MATERIAL BUDGETING: It is the process of preparing materials budget or purchase budget in terms of quantity and money value of materials

to be procured for a given period of time. Exhibit: The process of preparing material budgets

Purpose of Materials Budgets: The main purposes served by the materials budget are as follows: (i) The financial resource availability is known exactly through materials budget provisions and hence the materials management department can plan its purchases and long term purchase contract s with suppliers optimally taking into consideration price trends, market position, trend in sales etc. (ii) The prices of the materials based on which budgets are prepared and the actual prices at which materials are bought are compared. (iii) The cash requirements for procuring materials can be clearly projected for the budgeted period and also for shorter time periods such as month or quarter in the planning horizon.

BENEFITS FOR MATERIALS BUDGETS (i) Materials Budget help the finance department to draw up a realistic schedule of cash requirements for each operating period. (ii) In purchasing, knowledge of materials requirements over an extended period of time facilitates forward buying. (iii) Inventory investment and its associated risks can be reduced by advance planning of material requirements.

(iv) Materials budget provide maximum purchasing lead time. (v) Additional lead time also produces savings by the use of routine rather than premiu m transporation , by a reduction in expediting costs and by smoothing of purchasing work load. (vi) Supplier relationships can be improved and costs can be reduced because of availability of time to most purchasing requirements with the suppliers production schedule more effectively.

MATERIAL CONTROL Material Control is the function of maintaining constantly, availability of all kinds of materials required for the manufacture of products. Functional responsibilities include the requitioning of materials for purchase in economic quantities at the proper time, and their receipts, storage and production, the issuing of materials to production upon authorized request and the maintenance and verification of inventory records. IMPORTANCE OF MATERIALS CONTROL (i) Material control helps in providing raw materials and parts in proper quantities and when they are needed. (ii) Material control supports in scheduling large quantities of materials in sufficient quantities to meet the production needs but without excessive accumulation in stock piles. (iii) The process of material control maintains the flow of materials into the plant through production and into finished products storage or into the shipping department. To facilitate proper material control, materials are grouped into classes. Five such classes are: (i) (ii) (iii) (iv) (v) raw materials component parts supplies or indirect items work in process finished products

MATERIALS CONTROL CYCLE The material control cycle comprises all of those procedures which are necessary for the provision of materials for the manufacturing process with a minimum investment and at lowest cost possible. The various steps in the material control cycle are as follows. (i) Determining material needs. (ii) Preparing requisitions for purchased items and requests for work orders for parts made in the shops. (iii) Receiving purchased materials and parts and inspection of finished shop made parts. (iv) Entering receipts in stores records, apportioning material in the records to current orders, authorizing requisitions of materials from stores for assembly into finished products. (v) Issuing of parts and materials to the shop for production and assembly. (vi) Recording the issue in store records. (vii) Entry of receiving and issuing transactions to cost and accounting records. (viii) Determination of necessity for replacement of stores which leads to step number one and the cycle repeats.

(ix) Inspecting purchased materials and parts and inspection of finished shop made parts. Delivering all parts and materials to the stores for storage. Other activities of materials control section are: (i) Determining the proper quantity to requisition for each item of material for each purchased and manufactured part. (ii) Physical stock checking in stores to check quantity on hand of each part and material inorder to verify the balances shown in stock on store records. (iii) Standardizing materials and parts for lowest cost manufacturing or purchasing.

PURCHASING FUNCTIONS: 1. Responsibilities often fully delegated to the purchasing function: (i) (ii) (iii) Obtaining prices. Selecting vendors Awarding purchase orders.

(iv) (v) (vi) (vii)

Following upon delivery promises. Adjusting and settling complaints Selecting and training of purchasing personnel Vendor relations

2. Responsibilities often shared with functions other than purchasing function: (i) (ii) Obtaining technical information and advice. Receiving sales presentations and arranging for sales oppurtunities with interested personnel. Establishing specifications. Scheduling orders and deliveries. Inspecting. Specifying delivery method and routing Expediting. Accounting. Purchasing and market research. Inventory and warehousing policy and control. Forward buying and hedging policies and procedures. Construction contracting. Service contracts and agreements. Sale of scrap, salvage and surplus. Purchasing for employees. Contracting for machines and equipment. Development of specification. General considerations of quantities or timing on planning deliveries. Transportation and traffic. Determination of whether to make or buy.

(iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv) (xvi) (xvii) (xviii) (xix) (xx)

(xxi) (xxii)

Customs Other functions

3. Responsibilities often divorced from purchasing but of particular interest to purchasing: (i) (ii) Receiving and warehousing Payment of invoices.

PURCHASING POLICIES: Ancillary Development When a company decides to buy a part from outside suppliers, it is usually sub-contracted. In most cases, the sub contractor is an ancillary unit. The policy of the central government is to encourage ancillary industries in our country. All public sector undertakings of the Government of India have been given a directive whereby they are required to identify and earmark particular lines of production and items of manufacture which could be off-loaded to ancillary industries. The Directive says that entrepreneurs should be given all facilities for setting up such ancillary units and other facilities including land, electric power, water and other services, and the necessary know-how and managerial guidance. The public sector enterprises must take the responsibility for providing technical know and managerial guidance on(i) Production process/method, equipment selection and layout. (ii) Production aids like design, detailed manufacturing drawing, tooling, jigs and quality control procedures and equipment. (iii) Manpower planning. (iv) Organization and procedure for production planning, progressing and control. (v) Management aids like cost-accounting, industrial engineering, product diversification and marketing. (vi) Sources of financing and procedure for obtaining them. In addition, the public sector enterprises should assume responsibility for providing: (i) Imported raw material and components, scarce/critical indigenous raw material and drawings.

