Unit IV Key words Material Management: Material Management as the management of the flow of material into an organization to the

e point, where, the materials are converted into the firms end products. Objectives of Material Management: 1. Primary objectives 2. Secondary objectives Primary Objectives: Low Price High inventory turnover Low cost of acquisition and possession Continuity of Supply Consistency of Quality Low payroll cost Favorable supplier relations Development of personnel Good records Secondary Objectives: Reciprocal relations New materials and products Economic make or buy Standardisation Product improvement Interdepartmental harmony Forecasts Acquisition

Material Planning: Scientific way of determining of raw material, components, spares and other items that go into meeting production needs with economic investment policies Factory affecting material planning 1. Macro factor 2. Micro factor Macro Factor - Price trends - Business cycle - Government import policy - Credit policy

Micro Factor - Corporate objectives - Plant capacity utilization - Rejection rates - Lead time - Inventory level - Working capital seasonality - Delegation of process - Communication System

Techniques of Material Planning: Bill of Materials Past Consumption Analysis

BOM

Forecasti ng Techniqu

Sales Forecast

Explosion Chart

Weighted Average Exponential Smoothing Trend Analysis Correlation

Product requirements Product Mix Product Structure

Requirements of Materials

Delivery schedules for Materials

Material Budgeting: A forecast requirement of material is prepared based on forecast demand and the production plan
Requirements of Materials Inventory of Material on hand

Inventory Normal target

Amount of Material to be purchased

Forecast of price and rates

Purchase Budget

Actual Purchase

Variance reporting for control

Material Control: Steps taken to reduce the amount of loss of materials at the time of receiving, storing and issuing to production Objectives: Ensure requisite quality of material Ensure regular supply of materials form vendors and source Ensure proper classification and storage of materials Ensure minimum wastage of material during storage and use

Function Areas of Material Management: Functions: Planning and sourcing Budgeting Research and Analysis Indenting and processing Receiving, storing and preserving Accounting and controlling Issuing and dispatching Disposing 1. Material management as prime corporate function 2. Material management as a operating function Board of Directors Chief Executives

Personnel Manager

Finance Manager

Material Manager

Production Manager

Marketing Manager

Purchase Officer

Receiving department

store department

Material handling

Traffic section

Shipping section

Overview of Material Management Information System (MMIS): It collects information on the attributes and condition of components of an infrastructure and enters them into a database Objectives: Material intelligence should be a subsystem of total corporate information system Selection of right quality of information Continuous supply of material Cost and benefits MMIS selection decision process: It obtain many impartial, first rate opinion Keep up with market by reading rate publication Form meeting with everyone Narrow the list of vendor most applicable system Ask vendors to come in and perform demonstration Once the system determined ask vendor many questions Before purchasing of MMIS look to the future Internal information for MMIS -Material planning - MRP & BOM - Sales forecast - Material Budget - Accounting information cost - Policy criterion make-buy-lease - Quality specification - Production scheduling - Purchase planning - Inventory control - Stock details and verification - New product development and New requirements -lead time -consumption norms -credit, discounts and bills payment -audit -packing, handling and transportation cost -shelf life and storage space - buyer seller relationship -Custom, excise, insurance and sales tax producer -training and reports - Management style External information for MMIS - Market condition -Total demand and supply at macro level -constant updating of price, ss and dd -Source of supply - supplier capacity and their production rate - price, discounts, sales tax and inflation - cost of living and wholesale price index - stock market - cost of transportation - Monetary policy - technological innovation - Taxation

Purchasing: The term purchasing refers merely to the act of buying an item at price

