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shared by ANANDwww.bscitmumbai.blogspot.com1
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shared by ANANDwww.bscitmumbai.blogspot.com3 SCM is an industry term for management of materials, information and finances, as they more along the supply chain from the supplier of the raw materials, to the wholesaler, to the retailers and then to the consumer. A more basic definition of Supply Chain Management (SCM), is supplying the correct product or service, to the correct place in the correct quantity, at the correct time and at the correct cost.
shared by ANANDwww.bscitmumbai.blogspot.com4 SCM is to manage the entire flow of information, material, and services from raw material suppliers through factories and warehouse to the end product.
shared by ANANDwww.bscitmumbai.blogspot.com5 The benefits of SCM to organizations are as follows : 1. Improved delivery performance – quicker customer response and fulfillment rates With the help of SCM the delivery process is improved and in turn the customer satisfaction is higher and response is quicker and therefore there are fulfillment rates.
shared by ANANDwww.bscitmumbai.blogspot.com6 Greater productivity Since the customer response is faster, therefore the productivity is greater. Reduced inventory throughout the chain The inventory process is reduced throughout the network facility i.e. the chain, because of greater productivity as per the customer response. Improved forecasting precision Fewer suppliers and shorter planning cycles By selecting few suppliers with respect to higher customer satisfaction, the cycle SCM also becomes shorter.
shared by ANANDwww.bscitmumbai.blogspot.com7 Improved quality and products that are more technologically advanced SCM also helps in improving the quality of enhanced inter-operational communication and cooperation. More reliable financial information.
shared by ANANDwww.bscitmumbai.blogspot.com8 1.Material Handling can be defined as the “art and science of moving, packaging and storing of substance in any form.” 2.It mainly deals with as how to handle the material carefully. 4.It gives us the technical aspects of transporting or moving the goods from one place to another without actually damaging the goods. 5.It covers the whole material cycle having the components such as purchasing, receiving and inspection, inventory control, material handling and physical distribution. 6.The main aim in material handling is to handle the goods with care so that it may not get broken.
shared by ANANDwww.bscitmumbai.blogspot.com9 7. Packaging plays an important role in material handling. A proper packaging with respect to the type of goods is necessary. Example An electronic good is always supported with a thermacol and a box so that it is not damaged. 8.Next is storing of goods i.e. there are some goods with less life. So they are to be stored under deep freezing. 10.Grains and other food materials must be kept in dry place and then it must be transported in a dry & clean containers or boxes. 11. A proper handling of goods leads to better safety and avoidance of damage.
shared by ANANDwww.bscitmumbai.blogspot.com10 OBJECTIVES OF MATERIAL MANAGEMENT There are many elements that make up a successful material handling. There are primary 4 objectives as follows : Movement Time Quantity Space
shared by ANANDwww.bscitmumbai.blogspot.com11 i. MOVEMENT a. The movement of product to the warehouse and also out of the warehouse is important. b. By moving the goods from the warehouse at the time, when demanded must be supplied. c. Due to this there will be availability of product in the market which satisfy the consumer. d. It also improves services by quicker delivery of goods. ii.TIME The raw materials or the other parts must be made available when demanded otherwise the production process is affected. The product must be made available at the right place and right price. The time is the most important factor. Any delay in either production, manufacturing or delivery of goods might affect the entire product cycle or distribution cycle. Moreover the actual aim should be the implementation of JIT for quicker service when ordered by the customer.
shared by ANANDwww.bscitmumbai.blogspot.com12 iii. QUANTITY. The goods must be delivered in the right quantity as specified by the customer. The movement of goods must be correct between the stations and the customer. Quantity is the important factor because the total number of goods ordered by the customer must be accurate otherwise the inventory of stock will not match if more number of goods are delivered than it is specified and the customer will not be satisfied by goods are missing. iv. SPACE Space is nothing but a area that is provided on hire in a warehouse for storing goods. Since the cost of space is very high, proper utilization of the place must be done. We have to store goods in warehouse in such a way that maximum use of given space is utilized. Inefficient use of space can lead to loss of money & storage of less goods.
shared by ANANDwww.bscitmumbai.blogspot.com13 PRINCIPLES OF MATERIAL MANAGEMENT Applying the “ten principles of material handling” can overcome many material handling problems. These principles offer commonsense approaches to moving products more efficiently and effectively. The ten principles of material handling are as follows: Planning Principle: All material handling should be the result of a deliberate plan(course of action i.e defined in advanced) where the needs and functional specifications of the proposed methods are completely defined at the outset.
shared by ANANDwww.bscitmumbai.blogspot.com14 Standardization Principle: Material handling methods, equipments, controls and software’s should be standardized within the limit of achieving overall performance objectives and without sacrificing needed flexibility and throughput. Work Principle: Material handling work should be minimized without sacrificing productivity of the level of service required of the operation. Ergonomic Principle: Human capabilities and limitations must be recognized and respected in the design of material handling tasks and equipment to ensure safe and effective operation.
