Unit 3 Materials Management-Rev-01-2019

UNIT-3MATERIALS MANAGEMENT, INDUSTRIAL MANAGEMENT (15ME51T) 5th SEM MECH.
Page 1 of 25
DEEKSHITH KUMAR U R, L/ME, KVGP SULLIA, webpage: deemechkvgp.wordpress.com [REV-01] 2019

UNIT-3MATERIALS MANAGEMENT, INDUSTRIAL MANAGEMENT (15ME51T) 5th SEM MECH. Page 2 of 25

Material management - definition, functions- Purchase - Objectives, different methods of

purchasing -Purchase procedure-Comparative statement-purchase order-Tender-Types of tender-
Storekeeping- classification of stores - Functions of store keeper. Store management-Bin Card -
Material Issue Requisition- Material Returned Note- Store ledgers -Codification of stores-Inventory
Management- Definition - functions of Inventory Control- Advantages of Inventory Control
Enterprise resource planning - concept, features and applications.- Material Requirement Planning
(MRP)-concept, applications -Just in Time (JIT)-concept and benefits-Supply chain management-
concept and benefits –FIFO(first in first out) concept-definition
MATERIAL MANAGEMENT
 It is a function which aims towards the management of materials in an industry to
achieve higher productivity
 It involves controlling of type and amount of materials required, their location,
movement and time of purchase
 It helps the manager to improve productivity by reducing material costs
 It improves capital turnover ratio
FUNCTIONS OF MATERIAL MANAGEMENT

1. Material planning and programming
2. Purchasing of material.
3. Receiving and warehousing of materials
4. Storage and store keeping
5. Inventory control
6. Simplification, standardization and value analysis
7. External and internal transportation
8. Disposal of scrap and excess materials
OBJECTIVES OF MATERIAL MANGAEMENT

 To minimize the material cost
 To provide materials of desired quality at low rate
 Maintaining continuity in production
 Ensuring uniform flow of materials
 Efficient control over inventories (records or accounts)
 Maintaining buyer-seller-relationship
 Ensuring low departmental cost and high efficiency
 To study quantity, consumption and cost of materials
 To minimize cost of production
 Maintain a procedure to minimizes delay in purchase of materials
PURCHASE:
 Purchase means buying of equipment’s, materials, parts etc., required for industry.
 This is very important function of the industrial activity.
 Careful buying helps in reducing the cost of materials and thereby increasing the profit.
FUNCTIONS OF PURCHASE DEPARTMENT

 To purchase materials only on authorized request
 To purchase good materials at right quantity at right cost at right time
 To purchase materials from good suppliers
 To check that materials are received in right time in right quantity
 To study the market conditions

 To purchase the materials with discounts

 To keep the list of reliable and good suppliers
 To keep list of materials required
 To place the order for the materials before they get exhausted (i.e maintaining minimum
order level)
 To make payments on time to the suppliers
 To obtain quotations and compare those quotations before placing order
 To purchase directly all small items, which do not require quotations.
 To consider the interest of organization first
 To assist purchasing agents, to co-operate, to develop and raise the standards of
purchasing.
OBJECTIVES OF PURCHASING DEPARTMENT.

 To purchase the materials at right quality.
 To purchase the materials at right quantity
 To purchase the material at right time.
 To purchase the material from right supplier.
 To purchase Right quality of material
 To purchase at Right rate.
 To keep inventory investment at minimum
 To develop and maintain good relationship with suppliers.
 To see that payment is made properly to suppliers.
 To have proper flow of materials and services.
TERMS USED IN PURCHASE DEPARTMENT

1. Demand 8. Purchase order
2. Inventory 9. Tender enquiry
3. Requisition 10. Evaluation of tender
4. Procurement 11. Comparative statement
5. Quotation 12. Acquisition
6. Tender 13. Accounts
7. Negotiation 14. Vendor
FORMS USED IN PURCHASE DEPARTMENT

a) Purchase Requisition form
b) Request For Proposal (RFP) or Request For Quotation (RFQ)
c) Purchase Order
METHODS OF PURCHASING
The following are the various methods of purchasing
1. Purchasing strictly by requirement.
2. Purchase for a specific period.
3. Market purchasing.
4. Speculative purchasing.
5. Contract purchasing.
6. Centralized purchasing.
7. De-Centralized purchasing.
8. Purchasing through DGSD (Directorate General of Suppliers and Disposal).

