AAddmmaassss UUnniivveerrssiittyy CCoolllleeggee · Yirgalem Addis Textile Factory P.L.C. is a...

AAddmmaassss UUnniivveerrssiittyy CCoolllleeggee

Submitted to: Ato Gizachew

February 2012

Addis Ababa

ADMAS UNIVERSITY COLLEGE PRAPARED BY ERMIAS TIZAZU

For further information please contact us through E-mail: [email protected] Visit: www.ermiastizazu.wordpress.com Page | 2

The position for Material management



Preface This case study is an over view and rough screening of the material management system of Yirgalem Addis Textile Factory P.L.C. which includes the MM policies and procedures. In the first, we will discuss about an organizational structure of the company and the two dimension hierarchy of the material management. What is the frame work of the material management will be dealt in the second chapter and proceeding procedures of material management in the third chapter. Finally, we summarize the standard performance-time frame of the Material Management.

Here we need our teacher to ask apology for delaines of the submission. That was caused by the delay in getting the formats of the company. The case study was compiled by the followings:

1. Ermias Tizazu 0304/03

2. Netsanet Demsis 0929/03

3. Hiwot T/Mariam 2959/98

4. Mahilet Mengistu 0829/03 5. Manaye Tariku 0256/03

6. Ehitnesh Kelem 1273/03

7. Meaza kefeni 1265/03

8. Asrat 9. Daniel Megerssa 1613/02

10. Mintesinot

Acknowledgment We greatly need to gratitude Yirgalem Textile Factory P.L.C. employees for their happily- clear explanation and willingness-free gifts of their testimony. Specially would like to thank Hiwot.



Introduction

Yirgalem Addis Textile Factory P.L.C. is a company established to make different textiles

which focused both in exporting and importing the product. Since August 2002 E.C the

company has been working only for two years. Its physical address was located at Saris, the

previous Adey abeba, Addis Ababa Ethiopia. Tel: 0114422300 E-mail: [email protected]

As profit making manufacturing company, material was the basic resource to use and

allocate critically. It will be the best trend to find material management science applied as a

system. In our fast and simply case study, we will discuss about the system of material

management implemented in Yirgalem Addis Textile Factory.

The company has material management manual. This manual sets out policies and

procedures to be followed in the provision of the commercial practice. The manual gives

some point on why the best Materials Management system designed for:

Recommend and Implement proper Materials Management policies and procedures in view of efficiency and effectiveness

Provide uniform Inventory Control Management policies and procedures

Ensure that the Inventory shall be performed based on the annual plan

Ensure proper custodianship of items in stock

Ensure proper verification of receipts and issues of all items

Ensure that receipts, issues returns and/or transfers are made per the approval of the concerned authorities

Ensure that items maintained in the store are properly classified, coded, located and maintained in such way that each and every item could easily be retrieved from the right location

Ensure that all fixed items are properly received, responsible custodianship and control is established

Introduce proper stock taking policies and procedures

Finally, facilitate consistent application of best Materials Management System It sets out the minimum required standards for all materials management activity.

The MM /material management/ system is applies for the company’s Materials Mgt activity i.e. Raw

Material, Accessories, and Spare parts and general supplies. The company classified the

materials in 6 categories. As:

1. Raw Material; - Example lint cotton, blanket a cleric etc...

2. Packaging Materials: - Example cartoons, plastic coverage etc.

3. General Supplies: -this includes computers and accessories, stationary cleaning materials, PPE and uniforms.

4. Spare Part: - this includes electrical and mechanical machine components. Example blowing machine spare

mailto:[email protected]



5. Personal Protective Equipment (PPE) item: - a material or equipment use to cover or protect hazards.

6. MRO items: - a material or an item uses for Maintenance, Repair and Operation

1. Organizational structure and control

1.1 organizational structures

Fig. 1 Organization Structure

Delegation of authority within Yirgalem Addis Textile Factory /YATF P.L.C. /is guided by the following principles:-

The authority of the General Manager is delegated to the Procurement and Materials Management Department of YATF P.L.C. who are charged with particular duties and responsibilities to enable them discharge their duties and responsibilities properly, efficiently and effectively.

General Manager

Procurement & Material

Management Deprt . (1)

Inventory Supervisor (1)

Inventory Clerk (1)

Senior Procurement

Officer (1)

Procurement Officer (2)

Materials Management Head

(1)

Raw Materials & General Store

Keeper (1)

Stock Assistance (2)

MRO Store Keeper (1)

Stock Assistance (1)

Procurement & Materials

Management Clerk (1)



No management, senior staff or employee may undertake any Materials management activity which commits YATF P.L.C. to any cause of action what so ever unless authorized to do so.