(ii) Tooling, jigs and fixtures to the extent that these are outside the capability of ancillary unit. (iii) Process quality control equipment and training facilities for the development of supervisory and artisan skills. STORES MANGEMENT Nature of stores Stores is defined as supplies of goods and storage is defined as the act of storing the goods. Stores or storage is the function of receiving, storing and issuing materials. It involves supervision or the clearance of incoming supplies, to ensure that they are maintained in good condition, safely and in readiness for use when required while they are in storage and issuing them against authorized requisitions. The stores is not meant for stocking purchased materials alone. Partly-finished goods, finished goods, spares and consumables are also kept in stores. The emphasis here is on the storing of incoming materials. IMPORTANCE Efficient storage of stores yields the following benefits: 1. Ready accessibility of major materials permitting efficient service to users. 2. Efficient space utilization and flexibility of arrangement. 3. A reduced need for materials handling equipment. 4. A minimization of materials deterioration and pilferage. 5. Ease of physical counting. FUNCTIONS The functions of stores may be listed as follows: 1. To receive raw materials and account for them. 2. To provide adequate and proper storage and preservation to the various items. 3. To meet the demands of the consuming departments by proper issues and account for the consumption. 4. To minimize obsolescence, surplus and scrap through proper codification, preservation and handling.

5. To highlight stock accumulation, discrepancies and abnormal consumption and effect control measures. 6. To ensure good housekeeping so that materials handling, materials preservation, stocking receipt and issue can be done adequately. 7. To assist in verification and provide supporting information for effective purchase action.

STORES LAYOUT Stores layout is a fundamental factor in determining the efficient performance of the department. The following factors deserve serious consideration, while planning for the stores layout: (i) Provisions for easy receipt, storage and disbursement of materials, nearness to point of use. (ii) Minimum handling and transportation of materials, good accessibility for handling equipment and personnel. (iii) Adequate capacity provision for flexibility for future expansion. (iv) Efficient utilization of floor space and height. (v) Clear identification of materials, quick location of items and ease of physical counting. (vi) Protecting against waste, deterioration, damage and pilferage. (vii) Design the buildings physical appearance to create goodwill and to invite business. (viii) Arrange storage for fast and easy customer order processing.

(ix) Use compatible storage or display equipment to create good interior appearances. (x) Install good lighting to prevent theft, parts damage and errors in stocking. (xi) Plan storage for easy shelf-life rotation to permit first-in-first-out control. (xii) Segregate rebuilt, re-manufactured, used, and new merchandise. (xiii) (xiv) Include safety as a part of the facility plan. Maintain a periodic house-keeping and re-arrangement plan.

Two aspects of stores layout are significant,: (i) storage system and (ii) type of stores layout

(i) STORAGE SYSTEM:

Choosing the most suitable storage system means dealing with a number of interacting, and often conflicting factors. A satisfactory storage system compromises between the use of space and the use of time.

There are three basic ways of locating stock: a. Fixed location b. Random location c. Zoned location a. Fixed location:

Fixed location means that, goods of a particular type have a position in the store assigned to them exclusively. It means that while stock can be found immediately without a complex system for recording its position; there can be considerable waste of space, because when stocks of any one item are low the space left vacant cannot be filled.

The assignment of fixed position to a particular type of goods is made on any one of the following basis: 1. On the basis of supplier. 2. On the basis of similarity of the items. 3. On the basis of the joint issue of the items. 4. On the basis of the size and frequency of use.

b. Random location:

Random location means that items can be stored in any storage position which is available. Space is thus better utilized but, particularly where there are a large number of product

lines, a record has to be kept of where goods are frequency of when they entered the storage area.

c. Zoned location: Zoned location means that goods of a particular product group are kept in a given area. They may be randomly stored in a zoned location or stored according to fixed locations.

(ii) Types of stores layout

Stock may be kept on one side of the aisle in which case it is called comb type layout or goods may be placed on either side of the aisle in which case the method is called tree type layout. Selecting a particular type depends on the availability of space and layout of the building.

Exhibit: comb type layout

Exhibit: Tree type layout

OBJECTIVES OF INVENTORIES Inventories include, raw materials, semi-finished goods, finished goods and operating supplies. Each of these serve specific purposes. (i) The primary objective of inventory management is to ensure continuous supply of raw materials and facilitate uninterrupted production. (ii) The raw materials inventories are held for later conversion into semi-finished or finished goods. (iii) The nature of the product, the nature of the customer demand, and the nature of the manufacturing process determine, to a considerable extent, the need for finished goods inventories.

(iv) Inventory facilities transit and handling.

(v) Inventories serve to isolate the supplier, the producer and the consumer.

(vi) Another purpose of holding inventories is to reduce material handling costs.

(vii) Another reason for holding inventories is to obtain a reasonable utilization of people and equipment.

(viii)

Inventories are held to facilitate product display and service to customers, batching in production in order to take advantage of longer production runs and provide flexibility in production scheduling.