2nd MODULE FULL FLEDGE NOTES OF BANGALORE CITY UNIVERSITY MBA 2ND SEMESTER POR PAPER

1. Definition of Productivity
• Productivity is defined as a total output per one unit of a total
input.
• In control management, productivity is a measure of how
efficiently a process runs and how effectively it uses resources.
• Productivity is the quantitative relation between what we produce
and we use as a resource to produce them, i.e., arithmetic ratio of
amount produced (output) to the amount of resources (input).
Productivity can be expressed as: Productivity =Output&Input
• Productivity refers to the efficiency of the production system.
• It is the concept that guides the management of production
system. It is an indicator to how well the factors of production
(land, capital, labor and energy) are utilized.

6. Introduction
Material management is an approach for
planning, organizing, and controlling all
those activities principally concerned with
the flow of materials into an organization.
The scope of Materials Management
varies greatly from company to company
and may include material planning and
control, production planning, Purchasing,
inventory control, in-plant materials
movement, and waste management.

7. What is Materials
Management?
• Coordinating function that balances the
conflicting objectives of marketing,
production, and finance by managing the
flow of Materials.
• Balancing the Resources of the company
with Customer Demand.

8. Role of Materials
Management
• Make the best use of company
resources
• Provide the desired level of customer
service (demand)

9. •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
Purpose of Material Management

10. Objective of material
management
Primary
• Right price
• High turnover
• Low procurement
• & storage cost
• Continuity of supply
• Consistency in quality
• Good supplier relations
• Development of
personnel
• Good information system
Secondary
•Forecasting
•Inter-departmental harmony
•Product improvement
•Standardization
•Make or buy decision
•New materials & products
•Favorable reciprocal relationships

11. Materials management
functions
 Material planning and programming
 Purchasing and outsourcing
 Inventory control
 Storekeeping and warehousing
 Codification

14. Definition of Bidding
• General: Indication of willingness to buy or sell goods or services or
to undertake a task, at a specific price and within a specific
timeframe.
• Contracting: Complete proposal (submitted in
competition with other bidders) to execute
specified job(s) within prescribed time, and not
exceeding a proposed amount (that usually
includes labor, equipment, and materials). The
bid-receiving party may reject the bid, make a
counter offer, or turn it into a binding contract by
accepting it. See also offer and proposal.
• Financial markets: Highest price at which prospective buyers are
willing to buy commodities, foreign exchange, or securities.

15. • Bidding aims at obtaining goods and services
at the lowest prices by stimulating
competition, and by preventing favoritism.
(1)Open competitive bidding (also called
open bidding), the sealed bids are opened
in full view of all who may wish to witness
the bid opening;
(2)Closed competitive bidding (also called
closed bidding), the sealed bids are opened
in presence only of authorized personnel.

18. Vendor Rating
• Vendor Rating (also called: supplier rating)
is a system used by buying organizations
or industry analysts to record, analyze,
rank and report the performance of a
supplier in terms of a range of predefined
criteria, which may include such things as:
Quality of the product or service.

20. Ethics in Purchasing
• Ethics play a major role in procurement
and are considered more important as
technology and consumer behavior
change.
• Being ethical means being in accordance
with the rules or standards for right
conduct or practice, especially the
standards of a profession.

21. Ethical Practices
• An ethics policy
• Confidentiality of information
• Fair and unbiased treatment
• Ethics Training
• Audits
• Integrity: Integrity is the quality of being
honest and having strong moral principles

22. Lead Time
The lead time is the delay applicable for inventory
control purposes. This delay is typically the sum of the
supply delay, that is, the time it takes a supplier to
deliver the goods once an order is placed, and the
reordering delay, which is the time until an ordering
opportunity arises again.
• Lead time is the time that elapses between the placing
of an order (either a purchase order or a production
order issued to the shop or the factory floor) and actually
receiving the goods ordered.
• If a supplier (an external firm or an internal department
or plant) cannot supply the required goods on demand,
then the client firm must keep an inventory of the
needed goods. The longer the lead time, the larger the
quantity of goods the firm must carry in inventory.

