-
BANSURI SAMPAT LECTURER AT SLPT BBA MAHILA COLLEGE
MAL-010-001601 3RD YEAR BBA SEM 4 CBCS EXAMINATION
MARCH/APRIL-2018 MATERIAL MANAGEMENT: 601
[TIME: 2 ½ HRS] [ TOTAL MARKS:70]
Q.1. Define the term material management. Also discuss
importance of material management.
Ans. INTRODUCTION:- Historically the five M's of an industrial
organization viz., Men, Machines, Money, Materials, and Methods
have shifted their positions from time to time in their relative
importance. In the early days, the focus was men as they were the
main source of productive power. In the course of time, the
emphasis shifted towards machines, which became the main source of
industrial power. As years went by, the methods of production
became more complex and in order to manage the complicated
manufacturing system, efficient management became necessary.
Naturally, the attention was shifted to scientific management. The
oil crisis of the 1970's changed the priorities of industrialists
all over the world. The unprecedented hike in the oil prices and
consequent heavy budged allocations on oil made the captains of
industrial establishments take note of one of the Ms, viz., money.
Materials as an input in production systems started receiving
attention of the industrialists from 1900 onwards. Earlier to this,
materials were taken for granted as they presented no major problem
with regard to either supply or cost. Since the beginning of 20*
century, materials have been occupying a place of the importance
among the M's and this will continue to be so in the years to
come.
Definition:- (i) Materials Managements is the "management of the
flow of materials into an organization to the point, where, those
materials are converted into the firm's end product(s)." ----
(Bailey and Farmer)
(ii) Materials management is the "process by which an
organization is supplies with goods and services that it needs when
the material is either consumed or incorporated into some product.
The executives, who engage in materials management, are concerned
with three basic activities viz., buying, storage of materials and
movement". --- (Ammer)
(iii) Materials management is "a confederacy of traditional
materials activities bound by a common idea-the idea of an
integrated management approach to planning, acquisition,
conversion, fiow and distribution of production materials fi"om the
raw materials stage to the finished product stage." (Lee andDobler
)
(iv) Materials management is "the function responsible for the
coordination of planning, sourcing, purchasing, moving, storing,
preserving and controlling materials in an
-
optimum manner so as to provide a pre-determined service to the
customer at minimum cost."
(P. GopalaKrishnan and MSundaresan)
Importance of material management:-
1. The material cost content of total cost is kept at a
reasonable level. Scientific purchasing helps in acquiring
materials at reasonable prices. Proper storing of materials also
helps in reducing their wastages. These factors help in controlling
cost content of products.
2. The cost of indirect materials is kept under check. Sometimes
cost of indirect materials also increases total cost of production
because there is no proper control over such materials.
The equipment is properly utilized because there are no break
downs due to late supply of materials.
4. The loss of direct labour is avoided.
5. The wastages of materials at the stage of storage as well as
their movement is kept under control.
6. The supply of materials is prompt and late delivery instances
are only few.
7. The investments on materials are kept under control as under
and over stocking is avoided.
8. Congestion in the stores and at different stages of
manufacturing is avoided.
OR
Q.1. Write in detail function of material management.
Ans:- Introduction
Historically the five M's of an industrial organization viz.,
Men, Machines, Money, Materials, and Methods have shifted their
positions from time to time in their relative importance. In the
early days, the focus was men as they were the main source of
productive power. In the course of time, the emphasis shifted
towards machines, which became the main source of industrial power.
As years went by, the methods of production became more complex and
in order to manage the complicated manufacturing system, efficient
management became necessary. Naturally, the attention was shifted
to scientific management. The oil crisis of the 1970's changed the
priorities of industrialists all over the world. The unprecedented
hike in the oil prices and consequent heavy budged allocations on
oil made the captains of industrial
-
establishments take note of one of the Ms, viz., money.
Materials as an input in production systems started receiving
attention of the industrialists from 1900 onwards. Earlier to this,
materials were taken for granted as they presented no major problem
with regard to either supply or cost. Since the beginning of 20*
century, materials have been occupying a place of the importance
among the M's and this will continue to be so in the years to
come.
Functions of material management
While the field of materials management covers all aspects of
material costs, supply and utilization, opinion is divided as to
what functions should be included under the unified working of
materials manager. In the opinion of experts on materials
management, the following eleven functions may come under the
headship of materials manager.
1. Materials planning and sourcing.
2. Purchasing
3. Stores keeping
4. Inventory planning
5. Receiving, warehousing and transportation
6. Value analysis
7. Standardization and variety reduction
8. Production planning and production control
9. Vendor development
10. Material handling
11. Disposal of scrap and surplus
The production planning and production control has been included
under the materials management because for manufacturing a huge
quantity of finished product (big industry), a large number of
components are purchased from sub-contracting for end-use or for
final assemblies. Sub-contracting and vendor development is best
known by materials manager. The materials manager should not be
burdened with value analysis, codification of stores, material
handlings, etc. Many experts believe that these should be separate
staff functions. However, these functions cannot be, by their very
nature, independent of materials manager. The function of disposal
of obsolete items, scrap and surplus is best done by materials
manager who is familiar with market trends of all materials. Some
of the important functions of material management are briefly
discussed below:
-
1.Material Planning: Involves setting up of consumption
standards for working out the requirements of a given production
programme. Deciding whether to make or buy considering the
financial aspects, manufacturing capacity, availability and
dependability of outside sources, laying down procurement standards
and specifications valve analysis, standardization etc.
2.Scheduling; Detailing the receipt of items to meet the
procurement lead time availability or scarcity of materials,
economic lot sizes, etc., this involves follow up of actual
deliveries against the schedules and taking special action for
expediting in case of any other short fall.
3. Inventory Control: To ensure that stock-outs don't occur for
want of materials and able to minimize the inventory holding.
Selective control or ABC analysis, analysis of lead times,
rejection rates consumption rates, costs and other relevant factors
to determine safety minimum and maximum levels re-order level etc.,
maintenance of central stock records to ensure better control.
4. ; Locating and development of sources of supply, market
research for purchasing negotiating prices, calling for tenders,
selection of suppliers, issue of purchase orders, vendor rating,
preparations of material budgets etc.
