Materials Management by Nagesh L Talekar
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WELCOMELET US SHARE
EXPERIENCE & KNOWLEDGE
CNC AUTOMOTIVE GROUP
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MATERIALS
MANAGEMENT&
INVENTORY CONTROL
By Nagesh Talekar
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WHERE WE ARE
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WE ARE IN THE COMPETITIVE
WORLD
Operating Environment
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BUSINESS GOALS
PROFITABILITY
GROWTH (MARKET SHARE)
PERPETUITY
IMAGE
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CUSTOMER IS THE KING
UNDERSTAND CUSTOMER
CUSTOMER NEEDS
CUSTOMER EXPECTATIONS
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CUSTOMER NEEDS &
EXPECTATIONS
Quality
Price
DeliveryQty
Service
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4 Rs
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Manufacturing Cost + Profit =Selling Price
Rs. 100.00 + Rs. 20.00 = Rs.120 .00
PROFITABILITY
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In view of the current competitive pressures in
the market, the equation has changed to
Rs.120.00 - Rs.100 = Rs.20.00
PROFITABILITY
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RETURN ON INVESTMENT (ROI)
ROI = (Profit/Sales)x(Sales/(Current + Fixed
Assets))
Thus ROI = Profit/Capital Employed
Selling Price is determined by the market forces
and as such, Profit can be ensured only by
Cost Control
Effective and optimum use of 4 M resources.
A rupee saved is a rupee earned.
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4 M RESOURCES
Management
Money
Man
Machine
Materials
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MATERIALS MANAGEMENT
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MATERIALS
In many manufacturing organisation the cost of
materials alone happens to range from 40 to
60% of the total expenditure.
Materials CostUnit price of the materials
Consumption for production
A Rupee Saved is a Rupee Earned
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MATERIALS MANAGEMENT
Is a key business function responsible for the
coordination of planning, sourcing, moving,
storing and controlling materials in an optimum
manner so as to provide a predeterminedservice to the customer at a minimum cost.
Materials Planning and Inventory Control is the
most important function of Materials
Management. And it forms the nerve centre inany organization.
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FUNCTIONING OF MATERIALS
MANAGEMENT
Planning &Budgeting
Purchasing
Receiving,Inspection &Forwarding
Storekeeping,Warehousing &
Distribution
Inventory Control
Material Handling &Transportation
Scrap SurplusControl & Disposal
Cost Reduction ByValue Analysis,
Standardization, Etc.
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OBJECTIVES -MATERIALS
MANAGEMENT
Maximize the use of the firms Resources
-Lowest production cost
-Lowest Inventory investment
-Lowest distribution and transportation cost.
To provide the best customer services.
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INVENTORY CONTROL
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WHAT IS INVENTORY
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INVENTORY
Usable but Idle resources (commodities)
held in stock
That has Economic Value
Waiting for Further Use or Processing
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TYPES OF INVENTORY
Raw Material
Bought Out Items
Maintenance, Repair, Operative Items
Work in Process ( Semi Finished Goods)
Finished Goods.
VENDORSRAW
MATERIAL
PROCESS
WORKIN
PROCESS
CUSTOMER
FINISHED
GOODS
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NEED OF INVENTORY
You cant sell from an empty wagon
Meet Variations in Customer Demand Meet Unexpected Demand
Smooth Seasonal or Cyclical Demand
Pricing Related Temporary Price Discount
Hedge against Price Increases
Take Advantage of Quantity Discounts
Possibilities of future non-availability.
Process and Supply Surprises Internal - Upset in Parts of Our Own Processes
External Delays in Incoming Goods
Transit
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COST ASSOCIATED WITH
INVENTORY
Holding Cost Cost of Carrying Inventory
Stock-Out Cost Cost of Incurring Shortages
Ordering Cost Cost of Replenishing
Inventories
For Want of a NAIL.
Kingdom was Lost!!
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INVENTORY CONTROL
Planned Method of
Purchasing and
Storing of Materials
at Lowest Possible Cost without affectingProduction and Distribution Schedules
Thus Inventory Control is the process of
managing inventories in such a way as tominimize inventory costs, including both
holding costs and potential out of stock costs.
