Materials Management
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Transcript of Materials Management
MATERIALS MANAGEMENT -An Overview
MATERIALS MANAGEMENT
Definition It is concerned with planning, organizing and
controlling the flow of materials from their initial purchase through internal operations to the service point through distribution.
OR Material management is a scientific
technique, concerned with Planning, Organizing &Control of flow of materials, from their initial purchase to destination
IMPORTANCE OF MATERIALS MANAGEMENT
In many organizations materials form the largest single expenditure item.
Significant contribution made by the materials Manager in reducing material cost will go a long way in improving the profitability & rate of return on the investment.
EXAMPLE
An organisation with annual turnover of Rs.10 million.
Manager is given a work of improving the profitability by say Rs.0.3 million
He has two ways: 1.To increase the sales by 30% in specific span of time such that the overall profit will be Rs.1.3 million. 2.To reduce the materials cost by 5% in a certain time dimension so as to result in an increased profit margin of Rs.0.3 million.
WHAT TO SELECT?
Result of the efforts in reducing the material cost by 5% = Marketing efforts of increasing the sales by 30%
Increasing the sales calls for a lot of additional marketing & advertising expertise, efforts, time and expenses.
Whereas efforts can be made in saving amount in Materials Cost in existing infrastructure.
It will go a long way in not only improving the profits but also in raising the corporate image of the company.
OBJECTIVES
The objectives of materials management can be categorized in
two ways:
PRIMARY OBJECTIVES
SECONDARY OBJECTIVES
PRIMARY OBJECTIVES
Which can be classified as:
(i) Efficient materials planning
(ii) Buying or Purchasing
(iii) Procuring and receiving
(iv) Storing and inventory control
(v) Supply and distribution of materials
(vi) Quality assurance
(vii) Good supplier and customer relationship
(viii) Improved departmental efficiency
SECONDARY OBJECTIVES
(i) Efficient production scheduling
(ii) To take make or buy decisions (iii) Prepare specifications and standardization
of materials
(iv) To assist in product design and development
(v) Forecasting demand and quantity of materials requirements
(vi) Quality control of materials purchased
(vii) Material handling
(viii) Use of value analysis and value engineering
(ix) Developing skills of workers in materials management
(x) Smooth flow of materials in and out of the organization
COSTS INVOLVED IN MATERIALS MANAGEMENT
Ordering Costs
o Cost of placing an ordero Loading and unloading of goodso Transportation costo Insurance for goods in transito Cost of receiving and inspectiono Administrative costo Taxes and Duties
Carrying Costs
Warehouse charges Pilferage
Insurance Breakage
Lighting Preservatives
Heating Supervision costs
Cold storage and Refrigeration
INTEGRATED APPROACH TO MATERIALS MANAGEMENT
Various functions of Materials Management include the materials planning, purchasing, receiving, stores, inventory control, scrap and surplus disposal
If some of the functions were to be separately handled, normally a conflict of interests occur.
For e.g. Purchase Department buying raw material in bulk to avail discount without considering warehousing facilities and carrying cost.
In other words we need to balance the conflicting objectives from total organisation point of view
For e.g. An expansion will require planning for the increased sources, developing new sources, revision in inventory levels, apart from the increased load in receipt of material, inspection and storing.
In an integrated set up, the materials manager is in position to exercise control and coordinate to ensure proper balance of the conflicting objectives of the individual functions.
Integration also helps in rapid transfer of data through effective and informal communication channels.
ADVANTAGES IN INTEGRATED MATERIALS MANAGEMENT CONCEPT. Better Accountability
Better co-ordination
Better performance
Miscellaneous advantages -Team spirit -Better morale and cooperation -Better opportunities for growth and
development -Exposure to the broader aspect of the
materials functions.
ORGANIZING MATERIALS MANAGEMENT
Organization based on Commodities
Organization based on Location
Organization based on Functions
ORGANISATION BASED ON COMMODITIES
Items are classified according to their nature such as raw materials, spares, imported items, finished goods etc.
Depending upon the importance of the commodity group with respect to company operations workload varies.
This helps in determining the staff determination in each commodity group.
Example of Commodity Grouping
Materials Manager ------------------------------------------------------------
Sores Manage
r
Manager Traffic and
Receiving
Purchase
Manager
Inventory Control
and information manager
Buyer Casting
s
Buyer Raw Materials
Buyer Production PartsBuyer Forgings
Buyer Production Parts
Buyer Civil Engineering
Materials
ADVANTAGES OF ORGANISATION BASED ON COMMODITIES
There is no wasteful duplication of efforts as each commodity is separately handled.
The group is intimately in touch with its respective commodity market and hence it becomes specialized.
ORGANISATION BASED ON LOCATION
When an organization has several plants located in different parts of the country there are two alternatives.
1.To have centralized organisation located at the headquarters.
2.To have a decentralized materials
management set up in each location.
ADVANTAGES OF CENTRALIZED MATERIALS MANAGEMENT DEPARTMENT
Combining requirements of plants and buying in bulk leads to substantial reduction in cost.
Interplant transfer of materials in an emergency is possible.
Surplus materials in one plant can be utilized in meeting the requirements of another plant.
Since there is only one department dealing with various sources of supply, a higher order of skills can be expected.
ADVANTAGES OF DECENTRALIZED MATERIALS MANAGEMENT SET UP
When distance between the plants are significant, the materials management function is impaired when controlled from the centre both in terms of cost and time.
Each plant may require unique materials and materials management department located at the plant will be in a much better co-ordination with the plant’s production, finance and marketing departments.
EXAMPLE OF DECENTRALIZED SET UP:
Director, Materials
Materials Manager
(Rubber Product Division)
Materials Manager
(Textile Division)
Materials Manager
(Electronic Division)
Executive Staff to Director Materials
Plant at Chennai
Plant at Mumbai
Plant at Delhi
COMPARATIVE STUDY OF CENTRALIZED AND DECENTRALIZED SET UP
Centralized Decentralized
Material Cost Low High
Transportation Cost
High Low
Space Low High
Inventory Carrying
Low High
Automation Cost Low High
Set Up Cost Low High
ORGANISATION BASED ON FUNCTIONS
The materials management department is structured on the basis of functions such as stores, transport, receiving, purchase and so on.
Stores of different manufacturing divisions will be under one individual who will report to the materials manager.
This system permits specialisation in each function.
INTERDEPARTMENTAL RELATIONSHIPS
Materials Management department will have to work in close co-ordination with production, marketing and finance department.
Mutual trust is essential to ensure that all departments will work towards the total organisational objectives.
EXAMPLES Production department will have to keep
materials management department informed about its plans and schedules so that materials requirement can be planned in advance.
The materials management department must keep the production department informed about the lists of suppliers, availability of new materials, and anticipated delays so that re-scheduling of production could be done and costly stock outs avoided.
Thank You!