shared by ANANDwww.bscitmumbai.blogspot.com15 Unit Load Principle: Unit Loads shall be appropriately sized and configured in a way that achieves the material flow and inventory objectives at each stage in the supply of chain. Space Utilization Principle: Effective and efficient use must be made of all available space. System Principle: Material movement and storage activities should be fully integrated to form a coordinated operational system that spans receiving, inspection, storage, production, assembly, packaging, utilizing, order selection, shipping, transportation and the handling of returns.
shared by ANANDwww.bscitmumbai.blogspot.com16 Every person, organization or a distinct part of an organization has to perform a set of tasks in order to deliver customer expectations satisfactorily. These sets of tasks are called functions. Materials Planning & Control – This is the primary function of Materials Management. The market forecast is converted into production schedules by production planning and control. Materials management prepares the materials plan to meet the production schedule. The plan is then implemented and controlled.
shared by ANANDwww.bscitmumbai.blogspot.com17 Procurement – Procurement function begins with sourcing the supply after short listing suppliers. An effective method is to rate the vendors on the basis of performance and choose the best. Purchase order is placed on the source and the material is procured from the source. Procurement activity includes preparation placement of purchase order, follow up, transportation and handling. Handling – The material which reaches the company premise is to be unloaded, moved and positioned as per the storage plan.
shared by ANANDwww.bscitmumbai.blogspot.com18 Storage & Preservation – The procured material is to be stored and preserved against internal and external deterioration. Against the authorized demand the material from the store is retrieved and issued. Inventory control – Inventory control function controls the inventory levels. Vendor development – The company makes the chosen vendors effective and efficient by providing necessary inputs of training and information. A good vendor is an asset as he makes his customer more effective and efficient.
shared by ANANDwww.bscitmumbai.blogspot.com19 Vendor rating – This system is used continuously to assess strengths and weaknesses of short listed vendors for their effective development. Waste control – Procuring standard material and continuously trying to improve yield is waste reduction. When a product is processed two types of wastes are generated. One type of waste is called as standard scrap. This is accepted as unavoidable. Product that is not right first time is scrap and thereby waste. Non moving obsolete material is another waste. Material management should address these wastes and not only should control but reduce the wastes.
shared by ANANDwww.bscitmumbai.blogspot.com20 Value Analysis – Continuously trying to improve the value of the product mainly by material substitution is a function of the materials management.
shared by ANANDwww.bscitmumbai.blogspot.com21 Material Planning: which includes forecasting the material requirement. Purchasing: which includes vendor selection, negotiation, ordering. Storage, Store Keeping and Store accounting: which covers accommodating material, protecting and preserving them, maintain them. Inventory control: includes ordering quantity, setting inventory levels.
shared by ANANDwww.bscitmumbai.blogspot.com22 Material handling: which covers internal movement and transfer of material. Disposal of wastes and obsolete material. Physical distribution: which covers the process of moving finished goods to the ultimate customer.
shared by ANANDwww.bscitmumbai.blogspot.com23 Purchase Management is a function of materials management in a company. Their basic function is procuring the inputs for production function. Importance of purchase management: As the purchase decisions commit a very large portion of financial resource of the company purchase function is said to be highly important.
shared by ANANDwww.bscitmumbai.blogspot.com24 Purchase personnel deal with large number of external agencies while performing their functions. Hence they represent company’s reputation in the out side world. As they negotiate and finalize deals worth lot of money for the company their integrity is of utmost importance for the organization. Objectives or goals of purchasing: primary objective or goal of purchasing function is making inputs available to the conversion process at minimum cost to the final output of the company.
shared by ANANDwww.bscitmumbai.blogspot.com25 The inputs to be made available are raw materials, semi finished items, bought out items etc. There are certain parameters to be monitored for fulfilling the system objectives. We can call them goals of purchasing. These goals are popularly known as 5Rs of purchase namely, right price, right quantity, right quality, right place and right time. 1.Right material: The material should be purchased at right time so that it may not result in either excess investment in the stocks.
shared by ANANDwww.bscitmumbai.blogspot.com26 Right price: Right price is determined by allowing reasonable profit for the supplier and insisting and helping to reduce cost. Tender system should be used to identify lowest responsible bidder rather than lowest bidder. It should be noted that the low bidder is not always the best bidder. Right quantity: right quantity of purchase is the one that ensures no excess and no shortage. The right quantity can be determined on the basis EOQ analysis to determine the right quantity for purchase. It describes the size of the order at which the ordering cost and the inventory cost will be minimum.
