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Material management

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Introduction of material management

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Material management

  1. 1. MATERIAL MANAGEMENT Speaker: AMMARA FAROOQUI
  2. 2. MATERIAL MANAGEMENT Materials management involves planning, programming, organizing, directing, controlling, and co-ordinating the various activities concerning the materials.
  3. 3. Definition of Materials • Materials are any commodities used directly or indirectly in producing a product such as raw materials, component parts or assemblies.
  4. 4. Definitions of Material Management •Materials management is the management of the flow of materials into an organization to the point, where, those materials are converted into the firm’s end product(s) –Bailey & Farmer •Materials management is the grouping of management functions supporting the complete cycle of material flow, from the purchase and internal control of production materials to the planning and control of work in process to the warehousing, shipping, and distribution of the finished product. –Thomas F. Wallace & John R. Dougherty
  5. 5. • 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 Functions of Materials Management
  6. 6. • 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 Focus of Material Management
  7. 7. (11761) OBJECTIVES
  8. 8. OBJECTIVES : There are two types of objectives of material management: Primary Secondary
  9. 9. BEST ITEM LOW PRICE. REDUCTION IN REAL PRICE. CONTINUITY IN SUPPLY. CONSISTENCY IN QUALITY. EFFICIENT HANDLING OF MATERIALS. HIGH INVENTORY TURN OVER LOW PROCUREMENT LOW STORAGE COST GOOD SUPPLIER RELATIONS. MAINTAINING GOOD RECORDS.
  10. 10. MAKE OR BUY DECISION PRODUCT DEVELOPEMENT STANDARDIZATION PRODUCT IMPROVEMENT INTER DEPARTMENTAL HARMONY FAVORABLE RECIPROCAL RELATIONSHIPS ASSISTANCE TO PRODUCTION DEPARTMENT.
  11. 11. Material cost can be low.  Better handling of materials. Reduction in duplicate orders. Materials will be on the side when need.  Risk of inventory loss minimize. Stock reduction. Improvement in labor productivity. Reduction of loss of time of direct labor or labor saving. Quality control. Better relations with supplier. Better cash flow managements. Control of manufacturing cycle. Material congestion in storage places avoided. Improvement in delivery of product.
  12. 12. PLANNING MATERIAL UTILIZATION PHYSICAL CONTROL / FOLLOW UP
  13. 13. DEPARTMENTS OF MATERIAL MANAGEMENT  MATERIAL PLANNING  PURCHASE  STORE  INVENTORY CONTROL  TRANSPORTATION
  14. 14. Speaker: Bushra Khan 11742
  15. 15. Definition  Purchasing is the first phase of Materials Management. Purchasing means procurement of goods from some external agencies.  Purchasing, in a business environment , is one of the most critical functions as it provides the input for the organisation to convert into output.
  16. 16. According to Westing, Fine and Zenz “Purchasing is a managerial activity that goes beyond the simple act of buying. It includes:  Research and development for the proper selection  follow-up to ensure timely delivery  Inspection  Storekeeping  Accounting operations
  17. 17. The specific objectives of purchasing are: • To pay reasonably low prices for the best values obtainable. • To keep inventories as low as is consistent with maintaining production. • To develop satisfactory sources of supply. • To maintain good relations with vendors. • To achieve a high degree of co- operation. Objective Of Purchasing
  18. 18. If a company has production operation at different places and if the nature of operation is similar, then centralized purchasing is preffered. Centralized purchasing
  19. 19. Decentralized purchasing When different branches of a large organization require different types of materials, decentralized purchasing is preffered.
  20. 20. Purchasing Process Purchasing Process includes:  Market survey  Requisitioning  Approving  Making Purchase Decision  Placing Orders  Accounting Goods and Services  Receiving Invoices and Making Payment  Credit note in case of material defect
  21. 21. 6 Major Principles of Purchasing Some of the major principles of purchasing are: 1. Right Quality 2. Right Quantity 3. Right Time 4. Right Source 5. Right Price and 6. Right Place.
