MATERIALS MANAGEMENT

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BROAD FUNCTIONS IN ANY BUSINESS CONCERN

The broad functions in any business concern are the following :

1. Marketing management

2. Materials management

3. Production / operations

4. Finance

5. Human resources

6. Legal Of these materials, production and marketing are

the basic or core functions, while the rest are support functions.

OBJECTIVE: WHY DO WE LEARN MATERIALS MANAGEMENT ?

Core of Final Product : To ensure quality

Competitive : To create core competency

Cost Reduction : “One Rupee Save is One Rupee Earn”

Scarcity of Materials

Planning & Control : Where, What, When, How

Materials Handling: Safety Issues

Customer Satisfaction : Right time delivery & availability.

SYLLABUS

(205) MATERIALS & LOGISTICS MANAGEMENT 1. Introduction: Materials Management - Evolution,

Importance, Scope and Objectives - Interface with other functions. Concept of Logistics and Supply Chain Management and evolution to 4PL

2. Logistics - Objectives, Components, Significance. Supply Chain Management – Objectives, Components, Significance, Trade off Customer Service & Cost.

3. Inventory - Need of Inventory - Costs associated with

Inventory - Types of Inventory - Basic EOQ Model - EOQ with discounts - Classification of material - ABC Analysis -VED, HML, FSN, GOLF, SOS (Numericals expected on Basic EOQ, EOQ with discounts & ABC)

4. Material Requirement Planning - Advantages over conventional planning (Order Point Method) – Input and output of MRP system - Forecasting – Overview of quantitative and qualitative methods of forecasting - Master Production Schedule - Bill of Materials – BOM Explosion - Material flow in MRP. MRP II. Concept of ERP. (Numerical expected on BOM Explosion, estimating Net requirements)

5. Purchasing Management - Responsibilities of Purchase Department - Purchase Cycle – Negotiation & Bargaining – Vendor relations - Purchasing Methods - Global sourcing

6. Stores – Functions, Importance, Organization of stores & Stores layout. Stores procedure – documentation.

7. Inventory control & Cost Reduction techniques: Inventory turns ratios - Standardization – need and importance. Codification – concept, benefits. Value Engineering and Value Analysis – concept and process.

8. Materials Handling - Principles of Materials Handling system - Materials Handling Equipments – Safety issues.

INTRODUCTION

Terms Materials : In industries this is known as raw materials, in-

processed finished goods, and finished goods Sometimes the term "material" is used more narrowly to

refer to substances or components with certain physical properties that are used as inputs to production or manufacturing. In this sense, materials are the parts required to make something else, e.g. buildings, computers.

Management: Here Management includes function such as planning,

organizing, directing, controlling and co-ordinating related to materials.

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MATERIALS MANAGEMENT DEFINITION AND SCOPE

Materials management may be defined as the grouping of management functions that support the entire material flow cycle, right from, material planning, purchase, inventory control, stores, warehousing and dispatch.

MATERIAL PLANNING

PURCHASE

INVENTORYCONTROL

STORES

WAREHOUSING&

DISPATHCH

CONT……

In other words it encompasses an entire array of functions which impinge the flow, conservation, utilization, cost and quality of materials.

The aim therefore is to ensure the 5 R’s approach i.e. :

1. Supply of right quantity of materials,

2. At the right time,

3. Of the right quality,

4. At the right price,

5. From the right sources

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MATERIALS MANAGEMENT

PURCHASINGMATERIALCONTROL

PRODUCTION SALES DISTRIBUTION

MATERIALSMANAGEMENT

MANUFACTURINGMANAGEMENT

DISTRIBUTION

MATERIAL FLOW

MATERIAL FLOW

CUSTOMER SERVICE

CUSTOMER SERVICE

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A MATERIAL FLOW SYSTEM

RAWMATERIALS

RAWMATERIALS

WORK INPROCESS

FINSHEDGOODS

FINISHEDGOODS

FINISHEDGOODS

WORK INPROCESS

WORK INPROCESS

SUPPLIERS MANUFACTURING PLANT DISTRIBUTION RETAILERS

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MATERIALS MANAGEMENT DEFINITION AND SCOPE

Materials management is also defined as the concept which brings together under one manager the responsibility for determining the manufacturing requirements, scheduling, the manufacturing process, and procuring, storing, and dispersing materials.

As such it is concerned with the activities involved in the acquisition and use of all materials employed in the production of a finished product.

It is the single – manager organization concept embracing and planning, organizing, motivating, and controlling of all those activities and personnel principally concerned with the flow of materials into an organisation.

Materials management represents, that aspect of management activities which deals with the supply of materials, accounting, storing, issue and movement as also such other allied activities which seek to achieve maximum coordination for optimum utilization of materials.

MATERIALS MANAGEMENT DEFINITION AND SCOPE

An effective materials management function ensures that “ the right items are at the right place at the right time”.

