Material Management System

Semester Project
Materials
Management System
for Organizations

Material Management System
Prepared By:
Student Name: Mohammad Asif Khan
Student ID: MB-2-05-51271
Semester: Fall-2015
Campus: PAF-KIET (City Campus)

Materials Management
Material management is an approach for
planning, organizing, and controlling all
those activities principally concerned
with the flow of materials into an
organization

Objectives:
The fundamental objectives of the Materials Management
function ,often called the famous 5 Rs of Materials
Management, are acquisition of materials and services:
• of the right quality
• in the right quantity
• at the right time
• from the right source
•at the right price

From the management point of view , the key
objectives of Material Management are :
•To buy at the lowest price , consistent with desired quality
and service
•To maintain a high inventory turnover , by reducing excess
storage , carrying costs and inventory losses occurring due
to deteriorations , obsolescence and pilferage
•To maintain continuity of supply , preventing interruption
of the flow of materials and services to users
•To maintain the specified material quality level and a
consistency of quality which permits efficient and effective
operation.

•To develop reliable alternate sources of supply to
promote a competitive atmosphere in performance and
pricing
•To minimize the overall cost of acquisition by
improving the efficiency of operations and procedures
•To hire, develop, motivate and train personnel and to
provide a reservoir of talent

•To develop and maintain good supplier relationships
in order to create a supplier attitude and desire furnish
the organization with new ideas , products, and better
prices and service
•To achieve a high degree of cooperation and
coordination with user departments
•To maintain good records and controls that provide an
audit trail and ensure efficiency and honesty
•To participate in Make or Buy decisions

Scope of Materials Management:
Basically, under its scope are :
•emphasis on the acquisition aspect
•inventory control and stores management
•material logistics, movement control and handling
aspect
•purchasing, supply , transportation , materials
handling etc
•supply management or logistics management
•all the interrelated activities concerned with materials

Sub Functions of Material Management:
The broad materials function has the following as
identified and interlinked sub functions:
•Materials planning and control:
•Purchasing:
•.Stores:
•Inventory control:

PROCEDURE FOR MATERIAL
PROCURMENT AND USE:
Although production processes and materials
requirements vary according to the size and type of
industry, the cycle of procurement and use of materials
usually involves the following steps:

PROCEDURE FOR MATERIAL
PROCURMENT AND USE
•Engineering, Planning and Routing:
•The Production Budget:
•The Purchase Requisition:
•The Purchase Order:
•The Receiving Report:
•The Materials Requisitions:
•The Material Ledger Cards:

PROCEDURE FOR MATERIAL PROCURMENT AND
USE:

PURCHASES OF PRODUCTIVE MATERIALS:
POURCHASE DEPARTMENT:
The purchasing department is responsible to:
•Receive purchase requisitions for materials, supplies,
and equipment;
•Keep informed concerning sources of supply, prices
and shipping and delivery schedules;
•Prepare and place purchase orders, and
•Arrange the purchasing, the receiving, and the
accounting departments.

PURCHASES OF PRODUCTIVE MATERIALS
Purchasing Forms
Purchase Requisition:
The purchase requisition originates with:
•A stores or warehouse clerk, who observes that the
quantity on hand is at a set ordering minimum,
•A materials ledger clerk, who may be responsible for
notifying the purchasing agent when to buy,

•A works manager, who foresees the need for
materials or unusual quantities
•A research, engineering or other department
employee or supervisor who needs materials or
supplies of special nature, or
•An information system that has been installed or
developed to produce replenishment advice for the
purchasing department.
•One copy remains with the originator, and the
original is sent to the purchasing department.

The purchase order, signed by is a written
authorization to a vendor to supply specified quantities
of described goods at agreed terms and at designated
time and place.
The purchase order gives the vendor a complete
description of the goods and services described the
terms, the prices, and the shipping instructions.
Purchase Order:

Specimen of Purchase Order

Receiving:
The fundamentals of the receiving department
are to:
•Unload and unpack incoming materials,
•Check quantities received against the shipper’s
packing list,
•Identifying goods received with descriptions on the
purchase order,

Receiving:
•Notifying the purchasing department of
discrepancies disco…….,
•Arrange for inspection when necessary,
•Notifying the traffic department and the
purchasing department of any damage in transit,
and
•Route accepted materials to the appropriate
factory location.

•Receiving:•Receiving:
Specimen of Receiving

ISSUING AND COSTING OF MATERIALS
To control the quantity and cost of materials, supplies, and
services requires a systematic and efficient system of
purchasing, recording, and storing. Equally necessary is a
systematic and efficient procedure for issuing materials
and supplies.

