MATERIAL MANAGEMENT AND

INVENTORY CONTROL
INTRODUCTION

 Material management may be defined as process by

which an organization is supplied with goods and
services that they need to achieve its objective
-Ammer
 Material management as a confederacy of traditional
material activity bound by A common idea-the idea to
integrate management approach to planning
acquisition ,conversion, flow and distribution of
production material from raw material to finished
product
 -Lee and Dobler
IMPORTANCE OF MATERIAL MANAGEMENT
1.Low prices for material and equipment
2.Faster inventory turnover
3.Continuity of supply
4.Reduced lead time
5.Reduce transportation cost
6.Less duplication of efforts
7.Reduced material obsolescence
8.Improve supply relationship and better record information
9.Better inter-departmental cooperation
10.Personnel development
OBJECTIVES OF MATERIAL MANAGEMent
1.Low price
2.High inventory turnover
3.Low cost acquisition and possession
4.Continuity of supply
5.Consistency of quality
6.Low payroll cost
7.Favorable supply relation
8.Development of personnel
9.Good records
Materials Management in pharma

Enterprise

Finished-goods Storage
Orders
Purchasing
Raw-material
Storage

Customers
Suppliers

Distribution
Transformation
Receiving

Processes

In-process
Storage

5
Definitions of inventory
 Inventory-A physical resource that a firm holds in stock with
the intent of selling it or transforming it into a more valuable
state.

 Types of Inventory:
 Raw material
 Purchased but not processed
 Work-in-process
 Undergone some change but not completed
 A function of cycle time for a product
 Maintenance/repair/operating (MRO)
 Necessary to keep machinery and processes productive
 Finished goods
 Completed product awaiting shipment

Why to Hold Inventories in pharma industry
 Improve customer service
 Reduce certain costs
 Contribute to the efficient and effective operation of
the production system
 Finished Goods
 Essential in produce-to-stock positioning strategies
 Products can be displayed to customers
 Work-in-Process
 Necessary in process-focused production
 Raw Material
 Suppliers may produce/ship materials in batches

Why Not to Hold Inventories
 Certain costs increase such as
 carrying costs
 cost of customer responsiveness
 cost of coordinating production
 cost of diluted return on investment
 reduced-capacity costs
 large-lot quality cost
 cost of production problems
Inventory Costs

 Procurement costs
 Carrying costs
 Out-of-stock costs

Procurement Costs


 Order processing
 Shipping
 Handling

Inventory Costs
Carrying Costs
 Capital (opportunity) costs
 Inventory risk costs
 Space costs
 Inventory service costs
Out-of-Stock Costs

 Lost sales cost

 Back-order cost

Objectives of Inventory Control in pharma industry

1) Maximize the level of customer service by avoiding



under stocking.

2) Promote efficiency in production and purchasing by



minimizing the cost of providing an adequate level of

customer service.
FACTORS AFFECTING Inventory Control

 Type of product

 Type of manufacturer

 Volume

Inventory Control TECHNIQUE

ABC Classification


 Class A
 5 – 15 % of units
 70 – 80 % of value

 Class B
 30 % of units
 15 % of value

 Class C
 50 – 60 % of units
 5 – 10 % of value
OTHER ANALYSIS TECHNIQUE
 HML Classification


 VED Classification


 SDE Classification


 FSN Classification

Inventory control System
 What is inventory control system ?
 Activities Included in inventory control
system of an organization
 Inventory is ordered on bases of :
 Fixed Order Quantity System
 Fixed Order Period System



INVENTORY CONTROL SYSTEM
vTwo questions before the manager
 When to order ?
 How much to order ?


vReorder Point
vReorder Quantity
ECONOMIC ORDER QUANTITY (EOQ) Model

 System in which order for supplier is placed when the existing

stock reaches to reorder point
 EOQ assumptions:
 Known and constant lead time
 Instantaneous receipt of material
 No quantity discounts
 Only order (setup) cost and holding cost
 No stock outs
EOQ Model

EOQ inventory over time:

Order quantity Usage Rate
= Q (maximum Average
inventory Inventory
level) (Q*/2)
Inventory Level

Minimum
inventory
0 Time
Fixed Period Model

 Answers how much to order

 Orders placed at fixed intervals
 Inventory brought up to target amount
 Amount ordered varies

 No continuous inventory count

 Possibility of stock out between intervals
 Useful when vendors visit routinely

P-System Periodic Review Method

 An alternative to EOQ - system control is periodic review

method
 Q-system - each stock item reordered at different times -
complex, no economies of scope or common
prod./transport runs
 P-system - inventory levels for multiple stock items
reviewed at same time - can be reordered together
 higher carrying costs - not optimum, but more practical
Hybrid Inventory Models

 Base stock model

 Startwith a certain inventory level
 Whenever a withdrawal is made, an order of equal
size is placed
 Ensures that inventory maintained at an
approximately constant level
 Appropriate for very expensive items with small
ordering costs
BENEFITS OF INVENTORY management

1.Ensures an adequate supply of material

3.Keep down investment in inventories
4.Facilitate purchasing economies
7.Eliminate duplication in ordering
8.Better utilization of available stocks
9.Check against the loss of materials
10.Facilitates a cost accounting facility
11.Manages to make cost and consumption comparisons
12.Consistent and reliable basis for preparing financial statements
THANK YOU
sandesh bhoir