Professional Documents
Culture Documents
Financial Management
Financial Management
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
To get
1. The Right quality
2. Right quantity of supplies
3. At the Right time
4. At the Right place
5. For the Right cost
PURPOSE OF MATERIAL
MANAGEMENT
•To gain economy in purchasing
•To satisfy the demand during period of
replenishment
•To carry reserve stock to avoid stock out
•To stabilize fluctuations in consumption
•To provide reasonable level of client services
Objective of material management
Primary
•Right price Secondary
•High turnover •Forecasting
•Low procurement •Inter-departmental
•& storage cost harmony
•Continuity of supply •Product improvement
•Consistency in quality •Standardization
•Good supplier relations •Make or buy decision
•Development of •New materials &
personnel products
•Good information •Favorable reciprocal
system relationships
Four basic needs of Material management
1. To have adequate materials on hand when needed.
2. To pay the lowest possible prices, consistent with
quality and value requirement for purchased
materials.
3. To minimize the inventory investment.
4. To operate efficiently and effectively.
Basic principles of material management
5. Effective management & supervision
2. Sound purchasing methods
3.Skillful negotiations
4.Effective purchase system
5.Should be simple .6.Must not increase other costs
7.Simple inventory control programme
Inventory Management
Inventory management refers to the process of ordering,
storing and using a company's inventory: raw materials,
components and finished products, efficiently.
Appropriate inventory management strategies vary
depending on the industry. An oil depot is able to store
large amounts of inventory for extended periods of time,
allowing it to wait for demand to pick up. While a food
industry or the medicines have to consume during a proper
given time period.
Inventory control
It means stocking adequate number and kind of stores, so
that the materials are available whenever required and
wherever required. Scientific inventory control results in
optimal balance
• The Economic Order Quantity (EOQ)
model is used in inventory management by
calculating the number of units a company
should add to its inventory with each batch in
order to reduce the total costs of its inventory.
The costs of its inventory include holding and
setup costs.
• The EOQ model seeks to ensure that the right
amount of inventory is ordered per batch so a
company does not have to make orders too
frequently and there is not an excess of
inventory sitting on hand.
Just-in-Time
Just-in-time (JIT) manufacturing originated in Japan in the
1960s and 1970s; Toyota Motor Corp. (TM). The method
allows companies to save significant amounts of money
and reduce waste by keeping only the inventory they need
to produce and sell products. This approach reduces storage
and insurance costs, as well as the cost of liquidating or
discarding excess inventory.
JIT inventory management can be risky. If demand
unexpectedly spikes, the manufacturer may not be able to
source the inventory it needs to meet that demand,
damaging its reputation with customers and driving
business towards competitors. Even the smallest delays can
be problematic; if a key input does not arrive "just in time.
• Materials Requirements Planning (MRP)
• Materials requirements planning (MRP) is one
of the first software-based integrated
information systems designed to
improve productivity for businesses. A
materials requirements planning information
system is a sales forecast-based system used
to schedule raw material deliveries and
quantities, given assumptions of machine and
labor units required to fulfill a sales forecast.
• Types of Data Considered by Materials Requirements
Planning
• The final product being created. This is sometimes called
independent demand, or Level "0" on BOM.
• How much is required at a time.
• When the quantities are required to meet demand.
• Shelf life of stored materials.
• Inventory status records of net materials available for use
already in stock (on hand) and materials on order from
suppliers.
• Bills of materials: Details of the materials, components and sub-
assemblies required to make each product.
• Planning data: This includes all the restraints and directions to
produce such items as: routing, labor and machine standards,
quality and testing standards.
• ERP (Enterprise Resource Planning) is an
integrated, real-time, cross-functional enterprise
application, an enterprise-wide transaction
framework that supports all the internal business
processes of a company.
• It supports all core business processes such as
sales/ purchase order processing, inventory
management and control, production and
distribution planning, and finance.
• Why ERP?
• Business integration and automated data
update
• Linkage between all core business processes
and easy flow of integration
• Flexibility in business operations.
• Better analysis and planning capabilities
• Critical decision-making
• Competitive advantage
• Use of latest technologies
• Scope of ERP
Finance: Financial accounting, Managerial accounting,
treasury management, asset management, budget control,
costing, and enterprise control.
