MATERIAL MANAGEMENT

OPERATIONS MANAGEMENT

Module 2
 INTRODUCTION
 Materials refer to inputs into the production process,
most of which are embodied in the finished goods
being manufactured.
 It may be raw materials, work-in-progress, finished
goods, spare parts and components, operating
supplies such as lubricating oil, cleaning materials,
and others, required for maintenance and repairs.
 Definition
 Definition: It is concerned with planning,
organizing and controlling the flow of materials
from their initial purchase through internal
operations to the service point through distribution.
OR
 Material management is a scientific technique,
concerned with Planning, Organizing & Control of
flow of materials, from their initial purchase to
destination.
 Material Flow Cycle

OEE – Overall equipment effectiveness

ERP and MES systems use cycle time to schedule, purchase, and budget production.
 Run time - Job is at machine and being worked on.
 Set up time - Job is at the work station, and the work
station is being "setup."
 Queue time - Job is where it should be, but is not
being processed because other work precedes it.
 Move time - The time a job spends in transit.
 Wait time - When one process is finished, but the job
is waiting to be moved to the next work area.
 Other - "Just-in-case" inventory.
Functions of Material Management

Material Planning and Control

Purchasing

Stores Management

Inventory Control or Management

Standardization

Simplification

Value Analysis

Ergonomics

Just-in-Time (JIT)
1.Materials planning and control:

Based on the sales forecast and production plans, materials

planning and control is done. This involves estimating the
individual requirements of parts, preparing materials budget,
forecasting the levels of inventories, scheduling the orders and
monitoring the performance in relation to production and sales.
2.Purchasing:
This includes the selection of sources of supply finalization in
terms of purchase, placement of purchase orders, follow-up,
maintenance of smooth relations with suppliers, approval of
payments to suppliers, evaluating and rating suppliers.
3.Stores management or management:

This involves physical control of materials, preservation of

stores, minimization of obsolescence and damage through
timely disposal and efficient handling, maintenance of store
records, proper location and stocking. A store is also
responsible for the physical verification of stocks and
reconciling them with book figures. A store plays a vital role
in the operations of a company.
 4.Inventory control or management:

Inventory generally refers to the materials in stock. It is

also called the idle resource of an enterprise. Inventories
represent those items, which are either stocked for sale or
they are in the process of manufacturing or they are in the
form of materials, which are yet to be utilized.
The interval between receiving the purchased parts and
transforming them into final products varies from industries
to industries depending upon the cycle time of manufacture.
5.Standardization: 

Standardization means producing a maximum variety of products

from the minimum variety of materials, parts, tools, and processes. It
is the process of establishing standards or units of measure by which
extent, quality, quantity, value, performance, etc. may be compared
and measured.
6.Simplification: 
The concept of simplification is closely related to standardization.
Simplification is the process of reducing the variety of products
manufactured. Simplification is concerned with the reduction of
product range, assemblies, parts, materials, and design.
7.Specifications: 
It refers to a precise statement that formalizes the requirements of the
customer. It may relate to a product, process or service.
8.Value analysis: 
Value analysis is concerned with the costs added due to inefficient or
unnecessary specifications and features. It makes its contribution to the
last stage of the product cycle, namely, the maturity stage. At this stage
research and development no longer make positive contributions in terms
of improving the efficiency of the functions of the product or adding new
functions to it.

9.Ergonomics (Human Engineering):
  The human factors or human engineering is concerned with the man-
machine system. Ergonomics is “the design of human tasks, man-machine
system, and effective accomplishment of the job, including displays for
presenting information to human sensors, controls for human operations
and complex man-machine systems.” Each of the above functions is dealt
with in detail.
  Material Planning
 scientific method of planning and determining the requirements of
consumables, raw materials, spare parts and other miscellaneous
materials essential for the production plan implementation
1. Macro factors: business
cycles, import and export
policies, price trends, credit
policy and other global factors.
2. Micro factors: production
plan, investments, corporate
policies, inventory holding, time
of procurement, working capital,
acceptable inventory levels,
delegation of power seasonality
Material Requirement Planning
 Material Requirement Planning is a mechanism which
helps manufacturing firms to calculate Net requirement
of material, material requirement time and most optimum
Quantity of material.

 Material Requirement Planning consists of following

essential steps:
 Master Production Schedule (MPS)
 Bill of Materials
 Inventory status file
MRP system logic
Material Resource Planning -II 
 Manufacturing Resource planning (MRP-II) is an
extension of MRP.
 MRP-II required for capacity planning, shop floor
controls, scheduling every operation and other
calculations.
 MRP-II includes comparison of forecasting and
actual sales data so firms able to analyse their
performance and can work upon the efficiency of
their Manufacturing Resources. 
  
