5 M’s

1. 5 M’s Men Machines Methods Money Materials

2. Reasons for popularity of materials Materials offer considerable scope for reducing cost and improving profit Improving return on investment depends on the effective utilisation of materials. Materials add value to product Quality of end product depends on materials The efficiency of any organisation depends upon the availability of right materials, in right quantity, at right time and at right price. Materials are life-blood of man’s development

3. Materials management involves planning, programming, organising, directing, controlling, and co-ordinating the various activities concerning the materials. The production managers found it necessary to develop an organised body of knowledge on this subject. The resulting set of related disciplines is known as materials management.

4. Materials Management • Materials are any commodities used directly or indirectly in producing a product such as raw materials, component parts or assemblies. • Thomas F. Wallace & John R. Dougherty

5. Materials management is the management of the flow of materials into an organisation to the point, where, those materials are converted into the firm’s end product(s) • Bailey & Farmer The executive who engage in materials management are concerned with three basic activities: buying, storage of materials and movement.

6. Functions of Materials Management Materials planning and programming Raw material purchase Receiving, store keeping, and warehousing Issuing of material Inventory control Value engineering Transportation of materials Vendor development Vendor rating Disposal of scrap and surpluses

7. Focus of Material Management • To procure right materials • In Right Quantity • Of Right Quality • At Right Time • From Right sources • At Right prices • 5 R’s, principles of purchasing

8. Primary Objectives Buying the best item at the lowest cost Reduction in inventory cost and High inventory turnover Maintaining the flow of production Maintaining the consistency of quality Optimisation of acquisition and possession, resulting in lower cost

9. Advantages or benefits of M M Risk of inventory loss minimised (theft, pilferage ) Reduction in loss of time of direct labour Cost of material used in different department ascertained Control of manufacturing cycle Material congestion in storage places avoided Improvement in delivery of the product

10. Phases in M M Planning (Plans for capacity or production levels and required inventory levels Material utilisation (efficiency of the flow of materials through the plant) Physical (storing, receiving and issuing of materials and physical checking of inventory of raw materials, work in process, finished goods, record keeping) Control or follow up (feedback and corrective action involved)

11. Challenges of M M Selection of appropriate vendors Land and storage cost increase Difficulty in forecasting demand accurately Scarce capital for investment in materials inventory Diversification of product lines Optimising time and quantity for products Management of information

12. Main depts. Of M M Materials planning Purchase Stores Inventory control

13. Purchasing • Purchasing is to procure the materials, supplies, tools, equipment etc. • 5 R’s – Material, Quantity, Source, Time, Price • Procurement – purchase, material supervision and management as inventory control, receiving and salvage operations.

14. Importance of Purchasing Purchasing function provides materials to the factory without which the machines cannot move Purchasing manager is the custodian of his firm’s purse as he spends more than 50% of his company’s earnings on purchases Can contribute to import substitution and can save foreign exchange

15. Objectives of Purchasing Procurement of required quantity and quality of materials at the most economical price Procuring the material well in advance to meet the needs of the production dept., to save production losses from lack of materials Buying an optimum quantity, neither too much nor too less, not affecting capital or holding up production.

16. Functions Obtaining prices Selecting vendors Awarding purchase orders Following up on delivery promise Adjusting and settling complaints Selecting and training of purchase personnel Vendor relations

17. Kautilya in Arthasastra “Stores and purchase personnel should definitely be expert in his job, adept in the art of negotiations, intelligent, loyal to the organisation’s goals, suppressing personal greed.”

18. Value analysis ( value engineering) Purchasing & methods engineering This activity is aimed at modifying the specifications of materials, parts, and products to reduce their costs Focus is on the value of the product- what function is to be performed by the product- and how that value can be achieved at the lowest cost. Primary attention is devoted to the materials. Suppliers – suggest improvement & cost reduction ideas.

19. Inventory Management The term inventory includes materials – raw, in process, finished packaging, spares and others stocked in order to meet an unexpected demand or distribution in the future. Inventory can be used to refer to the stock on hand at a particular time, of raw materials, goods-in –process of manufacture, finished products, merchandise purchased for resale, and the like, tangible assets which can be seen, measured and counted.

20. Types • Finished goods inventories • Stock in trade –ready for shipment • Maintenance, Repair and Operating inventories - cutting tools , grinding wheels, jigs • Maintenance inventory • Electrical – switches, fuses, lamps, lubricants, safety goggles • Stationary inventories • Canteen provisions, medical supplies, uniforms

21. Objectives of Inventory To facilitate smooth operation of the manufacturing process. To minimise investment in inventory To reduce material handling costs Reasonable utilisation of people

22. Inventory costs Ordering cost Carrying cost Out of stock or shortage cost Capacity cost

23. Ordering Costs • Cost of placing an order with a vendor of materials • Preparing a purchase order • Processing payments • Receiving and inspecting the material • Ordering from the plant • Machine set up • Start up scrap generated from getting a production run started

24. Carrying costs • Costs connected directly with materials • Obsolescence • Deterioration • Pilferage • Financial costs • Taxes • Insurance • Storage • Interest

25. Capital costs • Interest on money invested in inventory • Interest on money in land and building • Storage space costs • Building rent • Depreciation • Cost of maintenance

26. Out of stock costs • Lost sales, transportation • Capacity costs • Overtime when capacity is low • Idle time when capacity is large

27. Benefits of Inventory management Inventory control ensures an adequate supply of materials, stores, etc. minimises stockouts and shortages, and avoids costly interruptions in operations. It keeps down investments in inventories, inventory carrying costs and obsolescence losses to the minimum It facilitates purchasing economies through the measurement of requirements on the basis of recorded experience

28. It eliminates duplication in ordering or in replenishing stocks by centralising the source from which purchase requisitions emanate It permits a better utilisation of available stocks by facilitating inter departmental transfers within a company It provides a check against loss of materials through carelessness or pilferage

29. It serves as a means for the location and disposition of inactive and obsolete items of stores Perpetual inventory values provide a consistent and reliable basis for preparing financial statements.