Material Handling in Retail-1

8/6/2019 Material Handling in Retail-1

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IndexSr.

No.

Topic Page No.

1 Introduction 42 Functions of Material Mgt. 53 Integrated Material Mgt. 74 Definition and scope 125 Concept of Centralization &

Decentralization15

6 Inventory Management 177 EOQ 198 ABC Analysis 269 VED Analysis 2710 FSN Analysis 2911 Case Study 3012 Conclusion 3713 Bibliography 38

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MATERIALS MANAGEMENT

Introduction:

Importance of materials management:-

Materials input is very important as excess material as inventory

causes costs to the company and shortage of material results into

stoppage of conversion process and subsequently shortage of

finished goods leading to customer dissatisfaction. Out of 5Ms, that

are inputs to a conversion process, material is substantial in terms of

its contribution to product cost, and current assets.

3. 51.1% of product cost is on account of materials. Hence the

largest contributor to product cost. This marks out materials function

as the largest potential avenue for productivity improvement.

Materials account for 70% to 80% of working capital. Effective and

efficient management of materials can reduce substantial burden on

the finances of company. Accounts payable are mostly to materials

suppliers. Quality of the Input and product quality: When the

companies become leaner and leaner, it is crucial that inputs should

remain in the plant only as long as the Through Put Time Demands

and the output product should be Right First Time. The qualities of

inputs play a vital role in this situation.

Management of materials is crucial in a Just in Time Company.

Production process needs very strong materials management support

to gear up to face challenges of current market. Materials

management provides information about availability of new products

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and services in the market which leads to cost efficient changes in

the process

Functions of Materials Management:-

[What is a function? Every person , organization or a

distinct part of an organization has to perform a set of tasks

in order to deliver customer expectations satisfactorily. These

sets of tasks are called functions of that particular entity.]

Materials Planning & Control

This is the primary function of Materials Management.

The market forecast is converted into production schedules by

production planning and control. Materials management

prepares the materials plan to meet the production schedule.

The plan is then implemented and controlled.

1. Procurement Procurement function begins with sourcing the supply after

short listing suppliers. An effective method is to rate the

vendors on the basis of performance and choose the best.

Purchase order is placed on the source and the material is

procured from the source. Procurement activity includes

preparation placement of purchase order, follow up,transportation and handling.

2. Handling

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The material which reaches the company premise is to be

unloaded, moved and positioned as per the storage plan.

3. Storage & Preservation

The procured material is to be stored and preserved against

internal and external deterioration and theft.Against theauthorized demand the material from the store is retrieved and

issued.

4. Inventory control

Inventory control functioncontrols the inventory levels to

ensure shortage free and excess free stock to check the costs

and ensure customer satisfaction

5. Vendor development

The company makes the chosen vendors effective and

efficient by providing necessary inputs of training and

information. The suppliers systems are audited to ensure

adherence. A good vendor is an asset as he makes his

customer more effective and efficient

6. Vendor rating

Vendorrating is used as a tool for narrowing down the

supplier base for productive management of materials function.

The same system is used continuously to assess strengths and

weaknesses of short listed vendors for their effective

development.

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7. Waste control

Procuring standard material and continuously trying to

improve yield is waste reduction and control function. When a

product is processed two types of wastes are generated. One

type of waste is called as standard scrap. This is accepted as

unavoidable. Product that is not right first time is scrap and

thereby wastes. Non moving obsolete material is another waste

that cripples organization. Material management should

address these wastes and not only should control but reduce

the wastes.

Value Analysis

Continuously trying to improve the value of the product

mainly by material substitution is a function of the materials

management.

Integrated Materials Management: -

As we have seen earlier, materials management performs

various functions to reach their well-set objectives. These

functions are performed by business organizations since a very

long time as trade and business have been taking place much

before scientific management was thought of.