Material Requisition:
The materials requisition is a written order to the
storekeeper to deliver materials or supplies to the
place designated or to give the materials to the
person presenting a properly executed requisition.

SPECIMEN OF MATERIAL REQUISITION

Material Requisition Journals:
Material Requisitioned Journal is necessary to post
the materials withdrawals from the store. The journal
is form of materials summary. At the end of the
month, the totals of the various columns are posted
directly to the ledger accounts.

Bill of Materials:
The bill materials, a kind of master requisition, are a
printed or duplicated form that lists all materials and
parts necessary for a typical job or production run.
Time is saved and efficiency is promoted through the
use of a bill of materials. When a job or production
run is started, all the materials listed on the bill of
materials are sent to the factory are issued on a pre
arranged time schedule.

Just-In-Time Inventory Procedures:
Manufacturing processes are increasingly being based
on the receipt of raw materials from suppliers “Just-In-
Time” for their use on the plant floor.
When a firm’s raw materials can be handled in this
immediate use mode, the traditional storeroom,
receipt, storage and issuance procedures are
abbreviated. Storage, except for brief periods directly
on the plant floor is eliminated. Receipt and issuing
documentation can be combined. As a result, there is
saving in paperwork and, more importantly a savings
in inventory investment, storage and handling.

Material Ledger Card:
Perpetual Inventory:
In perpetual inventory system, an entry is made each
time the inventory is increased or reduced.
Materials ledger cards or stock ledger sheets constitute
a subsidiary materials ledger controlled by the
materials or inventory accounts in the general ledger.
Materials ledger cards commonly show the account
number, description or type of material, location, unit
measurement, and maximum and minimum quantities
to carry.

Physical Inventory:
The alternative to a perpetual inventory system is the periodic
inventory system, whereby purchases are added to the
beginning inventory, the ending (remaining) inventory is
considered the cost of material issued.
Regardless of whether a periodic or a perpetual inventory
system is used, periodic physical counts are necessary to
discover and eliminate discrepancies between the actual
count and the balances on materials ledger cards.
These discrepancies may be due to errors in transferring
invoice data to the cards, mistakes in costing requisitions,
unrecorded invoices or requisitions or spoilage, breakage and
theft.

Specimen of Material Ledger Card

MATERIAL COSTING METHODS
The ultimate objective of material management is to
produce accurate and meaningful figures of the cost
of goods sold for cost accounting.
The figures can be used for purpose of control and
analysis and are eventually matched against revenue
produced in order to determine operating income.
The more common methods of costing materials
revenue produced in order to determine operating
income.

The more common methods of costing materials
issued and inventories are:
•First-In-First-Out (FIFO)
•Average Costing
•Last-In-First-Out (LIFO)
•Other Methods-such as
oMarket Price at date issue, or Last purchase price,
oStandard Cost

First-In-First-Out (FIFO) Method of Costing:
The FIFO method is recommended whenever:
•The size and cost of materials units are large,
•Materials are easily identified as belonging to a
particular purchased lot, and
•Not more than how two or three different receipts of
the materials are on a materials card at one time.

First-In-First-Out (FIFO) Method of Costing:

Average Costing Method:
Issuing materials at an average cost assumes that each
batch taken from the storeroom is composed of uniform
quantities from each shipment in stock at the date of issue.
Average costing may be used even though the physical
withdrawal is in an identifiable order. If materials tend to be
made up of numerous small items low in unit cost and
especially if prices are subject to frequent change, average
costing is advantageous because:

•It is realistic costing method to management in
analyzing operating results and appraising future
production.
•It minimizes the effect of unusually high or more
stable cost estimates for future work.
•It is a practical and less expensive perpetual
inventory system.

Last-In-First-Out (LIFO) Method of Costing:
The last-in-first-out (LIFO) method of costing materials
issued is based on the promise that materials units
issued should carry the cost of the most recent
purchase, although the physical flow may actually be
different. The method assumes that the most recent
cost (the approximate cost to replace the consumed
units) is most significant in matching cost with
revenue in the income determination process.

Last-In-First-Out (LIFO) Method of Costing:

Other Materials Costing Method:
Besides LIFO, FIFO & Average Cost methods of
costing materials units into work in process, various
other methods exist:
•Market Price at Date of Issue or Last Purchase
Price:
•Standard Cost:

•Market Price at Date of Issue or Last Purchase
Price:
Materials precisely standardized and traded on
commodity exchanges such as cotton, wheat, copper,
or crude oil, are sometimes costed in to production at
the quoted price at the date of issue. In effect, this
production substitute replacement cost for experienced
or consumed cost and has the virtue of changing
materials into production at a correct and significant
cost.

Standard Cost:
This method change issued materials at a
predetermined or estimated cost reflecting a normal or
is expected future cost. Receipts and issues of
materials are recorded in quantities only on the
materials ledger cards or in the computer data bank,
thereby simplifying the record keeping and reducing
clerical or data processing costs.

MATERIAL PLANNING AND CONTROL
An inventory planning and control method should
have but one goal that might be expressed in two
ways:
•To minimize total cost, or
•To maximize profit within specified time and
resource allocations.

Planning Materials Requirements:
To plan manufacturing requirements, every stock item or
class of items must be analyzed periodically to:
•Forecast demand for the next month, quarter, or year.
•Determine acquisition lead time.
•Plan usage during the lead time.
•Establish quantity on hand.
•Place units on order.
•Determine reserves or safety stock requirements.

Materials Control:
The control of materials must meet two opposing needs:
•Maintenance of an inventory of sufficient size and
diversity for efficient operations, and
•Maintenance of a financially favorable inventory.

Materials Control Objectives:
A basic objective of materials control is the ability to
place an order at the appropriate time the best source
to acquire the proper quantity at the right price and
quality. Effective inventory control should:
•Provide a supply of required materials and parts
for efficient and uninterrupted operations.
•Provide ample stock in periods of short supply
(seasonal, cyclical, or strike), and anticipate price
changes.

•Store materials with a minimum of handling time
a cost and protect them from loss by fire, theft
elements and damage through handling.
•Keep inactive, surplus, and obsolete items to a
minimum by systematic reporting of product
changes which affect materials and parts.
•Assure adequate inventory for prompt delivery to
customers.
•Maintain the account of capital invested in
inventories at a level consist with operating
requirements and management’s plans.

•Control Principles:
Inventory control systems and techniques should be
based on the following principles:
•Inventory is created by purchasing:
oMaterials and parts, and
oAdditional labor and overhead to process the
materials into finished goods.
•Inventory is reduced through sales and spoilage.
•Accurate sales and production schedule forecasts are
essential for efficient purchasing, handling, and
materials investment.

•Control Principles:
•Management policies, which attempt to balance size and
diversity of inventory, are the greatest factor in
determining inventory investment.
•Ordering materials is a response to forecasts, scheduling
production controls inventory.
•Inventory records alone do not achieve inventory control.
•Control is comparative and relative, not absolute. It is
exercised by people with varying experience and
judgment.
•Rules and procedures guide these individuals in making
evaluations and decisions.

• Warehousing
• Packing
• Traffic
• Shipping
• Statistical Analysis
Organizing for Materials Control:
A materials management department may include
some or all of the following sections:
•Planning and
Scheduling
•Purchasing
•Receiving
•Inspection
•Stores

Material Control Methods:
Materials control methods differ primarily in the care
and cost expanded. Critical items and high-value items
require greater attention than do low-value items.
Control methods include the:
• Order cycling,
•The min-max, and
•Just-in-time

Order Cycling Method or Cycling Review Method:
This method examines periodically (e.g. each 30, 60, or 90
days) the status of quantities on hand of each item or class.
Different companies use different time periods between
reviews and may use different cycles for different types of
materials. High value items and that would tie up normal
operations if out of stock usually require a short review cycle.
On low-cost and non critical items, a longer review cycle is
common, since these materials would be ordered in large
quantities and stock out would not be as costly.

Min-Max Materials:
This method is based on time premise that the
quantities of most stock items are subject to definable
limits. A maximum quantity for each item is
established. A minimum level provides the margin of
safety necessary to prevent stock outs during a
recorder cycle. The minimum level sets the order
point, and the quantity to order will usually bring
inventory to the maximum level.

Just-in-Time Materials Control:
The saving that can result from a minimum inventory investment
and associated carrying costs has led to increasing attention to a
just-in-time (JIT) system. Such a procedure calls for heightened
coordination with suppliers so that materials arrive immediately
prior to their use.
Japanese industry is credited with pioneering this procedure that
is now being used by some U.S. manufacturers. For example,
General Motors has implemented this approach, with a fully
automated JIT parts inventory system.

Selective Control:
The ABC Plan:
Segregation of materials for selective control called
the ABC plan is an analytical approach based upon
statistical averages. The ABC Plan, measures the cost
significance of each materials item.
•A” or High Value, items would be under the tightest control
and the responsibility of the most experienced personnel
•“B” or Medium-Value, items would under the less strict
control as compare to A.
•“C” or Low-Value, items would be under simple physical
controls, such as the bin-system with safety stocks.