23. Purchase requisitions
 Purchase requisitions are a document used
when an employee needs to make a purchase or
an order request on behalf of their company.
 It is a document that is used to inform department
managers or the purchasing officer of the decision
so that the purchasing department can start
the purchasing process.
 The finance team will also use this document to
coordinate reporting procedures with
the accounting department as well.

24. Importance of Purchase
Requisition
• It Initiates the Purchasing Process
• It is a Control Tool
• Protecting the Business
• Centralization of the Procurement
Process

25. Purchase Order
• A purchase order is a source document
used by the purchasing department to
place an order with a vendor or supplier.
• In other words, this is the contract that a
buyer drafts to purchase goods from a
seller.

26. Amendment
• A minor change or addition designed to
improve a text, piece of legislation, etc

27. Purchase Order Amendment
• After a PO has been approved, it is
necessary to record all changes that are
made to the purchase order.
• This is accomplished through the
Purchase Order Amendment process.
• Time, quality, quantity, place, etc

28. Purchase Order Forms
• A purchase order form is a
template used for a
purchase order.
• The purchase order is a
written (or electronic)
document meant to record
business transactions
between a buyer and a
seller.
• The buyer issues the
purchase order, and once
the seller accepts the order,
a legally binding contract
forms between the two
parties.
Buyer
Seller
Purchase Order Number:
Order Information/Item Description
Shipping Address
Shipping Date
Billing Address
Signatures
Order Date
Currency
Payment Method
Delivery Method
Shipping Costs
Which Party is Paying Shipping
Costs
Shipping Information/Tracking
Number
Terms and Conditions
Governing Law

31. © 2011 Pearson Education,
Inc. publishing as Prentice
Hall
Inventory Management
The objective of inventory
management is to strike a balance
between inventory investment and
customer service

32. Inventory
Process
stage
Demand
Type
Number
& Value
Other
Raw Material
WIP
Finished Goods
Independent
Dependent
A Items
B Items
C Items
Maintenance
Repair
Operating
Inventory Classifications

33. © 2011 Pearson Education,
Inc. publishing as Prentice
Hall
Functions of Inventory
1. To decouple various parts of the
production process by covering
delays
2. To protect the company against
fluctuations in demand
3. To provide a selection for
customers
4. To take advantage of quantity
discounts
5. To hedge against inflation

34. Problems Caused by Inventory
• Inventory ties up working capital
• Inventory takes up space
• Inventory is prone to:
– Damage, Pilferage (stealing) and Obsolescence (expiry)
• Inventory hides problems

35. The Material Flow Cycle
Figure 12.1
Input Wait for Wait to Move Wait in queue Setup Run Output
inspection be moved time for operator time time
Cycle time
95% 5%

37. ABC inventory analysis
• ABC inventory analysis is a method used to
classify a business’s stock items into three
categories – A, B and C, based on their value to
the business.
• A items are the most important in terms of the
value they bring a company, whilst C items are the
least valuable.
• The objective of ABC inventory analysis is to help
managers focus their time on their most valuable /
important products and adapt their inventory
control policies accordingly.

38. The 80/20 rule of ABC analysis
• You’re no doubt familiar with the ’80/20 rule’, also
known as the Pareto Principle.
• This rule of thumb can also be applied to inventory
consumption, where 80% of a business’s annual sales
value comes from 20% of its items e.g category A
items. Categories B and C then make up the
remaining 20%.
• How the 20% is split between category B and C items
will vary, based on a business’s product portfolio.
• The graph below shows how ABC analysis conforms
with the Pareto Principle.
• You can see that 20% of the annual sales volume
comes from a small number of A category items, while
a large number of B, C and D items make up the
remaining 20%.

41. VED Analysis
• This is an analysis whose classification is dependent on the
user’s experience and perception.
• This analysis classifies inventory according to the relative
importance of certain items to other items, like in spare parts.
In VED Analysis, the items are classified into three
categories which are:
• Vital – inventory that consistently needs to be kept in stock.
• Essential – keeping a minimum stock of this inventory is
enough.
• Desirable – operations can run with or without this, optional.

42. FSN analysis
• This acronym stands for Fast-moving, Slow-
moving and Non-moving inventory items.
• The purpose of FSN analysis is to consider
quantity, the rate of consumption of products
and how often they are issued or used and to
use this information to guide decisions about
placement in the warehouse (considering
picking and packing to reduce time and
labor), frequency of reordering or even
phasing out of certain items.

