time (JIT)
1.Materials planning and control: Based on the sales forecast
and production plans, the materials planning and control is done.
This involves estimating the individual requirements of parts,
preparing materials budget, forecasting the levels of inventories,
scheduling the orders and monitoring the performance in relation
to production and sales.
2.Purchasing: This includes selection of sources of supply
finalization in terms of purchase, placement of purchase orders,
follow-up, maintenance of smooth relations with suppliers,
approval of payments to suppliers, evaluating and rating
3.Stores management or management: This involves physical
control of materials, preservation of stores, efficient handling,
maintenance of stores records, proper location and stocking etc.
A store plays a vital role in the operations of a company.
4. Inventory control or management: Inventory generally refers
to the materials in stock. It is also called the idle resource of an
enterprise. Inventories represent those items, which are either
stocked for sale or they are in the process of manufacturing or
they are in the form of materials, which are yet to be utilized.
5. Other related activities
(i) Standardization: Standardization means producing maximum
variety of products from the minimum variety of materials, parts,
tools and processes. It is the process of establishing standards or
units of measure by which extent, quality, quantity, value,
performance etc. may be compared and measured.
(ii) Simplification: It is a process of product analysis through
which unnecessary varieties and designs are eliminated.
In simple words “It is the process of reducing variety of a product
by limiting product range, design or type of material.”
(iii) Specifications: It refers to a precise statement
that formulizes the requirements of the customer. It
may relate to a product, process or a service.
(b) Value analysis: Value analysis is concerned with
the costs added due to inefficient or unnecessary
specifications and features. It makes its contribution
in the last stage of product cycle, namely, the
(c) Ergonomics (Human Engineering): The human
factors or human engineering is concerned with man-
Standardization means producing maximum variety
of products from the minimum variety of materials,
parts, tools and processes. It is the process of
establishing standards or units of measure by which
extent, quality, quantity, value, performance etc.,
may be compared and measured.
Advantages of Standardization
1. Better quality products.
2. Better methods and tooling.
3. Better utilization of manpower and equipment.
4. Accurate delivery dates.
5. Better services of production control, stock control,
6. Increased margin of profit.
7. Better product delivery.
8. Easy availability of sales part.
9. Less sales pressure of after-sales services.
10. Better inspection and quality control is possible.
11. Quality standards can be defined more clearly.
12. Operators become familiar with the work and
produce jobs of consistent quality.
13. Work study section is benefited with efficient break
down of operations and effective work measurement.
14. Costing can obtain better control by installing
15. Reduced reductions and scrap.
16. Helps supervisors to run his department efficiently
Disadvantages of Standardization
1. Reduction in choice because of reduced variety and
consequently loss of business or customer.
2. Standard once set, resist change and thus
standardization may become an obstacle to progress.
3. It tends to favour only large companies.
4. It becomes very difficult to introduce new models
because of less flexible production facilities and due to
high cost of specialized production equipment.
Simplification is a process of product analysis
through which unnecessary varieties and designs
In simple words “It is the process of reducing
variety of a product by limiting product range,
design or type of material.”
Simplification offers boost to standardization.
Let us understand it by an example:
The technology for color TV is available to its
manufacturers. They can manufacture TV set of any
size from palm size to big-screen. But normally, 14",
15", 16", 18", etc., are the fixed sizes. Why not to
have 14.01", 14.02". 14.03"..., as the variety to a
customer. The answer is simplification in marketing,
manufacturing and planning.
The marginal difference in size or specification does
not offer real change in attributes, which may be
termed as variety. Therefore, simplification is needed
in product development.
Advantages of Simplification
1. Simplification involves fewer parts, varieties and
changes in products; this reduces manufacturing operations
and risk of obsolescence.
2. Simplification reduces variety. Hence volume of
remaining products may be increased.
3. Simplification provides quick delivery and better after-
4. Simplification reduces inventory and thus results in
better inventory control.
5. Simplification lowers the production costs.
6. Simplification reduces price of a product.
7. Simplification improves product quality
Purchasing is an important function of materials
management. In any industry purchase means buying
of equipment, materials, tools, parts etc. required for
industry. The importance of the purchase function
varies with nature and size of industry. The moment a
buyer places an order he commits a substantial portion
of the finance of the corporation which affects the
working capital and cash flow position. He is a highly
responsible person who meets various salesmen and
thus can be considered to have been contributing to the
public relations efforts of the company. Thus, the buyer
can make or mar the company’s image by his excellent
or poor relations with the vendors.
Objectives of Purchasing :
The basic objective of the purchasing function is to ensure
continuity of supply of raw materials, sub-contracted items and
spare parts and to reduce the ultimate cost of the finished
goods. In other words, the objective is not only to procure the
raw materials at the lowest price but to reduce the cost of the
The objectives of the purchasing department can be outlined as
1. To avail the materials, suppliers and equipments at the
minimum possible costs:
These are the inputs in the manufacturing operations. The
minimization of the input cost increases the productivity and
resultantly the profitability of the operations.
2. To ensure the continuous flow of production through
continuous supply of raw materials, components, tools etc. with
repair and maintenance service.
3. To increase the asset turnover: The investment in the
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.
4. 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 the
5. To establish and maintain the good relations with the
suppliers: Maintenance of good relations with the supplier
helps in evolving a favourable image in the business circles.