1] Purchasing Strictly by Requirement:

This method of purchasing, the purchase action will be initiated at the time of pure
requirement. When the job is taken to production, then the purchase of necessary items will be
done. This is also known as hand to mouth purchasing.
Advantages:
 The market rate does not affect the purchase.
 Small storage is required.
 Less working capital is required
 The protection of material is easy.
Disadvantages:
 Higher Distribution cost.
 Meeting the sudden demand is a problem
 At the time of production, if the product is not available in the market then the
production will be delayed.
 Because of small requirements, the suppliers will not be interested in negotiating the
price.
 Certain demand cannot be met by the supplier.
 This type or purchase is suitable for only specific period.
2] Purchase for a Specific Period:

In this type of purchase, certain general items which are regularly used are
purchased in sufficient for a particular period of time.
Advantages:
 No delay in production.
 Market fluctuation will not affect the purchase
 Reduce overhead cost.
 Production without any interruption
Disadvantages:
 Much storage space is required.
 Huge amount is required for purchase
 Protection of materials in stores is necessary
 High maintenance cost
 Investment on stores is high.
3] Market Purchasing:
The market purchases are made by studying the market condition. In this case, large
quantity of items is purchased when the price of the item is low.
Advantages:
 Purchasing is done in a lot
 Less distribution cost
 Negotiations can be done because the number of purchase is large.
 Overhead cost is reduced
Disadvantages:
 Large storage place is required.

 Protection of stores is necessary.

 Huge amount is required for purchase
4] Speculative Purchasing:
The speculation means correct estimation of the material requirement. The
purchasing will be done when the cost of the material is declining.
Advantages:
 It avoids stocking of the raw material.
 Less working capital is required
 The market fluctuation will not affect.
 The maintenance of records and files will be easy.
Disadvantages:
 Large storage place is required.
 If the cost of raw material remains same (constant) in the market without declination,
speculative purchasing cannot be applied
 Protection of stores is necessary.
5] Contract Purchasing:
In this method of purchasing, a contract will be made with the supplier to supply the
material for a specific period at an agreeable rate. The contract purchasing is further sub
classified as:
 Rate contract: In a rate contract, the rate of each product is fixed for a specific period i.e.
2-3 years.
 Running contract: In a running contract, the rate as well as the quantity of product to be
supplied is fixed for specific period.
Advantages:
 The rate will not be changed for a particular period.
 There will be a continuous supply of material.
Disadvantages:
 By chance contractor dies or fail to supply the material, the production will be totally
interrupted.
 Large working capital is required
 Increased maintenance cost

6] Centralized Purchasing:
It is applicable if a company having several units in different places having similar
type of production, in this case the company will have central purchasing unit, which can take
care of all the purchase activity. This type of purchasing is known centralized purchasing.
Advantages:
 The cost of material will be low, since the items will be purchased in a large quantity.
 There is a better control of purchase activities.
 Bargaining can be done, there will be discount benefits
 Maintenance of purchase records will be easy.
Disadvantages:
 It is very difficult to supply the material for different places at a time.
 The transportation cost will be higher.
 It requires a lot of time to supply the material at different factory locations.
 Large space is required
 Huge amount of money is required
 Proper maintenance is required
7] De-Centralized Purchasing:
In this type of purchasing, the purchasing action will be taken by respective
purchasing department of various factory units.
Advantages:
 Quick supply of the material.
 The purchase activity is flexible because each factory unit will be alone purchases the
items which are absolutely essential for their priority manner
Disadvantages:
 More staff is required.
 Less quantity of discounts.
8] Purchasing through DGSD (Directorate General of Supply and Disposal):

 The DGSD, whose headquarters are situated in Delhi.
 To avoid unpleasant situation involved in government department, there will be a central
purchasing unit will supply the material requirement at low prices.
 This type of purchase is meant only for government departments.
Advantages:
 Contract rate for purchase remains fixed once every year
 The rate will not be changed for a particular period.
Disadvantages:
 More staff is required to maintain records
 As it comes under government some time there may be delay in supply
 There may be chance of corruption in process
 Only the government department are benefited through this purchase system

