Professional Documents
Culture Documents
Materials Management
5 M’s important to production process are Men, Machine,
Money , Methods and Material .
Primary objective
1.Low Prices
2.High inventory turnover
3.Low cost acquisition and possession
4.Continuity of supply
5.Consistency of quality
6.Low Payroll costs
7.Favorable supplies relations
8.Development of personnel
9.Good records
Secondary Objectives
1.Reciprocal relations
2.Now materials and products
3.Economic make or buy
4.Standardization
5.Product Improvement
6.Inter departmental harmony
7.Forecasts
8.Acquisitions
Importance of material management
a)Consumers
b)Middlemen
c)Government agencies
d)Manufactures
Definition
The act of buying an item at a price.
Importance of purchasing
1.Purchasing function provides materials to the factory
without which wheels of machines cannot move.
2.A one percent saving in materials cost is equivalent to a
10 percent increase in turnover. Efficient buying can
achieve this.
3.Purchasing manager is the custodian of his firm's purse as
he spends more than 50 per cent of his company's
earnings on purchases
4.Increasing proportion of one's requirements, are now
bought instead of being made as was the practice in the
earlier days. Buying, therefore, assumes significance.
1.
6.Purchasing can contribute to import substitution and
save foreign exchange.
7.Purchasing is the main factor in the timely execution of
industrial projects.
8.Materials management organisations that exist now have
evolved out of purchasing
departments.
9.Other factors like (i) post-war shortages, (ii) cyclical
swings of surpluses and shortages and the fast rising
materials costs, (iii) heavy competition, and (iv)
growing worldwide markets have contributed to the
importance of purchasing.
Objectives of purchasing
1.Recognition of need.
2.Description of need.
3.A suitable source is selected for the supply. Often a source
has to be developed.
4.Price and availability are determined.
5.Purchase order is prepared and sent out to the supplier.
6.Acceptance of the purchase order is obtained from the
supplier.
7.Follow up is done by the purchasing department to ensure
timely delivery of the material.
8.Checking the invoice and approving it for making
payment to the supplier.
Purchasing Policies
1.Ancillarisation
2.Make or buy decision
3.Speculative buying
4.Vendor rating
5.Ethics in purchasing
6.Reciprocity
7.Purchasing for employees
8.Gifts
9.Value Analysis
Ancillary Development
Deciding to buy a part from outside supplies (i.e.) called
sub contractor. The unit is called as ancillary unit
Advantage
vSpread of entrepreneurial base
vIndustrial development
vRegular supply of right quality of raw materials
Disadvantages
I category
1.Firm currently has production potential
2.With small capital outlay for tooling and
machining
II Category
1.Firm cannot produce in its existing operations
2.A large amount of additional investment is
required for tooling and facilities
Factors influencing make or buy decision
There are two primary factors
1.Cost
2.Availability of production capacity
Considerations which favour making the parts are
Speculative Buying:
Scope of making profit out of price change
Two Types
Type 1: Buying certain item at low prices and selling then
when their prices shoots up.
Type 2: Buying of raw materials in large quantity when
their prices are cheap
Vendor Rating
Rating Techniques
qPrice
qDiscounts received
qMaintenance of specifications
qCompliance with other specifications
qPromptness of delivery
qFreight and delivery charges
qInstallation costs
qService
qMarket information
qCo-operation
qManagement competence
qCredit terms,
qDisposition of rejects
qEmployee training,
qAdjustment policies,
qCost reduction suggestions,
qInventory plans and
qFinancial position.
Some important vendor rating techniques are
i.Categorical Plan
ii.Weighted point plan
iii.Critical incidents method
iv.Checklist System
I.Buyers checklist consists of
i.Reliability
ii.Technical capabilities
iii.After Sale Service
iv.Availability
v.Buying Convenience
vi.Sales Assistance
e.Ethics in purchasing
•Ethics is philosophy concerned with values of human
conduct
•Ethics refers to code of conduct that guides an
individual in dealing with others
Code of Ethics
Reciprocity
•Value Engineering
•Occurs between purchasing and methods engineering
•Modifying specifications of materials, parts and products
to reduce cost
•While examining a product following questions to be
asked
i.Is there a less expensive product which will perform the
required function?
ii.What does each component contribute?
iii.Can a less expensive material be used?
iv.Can parts be combined?
v.Can it be designed for easier assembly?
vi.Can it be fabricated by other
Stores
Store is a building where goods are kept stores is defined
as supplies of goods and storage is defined as the act of
storing goods
Importance
1.Ready accessibility of major materials permitting
efficient service to users.
2.Efficient space utilization and flexibility of arrangement.
3.A reduced need for materials handling equipment.
4.A minimization of materials deterioration and pilferage.
5.Ease of physical counting.
6.
Functions
1.To receive raw materials and account for them.
2.To provide adequate and proper storage and preservation
to the various items.
3.To meet the demands of the consuming departments by
proper issues and account for the consumption.
4.To minimize obsolescence, surplus and scrap through
proper codification, preservation and handling.
5.highlight stock accumulation, discrepancies and abnormal
consumption and effect control measures.
6.To ensure good house-keeping so that, materials handling,
materials preservation, stocking, receipt and issue can be
done adequately.
7.To assist in verification and provide supporting
information for effective purchase action.
Store Layout
1.Storage System
2.Type of stores layout
Storage System
Means dealing with a number of interacting and often
conflicting factors
Degree of mechanization affects layout
Scarcity of space leads to racking
Stock verification
Three Ways
a)Periodic verification or fixed annual inventory
b)Perpetual or Continuous inventory
c)Low point inventory
Classification and Codification
Advantages
1.Raw Material
2.Components
3.Consumable stores
4.Space Parts
5.Tools
6.Packing Materials
7.Work-in – Progress
8.Finished Goods
9.Hardware
10.Motors
11.Gear Box
12.CKD – Completely Knocked down items