Introduction of material management

2. MATERIAL
MANAGEMENT
Speaker:
AMMARA FAROOQUI

3. MATERIAL MANAGEMENT
Materials management involves planning,
programming, organizing, directing,
controlling, and co-ordinating the various
activities concerning the materials.

4. Definition of Materials
• Materials are any commodities used
directly or indirectly in producing a product
such as raw materials, component parts or
assemblies.

5. 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

6. • 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

7. • 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

8. (11761)
OBJECTIVES

9. OBJECTIVES :
There are two types of objectives of material
management:
Primary
Secondary

10. 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.

11. MAKE OR BUY DECISION
PRODUCT DEVELOPEMENT
STANDARDIZATION
PRODUCT IMPROVEMENT
INTER DEPARTMENTAL HARMONY
FAVORABLE RECIPROCAL RELATIONSHIPS
ASSISTANCE TO PRODUCTION
DEPARTMENT.

12. 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.

13. PLANNING
MATERIAL
UTILIZATION
PHYSICAL
CONTROL / FOLLOW UP

14. DEPARTMENTS OF MATERIAL MANAGEMENT
 MATERIAL
PLANNING
 PURCHASE
 STORE
 INVENTORY
CONTROL
 TRANSPORTATION

15. Speaker:
Bushra Khan
11742

16. 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.

17. 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

18. 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

19. If a company has production operation at
different places and if the nature of operation
is similar, then centralized purchasing is
preffered.
Centralized purchasing

20. Decentralized purchasing
When different branches of a large organization require
different types of materials, decentralized purchasing is
preffered.

21. 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

22. 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.

23. 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

24. By : DR. ANAM HASSAN
&
DR. HIRA ARSHAD
INVENTORY MANAGEMENT

25. 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

26. Types of Inventories
Raw materials
Purchased parts and supplies
Finished Goods
Work-in-process (partially completed products )
Items being transported
Tools and equipment

27. 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.

28. 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

29. 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

30. 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

31. 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

32. 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)

33. 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

34. 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

35. 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

36. 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

37. 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
-
-

38. 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

39. 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

40. Reorder Point
Level of inventory at which a new order is placed
R = dL
• d = demand rate per period
• L = lead timewhere

41. Variable Demand with a Reorder Point
Reorder
point, R
Q
LT
Time
LT
Inventorylevel
0

42. Reorder Point with a Safety Stock
Reorder
point, R
Q
LT
Time
LT
Inventorylevel
0
Safety Stock

43. 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)

44. 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

45. 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%

46. 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%

47. 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

48. NOOR ULAINN
11773
CONTRACT FORMS

49. Definition :
 AN AGREEMENT ENFORCEABLE BY LAW IS A
CONTRACT.

50. Types of Contracts
 Purchase order for stores, spares or equipment
 Rate Contract
 Service Contract
 Annual Maintenance Contract
 Works Contract
 Consultancy Contract

51. 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

52. 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:

53. 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.

54. • 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.

55. 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.

57. 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.

58. 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

59.  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.

60. Types of Relationships in
Supply Chains
1- Integrated Hierarchy
2- Semi-Hierarchy
3- Co-Contracting
4- Coordinated contracting
5- Coordinated revenue links

61. 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.

62. 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.

63. 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.

64.  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)

65.  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.

66. 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.

67. 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.

68. Logistics network

69. 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

71. 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.

72. By road
By railway
Airways
Water ways
Pipe line
Multi models

73. •Delivery speed
•Delivery dependability
•Quality deterioration
•Transport cost
•route flexibility

74. 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.

75. 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..

76. 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.

77. •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