MATERIALS

MANAGEMENT
 MATERIALS MANAGEMENT
 
 
 

Short range decisions about supplies, inventories

production levels, schedules and distribution.
 MATERIALS MANAGEMENT CYCLE

Acquisition of raw materials 

Distribution storage
 
 
 
Storage conversion
 
 
 TASKS OF MATERIALS
MANAGEMENT       
• Supplier selection
 
       Issuing purchase releases
 
       Inbound transportation
 
       Initiating purchase request
 
       Inventory control on sight
 
       Assigning priorities to work
 
       Outbound transportation
 
       Inventory control at distribution centers
 
 MAKE OR BUY DECISIONS
 
The factors for make or buy decisions include
 
       Available capacity

       Expertise
 
       Quality considerations
 
       Nature of demand
 
       Cost
 PURCHASING
 
 

The management of acquisition process which includes

deciding which suppliers to use, negotiating contract and
deciding whether to buy locally or centrally
 THE ACQUISITION PROCESS
  
       Recognize need
 
       Select suppliers
 
       Place orders
 
       Track orders
 
• Receive orders
 OUT SOURCING
 
 
 

Out sourcing is buying goods or services from outside

sources instead of making the goods or services within
house.
 REASONS OF OUTSOURCING
 
       Outside sources can provide materials better
cheaper and more efficiently because of economy of
scale
       Expertise and knowledge
       Supplier may hold a patent on a necessary part
       Outsourcing gives added flexibility

Outsourcing enables the company to focus on core

activities
 RISKS OF OUTSOURCING
 
       Loss of control
 
       Greater dependency on suppliers
 
• Not possessing ability to perform in house
 INFORMATION ON EXTERNAL SOURCES OF
SUPPLY 
       Industrial advertisement in news papers and
periodicals
       Supplier catalogues
       Supplier salesman
       Trade journals
       Telephone directory yellow pages
       Trade directories
       Enquiries through advertisement
       Records of past purchases
 JIT PURCHASING
JIT purchasing involves  
       Dealing with few suppliers
       Long term relationships with suppliers
       Dealing with local suppliers  
 
On time delivery and small lot sizes are primary
need of JIT
 
 SUPPLIER SELECTION 
Factors for supplier selection include
 
       Lead time & on time delivery
 
       Quality & quality assurance
 
       Flexibility
 
       Location
 
       Price
 
       Product or service changes
 
       Reputation & financial stability
 
       Dependency of supplier on other buyers
 SUPPLIER AUDITS 
As a means of supplier feed back 
Areas covered in audits
       Management style
       Quality assurance
       Materials management
       Design process
       Procedures
• Scope of improvement
 SUPPLIER CERTIFICATION
 
Detailed examination of the policies & capabilities of a
supplier
 
Advantages
 
       Inspection & testing activities can be eliminated
 
       Less risk of problems with supplied goods
 SUPPLIER PARTNERSHIP 
Stable relationship with relatively few reliable suppliers
who can 
       Provide high quality supplies
 
       Maintain precise delivery schedules
 
       Remain flexible to changes 
Suppliers can be a source of ideas that contribute to
competitiveness of an organization.
 OBSTACLES 
 
       Supplier hesitant to enter into partnership
 
       Supplier may have to increase his investment in

equipment
 
       Cultures of buyer & supplier are different
 VENDOR EVALUATION AND RATING
 
 
1.    Evaluating the performance before the vendor has
delivered anything.
 
2. Evaluating the performance of vendor after the
deliveries have been made.
 FACTORS FOR VENDOR EVALUATION 

       Reliability
       Technical capabilities
       Convenience
       Availability
       After sales service
• Sales assistance
QUALITY RATING
 
RQ = Q1 + Q2 X1 + Q3 X2 + Q4 X3 x 100
Q
 Q quantity supplied
Q1 quantity accepted
Q2 quantity accepted with concession
Q3 quantity accepted with rectification
Q4 quantity rejected
PRICE RATING 
Rp = PL x 100
P 
PL lowest price quoted
P price agreed by supplier
 
DELIVERY RATING 
RD = promised delivery time x 100
Actual delivery time of full consignment
 QUANTITY RATING
 
