Material Management (lkexzh izcU/ku)

Introduction:-
Materials Management covers a much wider field.The Materials Management is concerned with the
entire range of functions which effect the flow, conservation and utilization, and the quality and the cost
of materials. It is that aspect which is concerned with the activities involved in the acquisition and
storage of all material directly and indirectly employed in the production of the finished product.These
activities include material planning, programming, purchasing, inventory control, receiving, ware
housing, stores keeping, transportation, material handling and disposal of scrap.Another function is
value analysis, which is concerned with ascertaining whether the material purchased are of the greatest
possible value in return for the money spent.

Materials Management covers the entire cycle of supplies, and in modern and progressive organization
like the Indian Railways complete control on the Materials is vested in the Stores Department under the
Controller of stores directly responsible to the General Manager.

The field of Material Management covers the functions:-

Material Planning and Programming of Procurements and Supplies
Purchasing
Inventory Control
Store Keeping and Ware Housing
Material Handling and Transportation
Codification and standardization
Value Analysis
Identification, Disposal of surplus, obsolete and scrap materials.

Stores Organisation and Functions :-

The Inventory Management in Indian Railways is very complex function as the management has to
deal with from common consumable stores to most complicated items such as parts of sophisticated
rolling stalk, signaling and tele-communication equipment etc .The fundamental Principle of Inventory
Management is to see that right quality of material in right quality is brought at the right price and at the
right time. from the right source. The organization for inventory Management thus involve planning and
programming for purchases ,procurement ,inspection ,storage, handling of materials inside the works
and affective control over inventory.

The administration and control of stores of railways is conducted by the stores department under the
Supervision of a Controller of Stores who is the Principal Officer of the stores department. This
department is centrally controlled from head quarters. He is assisted by one or two chief materials
managers(normally general, sales and construction), Junior Administrative Officers, Senior Scales
Officers, Junior Scales Officers and compliment of non-gazetted staff for handling the inventory
management competently and efficiently.

Objectives of Inventory Management

The chief Objectives of Inventory Management are :-
1. Ascertaining the needs of various department for stores.
 2. Preparing a correct estimate of quantities of stores to be purchased/manufactured in railway
workshops each year
3. Obtaining stores of desired quality at competitive price
4. Ensuring supply of stores in the required quantity in the most efficient, economical and
expeditious manner
5. Maintaining an economic level of investment of inventories
6. Receipt, inspection ,stocking, distribution of stores to various consuming centers as and when
required
7. Identifying and arranging disposal of scrap and other obsolete materials with in the shortest
possible time to the best advantages of Railways.
8. Developing ancillary industries and indigenous sources of supply to replace the import.
9. Finally, maintaining a constant touch with the market to ensure steady flow of the materials.

Delegation of Powers :-
Purchase is one of the vital functions of the Controller of Stores as it effects the Capital and Cash flow
of Railways it should be ensured that there should be no blockage of capital for which a definite rate of
dividend is payable to General Revenues. In order to reduce the Capital-at -Charge thus saving ultimately
the payment of dividend and also to ensure efficient quick and smooth working of Railways, the railway
board ,have delegated certain powers to the General Manager in the matter of purchases, sales etc. of
stores. Subject to safeguard railways interest, the General Manager may re-delegate these
powers(within specified limits) to COS/CMM and other officers subordinate to them. In consultation
with the FA & CAO, excepting those where a level of delegation have been fixed by railway board.

While exercising these powers the finance branch of the FA & CAO office shall be consulted and the
vetting shall be obtained before commitments or incurring any expenditure. The need of such
delegations is, to make every stores officer responsible for the job interested and the responsibility fixed
for the limits of spending, to avoid wastage, unnecessary blocking of capital and smooth cash flow as per
device of Exchequer control.

Standards /Canons of Financial Propriety :-

In regards to powers delegated to the controllers of the stores, he should pay strict regard to the
standards /canons of financial propriety among which are the following-
1. The expenditure should not prima facie be more than the occasion demands, and that every
government servant should exercise the same vigilance in respect of expenditure incurred from
public moneys as a person of ordinary prudence would exercise in respect of the expenditure of
his own money
2. No authority should exercise its powers of sanctioning expenditures to pass an order which will
be directly or indirectly to its own advantages
3. Public money should not be utilized for the benefit of a particular person or section of the
community, unless-
a) the amount of expenditure involved is insignificant, or
b) a claim for the amount could be enforced in court of law, or
c) the expenditure is in pursuance of a recognized policy or custom.
 4. The amount of allowances, such as travelling allowances, granted to meet expenditures of a
particular type, should be regulated that the allowances are not on the whole sources of profit to
the recipients.
Note: All proposals involving financial implications except those which have been specifically
exempted for this purpose should be referred to finance branch for advise before these are
sanctioned.

Inventory Control :-
Inventory means the sum of items of stores held in stock at various Stores Depots under Stores
Department. Inventory Stores more comprehensively known as material management is one of the four
‘M’ of the management viz., men, material, machines and money.

Inventories of raw materials, stores and spare parts, and the value of unfinished jobs as work in progress
in Railway workshop represent essential, but unproductive capital investment. Efficient Inventory
management requires lowest stock levels with highest service levels. The objective is secured through
budgeting for inventories after careful scheduling of deliveries against purchases and regular monitoring
of the changing needs of indenters.

There is acute shortage of resources for even renewals and replacements of considerably large number
of assets like Rolling Stock, Track, Signaling equipments etc. The location of resources for expansion,
development and modernization is gaining secondary priority. Due to such accumulation of arrears there
is no possibility to reduce the cost of service and generate resources. Inventory control is one of such
vital management tools, where even a marginal reduction could be considered, reduction in cost of
service.

Inventories on Railways are:-

1. Cost of physical stock of stores held at various Stores Depots together with balances outstanding
under Stores Suspense Account.
2. Work in progress in various Railway Workshops, Production Units i.e. value of unfinished jobs.
3. Value of Stores advanced for fabrication of loans of materials to others.

Objectives of Inventory Control :-

The objects of Inventory control are as under:-

To avoid blocking of Capital;

(a) To avoid payment of dividend to General Revenues;

(b) To utilize the save Capital on other activities;
(c) To have over all National economy;
(d) To minimize carrying cost;
(e) To minimize handling charges;
(f) To minimize obsolescence and depreciation; and
(g) To minimize ordering cost.
To achieve the above objectives, some of the measures adopted for inventory control on Indian Railways
are as under:-

(a) Proper Planning and Programming;

(b) Codification of items;
(c) Standardization and variety reduction;
(d) Selective Control by ABC analysis;
(e) Progressive Computerization of inventory transactions;
(f) Creation of Inventory Cells;
(g) Scrutiny of Stores balances;
(h) Disposal of Scrap; and
(i) Make or by decisions

Inventory Control Comprises of :

(a) Cost of Material : Held in stock in all Stores Depots.
(b) Ordering Cost : Ordering cost include, the cost of tendering, finalization of tenders, order placing,
cost of handling and inspection, testing, transportation, receiving materials, stocking depots and
finally payment of bills.
(c) Inventory Carrying Costs : This include the cost of warehouse storage, handling, stock
verification, breakage, deterioration obsolescence, pilferage, overhead expenses of
administration and also dividend payable to General Revenues.
(d) Stock out Cost : When certain item is out of stock, emergency purchases are made are made at
higher cost and the difference between normal purchase and emergency purchase is the lost and
the total such loss is the Stock out Cost.

Modern Techniques of Inventory Control -

Inventory Control Consist of the following modern techniques :-

(a) ABC Analysis

(b) VED Analysis
(c) FSN Analysis
(d) Variety Reduction

(a) ABC analysis :-

This is accost based analysis, the Items are classified according to their cost. High value Items are
grouped in A category, medium value Items are groups in B category and low value Items are
grouped in C- category. The classification is as under:-
 Categor Percentage of total number of items Percentage of total value of all items
y stocked stocked
‘A’ 5% 70%
‘B’ 15% 20%
‘C’ 80% 10%

To have effective control, The Railway Board have classified the Stores and fixed ceilings as under :-

A 1 Category Annual usage value above Rs. 5 lakhs ---

A 2 Category All items having annual usage value Stock not to exceed three months
between Rs. 50,000 and 5 lakhs requirements
B 1 Category All items having annual usage of Stock not to exceed six months
Rs. 25,000 &above but below Rs. 50,000 requirements
B 2 Category All items having annual usage value of Stock not to exceed three months
Rs. 10,000 & above, but below Rs.25,000 requirements
C Category All items having annual usage value of Stock not to exceed three months
below Rs.10,000 requirements
D Category All items which have not moved more
than two years ---

By scrutiny of Stores Balances, it is possible to disposes Surplus Stores which are not required and
unnecessary blocking capital. The disposal of surplus stores and scrap shall be made as per extant policy
of railways.

(b) V.E.D Analysis :-

VED means Vital, Essential and Desirable. This is a device to measure Service Level and to avoid the
stock out cost, under which the items of stores are classified as Vital, Essential and Desirable. Under
the VED analysis the working of equipment is given priority to achieve the higher service level.

Vital :- Vital items are such without which the equipment stop working and there is no time left for
procurement of such items for example a Diesel engine cannot work without petrol.

Essential :- Essential items are such without which the equipment may work but with less efficiency
and there is time left for procurement of such items for example grease and oil.

Desirable :- Desirable items are such without which the equipment can work. For example additional
facilities provided in the trains.

The above is analysis is adopted to keep the stocks at optimum level and normally is based on Annual
Consumption Value of items. The position of these items is reviewed periodically at Depot and Headquarters
level.

Provision of Buffer Stock :-

Board have fixed the Buffer Stock Limit of (3) three months for indigenous items and (6) six
months for imported WTA items.
 Board have decided that buffer stock limit for other items may be decided by the COS in
consultation with finance. However, it should be ensured that vital and safety items should be
available at the level of one month stock requirement all the time and at the same time inventory
balances should remain within the laid down targets.

FSN Analysis :- (Fast, Slow & Non-moving)

FSN is another method of Inventory control under which the materials are analyzed with reference to
the speed of consumption of the materials, frequency of demands and their utility. Under this system
materials stocked in depots are classified into three broad categories, viz. Fast moving items, Slow
moving items and Non-moving items, based on the trend of past consumption and frequency of demands
from the consumers. While making recoupment the nature of the item is kept in view so that unnecessary
money is not locked in slow moving and Non moving items. This analysis in conjunction with other
techniques of inventory control helps in effective optimization.

Fast Moving Items -

Items the issue/consumption of which is repeated, continuous, rapid and require frequent recoupment, to
meet the demands of Indenters, are classified under this category. It should be ensured that there is
continuous availability of such items at any time and the tempo of procurement and issues are maintained
in accordance with the importance of an item.

Slow Moving Items -

Under this category, those items are classified whose utilization is occasional but essential, and issues are
made at less frequency, as and when demand arises. It should be ensures that there is no unnecessary
accumulation of such items and there is no unnecessary blocking of Capital for prolonged periods which
affects the fund provisions.

Non-Moving Items -
The items under this category are such which have not been issued for the period of 24 months but, it is
anticipated to be used in the near future or items which are not likely to be utilized for further period
exceeding 24 months and are classified as Dead Surplus. No provisioning is required for these items and
steps are to be taken to liquidate such items effectively from dead inventory.

Surplus Stores
The stores which have not been issued for long time only, can be considered Surplus to the
requirements of the Railway. Even amongst such items there may be some it is known could be utilized
for the purpose of the Railway in the near future. Purely temporary excesses over immediate or
estimated requirements are not really surpluses so long as they can be issued over a comparatively short
period of time.

The Surplus Stores could be due to the following reasons:

(a) Stock which have not been issued for a long time.
(b) Stock not required by the Railway due to change in design of Plants, Equipments, and Rolling
Stock.
(c) Introduction of new Standard and Design.
(d) Spares become obsolete due to scrapping the main machinery such as Rolling Stock and Plants.
(e) Accumulation of non-standard items.
(f) Materials no longer required by the Railway.
 An essential prerequisite condition to declare any items of stores as “Surplus” stock on Railway is
that such items have not been issued for railway consumption for a period of two years. Such “Surplus”
stock should be classified under two heads, viz.

(a) movable surplus, and

(b) Dead surplus.

Movable Surplus:

Movable surplus stores comprise items of stores which have not been issued for a period of 24
months, it is anticipated, will be issued in the near future. Such items should be marked in the price list.

Dead Surplus:

Dead Surplus Stores comprises items of stores which have not been issued for 24 months and which,
it is considered, are not likely to be utilized on any railway within next two years. No item may, however.
Be classified as “dead surplus” unless it has been duly inspected by a Survey Committee and declare as
such. Such items should be marked in the Price List.

Disposal of Surplus Stock

The Stores Department of every Railway is equipped with “Surplus Stock Section” who deal effectively
with the disposal of Surplus Stock, either by issue, or transfer to other Railways or by sale.

For issue, the consuming departments should be asked whether the item could be utilized in the next
two years or by converting into an other standard item or against another standard item.

For transfer, other Railways and other Government departments should be asked whether the item
could be utilized.

By sale, it could bre done either sale by tender or auction sale after the recommendation of the Survey
Committee.

The Surplus Stock Section should scrutinize every public call for tender, stores, bulletins and Home
indents issued by other Railways, the Directorate General of Supplies and Disposals or any other
Government department or public body, and in addition examine advertisements in papers, such as the
Indian Trade Journal in order to discover suitable opportunities of effecting the sales of surplus stock and
over-stocks.