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This approach ties all functions together, like a compeers

baton, orchestrated to achieve company goals. Various

functions now come under one control, focus always being

on the final outcome. Initiatives for individual excellence are

undertaken only after ascertaining their favorable impact on

final outcome. The big picture should never be lost sight of,

while trying to solve the jigsaw puzzle. The common thread

that binds various functions into a winning combination is the

focus on the big picture or the organizations gain. Unity of

command balances conflicting interests of individual

functions under integrated approach to materials

management.

Profit Center Approach -

When every integrated function of management works

like a profit center in an organization, entirebecomes a

strong integrated whole forging ahead in business,

maximizing the profits rapidly.

We easily understand concept of profit and its driving

force in business when a product is sold for a price higher

than the cost. One should remember the universal equation,

Price = Cost + Profit. But when sale does not occur,

visualizing profit may become a bit difficult.Keeping the above equation in mind, as price is

controlled by market, any saving in the cost results into

profit. Every competitor closely follows the above equation

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and identifies the resultant cost after keeping the profit

needs of the company intact. This cost is called target cost

for competitor. Any successful attempt to reduce this cost

without harming the QCD objectives of the company results

into profit. Now split the target cost of the product into its

components developing a fishbone diagram for product cost.

A certain cost package gets attached to every individual

integrated function and any reduction in this package results

into profit for the company. Fix the identified cost package to

materials management and make materials management

accountable for reduction by a percentage. This is the profit

that materials management is responsible for. Make them

earn this profit for justifying their existence in the

organization. Like a business has to earn profit to justify

existence in competition. This approach makes individual

functions accountable for every cost and drives them to

develop ideas to add value continuously as the competition

pushes the price to new lower levels, thereby making the

company stronger organization.

Illustration:-Acompany with a turnover of Rs.100 crores, makes a

profit of Rs.10 crores [10%] Cost of materials is Rs.60 crores,

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Other expenses are Rs.30 crores. How can you increase profit

by 30%? [Rs.3crores]?

To increase the profit by 10% one has to raise the sales

by 30%. The company will have to make and sell 30 crores

worth products in a tough market like the one which exists

today. But keeping the profit center approach in mind, if we

reduce the materials cost [Rs.60 crores] by just 5% same

objective can be achieved.

Return on Investment: an approach to measure profitability

ROI=

As materials managers if we consciously reduce current

assets companys profits will raise which will be indicated by the

ROI. We should always remember that inventory forms 80% of

current assets of the company.

Benefits of Integration:-

1. Better Accountability

Accountability for materials is now specifically fixed to

one position. No mans lands of cost between various

functions are now addressed effectively by integrated

materials management function.

2. Coordination -

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Various functions are now streamlined. The

interdepartmental conflicts are balanced. As a result various

functions work like a team under the control ofMaterials

Manager.

3. Better performance

Performance of Materials management improves on

account of the first two results of integration. Accountability

reduces costs and teamwork improves productive

performance.

4. Adaptability to EDP

Computerization requires preparatory work that calls

for integrated efforts where there is no scope for conflicts.

Internal conflicts make computerization untenable

5. Other advantages -Present & Future: At present industry in our country is

passing through the transition from traditional systems to just

in time like production. Just In Time needs dependable

procurement systems. Only an integrated materials

management function can provide such support to

operations.

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Definition and scope :-

Definition

Coordination and planning of all functions for controlling

materials in an optimum manner to meet customer expectations

at minimum cost.

Scope -

Materials management works closely with Production,

Finance, Engineering and Quality control in the process of

performing the functions to meet the objectives of customer

satisfaction.

Materials management and ProductionAs we saw earlier JIT system needs very reliable

procurement and delivery systems for inputs and outputs.

Production department is the internal customer for Materials

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management. Hence very close interaction with production

department is primary to meet internal customer expectations

and customer delight. Only this ensures unfailing satisfaction

and delight of the external customer.

Scope of materials management function decisions

includes suppliers, subcontractors, production support

warehouses, transportation service providers and internal

departments subordinate to the function.