Authority may be conferred because of an employee’s position in the Factory, their specific duties, responsibilities or obligations they are asked to perform. 1.2 Checks and Balances To ensure proper execution of the Materials Management activity it is important that there is

effective separation of powers and functions between persons acting on behalf of YATF P.L.C.

under specified conditions. This is essential to safeguard failure in the company and to fulfill

transparency, probity, accountability and responsibility.

The following general principles are adopted from the manual that ensure effective checks and balances in the procurement activity of YATF P.L.C.

At the transactional level, effective separation of functions and powers exist between the following functions: 1. Initiation: - Process Ownership 2. Verification: - Procedural adherence, a) Process b) Work order, Production plan, project etc c) Budgetary control 3. Final Approval: - Receipt and issue of materials, stock movement, returns, location change.

At the Company level, effective separation of power and function between the operations

of YATF P.L.C., their independent performance and conformance monitoring and audit,

their overall strategic direction and performance management and their high level over

sight.

Schedule of approval Authorities for Documents

S/No Documents

Approval Authorities

Prepared by Checked/Appro

ved by Authorized by

1 Stores Requisition Dedicated personnel to request in user Department

Division Heads Department/Service Head

2 Stock Issue Voucher

Inventory Clerk Inventory Supervisor,

Manager, Materials Management Section

3 Stock Transfer Voucher In /Out

Transferred By & To Stock keeper,

Inventory Supervisor

Manager Materials Management Section

4 Goods Receiving Note

Stock Clerk Store Keeper Manager, Materials Management Section

5 Stock Return Voucher

User Department/Service

Store Keeper Stores Supervisor

6 Overage, Shortage and Out

Store Keeper Inventory Supervisor

Manager, PMM, Department



of Spec. Voucher

7 Purchase Requisition

Procurement & Mat. Management Clerk

Manager, Department/Service

Manager, PMM Department

8 Determination of Purchase Quantity

Inventory Supervisor Manager, Materials Management section

Manager, PMM Department

9 Disposal of Non-moving, Obsolete and Scrap

Inventory Supervisor/ Manager, Materials Management Section

Manager, PMM, Department

Manager, Finance Department / General Manager

10 Goods Receiving Inspection

Store keeper Inspection Unit/Staff of user Department

Manager of User Department/Service

11 Gate Pass Dedicated personnel to request in user Department

Inventory Supervisor, Respective Store Keeper

Utility Section Head

Table 1 Schedule of approval Authorities for Documents

2. MATERIALS MANAGEMENT FRAME WORK Different processes of Materials Management shall be applied to ensure maximum efficiency and effectiveness, However we got the following the Frame Work Procedure of Materials Management.

1. Materials Req. Planning (MM001)

2. Annual Procurement Planning (MM002)

3. Procurement Process (PP001-PP009)

4. Materials Management (MM003-MM010)

MRP

PP

MM

APPRECIATION



Fig.2 MM Frame Work

3. BASIC MATERIALS MANAGEMENT PROCEDURES 3.1 BASIC MATERIALS MANAGEMENT POLICIES This basic materials Management policy and procedure mainly contain the raw materials, frequently used packaging materials and consumables.

1. Materials Requirement Planning (MRP) In order to avoid the negative impacts of over ordering and under ordering, it would be necessary that the factory prepare annual materials requirement plan at large with the participation of all work units. Although the inventory may vary as decided by the Manager of Procurement and Materials Management based of the actual inventory level, the following shall be the possible beginning and ending inventory policies to be applied for all items in stock:

The Materials Management section shall take responsibility to conclude the MRP.

The Sales & Marketing Department shall submit the Approved Annual sales forecast to the Materials Management Section head for future consumption analysis.

The Inventory Supervisor should plan the beginning and ending Inventory using the following principles and provide the information to the procurement management when required:

Ending Inventory =9 months actual consumption + 3 months estimate

Beginning Inventory = 9 months actual consumption + 6 months estimate The procurement unit shall submit the detail lead time of each item to the Materials Management section head and soon…

2. Safety Stock

Although the level may vary as decided by the Manager of Procurement and Materials

Management in consultation with the General Manger based of the actual consumption level,

the following shall be the safety- stock policy to be applied for all items in stock:

The safety stock level for local items is between 15-30 days stock

The safety stock level for imported items is 60-90 days stock

3. Minimum, Maximum Stock and Order Quantity Although the level may vary as decided by the Manager of Procurement and Materials Management in consultation with the General Manager based of the actual consumption level



the following shall be the possible stock level policies to be applied specially for the strategic items:-

The recommended minimum stock level for local items is between 25-35 days stock where as imported items is between 90-120 days stock.