5. Warehousing and Material Budgeting; Involves receiving of
materials moving them to stores after inspection return of rejected
materials of any proper and adequate storage facilities to ensure
minimum retrading, provision of suitable material handling
equipment like cranes, hoists, forklifts, conveyor systems, etc.,
suitable warehousing arrangement to eliminate fire hazard, loss due
to pilferage and determination in storage.
6. Salvage and Disposal of Scrap and Surpluses: Investigating
into cases of surpluses and obsolescence and to find out
alternative uses or otherwise disposal and also to minimize
recurrence of the same, aggregation if different types of swarf and
scrap so that maximum prices could be obtained while disposing
off.
7. Stores Management: Involves stores layout, improvement of
storage system, stores control of terms of receipt and issues of
materials, maintenance or stores records and stores accounting.
A.K.ChitaIe and R.C.Gupta have brought out all the functions of
materials management under four broad activities. The following
table gives the broad four activities of material management and
brief description of all those activities.
Activity Description
(1) Inventory control
Planning and maintaining levels of raw materials, tools, general
supplies, etc. Keeping a watch on in-process and finished goods
inventory. Applying selective
-
(2) Purchasing (3)Storekeeping (4) Traffic or carrying and
forwarding
inventory control methods calculating economic order quantities
and economic manufacture quantities, doing simulation to work out
when to order and how much to order. Doing material requirement
planning in case of dependent demand inventory.
Developing vendors for supply of components, sub-assembly and
also for other items such as supplies, assisting design department
in standardization, value analysis, advising and disposal of
surplus and scrap. Procurement of materials at right time in right
quantities from right source, right quality, etc. Receiving,
storing and issuing as well as material handling in stores.
Receiving incoming materials called inbound logistics and carrying
for outbound logistics.
Q.2. what do you mean by vendor selection? Also discuss methods
of vendor rating.
Ans. In a supply chain, a vendor, or a seller, is an enterprise
that contributes goods or services. Generally, a supply chain
vendor manufactures inventory/stock items and sells them to the
next link in the chain. Today, these terms refer to a supplier of
any good or service.
A vendor, or a supplier, is a supply chain management term that
means anyone who provides goods or services to a company or
individuals. A vendor often manufactures inventorial items and then
sells those items to a customer.
Typically vendors are tracked in either a finance system or a
warehouse management system.
Vendors are often managed with a vendor compliance checklist or
vendor quality audits and these activities can be effectively
managed by software tools.
Purchase orders are usually used as a contractual agreement with
vendors to buy goods or services.
Vendors may or may not function as distributors of goods. They
may or may not function as manufacturers of goods. If vendors are
also manufacturers, they may either build to stock or build to
order.
https://en.wikipedia.org/wiki/Supply_chainhttps://en.wikipedia.org/wiki/Supply_chain_managementhttps://en.wikipedia.org/wiki/Customerhttps://en.wikipedia.org/wiki/Accounting_softwarehttps://en.wikipedia.org/wiki/Warehouse_management_systemhttps://en.wikipedia.org/wiki/Warehouse_management_systemhttps://en.wikipedia.org/wiki/Quality_audithttps://en.wikipedia.org/wiki/Quality_audithttps://en.wikipedia.org/wiki/Purchase_orderhttps://en.wikipedia.org/wiki/Distribution_(business)https://en.wikipedia.org/wiki/Manufacturinghttps://en.wikipedia.org/wiki/Build_to_stockhttps://en.wikipedia.org/wiki/Build_to_order
-
'Vendor' is often a generic term, used for suppliers of
industries from retail sales to manufacturers to city
organizations. 'Vendor' generally applies only to the immediate
vendor, or the organization that is paid for the goods, rather than
to the original manufacturer or the organization performing the
service if it is different from the immediate supplier.
Methods of vendor rating:-
(a) Categorical Plan: The categorical plan is a sample of all
vendor rating schemes. It relies heavily on the judgement and
experience of the decision maker. The purchaser maintains a list of
his suppliers and their products. The vendor performance is
reviewed periodically by an evaluation committee comprising of all
representatives.
Depending upon the performance, the vendor is given a plus
point, neutral or minus. The performance trends over a period of
time are built up and the vendor with increasing trend of plus
point is chosen. A preponderance of pluses or minuses needs
notification to supplier with comments.
On the basis of experience and periodical meetings, a list of
factors can be established on the suppliers’ performance in each
area and each factor is given a grading as ‘never’, ‘seldom’,
‘usual’, ‘always’, etc. This system, though non-quantitative,
provides a means of systematic record keeping on performance
criteria.
(b) Weighted Point Plan: Quality, delivery or service and price
are the three most important attributes of a good supplier.
Depending upon the importance, a purchaser attaches to a particular
attribute he fixes a weightage for it. The total weightages are
being 100. The weightages, for example, of the attributes are as
follows:
Quality — 60%
Delivery — 25%
Price — 15%
The quality rating (Table 15.1), delivery (service) rating
(Table 15.2), price rating (Table 15.3) and composite rating (Table
15.4) are calculated.
https://en.wikipedia.org/wiki/Retailing
-
The weighted point plan technique enables a purchaser to
evaluate a supplier on quantitative basis. This plan is more
objective than categorical plan and the only way the subjectivity
can enter is while assigning the weights. Proper records have to be
kept.
If services of a computer are available, then this plan can be
used very successfully. Under this plan, the supplier can be
classified as excellent, acceptable, average and unacceptable if
their composite rating is over 90%, between 75% and 90%, between
60% to 75% and below 60%.
(c) Cost Ratio Method: This method relates to identifiable
purchasing and receiving costs to the value of shipment received
from respective suppliers. The higher the ratio of costs to
shipments, the lower the rating applied to the supplier: Quality,
delivery, service and price are the usual categories to which costs
are allocated, after subdividing each factor into various
elements.
http://www.shareyouressays.com/wp-content/uploads/hindi/8-Major-Rating-Plans-are-utilized-for-Ve_B572/clip_image002.jpghttp://www.shareyouressays.com/wp-content/uploads/hindi/8-Major-Rating-Plans-are-utilized-for-Ve_B572/clip_image004.jpg
-
The respective cost ratios are suitably combined with the
vendors’ quoted price, to determine the net cost. Here, the vendor
performance is reviewed periodically by an evaluation committee
comprising of representatives from all departments involved with
purchasing.
