16-1 Supply Chain Management

Materials Management - Definition

It is concerned with planning, organizing and
controlling the flow of materials from their initial
purchase through internal operations to the service
point through distribution.
OR

Material management is a scientific technique,

concerned with Planning, Organizing &Control of flow
of materials, from their initial purchase to destination.
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AIM OF MATERIAL MANAGEMENT

To get
1. The Right quality
2. Right quantity of supplies
3. At the Right time
4. At the Right place
5. For the Right cost
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PURPOSE OF MATERIAL MANAGEMENT

•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
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Objective of material management

Primary
•Right price Secondary
•High turnover •Forecasting
•Low procurement •Inter-departmental
•& storage cost harmony
•Continuity of supply •Product improvement
•Consistency in quality •Standardization
•Good supplier •Make or buy decision
relations •New materials & products
•Development of •Favorable reciprocal
personnel relationships
•Good information
system
16-5 Supply Chain Management

Economy in material management

•Containing the costs

•Instilling efficiency in all activities

16-6 Supply Chain Management

Purchasing

 Purchasing is responsible for obtaining the

materials, parts, and supplies and services
needed to produce a product or provide a
service.
16-7 Supply Chain Management

Goal of Purchasing

 Develop and implement purchasing plans for

products and services that support operations
strategies
16-8 Supply Chain Management

Duties of Purchasing

 Identifying sources of supply

 Negotiating contracts
 Maintaining a database of suppliers
 Obtaining goods and services
 Managing supplies
16-9 Supply Chain Management

Purchasing Interfaces
Figure 16.5

Legal

Operations Accounting

Data
Purchasing
processing

Design

Receiving
Suppliers
16-10 Supply Chain Management

Purchasing Cycle
Legal
1. Requisition received
Operations
Accounting

2. Supplier selected
3. Order is placed Purchasing
Data
process-
ing

4. Monitor orders
5. Receive orders Design

Receiving
Suppliers
16-11 Supply Chain Management

Value Analysis vs. Outsourcing

 Value analysis
 Examination of the function of purchased
parts and materials in an effort to reduce cost
and/or improve performance
16-12 Supply Chain Management

Value Analysis
(Value Engineering)

 Ratio of value / cost

 Assessment of value :
1. Can we do without it?
2. Does it do more than is required?
3. Does it cost more than it is worth?
4. Can something else do a better job
5. Can it be made by less costly method, tools, material?
6. Can it be made cheaper, better or faster by someone
else?
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Centralized vs Decentralized Purchasing

 Centralized purchasing
 Purchasing is handled by one special
department
 Decentralized purchasing
 Individual departments or separate locations
handle their own purchasing requirements
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Suppliers’ / Vendors’ Management

 Choosing suppliers
 Evaluating sources of supply
 Supplier audits
 Supplier certification
 Supplier relationships
 Supplier partnerships
16-15 Supply Chain Management

Factors in Choosing a Supplier

 Quality and quality assurance

 Flexibility

 Location

 Price
16-16 Supply Chain Management

Factors in Choosing a Supplier (cont’d)

 Product or service changes

 Reputation and financial stability

 Lead times and on-time delivery

 Other accounts
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Evaluating Sources of Supply

 Vendor analysis: Evaluating the sources of

supply in terms of price, quality, reputation,
and service
16-18 Supply Chain Management

Evaluating Sources of Supply

 Vendor analysis - evaluating the sources of

supply in terms of
 Price
 Quality
 Services
 Location
 Inventory policy
 Flexibility
16-19 Supply Chain Management

Supplier Partnerships
 Ideas from suppliers could lead to improved
competitiveness
1. Reduce cost of making the purchase
2. Reduce transportation costs
3. Reduce production costs
4. Improve product quality
5. Improve product design
6. Reduce time to market
7. Improve customer satisfaction
8. Reduce inventory costs
9. Introduce new products or services
16-20 Supply Chain Management
Storage
•Store must be of adequate space
•Materials must be stored in an appropriate place
• in a correct way
•Group wise & alphabetical arrangement helps in
•identification & retrieval
•First-in, first-out principle to be followed
•Monitor expiry date
•Follow two bin or double shelf system, to avoid
•Stock outs
•Reserve bin should contain stock that will cover
•lead time and a small safety stock
Issue & use
Can be centralized or decentralized