  22. 22. Importance of Purchasing:  Purchasing function provides materials to the factory  Purchasing can contribute to import substitution and save foreign exchange.  Every 1% saving achieved in purchasing results to about 5% profit to an organization.  Efficient administration  Delivery on time  Quality of final product  Optimum utilization of capital
  23. 23. By : DR. ANAM HASSAN & DR. HIRA ARSHAD INVENTORY MANAGEMENT
  24. 24. What is inventory? A physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state. Purpose of inventory management • How many units to order? • when to order? discount
  25. 25. Types of Inventories Raw materials Purchased parts and supplies Finished Goods Work-in-process (partially completed products ) Items being transported Tools and equipment
  26. 26. Nature of Inventories Raw Materials – Basic inputs that are converted into finished product through the manufacturing process Work-in-progress – Semi-manufactured products need some more works before they become finished goods for sale Finished Goods – Completely manufactured products ready for sale Supplies – Office and plant materials not directly enter production but are necessary for production process and do not involve significant investment.
  27. 27. Inventory and Supply Chain Management • demand information is distorted as it moves away from the end-use customer(forecast) • higher safety stock inventories are stored to compensate Bullwhip effect Seasonal or cyclical demand Sale of umbrella , dominos sale in weekend Inventory provides independence from vendors Take advantage of price discounts Inventory provides independence between stages and avoids work stoppages WIP inventories
  28. 28. Two Forms of Demand Dependent (not used by customer directly) • Demand for items used to produce final products • Tires stored at a plant are an example of a dependent demand item Independent • Demand for items used by external customers • Cars, computers, and houses are examples of independent demand inventory
  29. 29. Inventory and Quality Management Customers usually perceive quality service as availability of goods when they want them Inventory must be sufficient to provide high- quality customer service
  30. 30. Inventory Costs • cost of holding an item in inventory Carrying cost • cost of replenishing inventory Ordering cost • temporary or permanent loss of sales when demand cannot be met Shortage cost
  31. 31. Inventory Control Systems • constant amount ordered when inventory declines to predetermined level Continuous system (fixed-order-quantity) • order placed for variable amount after fixed passage of time Periodic system (fixed-time-period)
  32. 32. Economic Order Quantity (EOQ) Models • We want to determine the optimal number of units to order so that we minimize the total cost associated with the purchase, delivery and storage of the product. EOQ Basic EOQ model Production quantity model
  33. 33. Assumptions of Basic EOQ Model Demand is known, constant, and independent Lead time is known and constant Order quantity received is instantaneous and complete No shortage is allowed
  34. 34. Inventory Order Cycle Demand rate TimeLead time Lead time Order placed Order placed Order receipt Order receipt InventoryLevel Reorder point, R Order quantity, Q 0
  35. 35. EOQ Cost Model Co - cost of placing order D - annual demand Cc - annual per-unit carrying cost Q - order quantity Annual ordering cost = CoD Q Annual carrying cost = CcQ 2 Total cost = + CoD Q CcQ 2
  36. 36. EOQ Cost Model TC = + CoD Q CcQ 2 = + CoD Q2 Cc 2 TC Q 0 = + C0D Q2 Cc 2 Qopt = 2CoD Cc Deriving Qopt Proving equality of costs at optimal point = CoD Q CcQ 2 Q2 = 2CoD Cc Qopt = 2CoD Cc - -
  37. 37. EOQ Cost Model (cont.) Order Quantity, Q Annual cost ($) Total Cost Carrying Cost = CcQ 2 Slope = 0 Minimum total cost Optimal order Qopt Ordering Cost = CoD Q
  38. 38. Quantity Discounts Price per unit decreases as order quantity increases TC = + + PD CoD Q CcQ 2 where P = per unit price of the item D = annual demand
  39. 39. Reorder Point Level of inventory at which a new order is placed R = dL • d = demand rate per period • L = lead timewhere
  40. 40. Variable Demand with a Reorder Point Reorder point, R Q LT Time LT Inventorylevel 0
  41. 41. Reorder Point with a Safety Stock Reorder point, R Q LT Time LT Inventorylevel 0 Safety Stock