CONTROLLING MATERIALS IN PROCESS
Work in process inventory investment is largely determined by
the time necessary for goods to pass through the production
process. The time involved includes:
•Set up time-preparing to run a job on a machine.
•Running time-actually performing the work.
•Queue Time- the amount of time that the job spends waiting
to be worked on.
•Move time-transporting the goods to the next processing
location.
•Wait time-time spent waiting to be moved.

CONTROLLING MATERIALS IN
PROCESS
Controlling Finished Goods:
An accurate sales forecast is the key to effectively
managing finished goods inventories and meeting delivery
dates. This forecast must be communicated to production
control departments in order to develop production
schedules for meeting sales commitments.
To meet customer performances and competition,
many product lines feature a growing array of colors,
sizes, and optional equipment. This results in added
finished goods inventory items and more work in
process inventory. The need for tighter control

Control of Obsolete and Surplus Inventory:
Almost every organization is faced with the problem of
surplus and obsolete inventory at one time or other.
Whatever the many possible reasons for such conditions,
some action is required in order to reduce or eliminate
these items from inventory and free the related capital.
To accomplish a reduction, management should first
make certain that the buildup will not continue due to
present ordering policies, and should then take steps to
dispose of stock.

Control of Obsolete and Surplus Inventory:
Accurate perpetual inventory records showing acquisitions
and issue quantities and dates, as well as periodic review of
the records, are necessary to identify obsolete and surplus
items.
Obsolete inventory usually results from changing a design
or dropping a product. Prompt sale of the inventory for the
first reasonable offer in often the best policy.
.

Reporting on Inventory Control:
Management requires timely information concerning
inventory control efforts. This information should be
reported in a concise, easily understood form.
Quantitative as well as graphic comparisons of actual
and budgeted inventory use to report inventory trend
within the organization.
.

THE IMPACT OF MODERNIZER FACTORY
PROCESSES ON MATERIAL MANAGEMENT
In inventory numbers, factories are moving from
manufacturing processes involving manual and / or
fixed automated systems. The shift is toward flexible
manufacturing system, which consist of an integrated
collection of automated production processes,
automated materials movement, and computerized
system controls to utilize the facilities in the efficient
manufacture of a highly flexible variety of products.
The extent of product variety is constrained by the
need for the products to share certain broad
characteristics that allow grouping within a particular
family of products while maintaining considerable

THE IMPACT OF MODERNIZER
FACTORY PROCESSES ON
MATERIAL MANAGEMENT
Flexible manufacturing systems impact upon and
alter many of the factors that management should
consider in evaluating a system, especially the
planning and control of raw materials and work in
process inventories. The affect of each system-
manual, fixed automation and flexible
manufacturing–on these factors is summarizing as
follows:

FACTORS
MANUAL
SYSTEMS
FIXED
AUTOMATION
SYSTEMS
FLESIBLE
MANUFACTUR
ING SYSTEMS
Number of Kinds of Products Many Only one Several
Viable production volumes Low High Middle
Product Quality Varies Tightly Consistent
Set up times High Very High Short
Learning Curve Effect Substantial Depends on
Degree of
Automation
None
Learning Times (Per Unit) to supply customer
demands
Usually High Moderate Moderately
Low
Direct Labor Cost Total / Per Unit High Low Very Low
Inventories Materials work in Process High High High
Machine Utilization Low High High
Space Requisition Extensive Extensive Moderate
Capital Cost Low High High
Sensitivity to effects of breakdown of single
machine or group of machines
Low High High
Responsiveness to change in demand High Low High

EDP (Electronic Data Processing) For
Material Management:
The preceding descriptions of invoice approval and
payment were for manual operations performed by an
accounts payable clerk or an invoice clerk.
In an electronic data processing (EDP) system, the
computer-to a great extent-replaces the clerk. Upon
receipt of the invoice (the source document), the
accounts payable clerk enters the account distribution
on the invoice. The data are then directly inputted
from the invoice to the computer data bank via a
terminal device. The data are edited, audited, and
merged with the purchase order and the receiving
order data, both of which have been stored in the

The common matching criterion on all documents is
the purchase as all documents is the purchase order
number. Quantities, monetary values (amounts), due
dates, terms and unit prices are matched. When in
agreement, the cost data are entered in the accounts
payable computer file with a date for later payment,
or a printout of a check is transmitted for payment.
Listings in journal form can be produced as needed.

The above proceed are deals with the accounts payable
phase of a purchase transaction of equal importance is the
need for posting the data in quantities and amounts to the
materials inventory file in the EDP system. The information
enters the EDP system from either the invoice or the invoice
or the invoice approval from, which would have to include
all computer necessary data. The internal computer program
updates the materials inventory file. The withdrawal of
materials could also be computerized, so that manual
postings to the materials inventory file, as well as other
manual operations, would be eliminated.

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