MBA-Sem: II Sub: (C24) Operation Management Unit – IV: Material Management

1. MBA-Sem: II Sub: (C24) Operation ManagementUnit – IV: Material Management A Theoretical & Practical Perspective by Prof. Rajkaml 9765900862 padmakars21@gmail.com

2. Unit –IV : Material Management • Role of Materials Management- materials and profitability, Purchase functions, Procurement procedures including bid systems, Vendor selection and development, Vendor rating, ethics in purchasing. Roles and responsibilities of purchase professionals. • Concepts of lead time, purchase requisition, purchase order, amendments, forms used and records maintained. • Inventory Management: Concepts of inventory, types, Classification, selective inventory management, ABC analysis. Inventory costs, Inventory models – EOQ, safety stocks, Re order point, Quantity discounts. Stores- types, functions, roles responsibilities, Inventory records Padmakar S. - GWCET

3. Introduction: Reasons for popularity of Materials • Five M’s: Men, Machines, Money, Materials & Methods • The amount spent on materials is higher than other inputs • Materials offer considerable scope for reducing cost and improving profit • Improving return on investment depends on effective utilization of materials • Materials add value to products • Quality of end product depend s on materials • Need for preservation of scarce resources for posterity • Materials management assumes responsibility for whatever happens in purchasing, storing, inventory or any other area connected with materials • Increasing demand for ensuring environmental safety • The efficiency of any organization depends upon the availability of right materials, in right quantity, at the right time & the right price • Materials are the life-blood of man’s development Padmakar S. - GWCET

4. Objectives / Importance of Material Management: • Primary Objectives: • Lower price for materials and equipment • Faster inventory turnover • Continuity of supply • Low payroll costs • Favorable supplier relations • Development of personnel • Good records • Secondary Objectives: • Reciprocal relations • New materials and products • Economic make-or-buy • Standardization product improvement ‘interdepartmental harmony • Forecasts • Acquisitions Padmakar S. - GWCET

5. Purchase Management: (Procurement)Functions of Purchasing Department: • Fully delegated to purchasing function: • Obtaining prices • Selecting vendors • Awarding purchase orders • Following up on delivery promises • Adjusting and settling • Selecting and training of purchasing personnel • Vendor relations Padmakar S. - GWCET

6. Purchase Management: (Procurement)Functions of Purchasing Department: • Functions other than purchasing functions: • Obtaining technical information and advice • Receiving sales presentation and arranging for sales opportunities with interested personnel (Lead Generation) • Establishing specifications • Scheduling order & deliveries • Inspecting • Specifying delivery methods and routing • Expediting and purchasing for employee • Accounting • Purchasing and market research • Inventory and warehousing policy and/or control • Forward buying and hedging policies and procedures • Contract and agreements • Sale of scrap, salvage and surplus Padmakar S. - GWCET

7. Role and responsibilities of Purchase professional: • Make or buy decision • Authority to commit the funds for acquisition of goods & services • Satisfy needs • Interview all vendor representative • Bidding and negotiation, trial order • Purchase of right quality, right quantity, right price, right time and from right source Padmakar S. - GWCET

8. Inventory Management: • Originate from French word ‘Inventaire’ & latin word ‘Inventariom’ • The term includes materials-raw, in process, finished packaging, spares and other stocked in order to meet an expected demand or distribution in the future • It can be used to refer to the stock on hand at a particular time of raw materials, goods-in-process of manufacture, finished product, tangible assets which can be seen, measured and counted Padmakar S. - GWCET

9. Types of inventories: • Production Inventories • MRO Inventories (Maintenance, repair, operating supplies) • In-process Inventories • Finished goods Inventories • Raw materials • Purchased parts and supplies • Labour • Working capital • Tools, machinery and equipment Padmakar S. - GWCET

10. Inventory Costs: • Ordering Costs • Carrying Costs • Capital Costs • Storage Space Costs • Inventory service costs • Handling-equipment costs • Inventory risk costs • Out-of stock costs • Capacity costs Padmakar S. - GWCET

11. Benefits of Inventory Management & Control: • Ensures an adequate supply of materials, stores etc., minimize stock-outs and shortage, and avoids costly interruptions in operation • It keeps down investment in inventories, inventory carrying cost and obsolescence loses to the minimum • If facilitates purchasing economies through the measurement of requirement on the basis of recorded experience • Eliminate duplication • It permits better utilization of available stocks by facilitating inter-department transfer within a company • It provides a check against the loss of materials • It enables management to make cost and consumption comparison between operations and periods • For preparing financial statement Padmakar S. - GWCET

12. Inventory Control Techniques: • Always Better Control (ABC) Classification • High, medium and low (HML) classification • Vital, Essential and Desirable (VED) classification • Scarce, difficult and easy to obtain (SDE) • Fast moving, slow moving and non-moving (FSN) • Economic Order Quantity (EOQ) • Max-Minimum system • Two bin system Padmakar S. - GWCET

13. Always Better Control (ABC) Analysis: • Objective is to vary the expenses associated with maintaining appropriate control according to the potential savings associated with the proper level of control Padmakar S. - GWCET

14. Economic Order Quantity (EOQ): • It is the technique which solves the problem of materials manager. Q Opt (Optimum Quantity) is the order size at which the total cost, comprising ordering cost and plus carrying cost, is the least Padmakar S. - GWCET

15. Graphic Presentation of EOQ Tc (Total Cost) (Carrying Cost) (Q/2)H DS/Q (Ordering Cost) Cost (Rs) EOQ Padmakar S. - GWCET Order Quantity Size (Q)

16. Assumptions: • Demand for the product is constant and uniform throughout the period • Lead time (time from ordering to receipt) constant • Price per unit of product is constant • Inventory holding cost is based on average inventory • Ordering costs are constant • All demands for the product will be satisfied (no back orders are allowed) Padmakar S. - GWCET

17. Economic Order Quantity (EOQ): • It is Padmakar S. - GWCET

18. Economic Order Quantity (EOQ): • It Padmakar S. - GWCET