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The most common & highly interchangeable word for the physical entity which contributes to manufacturing of the nished or seminished product from the manufacturing facility is call material, also teamed as raw material.
Material Cost:
The cost associate to the material is called material cost.
Inventory Control
What is Inventory ? Inventory includes stock of raw materials, work in progress and nished work. As per The lnstitute of Chartere Accountants of lndia dene inventory as "tangible property held (i) for sale in the ordinary course of business or (ii) in the process of production for sale or (iii) for consumption in the production of goods or service for sale, including maintenance supplies and consumables other than machinery spares."
viii) Re-order quantity for the material. ix) Price advantage arising out of bulk purchases should be availed. Maximum stock level can be calculated as follows: Maximum stock level = Re-order level + Re-ordering quantity - (Minimum consumption x Minimum reorder period).
Minimum level = Re-order level- (Normal consumption x Normal re- order period).
Ordering level= Minimum level+ Consumption during time lag period Or Ordering level= Maximum consumption x Maximum re-ordering period. The ordering level should be xed so that when an indent is placed at the ordering level, the stock reaches the minimum level when the replenishment is received. The ordering level is calculated from the following factors: (i) The expected usage. (ii) The minimum level. (iii) The lead time. The order point is calculated keeping in mind the worst conditions so that minimum stock is always maintained.
E.O.Q =
(2U*P) / S
= Annual consumption (units) during the year. = Cost of placing an order. = Annual cost of storage of one unit.
Where:
While deciding the question as to what should be the economic ordering quantity one has to ensure that the cost incurred should be minimum. An ideal order size, therefore, is at the quantity where the costs is minimum i.e., cost of holding the stock and ordering cost intersect each other.
Stock Valuation
Stock valuation is the ascertainment of quantities of stocks e.g. raw materials consumable stores, semi-nished components, work-in-process, nished goods, etc. and valuing them on an equitable basis.
Advantages:
(i) Simple and useful when transaction are few. (ii) A systematic method, matches current costs with current revenues in a better way (iii) Reveals real income in times of rising prices.
(iv)It minimizes unrealized inventory gains and losses and tends to stabilize reported operation prots especially when the industry is prone to sharp price uctuations.
Disadvantages:
(i) When rates of material receipts are highly uctuating, the method becomes complicated. (ii) Cost of different batches vary greatly, making inter-rm and intra-rm comparison difcult. (iii) The stocks require to be adjusted during falling prices. (iv) Unless purchases and sales occur in equal quantities the currentcosts, cannot be easily matched with current revenue. (v)The company can plan the purchases to cause high or low costs thus changing reported income at will.
Waste
Waste comprises of invisible loss, visible loss that cannot be collected and also the unsaleable portion of the collected loss. Waste is excluded from output quantity. Examples of waste are smoke, dust, gases, slag, etc. In certain cases, the waste involves further costs of disposing it, e.g. cost incurred for disposal of efuent, obnoxious gases, nuclear waste etc.
Scrap
Scrap represents the unusable loss which can be sold. It is a residue which is measurable and has a minor value. It may result from the processing of materials, obsolete stock or defective parts. The sale value is credited to the concerned department which produced it. If the value is negligible, it is credited to the costing prot and loss account.
Spoilage
Spoilage are those materials or components which are so damaged in the manufacturing process that they cannot be repaired or reconditioned. Some spoilage may be sold as seconds. If they are badly spoiled they can be sold as waste or scrap. Spoiled units do not attain the quality required and it is not economic to correct them.Spoilage occurs due to some defect in operations or materials. Sometimes the entire production in a batch may have to be rejected or a part of it may be rejected.
Quality factors include: Compliance with purchase order. The vendor should comply with terms and conditions as stated in the purchase order. Does the vendor show an understanding of the customer rm's expectations? Conformity to specications. The product or service must conform to the specications identied in the request for proposal and purchase order. Does the product perform as expected? Reliability. Is the rate of product failure within reasonable limits? Reliability of repairs. Is all repair and rework acceptable?
Durability. Is the time until replacement is necessary reasonable? Support. Is quality support available from the vendor? Immediate response to and resolution of the problem is desirable. Warranty. The length and provisions of warranty protection offered should be reasonable. Are warranty problems resolved in a timely manner? State-of-the-art product/service. Does the vendor offer products and services that are consistent with the industry state-of-the-art? The vendor should consistently refresh product life by adding enhancements. It should also work with the buying rm in new product development.
Delivery factors include the following: Time. Does the vendor deliver products and services on time; is the actual receipt date on or close to the promised date? Does the promised date correspond to the vendor's published lead times? Also, are requests for information, proposals, and quotes swiftly answered? Quantity. Does the vendor deliver the correct items or services in the contracted quantity? Lead time. Is the average time for delivery comparable to that of other vendors for similar products and services? Packaging. Packaging should be sturdy, suitable, properly marked, and undamaged. Pallets should be the proper size with no overhang. Documentation. Does the vendor furnish proper documents (packing slips, invoices, technical manual, etc.) with correct material codes and proper purchase order numbers? Emergency delivery. Does the vendor demonstrate extra effort to meet requirements when an emergency delivery is requested?
Finally, these are service factors to consider: Good vendor representatives have sincere desire to serve. Vendor reps display courteous and professional approach, and handle complaints effectively. The vendor should also provide up-to-date catalogs, price information, and technical information. Does the vendor act as the buying rm's advocate within the supplying rm? Inside sales. Inside sales should display knowledge of buying rms needs. It should also be helpful with customer inquiries involving order conrmation, shipping schedules, shipping discrepancies, and invoice errors. Technical support. Does the vendor provide technical support for maintenance, repair, and installation situations? Does it provide technical instructions, documentation, general information? Are support personnel courteous, professional, and knowledgeable? The vendor should provide training on the effective use of its products or services. Emergency support. Does the vendor provide emergency support for repair or replacement of a failed product. Problem resolution. The vendor should respond in a timely manner to resolve problems. An excellent vendor provides follow-up on status of problem correction.
