UNIT-1 C

MATERIAL MANAGEMENT
The following activities are incorporated under
material management and cost control system

(a) Purchase of materials

(b) Storing of materials

(c) Pricing of materials-FIFO, LIFO and Average

method.

(d) Techniques of inventories control- EOQ, Stock

Levels , ABC Analysis, JIT
Functions of purchase department

 What to purchase
 When to purchase
 How much to purchase
 From where to purchase
 At what price to purchase
1. MATERIAL PURCHASING

 Function of buying raw material, general supplies, tools,

stationary & other items.
 The efficient purchasing is the right quality, right
quantity, right time, right place, right price & delivery at
the right place.
 The function of purchase should be performed by a
purchase department (Purchase officer)
2. Storing of material
 The store department is responsible for the
storage & safe custody of material received which
are not required for immediate manufacturing.
 Losses from carelessness, damage, deterioration,
pilferage may be considerable, unless proper
storage is provided for.
The following points should be kept in mind
regarding storage for improve the quality

 location of stores ( easily accessible to other

dep)
 safe place (from theft or fire)
 Proper classification
 Proper recording & accounting of stores
(material received, issued, returned.)
 Objective of inventory control
 Ensure a continuous supply of raw-material to running the
production
 To avoid the situation of under stocking and overstocking .
 Maintain sufficient finished goods inventory for smooth sales
operation and efficient customer services.
 Maintain sufficient stock of raw-material in period of short-
supply
 Minimize the ordering and carrying cost
3. Pricing of materials issued
FIFO Method
 Techniques of inventory control

(i) Economic Order Quantity (EOQ)

(ii) Stock levels
(iii)ABC Analysis

(iv)JIT
E.O.Q
EOQ is a production formula which is used to determine the
most efficient amount of goods that should be purchased, based
on ordering and carrying costs.
it represents the optimal quantity of inventory a company
should order each time in order to minimize the costs
associated.
It is the level of inventory that minimizes the total cost of
inventory.
EOQ with graph
ABC Analysis (Always better control)
 It is a technique in which Inventory items are
grouped into three categories (A, B, and C)
in order of their estimated importance.
 'A' items are very important, 'B' items are
important, and 'C' items are marginally important.

 An analysis of a range of items that have different

levels of significance and should be handled or
controlled differently.
 ABC Analysis
The firm should put maximum control on those items whose
value is the highest.
 Classified ‘A’ items and would be under tight control.
 ‘B’ items fall in between ‘A’ items and ‘C’ items and require
reasonable attention from management.
 Category ‘C’ items, on this types of inventories we cannot
afford expenses of rigorous controls, because of the low value
in this area.
ABC-Categories
Category no of item (%) Item value(%)

A 15 70

B 30 20

C 55 10

TOTAL 100 100

 JIT METHOD
It is related to elimination of waste. JIT purchasing is the purchase of
materials in such a manner that delivery immediately leads the
demand of use.
 It advocates developing good relations with suppliers & making
timely purchases from proven suppliers who can make ready
delivery of goods when need arise.
Features
 Low or zero inventories, Aims to minimize lead time
 Emphasizes customer’s services & timing
 Aims to have zero defects