PURCHASE PROCEDURE:
1. Receive purchase requisition forms from different shops and departments
2. Finalize the specifications and decide the quantity to be purchased
3. Prepare a list of right suppliers
4. Purchase locally if material is in small quantity
5. If purchase is in large quantity, invite tenders from suppliers
6. Receive tenders and open them at fixed date and time
7. Prepare a comparative statement of tenders
8. Select the best supplier and place orders
9. Send the copy of purchase order to stores, accounts section, inspection section and
department which have requested the material
10. Receive the materials and inspect them
11. If found satisfactory, bill of the supplier is passed and payment made.
***DUTIES OF PURCHASING OFFICER:

The following are the duties of purchasing officer…
1) To maintain the quality standards of purchased material.
2) To organize and direct the purchasing department to work efficiently.
3) To maintain good relationship with the suppliers.
4) To work always for profit of the company.
5) To maintain optimum amount of raw materials in different shops.
6) To reduce the overhead cost and always have in touch with the market.
7) To help in preparation of budget.
8) To purchase the goods at economical rates.
PURCHASE REQUISITION FORM:

Purchase Requisition form contains:
1. What material is required and its quantity
2. Quantity of material to be purchased
3. Date of material required
4. Place of material delivery
 Purchase requisition is the format filled by the person who requires the materials and
shares this format to the person who is responsible for purchasing it.
 The purchase requisition is prepared in triplicate (three copies) and it is duly signed by
authorized individuals only
 It is usually routed (passed) through the stores, to check whether the item is available in
store or not.
 Below fig. is the proforma of purchase requisition form

Purchase Requisition Form
TENDERS
 A tender or quotation is a written offer to provide material at a fixed Price within fixed
period of time.
 Tender aims to give equal opportunities to all vendors
 This system is common in government dept. and public sectors
Tender Enquiry or Notice Inviting Tenders:

After receiving Purchase Requisition, the purchase department selects the method of purchase
A tender enquiry is sent to selected suppliers or published in the news paper
Tender enquiry consists the following details:
1. Instruction to the tenders
i. Place and time of submission of tenders
ii. Place and time of opening the tenders
iii. Time and place of delivery of goods
iv. Quality required, quantity required etc.
v. How the tender is to be submitted
2. General purchase conditions and special purchase conditions
3. Detailed specification and other technical information about the materials to be
supplied
4. Quantity of materials required

Tenders are classified as follows…

1) Single Tender
2) Closed tender or Limited tender
3) Open Tender
1] Single Tender:
 When some important items are required immediately, then tender is invited from a
single reliable supplier.
 The prices are fixed on negotiations.
2] Closed tender or Limited Tender:

 Whenever high quality goods are required, then closed tenders are called.
 Here tender are invited only from limited firms, hence this is known as limited tender.
 Tender notice contains last date of tender, the terms and conditions of supply and
payments.
 If lowest rate is coated by more than one firm, then order is given to the most reliable
firm.
3] Open tender or Unlimited tender:
 Whenever large quantity of items or large work is required to be done, then open tender
are called
 This is also known as unlimited tender.
 Tender notice is published in trade journals to give wide publicity.
 Interested firms will apply for tender from available at certain price.
 Tender form contains last date for receiving tender, date of opening of tender, quantity
required, period and place of delivery, specifications with terms and conditions.
 A certain amount of money is to be deposited by the suppliers as earnest money.

Comparative statement:
A comparative statement is the statement comparing the prices and terms and
conditions quoted by different potential suppliers of the goods provided in the tender
After opening the tenders, a comparative statement of all the tenders is prepared in
the following format…
Specimen Copy for Preparation of Comparative Statement:
 Comparative statement gives all the details including alternative offers, terms and
conditions
 The purchase officer will study the statement, takes advice from experts and finally
selects the best supplier
PURCHASE ORDER (PO):

 Purchase orders are official documents issued by a buyer(purchasing dept.) to a seller
(supplier)
It contains the following:
 Complete description of the required material / equipment
 Quantities
 Agreed prices
 Discounts
 Payment terms
 Taxes and duties
 EMI
 Warranty
 Address
 Date of shipment (delivery)
 Place of inspection

 Other associated terms and conditions

 Specific seller etc.
 A purchase order is one of the best tools you can use to have good inventory
management.
 Once the purchase order is accepted by the seller, it becomes a legal contract binding the
buyer and the seller
 Below is the sample proforma of Purchase Order (PO)
Purchase Order (PO)
 Store Room: Here unworked materials (raw materials) are placed

 Stock Room: Here Finished Products are placed
STORE KEEPING [STORE MANAGEMENT]:

Store keeping can be defined as the process of maintaining the unworked materials
in store room in a proper way such that, they should made available very easily at right time and
at right quantity in the production line.
CLASSIFICATION OF STORES:
There are basically two broad classes:
A. Functional Stores: It depends on the use to which the material is put – chemicals, tools,
raw materials stores, etc.

