Material Management

Chapter 6
Material
Management
8 Marks
Sagar Vetal | E & TC Dept. | GGSP

Topics
> Material Management
> Inventory Management
> ABC Analysis
> Economic order qunatity(EOQ)
> Purchacing
> Modern techniques of material management
(MRP, ERP)

Material Management is the process of planning,
purchasing, receiving, storing and providing the
appropriate material with right quality, right
quantity, at right place in the right time
Material Management

• To maintain steady flow of material for uninterrupted
production
• To ensure consistancy of quality and quantity of material
• To maintain record of purchase, storage, and supply
materials
• To preserve materials material in stock in order avoid
pilferage, deterioration, and theft
• To achieve economy in cost of material by using different
techniques like JIT, Kaizen, ABC analysis, etc.
• To reduce operating cost by eliminating wastage
Objectives of Material
Management

Functions of Material
Management
• Material planning: Estimating demand and quality required and
preparing material budget
• Market research for purchase
• Purchasing: Selecting right method of purchasing, choosing right
source, Placing order, follow up
• Depeloving reliable suppliers
• Procurement: It refers to quality check, inspection and testing of
parchased material
• Store management: conservation of materials in store, efficient
handling, proper stocking and maintaining store record
• Inventory control: Timely availability of materials at min. cost
• Value analysis of costly material
• Packaging
• Waste management

Inventory
Inventory is a detailed list of all kinds of goods
handled by business.

Different types of
Inventory
1. Raw Material:
- It includes raw material, semi-finished component,
standard sub-assemblies puchased from suplliers.
2. Work in Progress:
- All materials at various machines on shop floor.
- It include products at various stages of production, semi-
finished products
3. Finished goods
4. Indirect Material:
- Tools, spare parts
- Consumables like lubricants, stationary etc.

Inventory Management
Inventory management is the process of ensuring
that a company always has the products it needs
and that it keeps costs as low as possible.

Objectives of Inventory
Management
1. Operational Objectives
i. Service to customer: Prompt supply to customer
ii. Continuity of productive operations
iii. To avoid excess inv enventory
2. Finacial Objectives
i. Effective use of capital
ii. Economy in buying
3. Property protection objectives
i. To keep inventory safe against wastage, damage and
theft
ii. To minimize losses due to deterioration and
obsolescence(uselessness)

ABC analysis

ABC Analysis

ABC Analysis
In ABC analysis all purchased items are classified in different
categories.
Classof
Item
%of
totalcost
%ofTotal
numberof
items
Purchase
Rate
Fund
Allocation
Importance
A 80 20 Frequent Highest Highest
B 15 30 Intermediate Medium Medium
C 5 50 Infrequent Lowest Lowest

Steps of ABC Analysis
1. Prepare the list of all consumed
items
2. Sort the list as per their value
3. Saperate and count the number of
coslty, medium and low valued items
4. Find out % of high, medium and low
valued items
5. Plot the graph, % of items against
percent of annual consumption cost

Advantages of ABC
Analysis
▧ Costly , medium and lowest priced items can be
easily identified
▧ Helps managers to have selective control and
focus attention only on important items
▧ Provides a tool to decide frequency of purchasing
▧ Provides a tool to decide volume of pruchasing
▧ Results in reduction of inventory cost

Disadvantages of ABC
Analysis
▧ Costly items gets more importance and lowest cost items
gets less importance, it may be item may not be costly
but it may be critical for production
▧ Seasonal variations of have no consideration in the
analysis
▧ Periodic reviews and reports becomes difficult because of
the item cost variation

Economic Order Quantity
(EOQ)
Economic order quantity (EOQ) is the order
quantity of inventory that minimizes the total cost of
inventory management.

Economic Order Quantity (EOQ)

Advantages of EOQ
▧ Unnecessary storage of the raw material is
avoided
▧ EOQ avoids running out of stock
▧ Ensures pre-decided delivery dates
▧ EOQ avoids effects like proce fluctuations and
shortage of material in the market
▧ Material shortage and excess material situation
can be avoided

Purchasing

Purchasing is the procurement of material,
supplies, machine tools and services
required for equipment maintenance and
operation of a manufacturing plant.
Purchasing

Receiving
Purchasing
material
Selection
of Supplier
Issue of
Order
Follow up
with
Supplier
Receiving
goods
Inspections
and
Testing
Storage
and record
keeping
Payments
Steps in Purchasing

Direct on Line(DOL)
Product from suppliers get directly
unloaded directly at the production shop
and the subassemblies go into the final
assembly. This is known as “Just in
Time” technique. Such suppliers said to
have “Direct on line (DOI) status”

Modern Techniques of Material
Management
MRP
ERP

Material Resource Planning
(MRP)
The material resource planning(MRP) system
provides the information about when to order and
how much to order.
Types of Orders
1. Dependent order (1 bike 2 tires)
2. Independent order (tools, spares of machinery, etc.)
• Forecasting needed

Functions of MRP:
• Forecast of material requirement
• Avoid extreme situations
• Reducing waste
• Economy in buying
• Deciding when to buy
• Floor control and scheduling

Inputs of MRP:
• Master Production
schedule
• Bill of the material
• Inventory Record
Output of MRP:
• Reports
• Purchase order
• How much to buy
• When to buy

Enterprise Resource Planning (ERP)

To have standardization, simplicity and
uniformity of databases, companies go for
integrated database systems, Such systems
are known as ERP software systems.

Module

Implementation of ERP
Selection of
ERP service
provider
Planning and
requirements
analysis
Design Detail design
Testing and
implementati
on
Maintenance

Material Management

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