Materials management and Finance

Timely payment to suppliers is important for the smooth

working of the supply chain which is fundamental for strong and

dependable delivery system. Close interaction with finance

function is needed to ensure the above.

Materials management and Engineering

Materials Management in the course of discharge of their

functions plan activities involving change in material inputs.

This obviously has an impact on design of the product and

process of manufacturing. Hence a close working is necessary

between Materials management and Engineering.

Materials management and Quality control

For the same reasons that as above, close working is

necessary between Materials management and Quality control.

Organization & control

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Materials Management is growing in stature on account of

changes in management thought process. Materials function

has moved into board rooms which is an evidence of its

importance in corporate structures.

Materials Management & Corporate Organization structure

A materials director is usually on the board to give overall

directions to the material function in corporate bodies. This

provides unity of command and thereby uniform direction.

Materials Management & Other functions of

Management

Materials Management function is in par with other

functions of corporate management so that it can effectively

interact with other functions for organizational effectiveness.

Some of the conventional structures of materials

organization are discussed below:-

Internal Organization of Materials Management

Internal organization is structured on the need of the

organization keeping in mind the strengths and weaknesses of

individual structures.

Internal Organization based on Commodities -

An organization needs number of inputs[commodities] for

running the conversion process. Materials organization can be

structured internally with focus on the individual commodities. A

sub function can be created for dealing in an individual

commodity in order to provide adequate focus.

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Internal Organization based on Location

An organization with multi plant locations structures its

materials organization with focus on plant level. Every plant will

have a materials function that receives overall direction from

the top management. The materials function in the plant

coordinates materials sub functions of that plant.

Internal Organization based on Function

At the corporate level, materials function is set up with

respective sub functions. These individual functions coordinate

their respective sub functions in various plants or divisions

providing function wise expertise to the entire organization.

Concept of Centralization & De

centralization -

As we were discussing earlier it is the need of the

organization triggered by product, process and market that

ultimately decides how the control should be exercised on the

material function. The control may be centralized or

decentralized fully or in parts keeping in mind overall need.

Management education can provide knowledge about available

options in practice but the choice rests with the corporate

management. New options can be developed to satisfy specific

needs conceptually combining various available options.

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Centralized control keeps most of the decision making

at headquarters level delegating only routine level decision

making. Decentralized control delegates decision making to

unit level enabling the units to respond to their respective

environment.

Advantages of Centralization -

1. Combining the requirements of all units to buy in bulk and

gain benefits of bulk buying.

2. Interplant transfer of material to deal with emergencies in

individual plants. And interplant transfer to utilize surplus

material available at some plant and thereby reduce overall

inventory cost for the company.

3. Benefit of specialized skills of one individual at the corporate

level to all the units or plants. Buying needs specialized skills

specific to the commodity in market specially buying is in large

quantities. Knowledge of the market is essential to anticipate

market trends in terms of price and availability.

4. Benefits of unity of command.

5. Centralized material research resulting in savings for the

company.

Advantages of Decentralization -1. Decentralization overcomes problems posed by significant

physical separation between Plants and Central Office. These

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problems can occur due to information flow. They may occur due

to lack of sensitivity to environment due to physical separation

2. Uniqueness of product line requirement of each Plant: When

individual plants are engaged in production of different products,

their requirement is product specific and thereby unique.

Decentralized control can deal with the requirements effectively,

independently.

3. Better coordination with production & other functions of the

plant: Production is the internal customer of material management

function. Decentralized control enjoys the benefit of being close to

the customer. There is also the need to interact with various other

functions in the plant. Decentralized control can take decisions

based on these interactions effectively.

4. Supportive to the concept of Profit Center: the concept of profit

center as discussed earlier is applicable to each plant and the

management functions within. A decentralized material

management function can effectively work as a profit center and

support the plant as a profit center within the corporate body.

INVENTORY MANAGEMENT:-

What is Inventory? -

1. Inventory is an unused asset, which lies in stock without

participating in value adding process.