Importance of purchasing: - It is fundamental function in an industrial establishment - Cost of materials saved through efficient buying - More than 50% of earnings are spend for purchase - It increase proportion of requirements - It contributes to import substitution and save foreign exchange - Timely execution of industrial projects - Keystone of material management - It contributes to four factors namely Post war shortage, cyclical swing, heavy competition and international scope Objectives: - Low price - Keep inventory low - Develop satisfactory source - Good vendor performance - Locate new material required - Develop good procedures - Implement value analysis and cost analysis - Secure personnel caliber - Keep top management informed - Achieve high degree of cooperation with other department Purchasing Functions: 1. Responsibilities often fully delegated to the purchasing function: - Obtaining prices - Selecting vendors - Awarding purchase orders - Following up on delivery promises - Adjusting and settling complaints - Selecting and training of purchasing personnel - Vendor relations 2. Responsibilities often shared with functions other than purchasing function: - Obtaining technical information and advice - Establishing specifications - Scheduling orders and deliveries - Inspecting - Specifying delivery method and routing - Expediting - Accounting - Purchasing and market research - Inventory and warehousing - Forward buying and hedging policies - Service contracts and agreements

- Sale of scrap,salvage and surplus - Purchasing for employees - Contracting for machines and equipment - Transporatation and traffic - Determine make or buy - Customes 3. Responsibilities often divorced from purchasing but of particular interest to purchasing - Receiving and warehousing - Payment of invoice Purchasing Policies: Ancillary Development Make-orbuy Speculative buying Vendor rating Ethics in purchasing Reciprocity Purchasing for employees Gifts Value analysis

Vendor Rating: The ability to select reliable vendors is a mark of successful purchasing action. Vendor Rating Techniques or Methods: Factors to be consider with rating the vendors Price Discounts received Maintenance of specifications Compliance iwht other specifications Promptness of delivery Freight and delivery charges Installation costs Service Market information Co-operation Management competence Credit terms Disposition of rejects Employee training

 Cost reduction suggestions Inventory plans Financial position Techniques or methods: 1. Categorical plan 2. The weighted point plan 3. Critical incidents methods 4. Checklist system Buyers checklist for evaluating vendors Reliability, technical capabilities, after sale service, availability, buying convenience and sales assistance. Value analysis: It is a systematic application of recognized techniques which identify the function of a product or service, establish a monetary value for the function and jprovide the necessaryfunction reliably at the lowest overall cost Value refers to economic value, it consist of 4 types Cost value Exchange value Use value Esteem value

Value = Performance (Utility) / Cost

Functions 3 types Primary function Secondary function Tertiary function Value analysis procedure Blast (i) Identify the product (ii) Collect relevant information (iii)Define different functions Create Refine (iv) Different alternatives (v) Critically evaluate the alternatives (vi) Develop the best alternative (vii) Inplement the alternative

Store Management: Nature Store as a building where goods are kept. Stores is defined as supplies of goods and storage is defined as the act of storing the goods.

Storage is the function of receiving, storing and issuing materials Involves supervision clearance of incoming supplies It ensures to maintained in good condition, safely and in readiness for use when required It issue goods against authorised requisitions It is connected with physical handling and well-being of stocks It store not only the purchased materials but also the finished goods, semi finished goods, spares and consumables

Store layout: Store layout is a fundamental factor in determining the efficient performance of the department. The following factors deserve serious consideration, while planning the store layout. Provision for easy receipt, storage and disbursement of materials, nearness to point of use Minimum handling and transportation of materials, good accessibility for handling equipment and personnel Adequate capacity provision, flexible for future expansion Efficient utilization of floor space and height Clear identification of materials, quick location of items and ease of physical counting Protecting against waste, deterioration, damage and pilferage Design of the buildings physical appearance invites business Arrange storage for fast and easy customer order processing Use compatible storage or display equipment to create good interior appearance Install good lighting Shelf life rotation to permit first-in-first-out control Ensure safety Maintain a periodic house-keeping and re-arrangement plan. Two aspects of store layout are significant (i) Storage system dealing with a number of interacting and often conflicting factors 3 basic ways of locating stock: Fixed location Random location Zoned location (ii) Type of store layout Comb type layout Tree type layout

Stock

---------------------------Aisle-------------------------------------------------------------Comb type layout

Stock

----------------------------------------------------------------------------------------------Tree type layout Types of stores Main or Centralized stores Branch or Decentralized stores Central store with sub-stores Tool and Miscellaneous stores Warehouses

Store Procedure
Material Planning Receipt of Material Receipt procedure Storage of Inventory Records Valuation of stock and Stock Verification Stores Preservation and