(d) Eavaston’s Vendor Selection: The suppliers’ past performance
is utilized in the choice of vendors and the basic steps in this
method are as follows: (i) The vendors on the approved list are
ranked on the basis of the buyer’s subjective evaluation, (ii) The
first satisfactory vendor, meeting or exceeding all the standards,
(iii) If the applied vendors do not fulfill the minimum standards,
then the minimum standard may be relaxed till a vendor is chosen.
It presupposes that standards of acceptability for every criterion
are formed to fit in order to take decisions.
(e) Forced Decision Matrix: The attributes of rating like price,
quality, service, reliability of the supplier, lead time of supply
etc. — are identified first. Then these factors are compared
between themselves, like quality and price. If price is considered
more important than quality by the evaluation committee, then a
weightage of one is given to price and zero to quality.
The quality is compared with each of the remaining factors and
the relative weightages are recorded in the form of a table or
matrix. Similarly, each factor is compared in turn with each of the
others and their relative weightages are recorded. Weightages given
to the different attributes are added up for each attribute and
divided by the total number of comparisons to give the attribute
weightage co-efficient for each attribute.
After this, the next step is to compare the suppliers in pairs
in respect of each attribute, giving the superior supplier a
weightage of one and the other. These results are tabulated and the
supplier weightage co-efficient is thus obtained.
The above two types of coefficients are combined by multiplying
for each attribute and for each supplier. These are then added up
to give the total weightage and this is ranked to take the
appropriate decisions on the vendors. The weightage can be varied
and the matrix can be suitably built for a large number of
suppliers and evaluators.
(f) Service Cost Ratio: There are other intangible aspects of a
supplier’s services. They can only be measured subjectively. The
procedure is as follows:
(i) Listing the service factors like R&D, Labour stability,
financial stability, flexibility in production for rush orders,
etc.
(ii) Assigning weights to each factor according to its
importance to the purchaser.
-
(iii) Setting an acceptable norm e.g., out of a total of a 100
service points 70 may be an acceptable norm.
(iv) Rating suppliers for each service factor.
(v) Determining the percentage by which the supplier is over or
under the acceptable norm
(vi) Multiplying the percentage obtained in (v) by value of
package percent. For sophisticated items the value of package
percent may be 10% and for common Bazzar items it may be just
1%.
(vii) The percentage figure arrived at in (vi) is minus if the
percentage in (v) is over the acceptable norm and is plus if it is
below the acceptable norm.
The sample procedure of calculating the service cost ratio is
shown in table
(g) Bell Quality Rating System: The bell helicopter company
developed a Lot Quality Index (LQI), which give an assessment of
all lots received against lots rejected, by disposition and
category, as the company attaches greater importance to quality.
The LQI is given by: LQ1 – X/L, where L = total number of lots
received during the period, x = (L1 x 1.00) + (L2 x 2.10) + (L3 x
2.90) + (L4 x 3.10) + (L5 x 3.90) L1 = Number of lots acceptable as
received L2 = Number of lots rejected by sampling inspection but
labelled.
http://www.shareyouressays.com/wp-content/uploads/hindi/8-Major-Rating-Plans-are-utilized-for-Ve_B572/clip_image006.jpg
-
L3 = Number of lots rejected and dispositioned, rework at
supplier’s end. L4 = Number of lots rejected and dispositioned,
returned not usable and L5 = Number of lots rejected and
dispositioned rework at Bell helicopter company. The weights 1.00,
2.10 etc. were determined at the company after a careful study of
the complexity and number of operations required to have a usable
lot from a particular dispositioned lot. It is clear from the above
equation, that the best lot quality index figure rates is 1.0, the
worst is 3.90. The formula can be modified easily to suit the needs
of a particular firm. The quality rating can be combined with
rating for other parameters, to develop suitable vendor rating
schemes.
(h) IBM Quality Rating System: The IBM rating system uses
quality costs as the basis for rating suppliers. The formula for
the vendor quality rating is:
VGR = Desired cost of inspection / Actual cost of inspection x
100
The cost incurred in inspecting acceptable material is the
desired cost, the cost of inspecting rejected material being
excluded from it. The actual cost of inspection includes cost
incurred in inspecting acceptable as well as rejected material plus
cost associated with extra handling of rejected material.
Inspection cost is obtained by multiplying the actual time spent
on inspection by the standard rate. The material handling cost is
found by multiplying the number of documents to process the
rejected material by a standard cost.
Advantages: The IBM quality rating system the following
advantages:
(a) Factors of cost used are well understood by the
suppliers,
(b) All rating factors are brought down to common basic costs
and can therefore be combined even if the factors themselves are
different.
(c) Some minor defects are allowed, so long as the quality
requirements are clearly met.
(d) It establishes a long range goal of what a good supplier
should supply.
(e) No complicated weighting factors are required.
(f) When cent percent inspection is required, it provides for
equitable rating.
(g) When cent percent inspection is required, it considers the
inspection cost.
-
(h) The same data can be used to find out which suppliers, cost
the company more and which items require more inspection time.
Based on the information, inspection methods may be improved and
attention can be directed towards the costly suppliers.
The IBM system on quality rating is useful, when there are a
large number of suppliers vending several products. The inspection
information is fed directly into the computer (or accounting
machine), which computes the ratings and summarizes the information
in various ways, like type of defects, part number, supplier code,
final product etc. for further analysis.
OR
Q.2. Discuss in detail type of buying method.
Ans. Introduction:-
The purchasing management department ensures that all goods,
supplies and inventory needed to operate the business are ordered
and kept in stock. It is also responsible for controlling the cost
of the goods ordered, controlling inventory levels and building
strong relationships with suppliers.
Some of the methods of purchasing are discussed as follows: 1.
Purchasing by Requirement: This method refers to those goods which
are purchased only when needed and in required quantity. The goods
which are not regularly required are purchased in this way. On the
other hand it refers to the purchase of emergency goods. These
goods are not kept in store. Purchasing department must be in
knowledge of the suppliers of such goods so that these are
purchased without loss of time.
2. Market Purchasing: Market purchasing refers to buying goods
for taking advantages of favourable market situations. Purchases
are not made to meet immediate needs but are acquired as per the
future requirements. This method will be useful if future needs are
estimated accurately and purchases are made whenever favourable
market situations arise. The market situation is constantly studied
for forecasting price trends. The advantages of this method are:
lower purchase prices, more margin on finished products due to
lower material cost and saving in purchase expenses. This method
suffers from some limitations: losses in case of wrong judgment,
fear of obsolescence, higher storing expenses due to more
purchases.