Rqty = qty supplied within delivery time x 100
Quantity promised
  
SERVICE RATING
Rs is assigned for all service factors so that
 
a1+ a2+ a3+ a4 = 100
 COMPOSITE VENDOR RATING
 
f1RQ + f2 RP + f3 RD + f4 Rqty + f5 Rs
 
f1+f2+f3+f4+f5 = 1
 VENDOR DEVELOPMENT 
       Communication of essential & helpful information
like design, specifications, standards, practices etc.
       Communication of engineering changes
       Developing methods for detecting deviations from

standard promptly
       Helping the vendors in resolving quality problems
       Rendering necessary technical assistance
       Providing quality data in lieu of incoming
inspection
• Review vendor’s performance periodically &
 ETHICS IN PURCHASING
 
       Do not accept gifts from vendors
       Reject offers for favors like lunch, liquor week
end resorts etc.
       Code of conduct should be laid down
Purchase managers should be selected on the basis of
competency and should be rewarded suitably
 CONTRACT NEGOTIATIONS 
 
Negotiation are on the basis of
 
       Price
       Delivery schedule
       Payment for freight
       Quality standards
       Technical specifications
 OBJECTIVES OF CONTRACT NEGOTIATION

 
       Most economic purchase of materials
       Establish long term relations with suppliers
 PURCHASE ORDER 
A legal document that authorizes the supplier to
produce the goods.
 
       Represents buyers obligation to buy the material
against the specified terms
       Confirms approval of suppliers quotation by
ordering organization
       Needs acceptance and acknowledgement of
supplier
 PURCHASE ORDER SHOULD CONTAIN 
       Name and address of organization
       Name and address of supplier
       Identification number
       Quantity
       Description of product
       Any relevant technical data
       Reference to any certification
       Price
       Delivery schedule
       Delivery instructions
       Cost allocation
       Purchaser’s signatures
       Conditions of business
 STORES FUNCTIONS 
The major functions of stores are as follows 
       Receipt
       Storage
       Retrieval
       Issue
       Records
       Housekeeping
       Control
       Surplus management
       Verification
       Coordination & cooperation
 RECEIPT SYSTEM 
The receipt system involves 
       Receipt of copy of purchase orders
       Receipt of advice note from supplier and
consignment note from transporter
       Unpacking of goods received & checking quantity
of goods as per packing list & it’s condition
       Preparing provisional goods inward note
       Inspection & testing against purchase
specifications
       Preparation of clearance or rejection note
• Preparation of final goods inward note
 STORAGE SYSTEMS 
 
 
       Closed store system
 
       Open stores system
 
• Random access stores system
 STORE RECORDS SYSTEM 
Two records are usually kept of materials and other
goods received, issued or transferred. 
Bin card 
Shows details of quantities of each type of material
received, issued and on hand each day. One card is
attached to each bin on shelf containing the material  
Stores ledger 
Identical with bin card except that here money values are
shown.
 
 ISSUE SYSTEM 
 
 
       Receipt of program and bill of materials
 
       Receipt of work order / material requisition
 
       Issue against material requisition
 STORE ACCOUNTING SYSTEMS
       FIFO system
 
       LIFO system
 
       Average cost system
 
       Market value system
 
       Standard cost system
 STOCK VERIFICATION SYSTEMS 
 
 
       To reconcile the store records and documents for
their accuracy and usefulness,
       Identification of areas deserving tighter document
control,
       To backup the balance sheets, stock figures, and
• To minimize the pilferage and fraudulent
practices
 LAYOUT AND DESIGN OF STORES 
       The space for receipt and inspection should be
provided adjacent to the main stores.
       Use of third dimension must be made effectively.
       Different storage facilities should be situated in
clearly defined lanes, so that items are quickly stored &
located.
       Main lanes should usually be 1.5 to 3 meters wide,
depending upon the type of material & the amount of
traffic involved.
       Clear markings should be made at storage space to
facilitate location & identification.
       The fast moving items should be stored near the
dispensing window.
       The layout should permit the use of modern
material handling equipment.
       Stores layout should encourage the FIFO
       Due space should be left for expansion purposes.
       A pleasing and hygienic environment must be
provided within store room
       Adequate lighting arrangement should be provided.
•Adequate safety arrangement should be provided.