Materials Management by Nagesh L Talekar

7/28/2019 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