The recommended maximum stock level for local items 180 days (6 month) where as imported items is 240 days or 8 months

The recommended order quantity shall be the average of the maximum and the minimum stock levels

4. Applicable Valuation method The recommended valuation method is weighted average and shall be used in all postings by the stock control in consultation with the cost accounting.

5. Determination of Fixed Assets Fixed asset is an asset whose value is equal to or above 1000.00 ETB and lasts for a period equal to or longer than one year. Thus, basic criteria to determine fixed assets are:

If an asset lasts for more than a year period, 1 year or above economic life time.

It the purchase value is more than Birr 1000.00 If the asset has value of less than 1000.00 ETB and has more than one year economic life time, will be considered in Finance and Accounting Manual and has a separate management.

6. Procedures for codification Codification is the process of representing each item by a number or alphabet, the digits of which indicate the group, the sub-group, the type and dimension of the item. Xxxx xxx xxx xx x

Check digit Running serial number

Sub-classification code Main classification code Chart of Account

Fig 3 Codification

An item can be received without a code however cannot get location in the store and issued from the store without proper code. 7. Stock Verification Stock verification is one of the basic activities of the finance department. Verification is the process of counting, weighting or measuring the stock of materials that are held and making a record of these figures. The term stock consists of Fixed Asset and Inventory. This could be done both by the use of receipt and Issue documents and Verifications using either of the following inventory techniques:- a. Periodic Inventory b. Perpetual (Cyclic) Inventory



3.2. BASIC MATERIALS MANAGEMENT PROCEDURES

1. Inventory Planning and application procedure There are two Basic steps in the company to draw the Material Requirement Planning 1. Management should agree and sign off Annual Sales Forecast and submit to Procurement and Materials Management Manager 2. Prepare Bill of Materials list in which all the work unit can fill their requirement in the format. List of inventory items to be included in the material requirement planning shall be Identified, Collected and Organized in such a way that assists the planning of the same After the annual Material Requirement Plan of the company is prepared and approved by the management, the Procurement & Materials Management department is expected to prepare Annual Procurement Plan showing their procurement for the calendar budget year and containing detail on the procurement procedure. The Procurement and Materials Management Department shall propose the annual procurement quantity, time line for procurement execution, Procurement Method and duration of storing the materials.

2. Order quantity Determination Procedure Although the scientific way of determining the Order quantity is Economic Order Quantity, it is

not applied in most companies because of the sophistication of the data required (Carrying Cost

& Ordering Cost) for application. The most easy and recommended method to determine the

order quantity of the items not incorporated in the annual plan is the application of the

following averaging method.

Order Quantity= Minimum Stock Quantity + Maximum Stock Quantity 2

3. Fixed Asset Issues

An issue for fixed items is managed by the inventory supervisor. The issue voucher shall be hold and used as a working documents by the inventory supervisor.

Inventory supervisor up on receipt of requisition from user work units shall verify the appropriateness of the signatures

Once the signature is ascertained to be appropriate it shall check the availability of the required item in stock

If the fixed item is available for issue then the inventory supervisor prepares and Issues Fixed Asset Issue voucher in the name of department or section head depending on the nature of an item.

The responsibility for the management of Factory Machinery and Equipment is the Head of the department or section where as the responsibility of items related to the Office Furniture and Equipment is Utility Section.

The Factory and/or Department Head shall hand over the Equipment or Machinery or Furniture to the end user retaining a copy to be held in the file for control.

Whenever an employee leaves the company for any reason then the Inventory Supervisor are required to verify for the return of the Machinery or Equipment or Furniture

Whenever the fixed items are to be issued for maintenance then it is the responsibility of both services to raise gate pass and get the approval of related department manager



4. Procedures for the Initiation of the Purchase Request

The purchase request can be initiated from two sources 1. As per the annual requirement planning or Ordering point level the inventory supervisor shall raise the purchase requisition by Stock requisition. 2. The purchase request shall be initiated by the Stock requisition from user departments.

The Inventory Supervisor up on receipt of the stock requisition from the user departments ensures whether the items are available in stock or not.

The purchase requisition is prepared in such a way that it will be used for fixed, Inventory items and Fuel, Lubricants and Oil purchases

The purchase requisition shall be approved by the Procurement and Materials Management Department prior to the collection of the pro-forma Invoice

5. Determination of Fixed Assets As indicated in the MM policies fixed assets are assets whose life ends for the period longer than a year. The basic criteria for the determination of the fixed assets are:

When the value is above ETB 1000

When the service life is greater than 1 year All the material management format uses for fixed assets will also be applied but financial implications such as depreciation, capitalization disposal may not be accounted for.