Just in Time
Just in Time, or JIT is a set of techniques to improve the return on investment of a business by reducing in-process inventory, and its associated costs. The process is driven by a series of signals, or Kanban that tell production processes to make the next part. Kanban are usually simple visual signals such as the presence or absence of a part on a shelf. JIT causes dramatic improvements in a manufacturing organization's return on investment, quality, and efficiency. The technique was rst adopted and publicized by Toyota Motor Corporation of Japan as part of its Toyota Production System (TPS). Japanese corporations cannot afford large amounts of land to warehouse nished products and parts. Before the 1950s this was thought to be a disadvantage because it reduced the economic lot size. An economic lot size is the number of identical products that should be produced, given the cost of changing the production process over to another product. The undesirable result would be a poor return on investment for a factory. The chief engineer at Toyota in the 1950s examined accounting assumptions, and realized that another method was possible. The factory could be made more exible, reducing the overhead costs of retooling, and therefore reducing the economic lot size to the available warehouse space. Over a period of several years, Toyota engineers redesigned car models for commonality of tooling for such production processes as paint-spraying and welding. Toyota was one of the rst to apply exible robotic systems for these tasks. Some of the changes were as simple as standardizing the hole sizes used to hang parts on hooks. The number and types of fasteners were reduced in order to standardize assembly steps and tools. In some cases identical subassemblies could be used in several models. Toyota engineers then determined that the remaining critical retooling operation was the time First! o change the t stamping dies used for body parts. Traditionally, these were adjusted by hand, with crowbars and wrenches. It sometimes took as long as several days to install a large (multi-ton) die set and achieve acceptable quality. Further, these were usually installed one at a time by a team of experts, so that the line would be down for several weeks. Toyota implemented a program called "The Single Minute Exchange of Die," SMED. With very simple xtures, measurements were substituted for adjustments. Almost immediately, die change times fell to about a half hour. At the same time, quality of the stampings became controlled by a written recipe, reducing the skill required for the change. Analysis showed that the remaining time was used to search for hand tools, and move dies. Procedural changes (moving the new die in place with the line in operation) and dedicated tool-racks reduced die change times to as little as 40 seconds. Dies were changed in a ripple through the factory, as a new product began owing. After SMED, economic lot sizes fell to as little as one vehicle in some Toyota plants. Carrying the process into parts-storage made it possible to store as little as one part in each assembly station. When a part disappeared, that was used as a sign to produce or order a new part. Effects Some surprising things occurred. A huge amount of cash appeared, apparently from nowhere, as in-process inventory was built out and sold. This by itself generated tremendous enthusiasm in upper management. Another surprising effect was that the response time of the factory fell to about a day. This improved customer satisfaction by providing vehicles usually within a day or two of the minimum economic shipping delay. Also, many vehicles began to be built to order, completely eliminating any risk that they would not be sold. This dramatically improved the company's return on equity by eliminating a major source of risk. Since assemblers no longer had a choice of which part to use, every part had to t perfectly. The result was a severe quality assurance crisis, and a dramatic improvement in product quality. Eventually Toyota redesigned every part of its vehicles to eliminate or widen tolerances, while simultaneously implementing careful statistical controls. (See Total Quality Management). Toyota had to test and train suppliers of parts in order to assure quality and delivery. In some cases, they eliminated multiple suppliers. When a process problem or bad parts surfaced on the production line, the entire production line had to be slowed, or even stopped. No inventory meant that a line could not operate from in-process inventory while a production problem was xed. Many people in Toyota condently predicted that the initiative would be abandoned for this reason. In the rst week, line stops occurred almost hourly. However, by the end of a month, the rate had fallen to a few line stops each day. In six months, line stops had so little economic effect that Toyota had an overhead pullline, similar to a bus bell-pull, that permitted any worker on the production line to order a line stop for a process or quality problem. Even with this, line stops fell to a few per week.
The result was a factory that became the envy of the industrialized world, and which has since been widely emulated.
Kaizen
Kaizen (pronounced ki-zen) is a Japanese word constructed from two ideographs, the rst of which represents change and the second goodness or virtue. Kaizen is commonly used to indicate the long-term betterment of something or someone (continuous improvement) as in the phrase Seikatsu o kaizen suru which means to better ones life. The term Kaizen is used in two ways. The rst use is consistent with the phrase continuous improvement. The second use is as the label for a group of methods that improve work processes.
Kanban
Method
The Kanban Method denes my approach to incremental, evolutionary change for technology development/ operations organizations. It uses a work-in-progress limited pull system as the core mechanism to expose system operation (or process) problems and stimulate collaboration to improve the system. One example of such a pull system, is a kanban system, and it is after this popular form of WIP limited pull system that the method is named. 1. Visualize the workow 2. Limit WIP 3. Manage Flow 4. Make Process Policies Explicit 5. Improve Collaboratively (using models & the scientic method) Kanban is directly associated with Just-In-Time (JIT) delivery. However, Kanban is not another name for just-in-time delivery. It is a part of a larger JIT system. There is more to managing a JIT system than just Kanban and there is more to Kanban than just inventory management. For example, Kanban also involves industrial re-engineering. This means that production areas might be changed from locating machines by function, to creating "cells" of equipment and employees. The cells allow related products to be manufactured in a continuous ow. Kanban involves employees as team members who are responsible for specic work activities. Teams and individuals are encouraged participate in continuously improving the Kanban processes and the overall production process.