3. Speculative Purchasing: Speculative purchasing refers to
purchases at lower prices with a view to sell them at higher prices
in future. The attention in this method is to earn profits out of
price rises later on. The purchases are not made as per the
production needs of the plant rather these are far in excess of
such requirements. A cloth mill may purchase cotton in the
https://en.wikipedia.org/wiki/Inventory
-
market when prices are low with the attention of earning profits
out of its sales when prices go up.
Speculative purchasing should not be confused with market
purchasing. The former is done to earn profits out of future price
rises where as the latter is concerned with purchasing for own
needs when favourable market situations exist. Though speculative
purchasing may result in profits but there are chances of prices
going down in future, fear of obsolescence and incurring higher
storage costs.
4. Purchasing for Specific Future Period: This method is used
for the purchase of those goods which are regularly required. These
goods are needed in small quantity and chances of price
fluctuations are negligible. The needs for specific period are
assessed and purchases made accordingly. The requirements for such
purchases may be assessed on the basis of past experience, period
for which supplies are needed, carrying cost of inventory etc.
5. Contract Purchasing: In the words of Spriegel it is “the
purchasing under contract, usually formal, of needed materials,
delivery of which is frequently spread over a period of time.”
Under this method a specific quantity of materials is contracted to
be purchased and delivery is taken in future. Even though the goods
are procured in future but the price and other terms and conditions
are fixed at the time of contract. This method may be useful when
price rises in future may be expected and material requirements for
future may be accurately estimated.
6. Scheduled Purchasing: Under this method the suppliers are
supplied a probable time schedule for material requirements so that
they are in a position to arrange these in time. An accurate
production schedule is prepared for estimating future material
needs. The suppliers are informed of probable needs and orders are
sent accordingly. The schedule provided by the purchaser to the
vendor is not a contract. This is only a gentleman’s agreement for
terms and conditions of purchases. The main objectives of this
method are: minimum inventory, prompt service. low prices, quality
goods etc.
7. Group Purchasing of Small Items: Sometimes a number of small
items are required to be purchased. The prices of these items are
so small that costs of placing orders may be more than prices. In
such situations the buyer places order with a vendor for all these
items. The purchase price is agreed to be by adding some percentage
of profit in the dealer’s cost. This method will be used only when
dealer’s records are open to inspection for determining his cost.
This type of purchasing reduces the cost of the buyer by
eliminating much clerical work.
-
8. Co-operative Purchasing: Small industrial units may join to
pool their requirements and then place bulk orders with dealers.
This will help them in availing rebates on large quantity
purchases, cash discounts and savings in transportation costs.
After receiving the materials these are divided among the member
units. Co-operative purchasing helps small units in availing the
benefits of bulk purchasing.
Q.3. Explain in detail methods of store verification.
Ans. Introduction:-
Stock-taking or "inventory checking" is the physical
verification of the quantities and condition of items held in an
inventory or warehouse. This may be done to provide an audit of
existing stock. It is also the source of stock discrepancy
information.
Stock-taking may be performed as an intensive annual, end of
fiscal year, procedure or may be done continuously by means of a
cycle count.[1] An annual end of fiscal year stock-taking is
typically undertaken for use in a company's financial statements.
It is often done in the presence of the external auditors who are
auditing the financial statements.
Periodic counting is usually undertaken for regular, inexpensive
items. The term "periodic" may refer to annual stock count.
However, "periodic" may also refer to half yearly, seasonal,
quarterly, monthly, bi-monthly or daily.[2] For expensive items a
shorter period of stock-taking is preferred.[citation needed]
A stock-take sale is a sale with reduced prices in a shop
designed to sell off stock from previous seasons. This makes the
task of stock-taking easier.
Another purpose of stock take is determination of a cutoff point
i.e. what was the stock position of the company/organization at a
specific point of time.
Stock verification is necessary because: (a) It minimizes
pilferage and fraudulent practices,
(b) It ensures accuracy and usefulness of documents,
(c) It brings about a reconciliation of the stock records and
documents.
(d) It identifies areas for more disciplined document control
and
(e) It backs up the balance sheet stock figures Stock
verification is the task of the materials audit department.
Verification may be continuous or periodical.
Generally, the following two methods are used for physical
verification of stock: 1. Annual Physical Verification 2. Perpetual
Inventory Control.
https://en.wikipedia.org/wiki/Inventoryhttps://en.wikipedia.org/wiki/Warehousehttps://en.wikipedia.org/wiki/Audithttps://en.wikipedia.org/wiki/Cycle_counthttps://en.wikipedia.org/wiki/Stock-taking#cite_note-1https://en.wikipedia.org/wiki/Financial_statementshttps://en.wikipedia.org/wiki/External_audithttps://en.wikipedia.org/wiki/Stock-taking#cite_note-2https://en.wikipedia.org/wiki/Wikipedia:Citation_needed
-
Method # 1. Annual Physical Verification: In this an independent
person of a high rank known as verifying officer checks the stock
lying in store once in a year, so as to see that the quantities as
shown in store-ledger, bin cards and actually available in bins
tally each other. After verification, verifying officer submits a
list of shortages, excess and comments about damaged, surplus,
obsolete and unserviceable stores.
In this method checking is started from one part of the
store-room and make the round of all the stores, checking all the
items in a certain number of bins each day and comparing them with
the balance shown on the bin cards and in the stores ledger. In the
larger companies one or two men or as many as may be required by
the particular business may be engaged continuously in counting
materials on hand.
In this method at the end of the year, the store is closed and
in a few days complete checking is done. The advantage of this
method is that a thorough check of all the items is performed at a
time and all the discrepancies are known collectively.
Method # 2. Perpetual Inventory Control: This is a perpetual or
continuous check throughout the year in such a way that each item
is checked at least once. In this system, the material is checked
as it reaches to its minimum level.
This can be performed by the store-keeper or somebody else
specially engaged for this task as he notices, that the balance on
the bin card has reached the minimum. Special provision is made for
checking items which have not reached their minimum during a
period.
The advantage of this method is that the store not to be shut
down for some time. Only minimum quantities are counted, weighed
etc., therefore, less labour and time is taken. This method is
comparatively more accurate.
This method is very suitable for large firms having huge
quantities of different materials. If annual physical verification
is done in such plants, complete shut-down of the stores may
produce large losses to the owner.
Therefore, for small plants which takes hardly few days for
complete checking, “Annual Physical Verification” is done. In such
plants necessity of shutting down the plant also does not arise, as
daily issues and receipts are not much.
Example: Following differences are noticed in the Physical
Verification of stores, state how you would adjust in the stores
ledgers.
-
There are certain differences which are normal and it is
difficult to avoid. Wastage occurring from these differences arises
from the handling of such material. Such expenses should be
included in production cost and are added to the factory
overheads.
But the abnormal wastage arising due to theft, carelessness,
obsolescence etc., cannot be included in the cost of production.
Such differences are debited or credited to Profit and Loss
Account.
On these principles the decisions on these cases is taken as
mentioned below: 1. 50 units of material A at the rate of Rs.15
will be shown as issued in stores ledger and Rs.750 debited to
Profit and Loss account.
2. (a) Entry for 100 units of material B be made in receipt
columns of Stores ledgers and Rs.800 be credited to stores ledger
account.
(b) Balance 50 units of material B will again be credited for
value Rs.400 and item is credited in Store Ledger.
3. There are two ways for adjusting such differences. In one
theory no entry or adjust-ment is made and we should wait till next
stock taking is done and confirm whether there is actually
carelessness or not.
In second theory we should not question the accuracy of
stock-taking because it will lift the belief from stock taking.
According to this theory differences in Material C is adjusted by
showing 30 items issued and expenditure of Rs.120 is booked in
factory overheads.
4. The loss will be written off and hence Rs.300 is debited to
Profit and Loss Account and the account of material disclosed in
Stores Ledger.
http://cdn4.businessmanagementideas.com/wp-content/uploads/2016/11/clip_image002-4.jpg
-
5. The loss being normal, it shall be entered as issue of 110
units of material E in Stores Ledger. The loss of Rs.220 shall be
booked in factory overheads.
6. Material F for 10 units shall be issued to supplier and Rs.50
shall be debited to supplier and Rs.8 shall be written off and
shall be added to factory overheads.
OR
Q.3. Describe codification system with its method.
Ans. Introduction
Codification of goods: One of the basic requirements of an
efficient stocking and logistics management system is an effective
and scientific system of coding the items, to ensure quick tracing
& retrieval and early identification of dead / duplicate
stocks. In a health care setting, this task is more complicated
since detailed characteristics and nature of large number of drugs
available are required to be known for their coding and
classification. Ideally, all health care stores should be
classified in broad categories (such as pharmacy, X-rays,
chemicals, laboratory items, waste disposal, ancillary items etc)
and then grouped and sub-grouped logically according to functions
and usage.
Methods of codification:-
(i) Alphabetical or Letter Code System and Mnemonic System: Each
class of item is designated by a specific letter. Assignment of
letters are generally done either haphazardly or in a manner
conducive to easy memorisation (latter one is also known as
Mnemonic System) e.g. Brass Screw by B.S. and Steel Screw by
S.S.
(ii) Numerical System: Under this system, specific number is
assigned to denote a particular class of material.
(iii) Decimal System: Under this system, the digits of the
integral part represent a basic unit and the decimal part
represents a sub-group of the basic unit. Each digit of the decimal
represents further classifications of the materials.
(iv) Block System: Under this system, a block of numbers is
earmarked for particular type of materials e.g., the numbers from
1000 to 1099 may be reserved for lubricants and greases.
(v) Combination System: Alphabetic, numerical, Mnemonic or
Decimal systems are combined in this system.
Codification is used to properly classify equipment’s, raw
materials, components and spares to suit the particular needs of
any organisation. Codification is helpful to prevent
-
duplication and multiplicity of stores and the mistakes which
are caused by the normal practice of describing the material.
The main features of rationalised code are: (i) It describes an
article objectively,
(ii) It is an all-numeric 8-digit code, and
(iii) It describes an article progressively from general to
particular.
For example: (1) 03 01 15 15 – Radian 12 SWg (size)
First two digits 03 indicates — Arc Welding electrodes
Second two digits 01 indicates — Manual electrodes (local –
M.S.)
Third two digits 15 indicates — Radian
Last two digits 15 indicates — 12 SWg (size)
The code has got enough flexibility to absorb all the materials
of the concern and has the provisions for unforeseen contingencies
also.
First two digits indicate the main group that is all the
materials are divided into 100 main groups, say for instance 10
gases, 20 chemicals, 42 screws, 64 hand tools etc.
Third and fourth digit indicates the type of article.
For example:
Fifth and sixth digits indicates the shape and metallurgical
conditions.
For example:
Thus, last two digits indicate the size.
In this way with the help of codification materials are
specified at every stage that is in the main groups, types, shapes
and metallurgical conditions and sizes. For all the materials, the
code length is constant and is useful for the use of punched cards
and computers.
http://cdn4.businessmanagementideas.com/wp-content/uploads/2016/11/clip_image002-1.jpghttp://cdn3.businessmanagementideas.com/wp-content/uploads/2016/11/clip_image003.jpg
-
Now codification is applied to all purchased items, i.e., raw
materials, semi-finished and finished products, saleable products
and components.
Advantages of Codification To identify correctly, to avoid
multiplication of items, to save time and labour, to facilitate
easy location and proper functioning of the storehouse, a proper
codification is to be evolved so as to obtain the following
benefits:
1. To avoid long and unwieldy description. 2. To have accurate
and logical identification. 3: To prevent duplication. 4. To
standardize items. 5. To reduce varieties. 6. To have an efficient
purchasing department. 7. To obtain efficiency in recording and
accounting. 8. To simplify and facilitate mechanical recording. 9.
To simplify and facilitate pricing. 10. To have proper system of
location and indexing. 11. To assure correct and efficient
inspection; and 12. To implement production as planned. Q.4. what
is inventory? Discuss ABC analysis and EOQ methods. Ans.
Introduction:-
The scope of inventory management concerns the balance between
replenishment lead time, carrying costs of inventory, asset
management, inventory forecasting, inventory valuation, inventory
visibility, future inventory price forecasting, physical inventory,
available physical space, quality management, replenishment,
returns and defective goods, and demand forecasting. Balancing
these competing requirements leads to optimal inventory levels,
which is an ongoing process as the business needs shift and react
to the wider environment.
Inventory management involves a retailer seeking to acquire and
maintain a proper merchandise assortment while ordering, shipping,
handling and related costs are kept in check. It also involves
systems and processes that identify inventory requirements, set
targets, provide replenishment techniques, report actual and
projected inventory status and handle all functions related to the
tracking and management of material. This would include the
monitoring of material moved into and out of stockroom locations
and the reconciling of the inventory balances. It also may include
ABC analysis, lot tracking, cycle counting support, etc. Management
of the inventories, with the primary objective of
determining/controlling stock levels within the physical
distribution system, functions to balance the need for product
availability against the need for minimizing stock holding and
handling costs.
https://en.wikipedia.org/wiki/ABC_analysishttps://en.wikipedia.org/wiki/ABC_analysis
-
Defining Inventory
Inventory is an idle stock of physical goods that contain
economic value, and are held in various forms by an organization in
its custody awaiting packing, processing, transformation, use or
sale in a future point of time.
Any organization which is into production, trading, sale and
service of a product will necessarily hold stock of various
physical resources to aid in future consumption and sale. While
inventory is a necessary evil of any such business, it may be noted
that the organizations hold inventories for various reasons, which
include speculative purposes, functional purposes, physical
necessities etc.
From the above definition the following points stand out with
reference to inventory:
▪ All organizations engaged in production or sale of products
hold inventory in one form or other.
▪ Inventory can be in complete state or incomplete state. ▪
Inventory is held to facilitate future consumption, sale or further
processing/value
addition. ▪ All inventoried resources have economic value and
can be considered as assets of the
organization.
ABC ANALYSIS:-
The ABC approach states that, when reviewing inventory, a
company should rate items from A to C, basing its ratings on the
following rules:
• A-items are goods which annual consumption value is the
highest. The top 70-80% of the annual consumption value of the
company typically accounts for only 10-20% of total inventory
items.
• C-items are, on the contrary, items with the lowest
consumption value. The lower 5% of the annual consumption value
typically accounts for 50% of total inventory items.
• B-items are the interclass items, with a medium consumption
value. Those 15-25% of annual consumption value typically accounts
for 30% of total inventory items. The annual consumption value is
calculated with the formula: (Annual demand) x (item cost per
unit). Through this categorization, the supply manager can identify
inventory hot spots, and separate them from the rest of the items,
especially those that are numerous but not that profitable.
eCommerce example
-
The graph above illustrates the yearly sales distribution of a
US eCommerce in 2011 for all products that have been sold at least
one. Products are ranked starting with the highest sales volumes.
Out of 17000 references:
• Top 2500 products (Top 15%) represent 70% of the sales.
• Next 4000 products (Next 25%) represent 20% of the sales.
• Bottom 10500 products (Bottom 60%) represents 10% of the
sales.
Inventory management policies
Policies based on ABC analysis leverage the sales imbalance
outlined by the Pareto principle. This implies that each item
should receive a weighed treatment corresponding to its class:
• A-items should have tight inventory control, more secured
storage areas and better sales forecasts. Reorders should be
frequent, with weekly or even daily reorder. Avoiding stock-outs on
A-items is a priority.
• Reordering C-items is made less frequently. A typically
inventory policy for C-items consist of having only 1 unit on hand,
and of reordering only when an actual purchase is made. This
approach leads to stock-out situation after each purchase which
can
-
be an acceptable situation, as the C-items present both low
demand and higher risk of excessive inventory costs. For C-items,
the question is not so much how many units do we store? but rather
do we even keep this item in store?
• B-items benefit from an intermediate status between A and C.
An important aspect of class B is the monitoring of potential
evolution toward class A or, in the contrary, toward the class
C.
Splitting items in A, B and C classes is relatively arbitrary.
This grouping only represents a rather straightforward
interpretation of the Pareto principle. In practice, sales volume
is not the only metric that weighs the importance of an item.
Margin but also the impact of a stock-out on the business of the
client should also influence the inventory strategy.
Q.4. Write in detail strategies of supply chain management.
Introduction to Logistics and Supply Chain Management (SCM)
Logistics is generally seen as a differentiator in terms of the
final bottom line of a typical “hard and tangible goods”
organization; enabling either a lower cost or providing higher
value.
While a lower cost is mostly a one-time feel good factor and has
been the traditional focus area in logistics, high value comes into
the picture much later and may be tangible or intangible in a
good’s initial stages.
So while an organization like Zappos may look costly at a first
glance, the extraordinary customer service due to robust policies
is a value which more than offsets the slightly higher cost.
Logistics is concerned with both materials flow and information
flow. While the materials flow from the supplier to consumer, the
information flows the other way round. It is not only concerned
with inventory and resource utilization, customer response also
falls under the ambit of logistics.
In simple terms, logistics can be seen as a link between the
manufacturing and marketing operations of a company. The
traditional organizations used to think of them separately, but
there is a definite value addition in integrating the two due to
the interdependence and feedback channel between the two.
The level of coordination required to minimize the overall cost
for the end consumer gets tougher to achieve as the number of
participants in a supply chain increase, as an extremely efficient
flow of material and information is required for optimization.
Logistics cover the following broad functional areas: network
design, transportation and inventory management.
http://www.huffingtonpost.com/2012/12/21/zappos-10-hour-call_n_2345467.htmlhttp://www.huffingtonpost.com/2012/12/21/zappos-10-hour-call_n_2345467.html
-
Manufacturing plants, warehouses, stores etc. are all facilities
which form key components in the network design. Transportation:
the cost and consistency (reliability) required out of the
transportation network determines the type and mode of the movement
of goods and also affects the inventory.
Buffer (or safety) stock is the reserve stock held to safeguard
against shortages or unexpected surge in demand, to avoid
“stock-outs”. Fewer inventories with negligible stock-outs — the
hallmark of an efficient logistical system.
Basic concepts of Logistics and SCM
Inventory Planning Organizations want to minimize the inventory
levels due to its almost linear relationship with the cost. Yet if
the demand is forecasted accurately, there would ideally be no need
for inventory and the goods will move seamlessly from warehouses to
customers.
o That would have been awesome, but it is deep into the ideal
world zone. In the real world, the forecasted numbers can only take
you so far and some inventory has to be maintained to satiate any
surges in demand; the cost of unhappy consumers who are not
serviced is often huge, and is immeasurable in most cases.
o Yet overstocks lead to increase in working capital
requirements, insurance costs and blocked resources which could
have been productive someplace else.
o Making a business forecast has largely been a gut-based
process, but is changing rapidly in the era of data-based decision
making. The forecast depends on the historical baseline for sales,
seasonality (soft drinks have higher sales volume in May), recent
trends (Samsung is losing out to competitors when it comes to
phones, a declining trend), business cycles (economies go through
expansion and contraction every few years), promotional offers (up
to 50% off can drive the average fashionista mad) etc.