2. Unused equipment, raw material, WIP and Finished goods,

consumables, spare parts, bought out parts, tools and tackles,

gauge and fixtures etc.

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3. In India 9 to 12 months of sales quantity lies in the form of

Inventory [R/M, WIP, Bought out parts and Finished goods] as

against a few days in Japan and a month in the US and Europe

4.Huge amount of NPAs in our country, Banks, PSUs

5. If we look around in our facilities we find stocks lying unused foryears catching dust and rust in the form of plant and equipment,

raw material, WIP and Finished goods.

6.In our country inventory is always viewed as asset [working

capital], in fact, though it is called an asset, it is a big liability

7.Reluctance to scrap useless inventory in time is one of the

reasons why we carry huge stocks

8.Inventory is biggest source of waste

9. Japanese companies focused their attention on Inventory

through now well known concept of 5S.

TYPES OF INVENTORY:-

1. Manufacturing: R/M, components, WIP, F/G.

2. MRO: Maintenance, repairs and operating supplies.

3. Tools and fixtures4. Inspection gauges and instruments

5. Location inventory: inventory at a fixed location

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6. In transit inventory: inventory in the process of transfer or under

going transportation and waiting to be transported. This is also

known as pipeline inventory

FUNCTIONS OF INVENTORY :-

1. Inventory overcomes obstacles due to geographical separation

between suppliers and customers. Manufacturing facilities are

located at places that make manufacturing economical. This fact

geographically separates manufacturing and market.

2. De coupling from uncertainties of market

3. Overcomes obstacles due to poor infrastructure

4. Balancing supply and demand: seasonal production and year

round consumption [agricultural products], seasonal consumption

and production during some other season [woolen garments and

umbrellas].5. Buffer uncertainties of lead time and demand

6. De couples internal processes. Two machines running

sequentially are separated by inventory to make them independent

of each other.

Costs of carrying inventories -

1.Capital cost

2.Taxes, insurance

3.Obsolescence

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4.Storage: handling, space, maintenance, security

5.Opportunity cost

6.Cost of bad quality

INVENTORY CALCULATIONS :-

Economic order quantity

What Does Economic Order Quantity - EOQ Mean?An inventory-related equation that determines the optimum orderquantity that a company should hold in its inventory given a set costof production, demand rate and other variables. This is done to

minimize variable inventory costs.

Economic Order Quantity - EOQThe EOQ formula can be modified to determine production levels ororder interval lengths, and is used by large corporations around theworld, especially those with large supply chains and high variablecosts per unit of production.

Despite the equation's relative simplicity by today's standards, it isstill a core algorithm in the software packages that are sold to thelargest companies in the world.

Economic order quantity is the level of inventory that minimizes thetotal inventory holding costs and ordering costs. It is one of the oldestclassical production scheduling models. The framework used todetermine this order quantity is also known as Wilson EOQ Model orWilson Formula. The model was developed by F. W. Harris in 1913,

but R. H. Wilson, a consultant who applied it extensively, is givencredit for his early in-depth analysis of it

Overview

EOQ only applies where the demand for a product is constant overthe year and that each new order is delivered in full when the

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inventory reaches zero. There is a fixed cost charged for each orderplaced, regardless of the number of units ordered. There is also aholding or storage cost for each unit held in storage (sometimesexpressed as a percentage of the purchase cost of the item).

We want to determine the optimal number of units of the product toorder so that we minimize the total cost associated with the purchase,delivery and storage of the product

The required parameters to the solution are the total demand for theyear, the purchase cost for each item, the fixed cost to place theorder and the storage cost for each item per year. Note that thenumber of times an order is placed will also affect the total cost,however, this number can be determined from the other parameters

Underlying assumptions

The ordering cost is constant.

The rate of demand is constant

The lead time is fixed

The purchase price of the item is constant i.e no discount is

available

The replenishment is made instantaneously; the whole batch isdelivered at once.