44. Definition: Inventory Costs
• Inventory costs are the costs associated
with the procurement, storage and
management of inventory.
• It includes costs like ordering costs,
carrying costs and shortage / stock out
costs.

46. • Ordering cost of inventory refers to the cost
incurred for procuring inventory. It includes cost of
purchase and the cost of inbound logistics. In order
to minimize the ordering cost of inventory we make
use of the concept of EOQ or Economic Order
Quantity.
• Carrying cost of inventory refers to the cost incurred
towards inventory storage and maintenance. The
inventory storage costs typically include the cost of
building rental and other infrastructure maintained to
preserve inventory.
• Shortage or stock out costs and cost of
replenishment are the costs incurred in unusual
circumstances. They usually form a very small part of
the total inventory cost.

47. EOQ MODEL
• Economic order quantity (EOQ) is the ideal
order quantity a company should purchase to
minimize inventory costs such as holding
costs, shortage costs, and order costs.
• This production-scheduling model was
developed in 1913 by Ford W. Harris and has
been refined over time.
• The formula assumes that demand, ordering,
and holding costs all remain constant.

48. EOQ FORMULA
• Retail clothing shop carries a line of
men’s jeans, and the shop sells
1,000 pairs of jeans each year. It
costs the company $5 per year to
hold a pair of jeans in inventory, and
the fixed cost to place an order is $2.
• square root of (2 x 1,000 pairs x $2
order cost) / ($5 holding cost) or
28.3 with rounding.
• The ideal order size to minimize
costs and meet customer demand is
slightly more than 28 pairs of jeans.
• A more complex portion of the EOQ
formula provides the reorder point.

49. Limitations of Using EOQ
• The EOQ formula assumes that consumer
demand is constant.
• The calculation also assumes that both ordering
and holding costs remain constant.
• This fact makes it difficult or impossible for the
formula to account for business events such as
changing consumer demand, seasonal changes in
inventory costs, lost sales revenue due to
inventory shortages, or purchase discounts a
company might realize for buying inventory in
larger quantities.

50. Definition of Safety Stock
• Safety stock is an additional quantity of an item
held by a company in inventory in order to reduce
the risk that the item will be out of stock.
• Safety stock acts as a buffer in case the sales of
an item are greater than planned and/or the
company's supplier is unable to deliver additional
units at the expected time.
• If the company is a manufacturer, a safety stock of
materials could minimize the risk of production
being disrupted.

51. Benefits of safety stocks
• Demand uncertainty
• Lead Time uncertainty

53. Re-Order Point
• The reorder point (ROP) is the level of
inventory which triggers an action to
replenish that particular inventory stock.
• It is a minimum amount of an item which a
firm holds in stock, such that, when stock
falls to this amount, the item must be
reordered.

55. Quantity Discount
• A quantity discount is an incentive offered
to a buyer that results in a decreased cost
per unit of goods or materials when
purchased in greater numbers.
• A quantity discount is often offered by
sellers to entice customers to purchase in
larger quantities.

56. (1) Noncumulative quantity discount;
(2) Cumulative quantity discount
(3) Free merchandise.
Noncumulative quantity discount is based on
a single purchase whereas cumulative
quantity discount is based on purchases
made over time.
Other types of discounts are cash discounts,
trade discounts, and promotional discounts.

57. Total Productive Maintenance
(TPM)
• Total productive maintenance (TPM) is a method of
maintaining and improving the integrity of production
and quality systems through the machines,
equipment, employees and the supporting processes.
• TPM can be of great value and its target is to
improve core business processes.
• The phrase TPM was first used in 1961 by the
Japanese company Denso.
• TPM is especially meant for companies with a lot of
machines that involve high maintenance costs.

58. Features of TPM
• Productivity improvement
• Preventive maintenance concept
• Everyone is responsible
• Multidisciplinary teams
• Continuous improvement
• Perfection

60. Definition
Breakdown maintenance is maintenance
performed on equipment that has broken
down and is unusable. It is based on a
breakdown maintenance trigger. It may be
either planned or unplanned.