Transportation The kind of transportation employed by an
organization is a strategic decision (it usually accounts for
around 1/3rdof the total logistics cost) based on the required
level of risk exposure, customer service profiles, geographic area
covered etc. Truck shipments take more time for delivery compared
to air transport (customers with relaxed turnaround times); is
cheaper but necessitates maintenance of higher inventory
levels.
-
o Transportation serves the purpose of not just product
movement, but storage as well (not very intuitive). Time spent for
delivery means saved time for warehousing, and many times the cost
to offload and reload shipments can be greater than the cost of
letting the goods stay in the transportation vehicles itself.
o Two basic thumb rules apply for transportation decisions:
truck load (TL) shipments are better than less-than-truckload (LTL)
shipments as storage space is a perishable commodity (just like a
commercial airline does not want to fly with empty seats), and the
cost per kilometer decreases as the distance increases (two 500 km
shipments is usually more expensive than a single 1000 km
shipment).
o The factors which determine the economies of transportation
decisions include but are not limited to: distance between the
starting and destination points, and density (higher density
products take less space — space constraints outweigh weight
constraints by a huge margin), stow ability (spherical packaging
will lead to more empty spaces compared to cubical) and volume of
the goods. Different modes of transport serve different strategic
ends (rail, road, air, water etc).
o FlipKart has eKart for its logistical operations and
warehousing, whereas smaller e-commerce players generally outsource
their operations to specialized logistics players such BlueDart,
DHL and now Delhivery.
Packaging The end goals differ: can either be done for end
consumers or for logistical considerations. The packaging will then
depend on the end goal; form factor plays the lead role when
packaging goods for the end consumers, while function plays the
lead role in packaging for logistical operations.
Warehousing It is the back-end building for storing goods. Based
on the needs of the organization, it can be in-house or
outsourced.
o Primary functions of a warehouse are product movement and
storage. Activities such as offloading of the goods coming from the
suppliers, the intermediate packaging (if required), and shipping
to other destinations (retailers or end consumers) are handled in
the warehouse. Similarly, they can also serve as a storage house
for handing peak consumer demand to avoid stock out of items, and
acts as a buffer between the starting point (usually manufacturing
plant) and ending point (think about a typical retail outlet).
o Different distribution strategies can be adopted by an
organization based on its needs and infrastructure in place,
namely:
-
• Cross-Docking: Relies on minimal processing at the warehouse
level and facilitate seamless connection between “incoming” and
“outgoing” goods through technologies such as bar code scanners;
becoming increasingly important due to established structured
communication between retailers and manufacturers; best for high
velocity goods with predictable demand patterns.
• Milk Runs: The delivery guy is out to deliver items from a
single supplier to multiple retailers or to pick up items from
multiple suppliers for a single retailer (An Indian Doodhwala can
literally teach a thing or two about this, hence the naming we
think).
• Direct Shipping: A supplier directly ships to a particular
retailer without any intermediaries. Mostly happens with big-name
stores with huge good volumes, and very frequent replenishments.
Big savings on time.
• Hub and Spoke Model: Hub serves as the central node for nearby
places, and the spokes depend on the hub for their needs (think of
a metropolitan and various tier-2 cities in its proximity).
• Pooled Distribution: Region is the most important factor
driving this strategy. Delivers to every destination point in a
geographical area, smart for handling peak time loads and LTL
shipments. Plus one for the planet as a bonus!
Human : Arteries :: Logistics : Information
Traditional paper-based information systems are increasingly on
their way out, and electronic exchanges are making rapid inroads
into the logistical process flow. The initial investment in
electronic systems is recouped quickly by cost savings due to
better operational efficiency and enhanced customer service.
Advances in electronic data interchange (EDI), artificial
intelligence and wireless communication is partly responsible for
this intelligent shift.
• The principal information flow can be subdivided in two main
streams: one for planning (looking into the future) and the other
for operational flows (in the past and present). Plans are to be
made for production, storage and movement of goods. Manufacturing
constraints (internal) and expected sales (external) are the key
areas focused upon. Operating flows refer to the information
generated (or required) to serve the orders to the customer.
• Enterprise Resource Planning (ERP) is a fancy term used by IT
people for one-stop, integrated packages to support multiple
functions across an organization. It serves as a central
destination to capture data which aids in making optimal decisions,
while also serving as a repository to better understand the current
business scenario and plan for any future needs.
Q.5. Define waste management. Also discuss types of waste in
factory.
Ans. Waste has been a major environmental issue everywhere since
the industrial revolution. Besides the waste we create at home,
school and other public places, there are also those from
hospitals, industries, farms and other sources. Humans rely so
-
much on material things and they all (almost) end up as waste.
And hey — where does the waste end up?
What is waste (trash, garbage, rubbish, refuse) What is the
difference between trash and garbage? -Trash: Solid waste form
places like your atic, backyard or study. Trash items include paper
and card boxes and the like. -Garbage: This is waste from kitchen
and bathroom. They also include waste from cooking food and from
food storage facilities. Waste are items we (individuals, offices,
schools, industries, hospitals) don’t need and discard. Sometimes
there are things we have that the law requires us to discard
because they can be harmful. Waste comes in infinite sizes—some can
be as small as an old toothbrush, or as large as the body of a
school bus. Everyone creates waste, although some people are very
environmentally conscious and create very little. Likewise, some
countries do a very good job creating less waste and managing the
rest. Others are pretty horrible and have created huge
environmental problems for the people and animals living there.
Types of waste Generally, waste could be liquid or solid waste.
Both of them could be hazardous. Liquid and solid waste types can
also be grouped into organic, re-usable and recyclable waste. Let
us see some details below:
Liquid type: Waste can come in non-solid form. Some solid waste
can also be converted to a liquid waste form for disposal. It
includes point source and non-point source discharges such as storm
water and wastewater. Examples of liquid waste include wash water
from homes, liquids used for cleaning in industries and waste
detergents.
Solid type: Solid waste predominantly, is any garbage, refuse or
rubbish that we make in our homes and other places. These include
old car tires, old newspapers, broken furniture and even food
waste. They may include any waste that is non-liquid.
