material management notes

1. Material Management
Unit-1

2. Definition
• Materials management is a total concept having its
definite organization to plan and control all types of
materials, its supply, and its flow from raw stage to
finished stage so as to deliver the product to
customer as per his requirements in time. This
involves materials planning, purchasing, receiving,
storing, inventory control, scheduling, production,
physical distribution and marketing. It also controls
the materials handling and its traffic.
- The International Federation of Purchasing and
Materials Management

3. Objectives of Materials Management
• The objectives and functions of materials
management can be categorized in two ways
• as follows:
• (I) Primary objectives
• (II) Secondary objectives

4. (I) Primary objectives
• (i) Efficient materials planning
• (ii) Buying or Purchasing
• (iii) Procuring and receiving
• (iv) Storing and inventory control
• (v) Supply and distribution of materials
• (vi) Quality assurance
• (vii) Good supplier and customer relationship
• (viii) Improved departmental efficiency

5. (II) Secondary objectives
• (i) Efficient production scheduling
• (ii) To take make or buy decisions
• (iii) Prepare specifications and standization of materials
• (iv) To assist in product design and development
• (v) Forecasting demand and quantity of materials
requirements
• (vi) Quality control of materials purchased
• (vii) Material handling
• (viii) Use of value analysis and value engineering
• (ix) Developing skills of workers in materials management
• (x) Smooth flow of materials in and out of the organization

6. Functions of Material Management
• (I) Primary Functions To meet the primary
objectives, the primary functions of the materials
management are given as follows:
• (i) Materials Requirements Planning (MRP)
Planning of materials requirements in
manufacturing is a necessary function in any
organization, as inventory of materials involve
about 60% of the total investment of the
organization. The profit earned depends on the
utilization of these materials and reducing the
inventory of the materials.

7. (ii) Purchasing
• The materials management department has to
perform this function of purchasing and
procurement of materials very efficiently. Since
50% to 60% of sales turnover is spent on the
purchase of various materials, the amount of
profit earned on this sales very much depends
how economically the materials are purchased
and utilized in the organization. The profitability
depends on the efficiency by which this particular
function of purchasing and procuring the requisite
materials at appropriate time will be done and its
availability is assured.

8. (iii) Inventory Planning and Control
The modern concept of inventory planning is
that the materials should be purchased and
brought in the stores just before it enters the
production or sold out so that inventory cost is
negligible. The zero inventories are the ideal
planning. There are three types of inventories.
• (i) Raw materials
• (ii) Purchased goods
• (iii) Finished parts and components

9. iv) Ascertaining and Maintaining the Flow and
Supply of Materials
•Distribution of materials requisitioned by the
various production centers and other departments
must be ascertained and its flow and continuity of
supply must be maintained by the materials
management department. Insufficient or zero
inventories many times create9 the situations of
stock-outs and leads to stoppage of production.
Failure of materials handling devices is also
responsible for disruption of material supplies.
Alternatives or emergency supply systems can be
used for assuring production lines to continue

10. (v) Quality Control of Materials
The quality of the product manufactured by the
organization depends upon the quality of the
materials used to manufacture that product. It is
a very important and necessary function of
materials management to purchase the right
quality of materials. The inspection, quality
control, simplification, specification, and
standardization are the activities which are to be
followed for the measurement of quality of the
materials

11. (vi) Departmental Efficiency
The objective of this function is to ensure the
efficiency of the system adopted. If the system and
procedure adopted for materials management are
inefficient or faulty. In order to maintain the things in
proper way as per planning an efficient control is
necessary in the department over each and every
process. Management Information System (MIS) and
feedback control at every stage of working must be
adopted to control and make the management and
employee work as efficiently as possible to achieve
the best results.

12. (vii) Make and Buy Decisions
These types of decisions are the policy decisions of
the management. The capacity of the organization
and the various facility developed by the organization
to manufacture various items is the main objective of
every organization. This is the important planning
activity of every undertaking. But when a company
grows fast, its sales increases at rapid rate then it
becomes an important matter to decide whether the
company should buy the parts and components or
increase and establish its facilities to cope up with
the increased demand and sales.