MRP
 master schedule
 to ensure that the materials, labor, and equipment
needed for production
 are at the right places in the right amounts at the
right times.
 The schedule is based on forecasts of demand for
the company’s products. 
 helps ensure a smooth flow of finished products.
  Inputs of MRP System
a. Master Production Schedule (MPS):
 This is the schedule of the quantity and timing of all end

products to be produced over a specific planning horizon. The

planning horizon should be long enough to cover the
cumulative lead times of all components that must be
purchased or manufactured to meet the end product
requirement.
 MPS is developed from customer’s orders or from forecasts of

demand or both. MPS is the key input which drives the MRP
programme as it tells what the company intends to produce.
The maximum length of time that is planned in a MPS will
depend on the company’s ability to forecast demand and its
requirements, but a one year span is usually common.
 b. Bill of Material (BOM) File:

 A bill of material file, also known as product-structure file, is a

computerized file listing all finished products, the quantify of
raw materials, parts, sub-assem­blies and assemblies in each
product.
 The MRP programme obtains information about the
components needed to make an end product from BOM file. A
bill of material not only lists all the required parts but also is
structured to reflect the sequence of steps required to produce
the end product.
 The BOM has a series of levels, each of which represents a
stage in the manufacture of the end product. The highest level or
zero level of BOM represents the end product or the finished
goods. The next lower level might represent the sub-assemblies
that are combined to make the final assembly.
 c. Inventory Status File:

 This file contains important information such as what

items should be ordered and orders should be released.
The file gives the complete and up-to-date information
on the hand quantities, gross requirements, scheduled
receipts and planned order releases for the item. It also
tells about lot sizes, lead times, safety stock level, etc.
 The gross requirements are total needs from all
resources. Whereas the net requirements are ‘net’ after
allowing for available inventory and scheduled receipt.
Schedule receipts are quantities for which order has
already been placed with vendor and in-house shop.
 Besides the above, following may also be the inputs:

(i) Routing File:
 This file specifies the sequence of operations

required to manufacture components, sub-

assemblies and finished goods.
(ii) Master Parts File:
 It contains information about production time of

sub-assemblies and components produced

internally and lead time for externally procured
items.
 MRP System Outputs:
a. Planned order schedule which is a plan of the
quantity of each material to be ordered in each time
period. The order may be purchase order on the
suppliers or production orders for parts or sub-
assemblies on production departments.
b. Changes in planned orders (reschedule notices).
c. Planning reports like inventory forecast, purchase
commitment reports, stock-out incidences, etc.
d. To project capacity requirements.
MRP SYSTEM
 MRP
 Material Requirement Planning is a special technique to
plan the requirements of materials for production. For the
manufacturing company to produce the end items to meet
demands the availability of sufficient production capacity
must be coordinated with the availability of all raw
materials and purchased items from which, the end items
are to be produced.
 In other words, there is a need to manage the availability
of dependent demand items from which the products are
made. Dependent demand items are the components, i.e.,
materials or purchased items, fabricated parts or sub-
assemblies that make up the end product.
 Objectives of MRP:
(a) It determines the quantity and timing of finished goods
demanded.
(b) It determines the time phased requirements of the demand for
materials, components and sub-assemblies over a specified
planning time horizon.
(c) It computes the inventories, work-in-process batch sizes and
manufacturing and packing lead times.
(d) It controls inventory by ordering materials and components in
relation to orders received rather than ordering them from stock
level point of view.
(e) It improves customer service by meeting delivery schedules
promised and shortening the delivery lead times.
(f) It reduces inventory cost by reducing inventory levels.
  Benefits of MRP:
 a. Inventory:
MRP will substantially reduce inventory investment in dependent
demand items while improving operational efficiency by removing the
risk of shortages associated with the EOQ. The MRP system has
numerous benefits over the fixed order size system (EOQ) for control of
production items.
MRP system focuses on actual requirements. It is product oriented.
Whereas EOQ focuses on replenishing supply and is part oriented. MRP
is based on future production data while EOQ is on past demand data.
 b. Purchases:
MRP helps in generating purchase order and in case of any changes,
reschedule notices are also generated. These reports facilitate the
purchase department in listing out the priority items and making them
available in time.
c. Planning, Engineering and Schedule:
MRP plans orders for purchasing and shop scheduling for
the quantity of items that must be available in each time period
to produce the end items. The orders are planned for enough
ahead to allow adequate time for scheduled completion of the
final product without having material waiting unnecessarily for
entry into a particular stage of the production process.
d. Production:
MRP can improve flow of work, thereby reducing
intermittent delays and reducing the manufacturing cycle time
for the jobs.
e. Sales:
As one of the functions of MRP is to report the changes in
demand, it improves the company’s ability to react to changes in
customer orders, improves customer services by helping
production meet assembly dates and helps to reduce delivery
lead times.
Weaknesses of MRP

a. It assumes that lead times are known constants that are independent
of the lot size.
b. It requires fixed routing for the items. It is not able to access and
plan for the use of alternate routings.
c. The sequencing logic priorities order only by period or date. It
provides no priority for sequencing with in a period based on
similar set-ups, tooling, favoured customers, etc.
d. It is time consuming process as it requires let of processing and
analytical times. This is achieved usually by lot of iterations.
e. To make MRP system effective, an organisation must have
effective communication system, motivated personnel, right
leadership and an effective computer system. It should also have
support and commitment of the top management.