  42. 42. Classifying Inventory Items ABC Classification (Pareto Principle) In any Retail organization there are large numbers of inventories to be maintained. It is not practical to have very stringent inventory control system for each & every item. So with the modus of having an effective Purchase & stores control we implement ABC Inventory Classification model Known as Always Better Control (ABC) based upon Pareto rule ( 80/20 rule)
  43. 43. ABC Analysis Divides inventory into three classes based on Consumption Value Consumption Value = (Unit price of an item) (No. of units consumed per annum)  Class A - High Consumption Value  Class B - Medium Consumption Value  Class C - Low Consumption Value
  44. 44. ABC Analysis Item Stock Number Percent of Number of Items Stocked Annual Volume (units) x Unit Cost = Annual Consump tion value Percent of Annual consumpti on value Class #10286 20% 1,000 $ 90.00 $ 90,000 38.8% A #11526 500 154.00 77,000 33.2% A #12760 1,550 17.00 26,350 11.3% B #10867 30% 350 42.86 15,001 6.4% B #10500 1,000 12.50 12,500 5.4% B 72% 23%
  45. 45. ABC Analysis Item Stock Number Percent of Number of Items Stocked Annual Volume (units) x Unit Cost = Annual cons. value Percent of Annual cons. value Class #12572 600 $ 14.17 $ 8,502 3.7% C #14075 2,000 .60 1,200 .5% C #01036 50% 100 8.50 850 .4% C #01307 1,200 .42 504 .2% C #10572 250 .60 150 .1% C 8,550 $232,057 100.0% 5%
  46. 46. C Items ABC Analysis A Items B Items %ofConsumptionValue 80 – 70 – 60 – 50 – 40 – 30 – 20 – 10 – | | | | | | | | | | 10 20 30 40 50 60 70 80 90 100 % of inventory items
  47. 47. NOOR ULAINN 11773 CONTRACT FORMS
  48. 48. Definition :  AN AGREEMENT ENFORCEABLE BY LAW IS A CONTRACT.
  49. 49. Types of Contracts  Purchase order for stores, spares or equipment  Rate Contract  Service Contract  Annual Maintenance Contract  Works Contract  Consultancy Contract
  50. 50. General Principles for Contract  The terms of contract must be precise, definite and without any ambiguities. .  Price Variation Clause to be provided only in long-term contracts, where the delivery period extends beyond 18 months  The contract should also contain the mode and terms of payment.  The terms of a contract, including the scope and specification once entered into, should not be materially varied.  All contracts shall contain a provision for recovery of liquidated damages for defaults on the part of the contractor.  A warranty clause should be incorporated in every contract  Suitable provision for settlement of disputes to be incorporated
  51. 51. Contract terms  Exchange between buyers and suppliers ,both sides have to agree on who will pay for the transportation.  The purchaser has to arrange and pay for loading on to the vessel and all onward transportation, insurance and documentation,  The main defnition of these terms are as follows:
  52. 52. Ex works  purchaser accepts full responsibility.  this involves :  Arranging transportation, insurance and documentation to move the goods to the require source port air or sea .  Have them loaded on to the mode of transport.  Transported to and unloaded at the destination port  Cleared through customs and transported to the purchaser’s location.
  53. 53. • FAS suppliers agrees to deliver to the source port specified by the purchaser ,also responsible for the transportation and insurance of goods. FOB :arrange loading on to the outward bound transportation. C&F :it is a split responsibility arrangement and pays for transportation. But the purchaser has to pay insurance . CIF : similar to C&F but here the insurance during transportation is responsibility of the supplier.
  54. 54. Delivered:  opposite of ex-works the supplier has total responsibility for the goods, their transportation , insurance and all documentation until they are delivered to the purchaser.
  55. 55. Definition: Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements. OR SCM is the systematic and strategic co-ordination management for supplying goods and products that reaches to an end customer.
  56. 56. Keypoints:  supply chain management takes into consideration every facility that has an impact on cost and plays a role in making the product conform to customer requirements.  the objective of supply chain management is to be efficient and cost-effective across the entire system.  Time should be considered in priority list to minimize consumer compliance
  57. 57.  Long supply chain handled with difficulty when there is two or more sets of end costumers. For eg: Pharmaceutical industry responsible for making variety of products and to distribute those products among variety of consumers.