B. Physical Stores: It depends on the size and location – Central stores, Sub-stores, Transit
stores, Site stores etc.
TYPES OF STORES:
1. Raw materials store: Here raw materials used in the factory are stored. It is usually largest
location situated near a railway, canal or river to make quick and easy loading or unloading.
2. Consumable Store: Here consumables in large numbers used in production such as eye-
shields, cutting oils, abrasives, gloves, aprons, jigs, small tools etc. are stored
3. Chemical Store: Various kinds of miscellaneous items like paints, brushes, cleaning
materials, wood and spirit are kept here.
4. Tools Store: All kinds of tools, files, measuring instruments, saws, small tools like hammers,
pliers, etc. are kept here.
5. Packing store: Packing materials are kept here and these include wood, cardboard, carton
box, bottles, cylinders etc. are kept here.
6. Finished Goods store: Finished products of the company which have to be delivered to
customers or to another stock point or distribution center are kept here.
7. Stationary store: Keeps office stationary for issued to various departments of the company.
8. Physical Stores: It depends on the size and location – Central stores, Sub-stores, Transit
stores, Site stores etc.
9. Central store: There can be a central store serving three or four factories or several shops in
a large factory or it can be a central warehouse containing finished goods.
10. Sub-store: A sub-store is located at the place of usage. It can be even within the shop floor.
11. Site store: This is usually at a project site containing building or construction materials like
cement, steel, tools, etc.
12. Transit store: as its name implies, this is where goods are stored for a temporary period.
13. Scrap store: Where scrap materials are stored
14. Furniture store: Where furniture are stored
STORE ORGANISATION

PURPOSE OF STORE KEEPING

1. The stock is maintained.
2. Distribution of materials to the different departments as and when required.
3. Prevent theft, wastages of stocks.
4. It helps to operate the store efficiently
5. The wastage of time and labor are reduced.
6. The handling of stores becomes easy, since all the materials are arranged in a systematic
way in racks or bins.
7. Unnecessary confusion and delay in issuing of materials can be avoided.
8. To increase the productivity.
FUNCTIONS OF STORE KEEPER (OR) DUTIES OF STORE KEEPER:

1. To receive the materials, tools, equipment etc. ordered by purchase department
2. Inspection of purchased materials
3. To keep the record of the material and their respective cost.
4. To return the rejected materials
5. Received materials to be placed properly
6. To ensure safety of materials
7. To prevent leakage, theft and deterioration of the materials present in the stores.
8. To issue the materials on authorized requisition (request) only
9. To ensure quick and prompt issue of materials
10. To keep record of issued materials
11. To check balance materials regularly
12. Utilization of store space to maximum extent.
13. Disposing absolute and non-moving items
14. To inform purchase department for initiating purchase actions, when the level of stored
materials fall below order level
15. To have coordination with all department
16. To conduct physical verification regularly
ADVANTAGES OF GOOD STORE KEEPING

1. Availability of record for all materials
2. Materials are systematically arranged in racks and bins
3. Handling of store becomes very easy
4. Unnecessary delay and confusion in issue of materials can be avoided
5. Helps to operate store efficiently
6. Overstocking of materials can be avoided
7. It prevent leakage, theft and deterioration of the materials present in the stores
8. Issue of material to a particular department can be traced very easily
9. It ensures correct costing of each material
10. It safeguards the materials
Types of Stores:
1] Centralized stores:
 The following block diagram illustrated the centralized stores.
 In small factories, there will be only, one store controlled by only one store keeper.
 The store is located near the central place of all the departments existing in the
organization.