6. Procedures for Identification and Disposal of Slow, on-moving, and Obsolete items At the end of the year, especially at time of inventory, the company considers that it would be necessary that stock items are identified by their movement. Movements shall be determined as follows:

Items moving once in a year are fast moving

Items moving once in two years are slow moving

Items moving not once in five years is non moving 8.8.3 Action should be taken on those items considered non moving to avoid obsolescence and tied up capital

7. Inventory Taking procedures Although there are two types of Inventories namely, periodic and perpetual, YATF P.L.C. recommended using perpetual inventory.

Whenever there is a plan for an inventory, count sheet, without the card balance, should be prepared by the finance prior to the commencement of the count

The stores should be notified as to the existence and the schedule of an inventory for the take of count.

Inventory crew of a minimum of two personnel should be organized by the finance Department with other department technical support participant for the count

The inventory count sheet need to be signed on daily basis till the end of the process

Upon completion of the inventory, adjustment should be made against the bin card balance and if there is a discrepancy it should be reported for further verification

The discrepancy should either be written-off or accounted for by the store keeper depending with the result of investigation.

8. Records of Materials Management The following are the standard source documents, which form the structure of proper internal control and support for proper materials Management procedures.



Internal Documentations: Only standard documentation should be in use to conduct materials management activities in YATF P.L.C.: Following are formal documents other than internal letters: A. Inventory Supervisor working formats:

Stock Requisition (SR)

Fuel, Lubricant and Oil Requisition (FLOR)

Purchase Requisition (PR)

Stock Issue Voucher (SIV)

Fuel, Lubricant and Oil Issue Voucher (FLOV)

Fixed Asset Issue Voucher (FAIV)

Stock Transfer- In Voucher (STIV)

Stock Transfer-Out Voucher (STOV)

Stock Return Voucher (SRV)

Inventory Taking Sheet (ITS) ---- From Finance

Overage and Shortage (OSN) ---- From Finance

Employees Safety Materials Distribution Form (ESMDF) B. Stores Working Formats

Goods Receiving Note (GRN)

Overage and Shortage Note (OSN)

Gate Pass (GP)

Inspection Report (IR)

Bin card

Item tag External Documentation: The materials management activities should be supported, for the inflow of items, by the original documents from the supplier. The following are the required external documents:

Cash/Credit sales Invoice/Chamber zed Commercial Invoice

Delivery order/Packing list

Freight Order/Way bill N: B On the above discussion section we explain some selective policies and procedures only.

4. Performance Time Frame- Standard

Materials Mgt. Process #

Document Process Owner Time Frame

MM1 Materials Requirement Planning (MRP)

Mat Mang. Section Head

30 Days

MM2 MM21 Goods Receiving Note (GRN) Delivery – Bin Card update

Store Assistance Store Keeper

½ Day ½ Day

MM3 MM31 SR-Inventory Availability- Purchase

Inventory Supervisor PMM Clerk

½ Day ½ Day



Requisition (PR)

MM4 MM41 Stock Issue Voucher –(SIV) Delivery-Bin Card update

Inventory Supervisor/ PMM Clerk Store Keeper

½ Day ½ Day

MM5 MM51 Stock Return Voucher (SRV) Delivery- Bin Card Update


½ Day ½ Day

MM6 MM61 Stock Transfer In & Out (STI/O) Delivery- Bin Card Update


½ Day ½ Day

MM7 Gate Pass (GP)Verification

Inventory Supervisor 1 Hour

MM8 Inventory Taking Sheet

Materials Management Head

1 Day

MM9 Receive Due to Borrow

Material Management Head

½ Days

Table 2 Standard performance-time frame

Conclusion

From the roughing screening of the Yirgalem textile Factory material management system, each

and single element of material management concepts have been implemented. They gave critical

consideration for their best uses of material resource. They have clear polices; well oriented

employees are placed on the position. The recycling life span of the material was clearly stated in

detailed known procedures. As we observed, the documentation is /recording information of

material management document/ also the critical point. The system of material management was

implemented before a year and progressive result was reveal.

ANNEXES 1. Stock Requisition (SR)/Annex-MM2/ 2. Purchase Requisition (PR)/Annex-MM3/ 3. Stock Issue Voucher (SIV)/Annex-MM5/ 4. Stock Transfer-In Voucher (STIV)/Annex-MM8/ 5. Stock Transfer-Out Voucher (STOV)/Annex-MM9 6. Stock Return Voucher (SRV)/Annex-MM10/ 7. Goods Receiving Note (GRN)/Annex-MM46/ 8. Inspection Report (IR)/Annex-MM14/ 9. Bin Card/Annex-MM15/

AAddmmaassss UUnniivveerrssiittyy CCoolllleeggee · Yirgalem Addis Textile Factory P.L.C. is a...

Documents

Transcript of AAddmmaassss UUnniivveerrssiittyy CCoolllleeggee · Yirgalem Addis Textile Factory P.L.C. is a...