Such relations are beneficial to the buyer in terms of
changing the reasonable price, preferential allocation of
material in case of material shortages, etc.
6. To train and develop the personnel: Purchasing department
is manned with varied types of personnel. The company should
try to build the imaginative employee force through training and
7. Efficient record keeping and management reporting: Paper
processing is inherent in the purchase function. Such paper
processing should be standardized so that record keeping can be
facilitated. Periodic reporting to the management about the
purchase activities justifies the independent existence of the
The following information is available from the record of the
incoming material department of ABC Co. Ltd.
The factor weightage for quality, delivery and price are 40%,
35% and 25% as per the decision of the mar. Rank the
performance of the vendors on the QDP basis interpret the
VENDER RATING ILLUSTRATIONS
What is Inventory
Inventory is stores of good and services
Generally inventory item is called as shop
keeping item that item is Raw material,
finished product, work in process and
Shop keeping item is held at point called as
Inventory control is activities that maintain
shop keeping item at desired level.
Period over which demand for Q has
Fig . Q/R inventory system
To establish an Inventory system is to keep count of every item
issued from inventory and place an order for more stock when
inventories reached to a predetermined level i.e. reorder level
What is the decision to select EOQ?
There is a tradeoff between holding costs and ordering costs
Economic Order Quantity - EOQ
Assume a car dealer that faces demand for 5,000 cars per year, and that it costs
$15,000 to have the cars shipped to the dealership. Holding cost is estimated at
$500 per car per year. How many times should the dealer order, and what
should be the order size?
If delivery is not instantaneous, but there is a lead
When to order? How much to order?
ROP = LxD
If demand is known exactly, place an order when
inventory equals demand during lead time.
D: demand per period
L: Lead time in periods
Q: When shall we order?
A: When inventory = ROP
Q: How much shall we order?
A: Q = EOQ
What if the lead time to receive cars is 10 days? (when
should you place your order?)
D =R =
5000 = 137
So, when the number of cars on the lot reaches 137, order 548
Since D is given in years, first convert: 10 days = 10/365yrs
But demand is rarely predictable!
order Lead Time
ROP = ???
Inventory at time of receipt
Lead TimeLead Time
Actual Demand < Expected Demand
Lead Time Demand
Lead TimeLead Time
If Actual Demand > Expected, we Stock Out
To reduce stockouts we add safety stock
Lead TimeLead Time
Q = EOQ
Total Cost = Purchasing Cost + Ordering Cost + Inventory Cost
Purchasing Cost = (total units) x (cost per unit)
Ordering Cost = (number of orders) x (cost per order)
Inventory Cost = (average inventory) x (holding cost)
Example: An auto parts supplier sells Hardy-brand batteries to car
dealers and auto mechanics. The annual demand is approximately
1,200 batteries. The supplier pays $28 for each battery and estimates
that the annual holding cost is 30 percent of the battery's value. It
costs approximately $20 to place an order (managerial and clerical
costs). The supplier currently orders 100 batteries per month.
a. Determine the ordering, holding, and total inventory
costs for the current order quantity.
b. Determine the economic order quantity (EOQ).
c. How many orders will be placed per year using the
d. Determine the ordering, holding, and total inventory costs for
the EOQ. How has ordering cost changed? Holding cost? Total
annual demand: D = 1200 batteries per year
item cost: c = $28 per battery
holding cost: H = ic = 0:30(28) = $8:40 per battery per year
order cost: S = $20 per order
current order quantity: Q = 100 batteries
All facilities, functions, and activities associated
with flow and transformation of goods and
services from raw materials to customer, as well
as the associated information flows
It is an integrated group of processes to “source,”
“make,” and “deliver” products
Supply Chain Management - Introduction
Supply chain management deals with linking the organizations
within the supply chain in order to meet demand across the
chain as efficiently as possible
Why is supply chain management so important?
To gain efficiencies from procurement, distribution and logistics
To reduce transportation costs of inventories
To meet competitive pressures from shorter development times, more
new products, and demand for more customization
To meet the challenge of globalization and longer supply chains
To manage the complexities of supply chains
To manage the inventories needed across the supply chain
Supply Chain Management - Introduction
Strategic, tactical and operating issues
Strategic - long term and dealing with supply chain design
Determining the number, location and capacity of facilities
Make or buy decisions
Forming strategic alliances
Tactical - intermediate term
Determining inventory levels
Operating - near term
Production planning and control decisions
Goods and service delivery scheduling
Some make or buy decisions
Whirlpool company is related to the household appliances facing
problem of inventory quantities were it is either low or high. In every
way, supply chain fail to meet the expectations
In study it is found that the availability rate of product at right place at
the Right time was 83% in 2000
At that time company facing competitive Disadvantage
To remedy these extensive problems, the Whirlpool supply chain
management and IT teams took on the massive task of replacing their
myriad production scheduling and distribution systems with a
streamlined, standardized solution. The new system had a central
platform for master scheduling, inventory planning and deployment
planning, plus collaborative tools for forecasting and replenishment.
Whirlpool was able to reduce forecasting errors by 50% and inventories
of finished appliances by more than 20%, while saving 5% on
warehouse and transportation costs. Furthermore, its overall availability
rate rose from 83% to 93%, and reached 97% within five years of