Materials Management

Inventory management is primarily about specifying the size and placement of stocked goods.

Objectives
continuous supply of raw material & finished goods production process is not halted demands of customers are duly met. minimize carrying cost of inventory. inventory at optimum level. reduce the losses of theft, obsolescence & wastage etc. arrangement for sale of slow moving items.

ABC Analysis

ABC Analysis
classification process is an analysis of a range of objects A - outstandingly important B - of average importance C - relatively unimportant

ABC Analysis
10-20% of the items ('A' class) account for 7080% of the consumption the next 15-25% ('B' class) account for 10-20% of the consumption and the balance 65-75% ('C' class) account for 510% of the consumption

Graphically

Economic Order Quantity

inventory management technique for determining the optimum order quantity minimizes the total of its ordering and carrying costs.

Answers to.
How much of inventory should be bought in an order on each replenishment? Should the quantity be purchased be large or small? Should the requirement of materials during a given period of time be purchased in one lot or should it be purchased in installments?

Lets say
A Company is determining its frequency of orders for Product A. Each product A costs Rs 20. The annual carrying cost is Rs.400 and the cost per order is Rs.15. The company expects to sell 50 units of Product A each month. It has also decided to maintain an average inventory level of 40 units. Find the EOQ.

Hence..
S (Annual usage in units) => 50 units per month x 12 = 600 units annually. P (Ordering cost per order) => Rs.15 C => Average inventory x Carrying cost per unit. In this case, Rs.400 is the total carrying cost annually. Therefore, carrying cost per unit = Rs.400 / 40 = Rs.10 per unit.

Finally.
EOQ = (2SP / C) => = (2 x 600 x 15) / 10 => 42 units (after rounding) Number of orders per year = S / EOQ => 600 units/42 = 14.29 or 14 orders (rounded)

Objectives of Purchasing
materials, supplies and equipment at the minimum possible costs continuous flow of production increase the asset turnover develop the alternate sources of supply maintain the good relations with the suppliers achieve maximum integration with other departments

Procedure
Obtaining and analyzing quotations of vendors/suppliers Interview representatives and correspondence Deciding best buying terms and conditions Negotiating and checking contracts Scheduling orders and following up

Procedure
Work with finance department to obtain discount, matching invoices, verify receipt, purchase journal entry, passing of invoices for payment and settlement of accounts Disposing of surpluses Other activities like assisting with preparation of material expenditure/purchasing budget.

Modern Techniques of Material Management

JIT
Just In Time material into a specific location at the required time reduces the need to store excessive levels of material in the warehouse.

SAP /ERP
Systems, Applications and Products more than 30,000 best-run businesses in over 120 countries SAP helps companies like yours to thrive in a business environment characterized by intensified competition, uncertain market conditions, and increased regulatory oversight.

SAP ERP
Accounting and financial close Treasury and financial risk management Invoice to pay Receivables management Shared services for finance Travel management