27-Jul-20

CE 4023 Construction Practices and

Management
Md. Ashraful Alam
Assistant Professor, Department of CE, UU

Material Management

Inventory Transportation

Cost
of the
Customer Service
Service

Md. Ashraful Alam, Assistant Professor,

 27-Jul-20

Material Management

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.
Each step is vital. The aim of Material Management is:
is:
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

Material Management
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
Objective of MM
of client services • Right price
• High turnover
• Low procurement
storage cost
• Continuity of supply
• Consistency in quality
• Good supplier relations
• Development of personnel
• Good information system

Md. Ashraful Alam, Assistant Professor,

 27-Jul-20

Objective of material management

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

Material Management
Four basic needs of Material management
1. To have adequate materials on hand when needed
2. To pay the lowest possible prices, consistent with quality and value
requirement for purchases materials
3. To minimize the inventory investment
4. To operate efficiently

Elements of material management

1. Demand estimation
2. Identify the needed items
3. Calculate from the trends in Consumption during last 2 years.
4. Review with resource constraints

Md. Ashraful Alam, Assistant Professor,

 27-Jul-20

Spectrum of Control
The underlying spectrum is to provide effectiveness to a function that
must start from planning stage and will end when the finished product is
finally distributed:
distributed:
1. Planning sets the Goal and indicates the available sources of finance
finance..
2. Scheduling specifies the requirements, the quantum and the delivery
schedules..
schedules
3. Purchasing and Procurement select and retain vendors;
vendors; and contracts
with them
them..
4. Inspection and Quality control conduct test checks for conformance to
specifications..
specifications
5. Stores and Inventory control determine inventory status, undertake
maintenance and upkeep.
upkeep.
6. Material Handling controls physical movement at any stage the
material is.
is.
7. Distribution Logistics controls flow and distribution, and finally,
traffic, shipment and despatch conclude with final delivery
delivery..

Inventory

• Typically Inventory implies a list of items held in stock.

stock.
Stock implies the Quantity of a particular item on hand.
hand.

• Inventory is a stock of Materials used to facilitate

Production or to satisfy Customer demands.
demands. It include Raw-
Raw-
materials, Work
Work--in
in--progress and Finished goods
goods..

• Inventory acts as a buffer between the demand and supply

rates of different nature
nature..

• Inventories are vital

to the successful functioning
of Manufacturing &
Retailing organisations
organisations..

Md. Ashraful Alam, Assistant Professor,

 27-Jul-20

Type of Inventory

• Raw Material and Production Inventories: These are raw

materials and other supplies, parts and components which
enter into the product during the production process and
generally form part of the product.
• In
In--process Inventories: These are semi-
semi-finished materials,
and partly finished products formed at various stages of
production. Also named as Decoupling Inventories to
decouple or disengage different parts of the production
system.
• MRO Inventories
Inventories:: Maintenance, repairs and operating
supplies which are consumed during the production process
and generally do not form part of the product itself are
referred to as MRO Inventories. e.g. oils and lubricants,
machinery and plant spares, tools and fixtures etc.

Type of Inventory

• Lot-
Lot-size Inventories
Inventories:: It is a common practice to buy some
raw materials in Large quantities than are necessary for
immediate need in order to avail quantity discounts and
lowering down costs of buying, receiving, inspection,
transport and handling
handling.. It is also termed as Cycle inventories.
inventories.
• Fluctuation Inventories
Inventories:: In order to cushion against
unpredictable fluctuation in demand these are maintained
maintained.. The
general practice of serving the customer well is the reason for
holding such Inventories.
Inventories. But they are not absolutely essential
in the sense that such stocks are always uneconomical
uneconomical..

Md. Ashraful Alam, Assistant Professor,

 27-Jul-20

Type of Inventory

• Anticipation Inventories
Inventories:: In case of seasonal variations in the
availability of some raw materials, it is convenient and also
economical to build up stocks where consumption patterns
may be reasonably uniform and predictable.
predictable. Such inventories
are carried to meet predictable changes in demand.
demand.

6 types of inventory

Inventory Control System

Inventory control system is either Manual or Computerized or a

combination of two. It performs following functions:

1. Transaction Accounting: Every Inventory system requires a

method of record keeping, which must support the accounting
needs of the organization and the inventory management
function.
It requires the Perpetual (never ending or changing) records be
kept by recording every disbursement and receipt. In some other
cases, periodic counts e.g. annual of the inventory may be
required.
Whatever the exact method used, every Inventory control system
requires a suitable transaction accounting to follow with.

Md. Ashraful Alam, Assistant Professor,

 27-Jul-20

Inventory Control System

2. Inventory Decision Rules: A decision system is to be developed

regarding when and how much to order

3. Exception Reporting: A reporting system so as to alert

Management to changing assumptions e.g. Stockouts, Excessive
Inventory, Forecasting not meeting demand schedules

4. Forecasting: Judgment plays a Vital role in forecasting,

however, to modify Quantitative forecasts for unusual events

5. Top Management Reporting: The reports should include (a)

costs of operating the Inventory, (b) Investment levels at a time
compared with other periods, (c) the Service levels provided to
customers etc.

Selective Inventory Control (SIC)

• ABC Inventory Classification: The rationale of ABC

classification is the impracticality of giving an equally high
degree of attention to the record of every inventory item, due
to limited information- processing capacity

But, in a modern computerized well-implemented planning

system, every item, irrespective of its cost and volume, can
receive the same degree of care and attention

ABC analysis leads to classification of Inventory items on the

basis of their USAGE in monetary terms
A – High consumption value items .
B – Moderate consumption value items.
C – Low consumption value items.

Md. Ashraful Alam, Assistant Professor,

 27-Jul-20

Selective Inventory Control (SIC)

A B C
% age of items 10-20 20-30 60-70
% age of value 70-85 10-25 5-15

Where should we focus? Concentrate?

• FSN Analysis: FSN Study may be made to weed out

(discard/remove) unwanted materials and parts. It is based on the
Consumption pattern of items

F - stands for Fast

S - stands for Slow moving
N - stands for non-moving materials and parts
This speed classification helps in the arrangement of stocks in the
stores and in determining the distribution and handling patterns

Selective Inventory Control (SIC)

• VED Analysis: VED Analysis is also the same in principle.

The only difference is that it finds out which materials and
parts are valuable, which are essential, and which are desirable.
Inventory items are classified on the basis of their criticality to
the production process or other services.
V – Vital items without which the production process would
come to a standstill
E – Essential items whose stock-out might cause temporary
losses in production.
D – Desirable items which are required but do not immediately
cause a loss of production.
This is also essentially meant for a sizeable reduction in
inventory

Md. Ashraful Alam, Assistant Professor,

 27-Jul-20

Selective Inventory Control (SIC)

• HML Analysis: Similar to the ABC analysis except that the items
are classified on the basis of Unit Cost rather than their Usage
value.
H stands for High cost per unit.
M stands for Medium cost per unit.
L stands for low cost per unit.
• SDE Analysis: SDE Analysis works on the criteria of availability
of items.
S stands for Scarce items
D stands for Difficult to obtain
E stands for Easily available
• S-OS Analysis: This analysis is based on the nature of Supplies.
S stands for Seasonal items
OS stands for Off-seasonal items

Selective Inventory Control (SIC)

• GOLF Analysis: This analysis is based on the Source of Supplies
G stands for Government Sources
O stands for Ordinary Sources
L stands for Local Sources
F stands for Foreign Sources
This is meant for deciding Procurement of materials from different
sources.

• XYZ Analysis: XYZ analysis is based on the criteria of Closing

Inventory value of different items.
X – Items whose Inventory value is high.
Y – Items whose Inventory value is neither too high nor too low.
Z – Items with Low investments in them.
Summary: The various types of analysis are not mutually exclusive.
They can be, and often are, used jointly to ensure better control over
MATERIALS

Md. Ashraful Alam, Assistant Professor,

 27-Jul-20

Summary of SIC
TITLE BASIS MAIN USES

ABC Analysis Usage value To control on the Significant few &

the Insignificant many
FSN Analysis Consumption pattern To control Obsolescence
of the Component
VED Analysis Criticality of the To determine the Stocking Levels of
Component Spare parts

HML Analysis Unit Price of the To control purchases

Material
SDE Analysis Problems faced in Lead-time analysis and Purchasing
Procurement Strategies
SOS Analysis Nature of Supplies Procurement/ Holding Strategies for
Seasonal items like Agricultural
products
GOLF Analysis Source of material Procurement Strategies
XYZ Analysis Value of items in To review the Inventories and their
Storage Uses at Scheduled intervals

Md. Ashraful Alam, Assistant Professor,