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Material management & Inventory control

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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.

Published in: Engineering
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Material management & Inventory control

  1. 1. Presented By: Dushyant kalchuri M.TECH(PRODUCTION ENGG.) DEPARTMENT OF MECHANICAL ENGINEERING MATERIALS MANAGEMENT FUNCTIONS & INVENTORY CONTROL PRODUCTION & OPERATION MANAGEMENT
  2. 2. CONTENTS -  MATERIALS MANAGEMENT FUNCTIONS : Standardization Simplification Purchasing  INVENTORY CONTROL : Static & Dynamic models Selective Control Inventory control under constrains Store functions & records Spares parts and in- process inventory Fundamental of supply chain management
  3. 3. 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. OR Material management is a scientific technique, concerned with Planning, Organizing & Control of flow of materials, from their initial purchase to destination.
  4. 4. AIM OF MATERIAL MANAGEMENT To get: 1. The Right quality 2. Right quantity of supplies 3. At the Right time 4. At the Right place 5. For the Right cost
  5. 5. 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
  6. 6. The functions of materials management can be categorized in the following ways: (as shown in Fig.) 1. Material Planning and Control 2. Purchasing 3. Stores Management 4. Inventory Control or Management 5. Standardization 6. Simplification 7. Value Analysis 8. Ergonomics 9. Just-in-Time (JIT)
  7. 7. SCOPE OR FUNCTIONS OF MATERIALS MANAGEMENT : F
  8. 8. 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 suppliers. 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.
  9. 9. 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 (a) 3S (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.”
  10. 10. (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 maturity stage. (c) Ergonomics (Human Engineering): The human factors or human engineering is concerned with man- machine system.
  11. 11. 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.
  12. 12. 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, purchasing, etc. 6. Increased margin of profit. 7. Better product delivery. 8. Easy availability of sales part. 9. Less sales pressure of after-sales services.
  13. 13. 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 standard costing. 15. Reduced reductions and scrap. 16. Helps supervisors to run his department efficiently and effectively
  14. 14. 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.
  15. 15. SIMPLIFICATION : Simplification 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.” Simplification offers boost to standardization.
  16. 16. EXAMPLE 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.
  17. 17. 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.
  18. 18. 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- sales services. 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
  19. 19. PURCHASING : 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.
  20. 20. 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 final product. The objectives of the purchasing department can be outlined as under: 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.
  21. 21. 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 emergencies. 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.
  22. 22. 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 development. 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 department.
  23. 23. Parameters of Purchasing :
  24. 24. Purchasing Procedure :
  25. 25. 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 result. VENDER RATING ILLUSTRATIONS
  26. 26. 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 supplies.  Shop keeping item is held at point called as stock point.  Inventory control is activities that maintain shop keeping item at desired level.
  27. 27. Inventory system Time Total Time Period over which demand for Q has occurred Q Inventory position R 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
  28. 28. A Fixed Interval Inventory Reorder System
  29. 29. What is the decision to select EOQ? There is a tradeoff between holding costs and ordering costs Order Quantity (Q*) Cost Total cost Holding costs Ordering costs
  30. 30. Economic Order Quantity - EOQ Q* = 2SD H Example: 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? 548 500 )000,5)(000,15(2* Q
  31. 31. Receive order Time Inventory Order Quantity Q Place order Lead Time If delivery is not instantaneous, but there is a lead time L: When to order? How much to order?
  32. 32. ROP = LxD Receive order Time Inventory Order Quantity Q Place order Lead Time Reorder Point (ROP) 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
  33. 33. Example (continued)… What if the lead time to receive cars is 10 days? (when should you place your order?) 10 365 D =R = 10 365 5000 = 137 So, when the number of cars on the lot reaches 137, order 548 more cars. Since D is given in years, first convert: 10 days = 10/365yrs
  34. 34. TimeTime InventoryInventory LevelLevel OrderOrder QuantityQuantity But demand is rarely predictable! Demand??? Receive order Place order Lead Time ROP = ???
  35. 35. XX Inventory at time of receipt ReceiveReceive orderorder TimeTime InventoryInventory LevelLevel OrderOrder QuantityQuantity PlacePlace orderorder Lead TimeLead Time Actual Demand < Expected Demand ROP Lead Time Demand
  36. 36. Stockout Point Unfilled demand ReceiveReceive orderorder Time Inventory OrderOrder QuantityQuantity PlacePlace orderorder Lead TimeLead Time If Actual Demand > Expected, we Stock Out
  37. 37. To reduce stockouts we add safety stock ReceiveReceive orderorder TimeTime PlacePlace orderorder Lead TimeLead Time Inventory Level ROP = Safety Stock + Expected LT Demand Order Quantity Q = EOQ Expected LT Demand Safety Stock
  38. 38. Inventory cost 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)
  39. 39. 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 EOQ? d. Determine the ordering, holding, and total inventory costs for the EOQ. How has ordering cost changed? Holding cost? Total inventory cost?
  40. 40. Solution: 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
  41. 41. Supply Chain management
  42. 42. Supply Chain  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
  43. 43. Supply Chain Processes
  44. 44. 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
  45. 45. Supply Chain Management - Introduction Supplier Supplier Supplier Storage} Mfg. Dist. Retailer CustomerStorage Supplier Supplier Storage } Service Customer
  46. 46. Supply Chain Management - Introduction Yarn Zippers Factory 1 Factory 2 Factory 3 Factory 4 Factory 5 The Customer (Retailer) Yarn Dying & Weaving
  47. 47. 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  Quality-related decisions  Logistics decisions  Operating - near term  Production planning and control decisions  Goods and service delivery scheduling  Some make or buy decisions
  48. 48. Case study  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 implementation.

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