Classification and codification: Good store-keeping requires proper classification and codification of various items stored in stock Advantages:

-Correct identification -Usage of long descriptions is simplified and possible confusion avoided -Avoids duplicate stock -Enables reduction in size and varieties -Standardizations of materials -Used as a basic for setting up different stores -To arrange bin cards and records in stores, accounts and inventory control sections in the same -uniform manner -Ensure accuracy in correspondence, records and posing of receipts and issues in appropriate records Methods of classification and codification: It is classified on the basis of nature or usage specific group Raw-materials Components Consumable stores Spare parts Tools Packing materials Work-in-process Finished goods Hardware Motors Gearbox CKD Completely knocked down items

Methods of Codification: Alphabetical system Numerical system Simple number, Block number and Dash/Stroke number Decimal System Combined Alphabetical and Numerical system Brisch System Kodak System Principles: Consistency so that basis of classification should remain unchanged for all items Classification covers the entire range of items Mutual exclusiveness System developed should be simple enough Inventory

The term inventory includes materials raw, in process, finished packaging, spares and others stocked in order to meet an unexpected demand or distribution in the future. Objectives: Operating Objectives -Availability of Materials -Minimizing the wastage -Promotion of Manufacturing efficiency -Better service to customer -Control of production level -Optimal level of inventories Financial Objectives -Economy in purchasing -Optimum investment and efficient -Use of capital -Reasonable price -Minimizing cost

Other objectives To identify the Need for finished goods inventories To facilitates transit and handling To isolate the supplier, the producer and the consumer To reduce material handling cost To facilitate product display or service to customer Inventory costs: 1. Ordering costs (a) Cost of placing an order with a vendor of materials (b) Ordering from the plant 2. Carrying costs (a) Costs connected directly with materials (b) Financial costs Capital costs Storage space costs Inventory service costs Handling-equipment costs Inventory risk costs 3. Out-of-stock costs 4. Capacity costs Inventory cost and control techniques: ABC classification Always better control HML classification High, medium and low VED classification Vital, essential and desirable SDE - Scare, difficult and easy to obtain FSN Fast moving, slow moving and non-moving EOQ- Economic order quantity Max-minimum system Two bin system MRP Materials requirement planning

JIT- Just in time

Overview of JIT: Philosophy that focuses attention on eliminating waste by purchasing or manufacturing just enough of the right items just in time Characteristics of JIT To meet customer demand Minimized the lead time Reduction in raw-material, work-in-process and finished goods inventories Keep balanced inventory level\ It involves the use of visible signals Eliminating the waste Seven wastes Waste of overproduction Waste of waiting Waste of transportation Waste of processing itself Waste of stock Waste of motion Waste of making defective products Components/Elements of JIT 1. People involvement Stockholder and owners Employees and unions Management Government 2. Plant Plant layout Multifunction workers Kanbans Demand pull production 3. System MRP and MRP II Production smoothing Standardization Total Quality Control JIT Advantages - Reduce lead time - Prompt delivery - Improved product quality - Exact delivery schedule Disadvantages - Cultural difference affects JIT - Loss of individual autonomy - Depends only on cooperation of employees - There is no flexibility

Reduce defects rate Reduced inventory level Waiting time reduced Satisfying market demand Flexibility in resource utilization Reduce waste Effective communication

- No safety stock -daily demand are fairly stable

Unit 5 Facility location: Or Plant location The function of determining where the plant should be located for maximum operating economy and effectiveness -Prof. R. C. Davis Location Theories: Alfred Weber theory Degglomerating factors Agglomerating factors

Steps in selection location 1. Deciding on domestic or international location 2. Selection of region Availability of raw materials Nearness to the market Availability of power Transport facilities Suitability of climate Government policy Competition between states 3. Selection of community Availability of labour Civic amenities for worker Existence of complementary and competing industries Finance and research facilities Availability of water and fire-fighting facilities Local taxes and restrictions Momentum of an early start Personal factors

4. Selection of the site Soil, size and topography Disposal of waste Location Models Factor rating method Point rating method Break-even analysis Quantitative factor analysis Load distance method Centre of gravity Facility layout: