Materials Management 1.

0 Definition: Materials management is an integrated approach of different sections of a company dealing with the materials and related activities so as to obtain the maximum coordination and minimum expenditure on materials. Functions: 1. Materials planning 5. Standardization 2. Purchase 6. Materials handling 3. receiving, storing & Maintaining 7. Vendor development 4. Inventory control 8. Disposal of surplus, scrap and obsolete materials Objectives: 1. To minimize material cost 2. Procurement of right materials of right quality at right time 3. Control the inventories to the min. cost 4. To identify the new sources of supply 5. To report changes in market conditions and other fctors 6. To modify the paper work procedures to reduce the delays in the procurement purchase: It is the department under the integrated materials management which deals with the activities of purchase of materials, machines and other related services. Objectives: 1. To procure the right materials in right quantity and quality at the right time. 2. To identify suitable and reliable sources of supply or vendors 3. To procure materials economically Duties of purchase department: 1. Maintaining the records of reliable suppliers and prices 2. Sending enquiries for the supply of materials to the right sources. 3. Receiving and analyzing the quotations received and comparative statements. 4. To place the purchase orders on suitable bidders in consultation with the indenting department. 5. To follow up the execution of orders with the suppliers. 6. To arrange for the payment to the suppliers on acceptance. 7. To ensure the un-interrupted supplies of materials. 8. To prepare the purchase budget. 9. To prepare and update the list of materials (Bill of materials) and the possible suppliers. Methods of purchasing: 1. Purchasing strictly by requirement 2. Purchasing for a specified time 3. Market purchasing (Market trend) 4. Contract purchasing 5. Central purchase organization 6. Through DGS&D (Directorate general of supplies and disposals)

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Purchase techniques: 1. Spot quotations 2. Floating limited enquiries 3. Tenders Single tender Open tender Closed or limited tender

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Inventory control: Inventory control is an idle resource that has economic value. Adequate inventories are required for maintaining un-interrupted production. But excessive inventory locks up the funds which are otherwise required. Types: 1. Raw materials 2. Work-in-progress 3. Finished goods

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Objectives: 1. To keep the required quantities of materials to ensure smooth and efficient. production flow. 2. To identify non-moving items and take steps for disposal and prevention. 3. To determine the economical order quantities. 4. Classification of materials and effecting the control depending on their nature. 5. Carrying out stock taking periodically. 6. To store and maintain the stocks effectively. 7. Identifying obsolete and deteriorated items and their disposal. Economic Order Quantity: Economic order quantity depends on two types of cost: 1. Inventory procurement cost consisting of 1. Receiving quotations, placing orders, follow up etc. 2. Receipt of materials & inspection 3. Processing vendors invoice etc. Procurement cost decreases as order quantity increases. 2. Inventory carrying cost consisting of 1. Interest on capital investment 2. Cost of insurance, taxes etc. 3. Cost of storage facility, record keeping etc. Carrying costs increase as order quantity increase.

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Let Q = Economic order quantity C = Annual carrying cost/unit P = Procurement cost associated with one order U = Total quantity used annually No. of purchase orders = U/Q Total procurement cost = No. of purchase orders x cost per one order Tp = P.U/Q Inventory carrying cost = Average inventory x carrying cost / unit Tc = Q/2 x C Total cost T = Tp + Tc = P. U/Q + C. Q/2 dT/dQ = - U.P/Q2 + C/2 = 0 Q2 = 2.U.P/C EOQ Q = (2.U.P/C)1/2

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Classification of materials: 1. Class A 2. Class B 3. Class C

1. Class A items are high valued but are a few in number. It is generally observed that about 70% of the total inventory cost pertains to about 10% of the total items. Hence these items need careful and close inventory control. A detailed record of their receipts and issues are to be maintained. 2. Class B items are medium valued and their number lies in between A & C items. They approximately account for 20 % 15 % of the total inventory cost and their number may be about 15% - 20% of the total items. 3. Class C items are low valued but are very high in number. They account for 10% - 15% of the total inventory cost and their number may be around 75% of the total items. These items do not need any control since it would be uneconomical to exercise control. Generally they are procured on long period requirement.

Materials classification