Hazardoustype: Hazardous or harmful waste are those that
potentially threaten public health or the environment. Such waste
could be inflammable (can easily catch fire), reactive (can easily
explode), corrosive (can easily eat through metal) or toxic
(poisonous to human and animals). In many countries, it is required
by law to involve the appropriate authority to supervise the
disposal of such hazardous waste. Examples include fire
extinguishers, old propane tanks, pesticides, mercury-containing
equipment (e.g,
-
thermostats) and lamps (e.g. fluorescent bulbs) andbatteries.
(More on hazardous waste here) Organic type:-
Organic waste comes from plants or animals sources. Commonly,
they include food waste, fruit and vegetable peels, flower
trimmings and even dog poop can be classified as organic waste.
They are biodegradable (this means they are easily broken down by
other organisms over time and turned into manure). Many people turn
their organic waste into compost and use them in their gardens.
Recyclable type:
Recycling is processing used materials (waste) into new, useful
products. This is done to reduce the use of raw materials that
would have been used. Waste that can be potentially recycled is
termed "Recyclable waste". Aluminum products (like soda, milk and
tomato cans), Plastics (grocery shopping bags, plastic bottles),
Glass products (like wine and beer bottles, broken glass), Paper
products (used envelopes, newspapers and magazines, cardboard
boxes) can be recycled and fall into this category.
OR
Q.5. Write in detail advantages and disadvantages of M.R.P.
Ans. INTRODUCTION:-
Material requirements planning (MRP) is a production planning,
scheduling, and inventory control system used to manage
manufacturing processes. Most MRP systems are software-based, but
it is possible to conduct MRP by hand as well.
An MRP system is intended to simultaneously meet three
objectives:
• Ensure materials are available for production and products are
available for delivery to customers.
• Maintain the lowest possible material and product levels in
store
• Plan manufacturing activities, delivery schedules and
purchasing activities.
ADVANTAGES OF MATERIAL REQUIRMENT PLANNING
• 1.Efficient planning tool
• The main benefit of using MRP is that it is a very efficient
tool for planning. This is because it is designed specifically to
provide solutions regarding what is required, the quantity of raw
materials and also when they are needed. If it is implemented and
properly used, the MRP can assist production manages to plan
effectively for capacity requirements as well as allocating
production time.
• 2. Saves time
http://enviropol.com/index.php/toxic-wastehttp://www.eschooltoday.com/waste-recycling/what-is-composting.htmlhttps://en.wikipedia.org/wiki/Production_planninghttps://en.wikipedia.org/wiki/Schedulinghttps://en.wikipedia.org/wiki/Inventoryhttps://en.wikipedia.org/wiki/Managementhttps://en.wikipedia.org/wiki/Manufacturinghttps://en.wikipedia.org/wiki/Computer_softwarehttps://en.wikipedia.org/wiki/Manufacturinghttps://en.wikipedia.org/wiki/Product_(business)https://en.wikipedia.org/wiki/Delivery_(commerce)https://en.wikipedia.org/wiki/Purchasing
-
• Another advantage of making use of MRP systems is the fact
that they usually break down the inventory requirements to planning
periods. This helps the production managers in minimizing inventory
levels as well as the linked carrying costs. For that reason,
production is much faster since there is proper distribution of
production time. MRP is also beneficial in computing quantities
required as the safety stock and planning for future needs.
• 3.Enhances customer service
• If it is properly designed and controlled, the MRP enhances
customer service through reducing late orders. This leads to
increased production levels and it assists the company to respond
quicker to any variations in demand.
• 4. Saves cost
• The MRP makes it much simpler to formulate a good production
schedule. As a result, it saves the manufacturing company from
spending labor time doing the same activity. It also assists in
determining the cheapest lot sizes, particularly when it comes to
placing orders. Aside from that, the MRP system provides essential
information that can be used in other production sectors as well
such as determining the work force for the entire production
process.
• OTHER MERITS ARE:-
• Better manufacturing control
• Less inventory
• Improved manufacturing performance results.
• Less material obsolescence
• Improve business results
• More responsiveness to market demand
• High reliability
• However, an MRP system is expensive to implement and it is
time consuming. This is not the best option for small
businesses.
DISADVANTAGES OF MATERIAL REQUIREMENT PLANNING
• MRP systems also have several potential drawbacks. First, MRP
relies upon
accurate input information. If a small business has not
maintained good inventory
records or has not updated its bills of materials with all
relevant changes, it may
encounter serious problems with the outputs of its MRP system.
The problems
-
could range from missing parts and excessive order quantities to
schedule
delays and missed delivery dates. At a minimum, an MRP system
must have an
accurate master production schedule, good lead-time estimates,
and current
inventory records in order to function effectively and produce
useful information.
• Another potential drawback associated with MRP is that the
systems can be
difficult, time consuming, and costly to implement. Many
businesses encounter
resistance from employees when they try to implement MRP. For
example,
employees who once got by with sloppy record keeping may resent
the discipline
MRP requires. Or departments that became accustomed to hoarding
parts in
case of inventory shortages might find it difficult to trust the
system and let go of
that habit.
• MRP do not help to optimize material acquisition costs.
Materials must be
purchased more frequently and in smaller quantities because
inventory levels are
kept to a minimum. Thus, order cost is increased .
• Since the firm is less likely to qualify for large volume
discounts, it leads to higher
transportation bills and higher unit cost. The company must
weigh the anticipated
saving from reduced inventory costs against the greater
acquisition cost resulting
from smaller and more frequent orders.
• The potential hazards of a production slowdown or shutdown
that may arise
because of factors such as unforeseen delivery problems and
materials
shortages. The availability of safety stock gives production
some protection
against stock outs of essential material. As safety stocks are
reduced , this level
of protection is lost.
• MRP is a complex process , and specialized expensive software
may be required
for this, many small firms might not be able to afford the cost
of the same.
-
The key to making MRP implementation work is to provide training
and education
for all affected employees. It is important early on to identify
the key personnel
whose power base will be affected by a new MRP system. These
people must be
among the first to be convinced of the merits of the new system
so that they may
buy into the plan. Key personnel must be convinced that they
personally will be
better served by the new system than by any alternate system.
One way to
improve employee acceptance of MRP systems is to adjust reward
systems to
reflect production and inventory management goals.