EOQ is the quantity to order, so that ordering cost + carrying costfinds its minimum. (A common misunderstanding is that the formulatries to find when these are equal.)

Variables

Q = order quantity

Q* = optimal order quantity

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D = annual demand quantity of the product

P= purchase cost per unit

S= fixed cost per order (notper unit, in addition to unit cost)

H= annual holding cost per unit (also known as carrying cost or

storage cost) (warehouse space, refrigeration, insurance, etc.usually not related to the unit cost)

The Total Cost function

The single-item EOQ formula finds the minimum point of the followingcost function:

Total Cost = purchase cost + ordering cost + holding cost

- Purchase cost: This is the variable cost of goods: purchase unitprice annual demand quantity. This is PD

- Ordering cost: This is the cost of placing orders: each order has afixed cost S, and we need to order D/Q times per year. This is S

D/Q

- Holding cost: the average quantity in stock (between fullyreplenished and empty) is Q/2, so this cost is H Q/2

TC=PD+DS/Q+HQ/2

To determine the minimum point of the total cost curve, set theordering cost equal to the holding cost:

DS/Q=HQ/2

Solving for Q gives Q* (the optimal order quantity):

Therefore: FPRIVATE "TYPE=PICT;

ALT=Q^* = \sqrt{\frac{2DS}{H}} ".

Note that interestingly, Q* is independent of P; it is a function of only

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S, D, H.

Assumptions of Wilsons lot size formula or Classical EOQ model -

Demand is at a constant rate and continuous

1. Process is continuous

2. No constraints are imposed on quantities ordered, storage

capacity, budget etc.

3. Replenishment is instantaneous

4. All costs are time invariant

5. No shortages are allowed

6. Quantity discounts are not considered

Limitations of Classical EOQ model -

We have seen that Classical EOQ model made

assumptions that are really not realistic. When the model is

put to practical use we find that so many adjustments are

needed to be made. Hence EOQ model is formulated under

some limitations. If we are not conversant with these

limitations, managerial application of this concept can be

counter productive.

Major limitations are some of the assumptions made -

1. The demand or usage is predictable.

2. The demand or usage is constant.

3. The price of the item remains constant throughout theprocurement cycle.

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4. Materials in many processes are flow controlled ie,materials move in pipe lines starting and stopping depending

on operational requirements.

If the concept of EOQ is applied without taking into

account the limitations results can be disastrous.

Adjustments to EOQ -

1. Volume transportation rates

EOQ model does not consider cost of transportation of

goods from vendors place to the purchaser. Transportation

costs are sensitive to weight of consignment. If the quantity

suggested by EOQ model does not get favorable transportation

cost, summation of inventory cost and transportation cost may

be detrimental to the interests of the organization. Hence we

should always evaluate batch sizes from total cost perspective.

In the traditional approach when inbound logistics are totally

vendors responsibility, the company never used to worry about

this aspect. But as the concept is now enlightened and

minimization of the costs in the supply chain is the focus, this

aspect is very significant

Annual demand 2400 U Unit value $ 5.00 Inventory charge 20%Ordering cost $19.00 per order EOQ 302 U Shipment rate R1 [applicable $1.00

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to EOQ quantity = 300 U]Shipment rate R2 [applicable

to 480 U quantity]

$.75

Alternative 1

Q [EOQ] = 300

Alternative 1

Q = 480Inventory carrying

cost

$150 $240

Ordering cost $152 $95 Transportation

cost @ $1 per U

$2400 $1800

Total cost $2702 $2135

2. Quantity discount -

Impact of quantity discounts is seen if we look at the

costs by doing summation of inventory costs and relief

derived out of quantity discounts. Quantity discounts can

upset the benefit of EOQ if we dont evaluate the situation

from total costs perspective.

3. Other EOQ adjustments -

a) Production lot size

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Buyers EOQ and suppliers EBQ sometimes do not match.