Centralized store
Advantages:
a) It helps the shop to operate efficiently
b) The wastage of time and labor are reduced
c) The handling of stores becomes easy
d) Delay in issuing of materials is avoided
e) Better supervision and control
Disadvantages:
a) Need to maintain good coordination with all department
b) Heavy work pressure over store keeper
c) High demand cannot be satisfied
d) High risk of loss
e) Production stoppage can occur
f) Material handling is more (which decreases the quality)
2] De-centralized Stores:
 In large factories where there are many departments there will be separate stores (S)
which are located within the department itself.
 In this type of stores the material required for that department will be stored.
De-centralized store
Advantages:
a) Reduce material handling
b) Less risk of loss
c) High demand can be satisfied
d) Each department can get the materials very easily
e) Less chance of production stoppage
Disadvantages:
a) More personnel is required to maintain every department stores
b) High investment is required
c) Better security arrangement cannot be made
d) Inventory checking becomes problem

STORES MANAGEMENT:
 Un-worked material (raw material) called store are kept in "store room".
 Finished product is called stock and the place where they are kept is called as "stock
room".
 In small organization, store and stock room may be one and under the control of one
officer.
 In big organization both are separate and are separately controlled.
*** Tools Required for Store Management:
BIN CARD:
 Bin is container for collecting small parts.
 Bin cards are tagged to each bin.
 Bin card contains record of all materials that enters and leaves the store.
 Bin card also keep a record of balance materials.
 Bin card entries match with the materials that are stored in a bin.
 Bin card helps store-keeper to track available stock and to place fresh stock or order.
Specimen Copy for Bin Card
MATERIAL ISSUE REQUISITION or INDENT FORM

 It is a written form of request to draw materials from store.
 The concerned departments have to sign the requisition form before giving it to the store
keeper.
 One copy will be sent to costing department (finance), second to the store keeper and
third copy to production people [Indent].
 The materials will be issued from stores and entries are made in a ledger by the store
keeper.

MATERIAL RETURNED NOTE:

 The materials issued from the store for departmental use are sometimes will be in excess.
 Such remaining materials are returned back to the store with proper record.
 For this purpose Material Returned Note is used.
 The foreman enters the details of the materials returned along with the reason for
returning and send it to storekeeper.
 The storekeeper receives the material back to the store.
 Three copy of note is prepared. First copy to accounts department, second copy to the
storekeeper and third copy is maintained in production department by the foreman.
STORE LEDGER:
 It is used to indicate all transactions of stored materials i.e. inward, outward, balance,
cost of each material, net amount etc.
 It is the actual physical stock recorded and maintained by the store keeper.

 After the materials has been received and checked, the entries are made in the Received
section (Invoice or report from purchase department will be the reference)
 Entries are made in the Issued section once the requisition is received from the
concerned department.
CODIFICATION OF STORES:
Codification refers to codifying different materials so that they can be systematically
stored and easily retrieved (taken back).
 The various items in the store must be classified and coded properly.
 It is done to locate items properly also to avoid confusion and duplication.
 Individual items are stored with CODE NUMBER
 Separate batch no., design no., item no., etc. can be given to each item in store.
Advantages of codification:
1. It avoids lengthy description
2. It helps in standardization of items
3. It prevents duplication or repetition
4. It provides correct identification
5. It reduces too many varieties
6. It helps in recording, costing and account keeping
7. It makes indexing and locating of items easy.
INVENTORY MANAGEMENT:
Every firm will have certain stock of materials with it every time. This stock will
include raw materials, materials in process, semi-finished products as well as finished products.
This stock is usually called as an inventory.
Inventory control:
 Inventory control is a tool with which materials of correct quantity and quality is made
available when it is required.
 Inventory control ensures the procurement (Purchase), storage, supply of right material
in right quantity at right time at reasonable price for a constant and continuous
production.

Functions of Inventory control:

1. To run the store effectively
2. To ensure timely availability of raw materials for production
3. To have good control over the material stock
4. To maintain the raw materials in sufficient quantity to meet production demand
5. Protecting the inventory from the losses due to improper handling and storing
6. To avoid unauthorized removal of materials from the stores
7. Estimate the material cost of the producer
Advantages of good inventory control:

1. Ensures timely availability of raw materials for production
2. It is possible to increase production at short notice
3. Allow to take advantage of quality discounts
4. Seasonal variation of price can be overcome
5. Efficient use of company resource
6. Systematic handling, storing and dispatch of goods
7. Improved relations with customers due to prompt delivery.
Types of Inventory
1. Raw material inventories
2. In process inventories
3. Finished inventories
4. Indirect inventories
5. Tool inventories
6. Bought out parts inventories
7. Maintenance, repair and operating stores inventories
ERP (Enterprise Resource Planning):
 ERP integrates internal and external management information such as finance,

manufacturing, sales and customer relationship management across an entire
organization.
 ERP is software package that organizes and manages company’s business processes by
sharing information across all functional areas in an organization.
 It will increase productivity and reduce costs.
 Software used in ERP system: Helium V, A1 ERP, Open ERP, Blue ERP, Web ERP, ERP 5,
ERP Next etc.
 ERP includes three important factors…
 An enterprise a group of people with common goal
 Resources include money, manpower and materials required to run the enterprise.
 Planning the management of resources of an enterprise function performed in right
manner at right time

The block diagram shows the information integration through ERP system…
Application of ERP
a) Financial accounting
b) Management accounting which includes budgeting and costing
c) Human resources that includes recruitment and training.
d) Manufacturing which includes bill (list) of materials, work orders, scheduling, quality
control and product cycle management.
e) Order processing which includes order to cash and pricing.
f) Supply chain management which includes planning and supplier scheduling.
g) Project management which includes project planning, resource planning and billing.
h) Customer relationship management which includes sales and marketing.
i) Data service which includes self-service interfaces for customers, suppliers and
employees.
Features of ERP:
 Accommodating Variety: ERP software provide both multi relating and multi-
currency capabilities to compete and succeed globally
 Integrated Management Information: In today's business world, ERP is used for
o Flexible reporting tools (MIS)
o Electronic Data Interchange
o To display drawings and graphics
o Creating Data Base
 Seamless integration: Facility for integration of new products or changes to existing
products smoothly.
 Supply chain management: The end to end supply chain (from supplier to
customers) involving all the intermediate activities are handled by ERP
 Resource management: It facilities the effective use of material and human
resources
 Integrated data model: The heart of ERP is an integrated data model which truly
integrates entire enterprise data including the employees, suppliers and customers

Benefits of ERP
Tangible Benefits of ERP
 Reduction of lead time
 On time shipments
 Increase in business volume
 Increase of inventory turnover
 Reduction of cycle time
 Reduction of work in process
Intangible Benefits of ERP
 Increased customer satisfaction
 Improved vendor performance
 Reduced quality costs
 Improved resource utilization
 Improved information accuracy
 Enhanced decision making capability
MRP (Material Requirement Planning)

 MRP system is a software-based solution to plan production, raw material purchase,
finished product delivery and manages entire inventory at various levels.
 MRP begins with customer order and delivery date to which manufacturer have to make
ensure that they have enough inventories (materials) to support the demand.
 MRP is a production planning and inventory control system use to manage
manufacturing process through software’s.
 Software’s used in MRP are: MRP 2000, MRP 9000, Stock master, MRP pulse, SAP etc.
Application of MRP:
1. To improve customer service by meeting delivery schedules and minimizing delivery lead
time.
2. Reduce raw material cost by scientific way of planning
3. Better machine utilization and high productivity.
4. Avoid inventory stock out.
5. Ability to change master production schedule
6. Better response to market demands.

Just in Time (JIT):

 The term JIT means to “Produce only what is needed”.
 There are two types of JIT:
 Just in time production
 Just in time purchasing
 JIT production is defined as “A system which is driven by demand for finished products”.
i.e. Each component is produced only when needed for the next stage.
In a JIT environment, the key features are…

 Absence of a large amount of materials
 Lower percentage of total cost of production
 Simple accounting system of stores.
A JIT is capable of achieving following…

 Zero inventories.
 Batch size is one.
 A 100% on time delivery service.
 Estimation of non-value added activities.
Advantages of JIT:
1. Less space needed: Faster turnaround of stock, company doesn’t need as much storage
space to store goods. This reduces the amount of storage an organization needs to rent or
buy.
2. Waste reduction: Faster turnaround of stock prevents damage of goods and reduces
waste. This saves money by preventing investment in unnecessary stock. Also reduces
the need to replace old stock.
3. Smaller investments: JIT inventory management is ideal for smaller companies that
don’t have funds to purchase huge stock at once.
4. Lower inventory holding cost: As the quantity of material to be stored is reduced, the
cost of holding inventory will be less.
5. Less deterioration obsolescence: In this system, deterioration (becoming progressively
worse) of materials during storage and obsolescence (outdated) is greatly reduced.
SUPPLY CHAIN MANAGEMENT (SCM):

