Materials management
o It is an organizational concept in which a manager has authority and responsibility for all activities, principally concerned with the flow of materials into the organization (purchasing, production, planning, scheduling, incoming traffic, inventory control, receiving and stores normally are included).
Importance of Materials Management
o Regular
supply of material is ensured, reducing the chances of interruption in the production process.
o Procurement
and transportation cost.
o Efficient
store and stock control.
o Inspection
of material at the time of procuring.
o Timely
supply of raw material.
o Better
utilization.
o Congestion
to be reduced.
Objectives of Materials Management
o Primary
objectives are as follows:
1.
Low Prices.
2.
High Inventory turnover.
3. Low-cost acquisition and possession.
4.
Continuity of supply.
5.
Consistency of quality.
6.
Favorable supplier relations.
7.
Development of personnel.
8.
Good Records.
Objectives of Materials Management
o Secondary
Objectives:
1.
Reciprocal relations.
2.
New Materials and Products.
3.
Economic Make or Buy.
4.
Standardization.
5.
Product Improvement.
6.
Inter-Departmental Harmony.
7.
Acquisition.
8.
Forecasts.
Functions of Material management
o Planning
Function.
o Production
Control.
o Purchasing.
o Inventory
and Stores control.
o Receiving
and stores.
o Shipping/physical
Distribution.
o Material handling.
o Traffic
Organization and Materials management
o Shareholders – Board of directors – CEO – Production manager
– Material manager – Scope( Purchase – Receiving – Stores – Material handling –
traffic control – shipping – monitoring.)
Phases in materials Management - 4 Phases
Planning – Planning and maintaining a stock of raw material,
tools, general supplies, handling, classification, coding.
Purchasing – vendor selection, price final, placing orders,
right time and quality, standardization, value analysis, scrap disposal.
Storekeeping – Receiving, storing, arrangement, issuing,
handling, safety, insurance.
Traffic – Clearing incoming materials, both inland and foreign and dispatching goods.
Interface with other functions of materials management
o
Internal interfaces are as follows:
1.
Market forecasting.
2.
Production.
3.
Finance.
4.
Inventory Control.
5.
Inspection and Quality Control.
6.
Material handling, Traffic, and Physical Distribution.
7.
Material Flow process.
External interfaces are as
follows:
1.
Consumers/Customers.
2.
Suppliers/ other Companies
Modern trends in Materials Management
o Supply
Chain management – It is the activity that involves all management functions
related to the flow of materials from the company’s direct suppliers to its
direct customers including purchasing, warehousing, inspection, production,
material handling, and shipping distribution.
o Logistics
management – It is the management ( planning, execution, and control) of all
factors that affect the material flow and information about it for the purpose
of achieving high delivery reliability, a high degree of delivery completeness, and a short delivery time.
Challenges or Problems of Materials Management
o Related to
Material planning – Designing MRP.
o Related to
design and Specifications.
o Related to
Obsolescence.
o Related to the procurement of Material – lead time, quality, inadequate staff, terms of
payment, credit terms.
o Related to material handling, warehousing, transportation.
INVENTORY CONTROL
Types of Inventories and
Motives of holding Inventories.
o TYPES ARE
AS FOLLOWS:
o On the
basis of Elements: Raw material, WIP, Consumable, Finished goods, Stores and
spares.
o On the
basis of Purpose: Movement inventory, buffer, anticipation, Decoupling, and
cycle inventory.
o Motives are
Transaction, Precautionary and Speculative motive.
Functions of Inventory and Advantages for
holding inventory
o
Functions are as follows:
1.
Regularizing Demand and Supply.
2.
Economizing Purchases.
3. Coping with Perishable Items.
Advantages of Holding inventories:
1.
Ensures manufacturing according to the production plan.
2.
Ensures against scarcity of materials.
3.
Utilizes benefits of price fluctuations.
4.
Creates buffer between input and output.
5.
Protects from the danger of stock-outs.
6.
Facilitates satisfaction of seasonal high demands.
7.
Take advantage of quantity discounts.
Disadvantages of holding inventories and How to minimize investment in inventories?
o
Disadvantages are as follows:
1.
Expensive procedure.
2.
More storage space, layout issues.
3.
High insurance charges and holding costs.
4.
High cost of recording and upkeeping.
5.
Losses due to falling in prices.
6.
Chances of pilferage, mishandling, etc.
How to minimize investments
in inventories?
1.
Avoid purchases in excess of requirements.
2.
Avoid the inflow of materials much in advance.
3.
Accept supplies as per delivery schedule.
4.
Periodical study of the warehouse.
5.
Get max quantity discount.
6.
Suitable and proper inventory control system.
Inventory systems and Inventory depletion
o Inventory
systems are of 4 types:
1.
Lot size Reorder point policy.
2.
Fixed order internal scheduling policy.
3.
Optional Replenishment policy.
4.
Other types of inventory systems – static inventory
systems, a combination of any two of the above.
INVENTORY DEPLETION – It means the
stock out situation, it results in :
1.
Production stoppages.
2.
Machine and Labor idle time.
3.
Burden of fixed overheads.
4.
Failure to meet delivery orders resulting in loss of
goodwill.
Costs associated with Inventory
o Purchase
cost – It refers to the nominal cost of inventory.
o Ordering
cost/Procurement cost: It is incurred when inventory is replenished. It is
associated with the processing and chasing of the purchase order,
transportation, inspection of quality, expediting overdue orders, and so on.
o Set up
cost: It is the cost incurred in relation to developing the production
schedules, making the production system ready, etc.
o Carrying
costs/holding cost/storage cost: Insurance, storage and handling, obsolescence
and Depreciation, Deterioration, Taxes, and interest etc.
o Stock out cost/shortages: It relates to the cost of not serving the customers.
Supply chain management
o Supply chain management is the management of the flow of goods
and services and includes all processes that transform raw materials into final
products. It involves the active
streamlining of a business's supply-side activities to maximize customer value and
gain a competitive advantage in the marketplace. SCM represents an effort by
suppliers to develop and implement supply chains that are as efficient and
economical as possible. Supply chains cover everything from production to
product development to the information systems needed to direct these
undertakings.
Example of SCM
o Understanding
the importance of SCM to its business, Walgreens Boots Alliance Inc. placed
focused effort on transforming its supply chain in
2016. The company operates the second-largest pharmacy chain
in the United States and needs to efficiently manage and revise its supply
chain so it stays ahead of the changing trends and continues to add value to
its bottom line.
o As of July 5, 2016, Walgreens has invested in the technology portion of its supply chain. It implemented a forward-looking SCM that synthesizes relevant data and uses analytics to forecast customer purchase behavior, and then it works its way back up the supply chain to meet that expected demand. For example, the company can anticipate flu patterns, which allow it to accurately forecast needed inventory for over-the-counter flu remedies, creating an efficient supply chain with little waste. Using this SCM, the company can reduce excess inventory and all of the inventories' associated costs, such as the cost of warehousing and transportation.
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