It is responsible for effective co – ordination of materials planning, sourcing, purchasing, logistics, stores and materials control, keeping in mind the ultimate objective of “total cost optimization”, so as to consistently provide quality service to its customer departments, mainly production and marketing.

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OBJECTIVES OF MATERIALS MANAGEMENT

Following are the objectives of materials management:

1. To maintain steady flow of materials to ensure uninterrupted production. Any disruption affects cost of the product.

2. To achieve economy in cost of materials by adopting cost reduction techniques like value analysis, variety reduction, JIT, MRP, import substitution etc.

3. To ensure consistency of quality by providing right materials, of the right quality, in the right quantity and at the right time.

4. To reduce inventory investment through scientific inventory control techniques.

5. To improve corporate image by improving good buyer – seller relations. 13

OBJECTIVES OF MATERIALS MANAGEMENT

6. To maintain good records of purchase, stores, traffic, etc. To eliminate possibility of corruption.

7. To preserve / conserve materials in stock so that losses due to pilferage, deterioration, obsolescence etc. are kept at minimum.

8. To reduce operating cost by minimising / eliminating wastage and improving productivity of materials.

9. To improve competitive strength of the firm by producing the best quality products using quality materials at the lowest possible cost.

10. To trace and develop new source of supply.

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FUNCTIONS OF MATERIALS MANAGEMENT

Materials planning Purchasing Inventory control Store keeping Store accounting Transportation – Internal (i.e. materials

handling) & (i.e. traffic, shipping, etc. ) Disposal of scrap, surplus and obsolete

materials Materials economics Waste management

FUNCTIONS OF MATERIALS MANAGEMENT

Broadly speaking we may categorize the materials function into three basic category :

A. Materials planning and control

B. Sourcing and purchasing

C. Stores and inventory management

MATERIALS MANAGEMENTMATERIALS PLANNING AND CONTROL

Corporate planning and control system sets the objectives and operating environment of materials planning and budgeting.

The basic input to this function is that of various sales forecasts generated by the marketing manager through his market research team.

Once the sales forecasts for the end products are finalized, the materials planning exercise can be initiated.

The materials man also bases his plans on inputs from other departments, suppliers etc.

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The basic technique used is the bill – of – materials (BOM) explosion with the help of computers.

A ‘BOM’ is document that incorporates the details of an item’s product build up, including its components, subassemblies etc. And their chronological build up sequence, quality required per item and respective work centers at every stage of production.

A series of bill of materials combined together in a matrix is an “explosion chart.”

Material planning can be done across different time horizons.

Normal time frames are a quarter, half year, annual. As the time horizon extends the reliability of

planning deteriorates. The logical sequence to material planning is material

budgeting, the end result of which is the purchase budget.

MATERIALS MANAGEMENTMATERIALS PLANNING AND CONTROL

Once the material plan is ready, the materials budget is worked out taking into consideration the inventory on hand, inventory in transit and orders placed but not fulfilled.

Budgets are formulated both in monetary terms and in volume of units required.

Budgets have to be periodically reviewed and suitably modified in the light of changing circumstances.

However, frequent revision does not serve any purpose.

The frequency of revisions will be dictated by the assumptions made in the first place and the extent of dynamic component of the environment.

MATERIALS MANAGEMENTMATERIALS PLANNING AND CONTROL

MATERIALS MANAGEMENT MATERIALS PLANNING AND CONTROL

A very important aspect of the entire procedure is the control and review of performance.

Material budget is the tool of control for allocation of financial and other resources.

It also acts as a performance evaluation tool. Material planning and budgeting contribute

towards effective materials management in the following manner :

i. Gather up – to – date information and help long term vision.

ii. The prices are forecasted and serve to highlight deviations.

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MATERIALS MANAGEMENTSOURCING AND PURCHASING

This comprises of : Source identification, Source evaluation and selection, Vendor development Pricing research Negotiations Purchase orders placement Follow – up Vendor relations Basically deals with having the right materials, at

right time, at the right place and at the right cost.

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MATERIALS MANAGEMENTSTORES AND INVENTORY MANAGEMENT

Often looked down by many as an operative level or clerical function, this aspect of materials management has a vital importance from the view point of production efficiency and cost control.

It deals with inbound logistics, codification, standardization, storage, materials handling, record keeping, issuing, inventory planning and maintenance, obsolescence and scrap, wastage management etc.

Inventory management deals with aspects such as EOQ (economic order quantity), abc analysis, lead time, safety stock levels, reorder levels etc.