13. (viii) Forecasting and Planning
Materials requirements planning is based on correct
forecasting of sales and demand of the products in
the market. The market fluctuations are to be
observed to control production of the organization.
The various methods of forecasting are available and
the materials management department can choose
the one which gives the best results to the company.
Forecast of future demand of sales sets the planning
of materials supply. Analytical methods are adopted
for systematic forecasting and planning to procure
the various materials required for production.

14. Integrated Materials Management
Concept
All the materials related activities such as material
planning & indenting, purchase systems & procedure,
variety reduction through standardization &
rationalization, reducing uncertainties in demand &
supply, handling & transportation, inspection, proper
storage & issue of materials to the internal customers,
inventory management, vendor management & finally
disposal of obsolete, surplus & scrap materials etc.
taken together is termed as Integrated Materials
Management

15. INTERGRATED MATERIALS MANAGEMENT
OBJECTIVES
MINIMISATION OF COST
MAXIMISATION OF PROFIT
ATTAINMENT OF THE OBJECTIVES OF THE
ENTERPRISE
PRIMARY SECONDARY
PROVISION OF
MATERIALS
MINIMISATION OF
INVENTORIES
1. Economic
Procurement
2. Proper storage
3. Proper issue &
distribution
1. Inventory Control
2. Movement, storage
accounting
3. Assuring High capital
turnover ratio
1. Location of New sources
of supply
2. Variety reduction &
simplification
3. Standardisation &
Quality control
4. Value Analysis
5. Coordination
6. Development of skill &
Knowledge.

16. Benefit of Integrated Materials Management
– Centralised Authority & Responsibility
– Well coordinated Efforts resulting in
• Better inventory planning
• Faster inventory turnover
• Assured Material availability
• Efficient coordination
• Better communication
• Better Buyer- Supplier relations
• Reduced materials handing costs.
• Smooth flow of materials
• Improved productivity
• Increased profitability

17. Types of Materials
The various types of materials to be managed are:
• (i) Purchased materials: They are raw materials,
components, spare parts, oils, grease, cotton
waste, consumables and tools.
• (ii) Work in process (WIP) materials: These are
semi-finished and finished parts and components
lying on the shop floor.
• (iii) Finished goods: These are the final products
either waiting to be assembled in the assembly
lines or in stores which are stocked for final
delivery waiting to sell.

18. MATERIALS PLANNING
Material planning Is the way of determining the
requirements of raw materials that go Into meeting
the production needs within the economic
investment policies. Factors which affect materials
planning are price trends, business cycles, credit
policy, production capacity, lead times, inventory
levels, working capital, season, communication
system etc. The material planning is based on the
forecast for the end products. Once the demand
forecast Is made, it is possible to go through the
exercise of materials planning.

19. Definition of Materials Planning
Materials' planning is the scientific way of
determining the requirements of raw materials,
components, spars and other items that go into
meeting production needs within the economic
investment policies. Thus, by definition, it
follows that the materials planning function is a
sub- system in the overall planning activity. The
factors which affect materials planning can be
classified in two categories -macro factors and
micro factors.

20. Macro factors :
Mr.P.L. Tandon of the reserve bank of India has given guidelines for
inventory levels of raw materials, stock in process, finished goods as
well as for receivables and bills purchased and discounted. Industry
wise details are furnished. Which is an extract of the famous tendon
committee reports of 1975. Macro factors are also known as external
factors. Some of the macro factors are discussed below:-
I) National economy: - this is measured by gross domestic production
in which production of all sectors is added up by central statistical
organization. It is one of the indicatory of the health of the economy.
II) Price trend: - This follows law of demand and supply.
III) Monetary and fiscal policies of government: - A) credit regulation,
B) guidelines, imported comes under the open general license or a
need for license, thought, with liberalization, this constraint is relaxed
to some extent.
IV) Business cycles: - These are the of recession or inflation in world
economy.

21. Micro factors :-
• The materials planner also has to take various
factors into account at micro-level. They
include corporate objectives, plant capacity
utilization, rejection rates, lead times,
inventory levels, working capital, seasonality,
delegation of powers, and communication
system.