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WATER TANK ANALOGY
Buffers Demand Rate from Supply Rate
Supply Rate
Demand Rate
Inventory Level
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OBJECTIVES OF INVENTORY
CONTROL
To reduce Financial Investment in Inventories
To facilitate Production Operations
To Avoid Losses from Inventory Obsolescence
To Improve Customer Services
To improve
Cost of Goods Sold
Inventory Turn Over Ratio= -----------------------
Average Inventory
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Lead
Time
Maximu
m
Reorder
Minimum
Time (in Days)
UnitsInStock
Safety
Inventory
Average Average
Cycle
Inventory
VARIOUS CONTROL LEVELS
Maximum Level
Minimum Level
Re Order Level
Danger Level
Average StockLevel
Safety Stock Level
CALCULATING DIFFERENT
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CALCULATING DIFFERENT
LEVELS
Item X being used in an Organization
Youre required to calculate the following levels
with the help of the information given below
Normal Usage = 100 units per Week (6 Days)
Minimum Usage = 50 units per Week (6 Days)
Maximum Usage = 150 units per Week (6 Days)
Reorder Quantity = 600 unitsReorder Period = 4 to 6 Weeks
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VARIOUS STOCK LEVEL
CALCULATION
Reorder Level (ROL)
= Max. Reorder Period X Max. Usage
= 6 Weeks X 150 units = 900 units
Maximum Level= (ROL+ROQ)-(Min. Consumption X Min. Reorder
Period)
= (900 units + 600) units - (50 units x 4 Weeks)= 1500 200 = 1300 units
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VARIOUS STOCK LEVEL
CALCULATION
Minimum Level
= ROL-(Avg. Consumption X Avg. Lead Time)
= 900 units (100 units X 5 Weeks)
= 900 500 = 400 units
Average Stock Level
= X (Max. Level + Min. Level)
= X (1300 units + 400 units)= X 1700 units = 850 units
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ECONOMICAL ORDERING QTY
MODEL
Minimize Ordering & Inventory Carrying Cost
where
Q = Qty per Order
A = Annual Requirement in Unit
S = Ordering Cost per Order
C = Cost per Unit or Item
i = Inventory carrying Cost expressed as % of value
Ci
ASEOQ
2
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ECONOMICAL ORDERING QTY
MODEL
Qty Per Order (Q)
Total Cost
Inventory
CarryingCost
EOQ
Ordering CostCostofCove
r
AnnualR
equirementofanitem
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EOQ ILLUSTRATION
A Manufacturer purchases 3200 units of a
particular item from his supplier. His annual
usage is 1600 units of the item under
consideration. The ordering cost is calculatedat Rs. 100 per order and the cost of carrying
on e unit of the item for a year is computed at
Rs. 8. Calculate EOQ.
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EOQ ILLUSTRATION
AnnualUsage Orders peryear Units perOrder OrderingCost
Avg.Inventory in
UnitsCarrying
Costs TotalAnnual Cost1600 1 1600 100 800 6400 65001600 2 800 200 400 3200 34001600
3
533
300
267
2136
2436
1600 4 400 400 200 1600 20001600 5 320 500 160 1280 17801600 6 266 600 133 1064 16641600 7 228 700 114 912 16121600 8 200 800 100 800 16001600 9 177 900 89 712 16121600 10 160 1000 80 640 16401600 11 145 1100 73 584 16841600 12 133 1200 67 536 1736
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EOQ ILLUSTRATION
Taking Help from the Formula
200400008
10016002 xxEOQ
C SS C O O O
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CLASSIFICATION OF INVENTORY
SYSTEMS
Lot Size Reorder Point Policy
Fixed Order Interval Scheduling Policy
Optional Replenishment Policy
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ANALYTICAL TOOLS
ABC Analysis
Annual Value of Consumption of items
VED Analysis
Critical Nature of Components FSN Analysis
Frequency of Consumption
HML Analysis
Per Unit Cost XYZ Analysis
Inventory Value of Item Stored
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STORES ACCOUNTING
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STORES ACCOUNTING
Stores Accounting refers to the Mathematical
Process which reveals the Quantity, Quality
and Value of Stock carried and preserved in a
Storeroom on a given date relating to aspecified period
Stores Accounting, thus, assumes the role of
indicating the future need based on past
experiences, extending a helping hand in
planning and co-ordination
NEEDS OF STORES
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NEEDS OF STORES
ACCOUNTING
It is necessary to indicate the value of Stock inthe Store.
It provides a means for calculating the cost of
goods manufactured. It provides a basis for Control of Inventory
It also ensures that all materials received havebeen accounted for and all receipts and issues
of materials have been properly recorded inStock Register / Bin Card/ ERP
It exerts a Moral Check on the Staff.
STORES ACCOUNTING
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STORES ACCOUNTING
METHODS
BIN CARD
STOCK REGISTER
ACCOUNTING SOFTWARE ERP / SAP
STORES ACCOUNTING
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STORES ACCOUNTING
DOCUMENT
GOODS RECEIVED NOTE
STORES REQUISITION CUM ISSUE NOTE
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STOCK VERIFICATION
It is the process of physically counting,
measuring, or weighing the entire range of
items in the stores and recording the results in
a systematic manner.
NEEDS OF STOCK
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NEEDS OF STOCK
VERIFICATION
To reconcile the Stock Records andDocuments for their accuracy and usefulness.
To identify areas which require more
disciplined document control. To back up the balance sheet stock figures.
To ensure proper storage, preservation andmaterial care to maintain quality.
To identify the Slow moving, Non Moving ,Obsolete, Defective, Scrap items.
To minimize pilferage and fraudulent practices.
STOCK VERIFICATION
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STOCK VERIFICATION
SYSTEMS
LOW POINT STOCK VERIFICATION
PERPETUAL STOCK VERIFICATION
PERIODIC STOCK VERIFICATION
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NotTHE END
Beginning to UPGRADE THESYSTEM
THANQ
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