ADDIS ABABA UNIVERSITY

ADDIS ABABA INSTITUTE OF TECHNOLOGY

SCHOOL OF MECHANICAL AND INDUSTRIAL ENGINEERING

Industrial Management and Engineering Economy (Meng 5242)

Acadamic Year 2020/21
Instructor: Nahom Mulugeta

Chapter Four (Materials Management) check points with short highlights

1. Describe what is meant by materials management?
- Materials management is the planning, organizing and controlling of the flow of
materials from its initial purchasing stage, through internal operations, to the
distribution of finished goods to the market place.
2. Describe the difference and similarity of purchasing and procurement
- Purchasing implies the act of exchange of goods and services for money, whereas
procurement is a generic term with a wider connotation for the total responsibility
of acquiring goods and services OR
- Procurement refers to the process of identifying, shortlisting, selecting, and
acquiring suitable goods or services or works from a third party vendor through a
direct purchase, competitive bidding, or tendering process while ensuring timely
delivery in the right quality and quantity
- Purchasing is the set of functions associated with acquiring the goods and services
that an organization requires. Purchasing is a small subset of the broader
procurement function. This process includes activities like ordering, expediting,
receiving, and fulfilling payment
3. List and describe basic principles of purchasing
 Buying the right quality………
 Buying the right quantity……..
 Buying at the right price……..
 Buying from the right source……..
 Buying at the right time and place…..
4. List and describe procedures of purchasing
 Origination of Purchase Requisition (PR)…..
 Verification of Authority and Budget Expediting and follow-up…….
 Request for Quotation or Bids /Price Quotation/……..
 Evaluation of Bids & Selection of Suppliers…….
 Issuing of Purchase Order……
 Follow-up and expediting the Order…..
 Receiving, Inspecting and Storing…..
 Closing the Order…..
5. Describe what is mean by Inventory
 Inventory is generic term for the goods available for sale and various raw
materials used to produce goods/service
6. List and describe types of Inventory
 Raw material…..Purchased but not processed
 Work-in-process……Undergone some change but not completed
 Maintenance/repair/operating (MRO)….Necessary to keep machinery and
processes productive
 Finished goods…..Completed product awaiting shipment
7. What are functions of Inventory?
 To decouple or separate various parts of the production process
 To decouple the firm from fluctuations in demand and provide a stock of
goods that will provide a selection for customers
 To take advantage of quantity discounts
 To hedge against inflation
8. What is inventory control?
 It refers all aspects of managing a company’s inventories: purchasing,
shipping, receiving, tracking, warehousing and storage, turnover, and
reordering
9. Inventory control basically deals with two problems: When should an order be placed
and how much should be ordered (True/False)
10. What are objectives of inventory control? Read slides 9 and 10
11. Discuss the most widely used method of inventory control, ABC analysis.
 ABC analysis is an inventory categorization technique on the basis of annual
ETB volume. It divides an inventory into three categories—"A items" with
very tight control and accurate records, "B items" with less tightly controlled
and good records, and "C items" with the simplest controls possible and
minimal records.
12. Explain/describe independent and dependent demand by giving examples.
 Independent demand - the demand for item is independent of the demand
for any other item in the inventory. Examples of Independent demand items
are finished products/services
 Dependent demand - the demand for item is dependent upon the demand for
some other item in the inventory. Examples of Dependent demand items are
various input materials used internally to produce a final product/service.
13. List and discuss Inventory models which are used to determine when and how much
order
 Basic economic order quantity (EOQ)……
 Production order quantity (POQ)…….
 Quantity discount model (QDM)……..
14. List and discuss the four basic costs associated with inventory
 Ordering and setup costs: are expenses for placing orders, expediting,
inspection and changing or setting up facilities for homemade production.
  Carrying costs: on invested capital cover storage, handling, insurance, taxes,
obsolescence, spoilage and data-processing costs.
 Item/Purchase costs: include the price paid, or the labor, material and
overhead charges necessary to produce the item.
 Stock out cost: results from lost sales and possibly lost customers as a result
of the variation in demand during lead time and the forecast
15. What is reorder point?
 A reorder point (ROP) is the minimum unit quantity of items that a
manufacturing enterprise/company should have in available inventory before
it needs to reorder more items.