Then some adjustment will have to be made to the EOQ to

make it practicable.

b) Multiple item purchase

When a combination of several products is sourced from a

supplier, the impact of quantity discounts and transportation

costs will be different from that for individual product. So

adjustment is required to EOQ from the angle of total cost for

the combination of products

c) Limited capital

Budgetary allocations play a significant role in buying. The

budget has to satisfy the requirement of entire product line. So

the EOQ of various items requires adjustment

d) Private trucking

If the company uses private transport for procurement,

getting a full truck becomes significant from cost perspective.

e) Standard package

When a standard package is used for transportation, if

EOQ suggests one and a half package then transporting half

package becomes more expensive than transporting two

packages with enhanced order quantity ABC Analysis -

ABC analysis provides a tool for identifying those items that will makethe largest impact on the firm s overall inventory cost performancewhen improved inventory control procedures are implemented. A

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perpetual inventory system, improvements in forecasting procedures,or a careful analysis of the order quantity and timing decisions for Aitems will provide a larger improvement in inventory cost performancethan will similar efforts on the C items.Therefore, ABC analysis is often a useful first step in improvinginventory performance. ABC analysis helps focus managementattention on what is really important. Managers concentrate on thevital few (the A items) and spend less time on the trivial many (the Citems). A type items should have one or two supplier who can supplyquality products at optimum cost and at minimum time.

ABC-Always better control Money value of consumption Basisof classification

*0 Value of usage Or

*1 2. % number of items contributing to proportion of total value ofinventories

Let us define ABC

*2 A - significant few , items few in number contributing highproportion of value of inventories

*3 B- not few, not too many, neither very cheap nor very costly

*4 C- Insignificant many ,relatively large no. of items ,normallyinexpensive

Benefits of ABC Analysis -

1. Identification significant 15% to 20%items responsible for 80%

of value for close management control selective management

control

2. Effective management of inventory results in short span of

time

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3. Allocation of management resources to significant items,

reduction in clerical work and time.

4. Helps in selection of appropriate inventory control models or

systems. E.g. Q model or P?

5. Helps in formulation of inventory policy

Limitations of ABC Analysis -

1. An exhaustive analysis of all items in the whole organization is

required to make ABC analysis a useful effort. A, B, & C items

should be identified for the whole organization for which data

regarding consumption pattern, lead time and its fluctuation of

all items is necessary. Only then the benefits can be felt. To

carry out this exercise high degree of standardization and

codification is primary. This exercise is obviously time

consuming.2. Focus is only on money value; criticality of the item is not taken

into account.

3. Price of an item is assumed to be same through out the year. In

practice it is unlikely to be so.

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VED Analysis -

VED- vital, essential & desirable- analysis is used primarily forcontrol of spare parts. The spare parts can be divided into 3categories-

Vital

Essential

Desirable

Depending upon their criticality for production, the spares, thestock-out of which even for a short time will stop production forquite some time are vital spares.

The spares, the absence of which cannot be tolerated for morethan few hours or a day & which are essential for the production tocontinue, are essential spares.

The desirable spares are those spares which are needed but theirabsence for even a week or so will not lead to stoppage ofproduction.

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FSN Analysis

FNSD analysis divides the items of stores into 4 categories inthe descending order of importance of their usage rate.

F stands for fast moving items that are consumed in a shortspan of time.

N stands for normal moving items which are exhausted over a

period of a year or so.

S indicates slow moving items which are not issued at frequentintervals & are expected to be exhausted over a period. D.Means dead items & the consumption of such items is almostnil. HML Classification

The HML classification is similar to the ABC classification,except for the fact that instead of consumption values of items,their units values are considered. Items are classified on the

basis of their unit value into:H= High value items

M= Medium value items

L=Low value items

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COMPANY PROFILE

Founder

The roots of the Aditya Birla Group date back to the 19thcentury in the picturesque town of Pilani, set amidst theRajasthan desert. It was here that Seth Shiv Narayan Birlastarted trading in cotton, laying the foundation for the Houseof Birlas.