  58. 58. Types of Relationships in Supply Chains 1- Integrated Hierarchy 2- Semi-Hierarchy 3- Co-Contracting 4- Coordinated contracting 5- Coordinated revenue links
  59. 59. 1) Integrated hierarchy means that a firm houses all activities in the supply chain From raw material source TO distribution of products to end users. This is also called Full Vertical Integration.
  60. 60. 2) In a Semi-hierarchy organization, the firms in the Supply Chain are owned by the same holding Company, But they operate as Separate Business Units.  For example, An Oil Company delegates the following activities to the following business units: Oil extraction, Oil refining, Petrol Distribution, and Petrol Retailing.
  61. 61. 3) Co-contracting is a term used to describe alliances between organizations that have  Long term relationships but do not Merge together.  They rather transfer some Equity (ownership), technology, Information, AND People. 4) Coordinated Contracting involves a prime contractor who employs a set of sub-contractors.  For example, a building trader (or decorator) employs a set of sub-contractors, such as carpenters, electricians, and bricklayers AND calls them when needed.  There is a long-standing relationship between contractor and sub-contractors.
  62. 62.  The contractor provides Materials and usually take responsibility for the planning and control of the entire job.  But the sub-contractor provides the necessary equipment required for its profession. 5) The category of Coordinated revenue links is used primarily for Licensing and Franchising. (e.g., fast food chains)
  63. 63.  It is a form of relationship that transfers ownership to other firms (usually smaller) while guaranteeing an income for the franchiser or the licensor.  In this form of contract Franchiser, - Has the property rights of the product - sets the territory in which the franchisee can operate - sets the process specification to be used in operations, and - monitors the performance of the franchisee.
  64. 64. Function of SCM  Supply chain management is a cross-functional approach that includes managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and the movement of finished goods out of the organization and toward the end consumer.
  65. 65. Logistics  Logistics is a part of SCM  Logistics function manages the total flow of products from the plant to the customers.  As contrary to the materials management, Logistics provides an emphasis on physical distribution management.
  66. 66. Logistics network
  67. 67. Importance Supply chain management is essential to company success and customer satisfaction because:  SCM reduces inventory cost  Provides better medium for sharing information between partners  Improves customer satisfaction as well as service  Maintains trust between partners  Provides efficient manufacturing startegy  Improves process integration  Improves cash flow
  68. 68. transportation is the movement of products, material, and servicies from one area to another both inbound and outbound. Transport happens to b the most fundamental parts of logistics management The average transport cost ranges from 5 to 6 %of the recommended retail price of the product.
  69. 69. By road By railway Airways Water ways Pipe line Multi models
  70. 70. •Delivery speed •Delivery dependability •Quality deterioration •Transport cost •route flexibility
  71. 71. Transportation cost vary from less than 1% (for machinery ) to over 30 %(for food ) of the recommended selling price of products depending upon the nature of the product range and its market. However the average transport cost is between 5 to 6 % to the recommended retail price of the product.
  72. 72. Transportation management systems manage four key processes of transportation management: Planning and decision making – TMS will define the most efficient transport schemes according to given parameters, which have a lower or higher importance according to the user policy: transport cost, shorter lead-time, fewer stops possible to ensure quality, flows regrouping coefficient, etc. Transportation Execution – TMS will allow for the execution of the transportation plan such as carrier rate acceptance, carrier dispatching, EDI etc..
  73. 73. Transport follow-up – TMS will allow following any physical or administrative operation regarding transportation: traceability of transport event by event (shipping from A, arrival at B, customs clearance, etc.), editing of reception, custom clearance, invoicing and booking documents, sending of transport alerts (delay, accident, non-forecast stops…) Measurement – TMS have or need to have a logistics key performance indicator(KPI) reporting function for transport.
  74. 74. •Various functions of a TMS include but not limited to: •Planning and optimizing of terrestrial transport rounds •Inbound and outbound transportation mode and transportation provider selection •Management of motor carrier, rail, air and maritime transport •Real time transportation tracking •Service quality control in the form of KPI's (see below) •Vehicle Load and Route optimization •Transport costs and scheme simulation •Shipment batching of orders

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