Logistics: Production planning, material management,
plant maintenance, project management, events
management, etc.
Human resource: Personnel management, training and
development, etc.
Supply Chain: Inventory control, purchase and order
control, supplier scheduling, planning, etc.
Work flow: Integrate the entire organization with the
flexible assignment of tasks and responsibility to
locations, position, jobs, etc.
CONCEPTUAL MODEL OF SUPPLY
CHAIN MANAGEMENT
Supply chain acts as a connecting chain Of
materials from the suppliers S to the
manufacturer to the distributor to the retailer R to
the ultimate customers. In a supply chain the flow
of demand information is in a direction opposite
to the flow of materials .Thus, the information
flow on demand is from the customer to the
retailer to the distributor to the manufacturer to
the supplier .It may be noted that the supply chain
is not a linear chain but takes the form of a
network.
Supply Chain Management
Supply Chain
• A supply chain is a network of facilities and
distribution options that performs the functions
of procurement of materials, transformation of
these materials into intermediate and finished
products, and the distribution of these finished
products to customers – Ganeshan and
Harrison.
…Supply Chain Management
• The systematic, strategic coordination of the
traditional business functions and the tactics
across theses business functions within a
particular company and across businesses
within the supply chain, for the purposes of
improving the long-term performance of
individual companies and the supply chain as a
whole – Mentzer, Dewitt, et al.
It consists of a network of facilities and
distribution options that perform the functions of
procurement of materials, transformation of these
materials into intermediate and finished products,
and the distribution of these finished products to
customers in the right time and of the right quantity
and quality .
Strategic Advantages of Supply Chain
• Supply chain management facilitates supply, storage,
and movement of materials, information, personnel,
equipment, and finished goods within the organization
and between its environment.
• Goal of supply chain management is to integrate the
entire process of satisfying the customer’s needs all
along the supply chain.
• Supply chain costs often represent 50% or more of total
operating costs, thus the firms that have implemented
supply chain management
– Have 45% supply chain cost advantage
– 50% lower inventory
– 17% faster delivery of final product and
– Larger market shares and higher customer loyalty 44
Logistics
• Planning and controlling efficient, effective
flows of goods, services, and information from
one point to another.
Logistics vs SCM
• Logistics refers to activities that occur within the
boundaries of a single organization and supply
chains refer to networks of companies that work
together and coordinate their actions to deliver a
product to market.
• SCM acknowledges all of traditional logistics
and also includes activities such as marketing,
new product development, finance, and customer
service. 45
Business Process Reengineering
What is reengineering?
“Reengineering is the fundamental rethinking and
radical redesign of business processes to achieve
dramatic improvements in measures of performance
such as cost, quality, service and speed”.
THUS Business Process Reengineering (BPR)
advocates that enterprises go back to the basics and
reexamine their vary roots. It doesn’t believe in small
improvements. Rather it aims at total reinvention.
BPR focuses on processes and not on tasks, jobs or
people.
companies are on the lookout for new solutions for
their business problems through Business Process
Reengineering (BPR). The recent examples,
“Wal-Mart reduces restocking time from six weeks
to thirty-six hours.”
Process for BPR
Activity #1: Prepare for Reengineering:
“If you fail to plan, you plan to fail”. Planning and
Preparation are vital factors for any activity or
event to be successful, and reengineering is no
exception. Before attempting reengineering, the
question ‘Is BPR necessary?’ should be asked?
47
Activity #2: Map and Analyze As-Is Process :
Before the reengineering team can proceed to
redesign the process, they should understand the
existing process.
Activity #3: Design To-Be process . The objective
of this phase is to produce one or more
alternatives to the current situation, which satisfy
the strategic goals of the enterprise.
Activity #4:Implement Reengineered Process: The
implementation stage is where reengineering
efforts meet the most resistance and hence it is by
far the most difficult one.
Activity #5: Improve Process Continuously: A
process cannot be reengineered overnight.
very vital part in the success of every
reengineering effort lies in improving the
reengineered process continuously. Two things
have to be monitored – the progress of action
and the results.
ALL THE BEST FOR MID
TERM II