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MATERIAL PLANNING AND BUDGETING

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SALES FORECAST

FORECASTING TECHNIQUEA) OBJECTIVE B) JUDGEMENTAL

EXPERT OPINION(REVISED FORECAST)

MASTER PRODUCTIONSCHEDULE (MPS)

PRESENT INVENTORY STATUS FILE

BILL OF MATERIALS &EXPLOSION CHART

FUTUREREQUIREMENT

ORDER RESCHEDULINGMATERIAL TO BE PURCHASED NOW

PRICE FORECASTSBASED ON MATERIALS

RESEARCH

PURCHASE BUDGET

ACTUALPURCHASE

NEED AND IMPORTANCEOF

MATERIALS MANAGEMENT Expenditure on materials : According to various studies, an

estimated 80 - 90 % of working capital is tied up in inventory, purchase account for about 50 % of the total expenditure, materials represent almost 40 – 6o % of the sales price or about 60 – 80 % of production cost, inventory carrying cost is 20 % of material cost . Crores of rupees are locked up in obsolete materials.

Low materials productivity : It is a prime element that contributes towards poor performance of production / operations function.

Scarcity of Resources : In a resource scarce country such as India, it makes immense sense to utilize the existing resources professionally so as to get the maximum out of each resource.

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NEED AND IMPORTANCEOF

MATERIALS MANAGEMENTo Competitive strategy: Materials management as a

function will be the nucleus of competitive strategy in the future.

Using a manufacturing or service operation for competitive advantage is a relatively new concept that has yet to gain wide currency.

Unfortunately over the decades the opposite thinking has been the standard in guiding organisational activities.

Many problems that cause a company to be non – competitive can be traced to the production, materials function – poor quality and reliability, late deliveries, high costs of products and lack of proper inventory at the right place.

Few managers think of the materials function as one that provides a competitive advantage.

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NEED AND IMPORTANCEOF

MATERIALS MANAGEMENT A new set of strategic factors is necessary to

compete in today’s dynamic, global market place. The new strategic factors are1. More inventory turnover2. A shorter manufacturing lead time3. Higher quality4. Greater flexibility5. Better customer service6. Less wastage7. Higher return on assets

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NEED AND IMPORTANCEOF

MATERIALS MANAGEMENT

There are several areas for competitive advantage including cost, time, quality, etc.

The development of an effective materials strategy has to be done in conjunction with the corporate and marketing strategy

The importance of a scientific and professional approach towards materials management is underscored by the fact that “a rupee saved is a rupee earned”.

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NEED AND IMPORTANCEOF

MATERIALS MANAGEMENT “A rupee saved is a rupee earned” Any savings in materials cost will have a multiplier effect

on the profitability of the organisation. Any enterprise can also improve its profitability by

increasing its sales (sales revenue). But considering today’s competitive business environment

with continuous downward pressure on prices, high decibel advertising, etc. This will call for extensive marketing expenditure.

Most firms today face the reality of operating in mature slow growth, competitive industries where gaining even a 1 % market share calls for a herculean effort.

Organisations today must conquer costs; else they will conquer them.

Herein lies the crucial role of the materials management function and the need for an integrated approach to materials management, to derive optimum benefits.

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ILLUSTRATION OF MATERIAL FLOW PROCESS(INTERNAL FLOW – LINE & INFORMATION FLOW)

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PRODUCTIONPLANNING

&CONTROL

INVENTORYCONTROL

RECEIVING&

INSPECTION

PURCHASING&

PROCURINGACTIVITIES

VENDOR /SUPPLIERS

PRODUCTION /MANUFACTURING

(WITH ADDITIONALCOMPLEX INTERNAL

SUB - SYSTEMS

LOGISTICS(TRANSPORTATION,

TRAFIC &SHIPMENT

SALES ANDMARKETING

WAREHOUSING / CUSTOMERS

STORES

MATERIAL FLOW INFORMATION FLOW

CONCEPT OF LOGISTICS

Logistics is the management of the flow of the goods, information and other resources in a repair cycle between the point of origin and the point of consumption in order to meet the requirements of customers.

Logistics involves the integration of information, transportation, inventory,warehousing, material handling, and packaging, and occasionally security.

Logistics is a channel of the supply chain which adds the value of time and place utility. Today the complexity of production logistics can be analyzed, visualized and optimized by plant simulation software.

SUPPLY CHAIN MANAGEMENT CONCEPT

Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers.

 Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption (supply chain).

Another definition is provided by the APICS Dictionary when it defines SCM as the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally."

EVOLUTION OF 4PL

A Fourth-party logistics provider (abbreviated 4PL), lead logistics provider, or 4th Party Logistics provider, is a consulting firm specialized in logistics, transportation, and supply chain management.

Typical fourth-party logistics providers are  BMT, Deloitte, 

Capgemini Definition

A fourth-party logistics provider is an independent, singularly accountable, non-asset based integrator of a client's supply and demand chains.

EVOLUTION OF 4PL

1PL, which are the shipper or the consignee, 2PL, which are actual carriers, 3PL, which are one stop shops for the 1PL, such as 

freight forwarders or courier companies. 4PL, The term 4PL is generally considered to have been

introduced by Accenture, which registered it as a trademark in 1996. Accenture described the 4PL as an "integrator that assembles the resources, capabilities, and technology of its own organization and other organizations to design, supply chain solutions"