Through India's arduous times of the 1850s, the Birla

business expanded rapidly. In the early part of the 20thcentury, our Group's founding father, Ghanshyamdas Birla,set up industries in critical sectors such as textiles and fibre,aluminium, cement and chemicals. As a close confidante ofMahatma Gandhi, he played an active role in the Indianfreedom struggle. He represented India at the first andsecond round-table conference in London, along withGandhiji. It was at "Birla House" in Delhi that the luminariesof the Indian freedom struggle often met to plot the downfall

of the British Raj.

Ghanshyamdas Birla found no contradiction in pursuingbusiness goals with the dedication of a saint, emerging asone of the foremost industrialists of pre-independence India.

The principles by which he lived were soaked up by hisgrandson, Aditya Vikram Birla, our Group'slegendary leader.

Aditya Vikram Birla: putting India on

the world map

A formidable force in Indian industry, Mr.Aditya Birla dared to dream of setting up aglobal business empire at the age of 24. Hewas the first to put Indian business on the

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world map, as far back as 1969, long before globalisationbecame a buzzword in India.

In the then vibrant and free market South East Asian

countries, he ventured to set up world-class productionbases. He had foreseen the winds of change and staked thefuture of his business on a competitive, free market driveneconomy order. He put Indian business on the globe, 22years before economic liberalisation was formally introducedby the former Prime Minister, Mr. Narasimha Rao and theformer Union Finance Minister, Dr. Manmohan Singh. He setup 19 companies outside India, in Thailand, Malaysia,Indonesia, the Philippines and Egypt.

Interestingly, for Mr. Aditya Birla, globalisation meant morethan just geographic reach. He believed that a businesscould be global even whilst being based in India. Therefore,back in his home-territory, he drove single-mindedly to puttogether the building blocks to make our Indian business aglobal force.

Under his stewardship, his companies rose to be the world'slargest producer of viscose staple fibre, the largest refiner of

palm oil, the third largest producer of insulators and thesixth largest producer of carbon black. In India, they attainedthe status of the largest single producer of viscose filamentyarn, apart from being a producer of cement, grey cementand rayon grade pulp. The Group is also the largest producerof aluminium in the private sector, the lowest first costproducers in the world and the only producer of linen in thetextile industry in India.

At the time of his untimely demise, the Group's revenues

crossed Rs.8,000 crore globally, with assets of over Rs.9,000crore, comprising of 55 benchmark quality plants, anemployee strength of 75,000 and a shareholder communityof 600,000.

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Under the leadership of our Chairman, Mr. Kumar MangalamBirla, the Group has sustained and established a leadershipposition in its key businesses through continuous value-

creation. Spearheaded by Grasim, Hindalco, Aditya BirlaNuvo, Indo Gulf Fertilisers and companies in Thailand,Malaysia, Indonesia, the Philippines and Egypt, the AdityaBirla Group is a leader in a swathe of products viscosestaple fibre, aluminium, cement, copper, carbon black, palmoil, insulators, garments. And with successful forays intofinancial services, telecom, software and BPO, the Group istoday one of Asia's most diversified business groups.

Mr. Kumar Mangalam Birla

Chairman, The Aditya Birla Group

Mr. Kumar Mangalam Birla is Chairman of the US$ 28 billionAditya Birla Group and Indias first truly multinationalcorporation. An iconic figure, Mr. Birla holds several keypositions on various regulatory and professional boards. Heis a director of the Central Board of Directors of the ReserveBank of India and chairman of the Staff Sub-Committee ofthe Central Board of the Reserve Bank of India. He serves onthe Prime Minister of Indias Advisory Council on Trade and

Industry. He is the chairman of the Board of Tradeconstituted by the Union Minister of Commerce & Industry,also chairman of the Ministry of Company Affairs AdvisoryCommittee.