22. Importance of materials planning:-
Planning and control forms the core managerial
function. Hence, materials planning and budgeting is
given a prominent place in the integrated materials
managements set-up. This is so because planning for
materials and working out a realistic not only help
motivate people but also serve as a control device.
Planning is done at all levels of the organization. This is
illustrated in Fig

23. Importance of Material Planning

25. Techniques of planning materials:
• There are a few techniques used for planning
material for the given period. The following
two are, however, commonly used:
• 1) Materials Requirement Planning (ERP)
• 2) Requirement based on past consumption

26. 1-Material Requirement Planning:-
ERP has, as its starting point, the annual
production plan of the manufacturing concern.
Once a firm determines its annual production
plan, the over all material requirement, to meet
the given production plan, is worked out. It is a
detailed analysis encompassing the materials and
quantities available for use, materials with
quantities not available and hence needing
procurement, the actual lead time of
procurement etc.

27. 2) Requirement based on past consumption
An MP system is intended to simultaneously meet
three objectives:
• Ensure Materials and products are available for
production and delivery to customers.
• Maintain the lowest possible level of inventory.
• Plan manufacturing activities, delivery schedules
and purchasing activities
The basic objective of the material planning is to
perform the manufacturing operation in a proper
way thus they can achieve the desired results.

28. MATERIAL BUDGETING
The process of preparing material budget or
purchase budget in terms of quantity and
money value of materials to be procured in
given period of time.

29. Codification
•It is one of the functions of stores management. Codification
is a process of representing each item by a number, the digit
of which indicates the group, the sub-group, the type and the
dimension of the item. Many organizations in the public and
private sectors, railways have their own system of codification,
varying from eight to thirteen digits.
•The first two digits represents the major groups, such as raw
materials, spare parts, sub-contracted items, hardware items,
packing material, tools, oil, stationery etc.
• The next two digits indicate the sub-groups, such as, ferrous,
non-ferrous etc. Dimensional characteristics of length, width,
head diameter etc. constitute further three digits and the last
digit is reserved for minor variations.

30. Objectives of Codification
• The objectives of a rationalized material coding system are:
• 1. Bringing all items together.
• 2. To enable putting up of any future item in its proper place.
• 3. To classify an item according to its characteristics.
• 4. To give an unique code number to each item to avoid duplication
and ambiguity.
• 5. To reveal excessive variety and promote standardization and
variety reduction.
• 6. To establish a common language for the identification of an item.
• 7. To fix essential parameters for specifying an item.
• 8. To specify item as per national and international standards.
• 9. To enable data processing and analysis.

31. 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.

32. Advantages of Standardization
• All the sections of company will be benefited from standardization as mentioned below.
• Benefits to Design Department
• 1. Fewer specifications, drawings and part list have to prepared and issued.
• 2. More time is available to develop new design or to improve established design.
• 3. Better resource allocation.
• 4. Less qualified personnel can handle routine design work.
• Benefits to Manufacturing Department
• 1. Lower unit cost.
• 2. Better quality products.
• 3. Better methods and tooling.
• 4. Increased interchangeability of parts.
• 5. Better utilization of manpower and equipment.
• 6. Accurate delivery dates.
• 7. Better services of production control, stock control, purchasing, etc.
• 8. More effective training.

33. Continues…
• Benefits to Marketing Department
• 1. Better quality products of proven design at reasonable cost leads to greater sales volume.
• 2. Increased margin of profit.
• 3. Better product delivery.
• 4. Easy availability of sales part.
• 5. Less sales pressure of after-sales services
• Benefits to Production Planning Department
• 1. Scope for improved methods, processes and layouts.
• 2. Opportunities for more efficient tool design.
• 3. Better resource allocation.
• 4. Reduction in pre-production activities.
• Benefits to Production Control Department
• 1. Well proven design and methods improve planning and control.
• 2. Accurate delivery promises.
• 3. Fewer delays arise from waiting for materials, tools, etc.
• 4. Follow-up of small batches consumes less time.