Professional Documents
Culture Documents
5 M’s
• Men
• Machines
• Methods
• Money
• Materials
Reasons for popularity of materials
• The amount spent on materials is higher than other inputs. In health care
organizations it is almost 40%.
• Materials offer considerable scope for reducing cost and improving profit.
• Improving return on investment depends on the effective utilization of
materials.
• Materials add value to product and service.
• Quality of end product depends on materials.
• Materials management assumes responsibility for whatever happens in
purchasing, storing, inventory or any other area connected with materials.
• Need for preservation of scarce resources for posterity.
• Increasing demand for ensuring environmental safety.
• The efficiency of any organization depends upon the availability of right
materials, in right quantity, at right time and at right price.
• Materials are life-blood of man’s development
What is Material Management?
• Materials management involves
planning, programming, organizing,
directing, controlling, and coordinating
the various activities concerning the
materials. The production managers
found it necessary to develop an
organized body of knowledge on this
subject. The resulting set of related
disciplines is known as materials
management.
What is Material Management?
Another definition -
• Material Management is a scientific technique
which is concerned with the planning,
organizing and controlling the flow of
materials from their initial purchase, internal
operations to the distribution at service
points.
What is Material Management?
Another definition -
• Material Management is the integrated
functioning of an organization dealing with
supply of materials and allied activities in
order to achieve the maximum coordination
and optimum expenditure on materials.
Materials Management
• Materials are any commodities used directly or
indirectly in producing a product such as raw
materials, component parts or assemblies.
• Factors considered:
– Vendors are assessed on the basis of a wide
variety of factors or criteria which might include
but not limited to:
– Price
– Discounts received
– Maintenance of specifications
• Promptness of delivery
• Freight and delivery charges
• Service
• Market information
• Co-operation
• Management competence
• Credit terms
• Cost reduction suggestions
• Inventory plans
• Financial position
Rating techniques
• Categorical plan
– Personnel from different division maintain
informal evaluation records
– Purchasing , engineering, quality control, receiving
and inspection.
– For each supplier , each person prepares a list of
performance factors important to him. At a
monthly meeting, each major supplier is
evaluated against the list and assigned an overall
group evaluation, like “preferred”, “neutral”, or
“unsatisfactory”.
Weighted point plan
• The performance factors to be evaluated are
given “weights”, for example quality might be
weighted 25, delivery 20, price 30 and service
25.
• Weights selected represent buyer’s judgement
about the relative importance of the
respective factors.
• Quantitative terms
Critical incidents method
• Record of events related to buyer vendor
relationships is maintained in each vendor’s
file. They reflect positive and negative aspect
of actual performance.
• This kind of documentation useful in
discussing ways and means of improving
performance, acknowledging the existence of
good relationships, determining the
competence of a vendor, and if necessary
considering termination.
Checklist system
• A simple checklist is used to evaluate the
vendors.
• Check list may be something like
– Reliability, technical capability, after sales service,
availability, buying convenience etc.
Ethics
• Ethics is a segment of philosophy concerned
with values of human conduct.
• Ethics refers to a code of conduct that guides
an individual in dealing with others.
• Ethics relates to the social rules that influence
people to be honest in dealing with others.
Ethics in purchasing
• Many decisions remain largely a matter of personal
judgement.
• Purchase manager is the custodian of company funds,
responsible for their conservation and wise spending.
• Because of his contacts, he is the custodian of company’s
reputation for courtesy and fair dealing.
• A high ethical standard of conduct is essential.
• They are subjected to more temptations
• Since they spend millions, they yield tremendous power and
are the objects of considerable attention from suppliers.
• They are in an excellent position to be dishonest if they want
to.
• But they have to be ethical
Kautilya in Arthasastra
• “Stores and purchase personnel should
definitely be expert in his job, adept in the art
of negotiations, intelligent, loyal to the
organisation’s goals, suppressing personal
greed.”
Value analysis ( value engineering)
• Purchasing & methods engineering
• This activity is aimed at modifying the specifications
of materials, parts, and products to reduce their
costs
• Focus is on the value of the product- what function is
to be performed by the product- and how that value
can be achieved at the lowest cost.
• Primary attention is devoted to the materials.
• Suppliers – suggest improvement & cost reduction
ideas.
Inventory Management
• The term inventory includes materials – raw, in
process, finished packaging, spares and others stocked
in order to meet an unexpected demand or
distribution in the future.
• Inventory can be used to refer to the stock on hand at
a particular time, of raw materials, goods-in –process
of manufacture, finished products, merchandise
purchased for resale, and the like, tangible assets
which can be seen, measured and counted. In
connection with financial statements and accounting
records, the reference may be to the amount assigned
to the stock of goods owned by an enterprise at a
particular time.
Types
• Finished goods inventories
– Stock in trade –ready for shipment
• Maintenance, Repair and Operating
inventories
- cutting tools , grinding wheels, jigs
• Maintenance inventory
– Electrical – switches, fuses, lamps, lubricants, safety goggles
• Stationary inventories
– Canteen provisions, medical supplies, uniforms
Objectives of Inventory
• To facilitate smooth operation of the
manufacturing process.
• To minimise investment in inventory
• To reduce material handling costs
• Reasonable utilisation of people
• 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
Inventory costs
• Ordering cost
• Carrying cost
• Out of stock or shortage cost
• Capacity cost
Ordering Costs
• Cost of placing an order with a vendor of
materials
– Preparing a purchase order
– Processing payments
– Receiving and inspecting the material
• Ordering from the plant
– Machine set up
– Start up scrap generated from getting a
production run started
Carrying costs
• Costs connected directly with materials
– Obsolescence
– Deterioration
– Pilferage
• Financial costs
– Taxes
– Insurance
– Storage
– Interest
• Capital costs
– Interest on money invested in inventory
– Interest on money in land and building
• Storage space costs
– Building rent
– Depreciation
– Cost of maintenance