 Supply chain management is managing the supply chain network of organizations and the
business processes for getting the raw materials, transforming them into finished goods,
and distributing the products to the customers.
 The supply chain links many business entities, such as supplier, manufacturer,
transporter, distributor retailer, and the customers.
 The supply chains of different organizations may differ in the number of entities and it is
not always required for a supply chain to have all the entities.
 The supply chain is driven by three main inputs namely information, materials and funds
 The raw material sources from suppliers are transformed into products and finished
goods through manufacturing facilities.
 The finished products are shipped to distribution centers and from there to retailers and
ultimately to the customers.
 The ultimate goal of supply chain management system is to efficiently manage the flow of
information, materials and funds across supply chain, thereby reducing the cost of supply
chain.

Supply Chain Management
Benefits of Supply Chain Management (SCM)

1) Improve the customer service by delivering them the right product at the right time and
at the right location, which in turn increases the organization's sales.
2) Enable the companies to bring the products to the market at a quicker rate. Thus, the
companies get their payment soon.
3) Lower total supply chain cost, including procuring materials cost, transportation cost,
inventory, carrying cost, etc. The reduction in supply chain cost helps to increase the
firm's profitability.
First In First Out (FIFO)

 First In First Out (FIFO) is one of the methods used to find out the cost of materials issued
from stores.
 This method is also known as original cost method.
 In this system, goods received are entered in the stores record at actual cost plus other
charges such as freight, taxes, insurance etc.
 In this method, the materials which are first received are first issued.
 Material from the second lot is issued only after the material from the first lot is
exhausted.
 The prices are charged at the cost at which the lot was purchased.
Application: This method is suitable when:

 Where size and cost of material is large
 Where at any time, more than 2 or 3 lots are not likely to remain in stock
 Where the production is rapid
Advantages:

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UNIT-3MATERIALS MANAGEMENT, INDUSTRIAL MANAGEMENT (15ME51T) 5th SEM MECH.

DEEKSHITH KUMAR U R, L/ME, KVGP SULLIA, webpage: deemechkvgp.wordpress.com [REV-01] 2019

DEEKSHITH KUMAR U R, L/ME, KVGP SULLIA, webpage: deemechkvgp.wordpress.com [REV-01] 2019

Material management - definition, functions- Purchase - Objectives, different methods of

FUNCTIONS OF MATERIAL MANAGEMENT

OBJECTIVES OF MATERIAL MANGAEMENT

FUNCTIONS OF PURCHASE DEPARTMENT

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 To purchase the materials with discounts

OBJECTIVES OF PURCHASING DEPARTMENT.

TERMS USED IN PURCHASE DEPARTMENT

FORMS USED IN PURCHASE DEPARTMENT

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1] Purchasing Strictly by Requirement:

2] Purchase for a Specific Period:

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 Protection of stores is necessary.

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8] Purchasing through DGSD (Directorate General of Supply and Disposal):

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***DUTIES OF PURCHASING OFFICER:

PURCHASE REQUISITION FORM:

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Purchase Requisition Form

Tender Enquiry or Notice Inviting Tenders:

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Tenders are classified as follows…

2] Closed tender or Limited Tender:

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Specimen Copy for Preparation of Comparative Statement:

PURCHASE ORDER (PO):

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 Other associated terms and conditions

 Store Room: Here unworked materials (raw materials) are placed

STORE KEEPING [STORE MANAGEMENT]:

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PURPOSE OF STORE KEEPING

FUNCTIONS OF STORE KEEPER (OR) DUTIES OF STORE KEEPER:

ADVANTAGES OF GOOD STORE KEEPING

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*** Tools Required for Store Management:

Specimen Copy for Bin Card

MATERIAL ISSUE REQUISITION or INDENT FORM

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MATERIAL RETURNED NOTE:

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Functions of Inventory control:

Advantages of good inventory control:

ERP (Enterprise Resource Planning):

 ERP integrates internal and external management information such as finance,

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MRP (Material Requirement Planning)

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Just in Time (JIT):

In a JIT environment, the key features are…

A JIT is capable of achieving following…

SUPPLY CHAIN MANAGEMENT (SCM):

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