Additionally, he is on the National Council of theConfederation of Indian Industry (CII); the Apex Advisory

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Council of the Associated Chambers of Commerce andIndustry of India, New Delhi and the Advisory Council for theCentre for Corporate Governance.

He served as the chairman of Securities and Exchange Boardof Indias Committee on Corporate Governance, and aschairman of SEBIs committee on insider trading. Heauthored the nations first report on corporate governance.

Several accolades have been showered on Mr. Birla such asthe Asia Pacific Global HR Excellence Exemplary LeaderAward and NDTVs Global Indian Leader of the year, andMost Socially Responsible Leader by Outlook BusinessMagazine all in 2007. Earlier, the Lakshmipat Singhania IIM, Lucknow National Leadership Award 2006, BusinessLeader, was conferred on Mr. Birla by the Prime Minister. Mr.Birla also has been named the World Economic ForumsYoung Global Leader, Ernst & Young Entrepreneur of theyear", the Economic Times Business Leader of the year,Business Indias "Business Man of the year, BusinessTodays Young Super Performer in the CEO Category,NITIEs Business Visionary, and the Bombay ManagementAssociations Management Man of the year.

A chartered accountant, Mr. Birla earned an MBA from theLondon Business School, where he is also an HonoraryFellow. Mr. Kumar Mangalam Birla and his wife, Mrs. NeerjaBirla, have three children, Ananyashree, Aryaman Vikramand Advaitesha.

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Aditya Birla retail operates in two streams as super marketsand hyper markets. They deal majorly into sale of finishedgoods. Raw material procurement is only for the perishablegoods which form the materials for the bakery products likeCakes, pastries, etc.

They have developed their own flow chart for theprocesses involved in procurement and storage of thesegoods. The standard operating procedure is what they follow

for the daily activities to achieve the material managementeffectively.

The various steps involved in the standard operatingprocedures are as follows.

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1. Opening procedures:Define the ingredients required to prepare a certain

kind of cake.

2. Closing procedures:Finalize the amount of ingredients required withrespect to quantity in which each has to be mixed.

3. Rostering:Put down the details in the ERP system to maintainthe quantity and value of the materials acquired.

4. Bar-Coding:Assign barcodes to the materials acquired so as toidentify them in the ERP system. Barcode form thebasis for maintaining the acquiring and consumptiondetails of the SKU.

5. Grooming:Maintain the environment were these perishablegood stay intact and does not get spoilt. These willhelp tremendously to reduce loss at storage.

6. Raw Material Storage:Store the raw material procured in FIFO basis, inshelf so that the packages are put in from one endand are removed the from the other end.

7. Pricing:Decide the price by one of the standard costingmethod, average costing method used in this case.

The ERP used has provisions to carry out costing forvarious products after certain transactions to updatethe valuation for the commodities.

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8. Promotions:Create seasonal promotions and offers or for a

festive season.

9. Article Masters:Maintain the article master in the system with theBOM (Bill of Materials) details.

10. Display Merchandising

11. Packaging

12. Fire safety procedure

13. Hygiene & Quality

14. Maintenance

15. Gas Bank

Due to company policies, not every detail was revealed butthe process was clearly explained.

Conclusion:

A systematic and standard material handling process, leads to ease

of functioning and reduction in inventory carrying cost for the

manufacturing process.

Materials input is very important as excess material as

inventory causes costs to the company and shortage of material

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results into stoppage of conversion process and subsequently

shortage of finished goods leading to customer dissatisfaction. Out of

5Ms, that are inputs to a conversion process, material is substantial in

terms of its contribution to product cost, and current assets.

More retail process though does not use the legacy standards,

but have mixed the processes and came up with their company

specific standards. Materials management provides information about

availability of new products and services in the market which leads to

cost efficient changes in the process.

Bibliography:

Websites:

www.adityabirla.com

www.morestore.com

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Google books from internet.

Reference book by Ayna pure.

Material Handling in Retail-1

Documents

Transcript of Material Handling in Retail-1