shared by ANANDwww.bscitmumbai.blogspot.com27 Right place: is the one where the item is going to enter. If the item is not available here, when needed, it is in short supply for the process. Right source: The suppliers are not only supplying the required material but they also supply the information such as probable market condition, general industrial climate and business envt. Right time: is as decided by production schedule for meeting customer’s requirements. Right terms of contracts: terms in a contract are legally implemented. In case of dispute between supplier and customer, courts will go by the terms decide who is wrong. Hence right terms are those, which protect the interests of the company. At the same time right terms ensure that neither parties do anything illegal.
shared by ANANDwww.bscitmumbai.blogspot.com28 Fundamentals of Purchasing: 1.Raw material: are the items which are purchased in their natural state which need further processing. 2.Components: Components are the finished product which are assembled to form finished product. 3.Consumable stores and supplies: These are the items which are normally requires in the manufacturing operations but which do not enter into the finished product.
shared by ANANDwww.bscitmumbai.blogspot.com29 Office supplies: They are the indirect material which are consumed in the office. E.g stationery, pencils etc. Office appliances: PCs, calculator, air condition etc. Spares and tools: they include tools and parts required for repair, maintenance such as nuts, bolts etc. Machines and equipments: Various types of machines and equipments which are required for different types of manufacturing operations e.g truck, driller etc.
shared by ANANDwww.bscitmumbai.blogspot.com30 To avail the materials, supplies and equipment at the min. possible cost. To ensure the continuous flow of production. Purchasing dept helps in ensuring the uninterrupted production flow through continuous flow of raw material. To increase the asset turnover. The efforts of purchase dept result in the formation of fixed asset and maintenance of certain level of investments in inventories. The investment of both should be kept min.
shared by ANANDwww.bscitmumbai.blogspot.com31 To develop the alternate source of supply. To established and maintain the good relation with the suppliers. To achieve max. integration with the other department of the company. Production dept. Engineering dept. Marketing dept. Finance dept. Efficient recordkeeping and management recording.
shared by ANANDwww.bscitmumbai.blogspot.com32 Steps of purchasing Recognition of need. Selection of the supplier. Placing the purchase order. Follow up[ the order. Receiving and inspection of the material. Payment of the invoice. Maintenance of the record. Maintenance of the vendor relation
shared by ANANDwww.bscitmumbai.blogspot.com33 Purchase Systems In an organization all activities are carried out according to systems and procedures for reducing variations and errors. This makes performing the function simple and less prone to errors. These systems are pre purchase system, ordering system, post purchase system. 1. Pre purchase System This system lays down how purchase activity is initiated. Various activities controlled by this system are requisitioning, selection of suppliers and obtaining & evaluating quotations. Requisitions: Requisition(demand) for an item may be made by anyone in the organization.
shared by ANANDwww.bscitmumbai.blogspot.com34 Requisition for an item shall be made in a standard format. This format ensures all relevant information like quantity, specifications etc. and gets the purchase authorized by competent authority in the organization. Thereby making purchase activity easier and less time consuming. Traveling requisitions: in an inventory system where an item is made a stock item to be perpetually(continually) maintained at a minimum level, purchase activity is triggered by stores function based on ROL. The requisition is a permanent document with specification, authorization and quantity required permanently marked on it. The traveling requisition returns to indenting department after purchase is initiated. Inquiries: pre purchasing system prescribes standard formats for making inquiries in the market for supply of a particular product. These are standard forms boldly declaring that they are not explicit or implicit purchase orders.
shared by ANANDwww.bscitmumbai.blogspot.com35 2. Ordering system Purchase order is the most important element in ordering system. Purchase manager releases the purchase order after selecting the supplier and finalizing the price and other conditions of sale. Once the purchase order is raised and accepted it becomes a legal document. Contents of the purchase order are: purchase order reference(quotation, recommendation) number description of materials and specifications quantity required and delivery schedule price and discounts shipping instructions location where the material is to be shipped signature of the authorized officer detailed terms and conditions several number of copies made to be forwarded to various recipients.
shared by ANANDwww.bscitmumbai.blogspot.com36 Original and a copy is sent to the supplier for acknowledgment of the original order. This acknowledgment is acceptance of terms and conditions of purchase order. One copy is sent to the receiving department for making necessary receiving arrangement. One copy is sent to the indenting department for information. One copy is sent to finance department for organizing payment to the supplier.
shared by ANANDwww.bscitmumbai.blogspot.com37 3. Post purchase system This system includes follow up procedures, receipt and checking invoices. [a] Follow up procedures: follow up is an expensive activity for an organization. Hence this should be minimized and made more effective. A sound procedure for follow up is required to eliminate duplication and ineffectiveness. Follow up responsibility is assigned to buyers responsible for areas in which suppliers are situated. [b] Receipt: A systematic record of all receipts, carrier details and descriptions is maintained. This record is in chronological sequence of arrival of supplies. The system ensures that inspection of consignments received is arranged in time and payment to suppliers for accepted consignments is organized. In many organizations a receipt section handles this activity centrally.
shared by ANANDwww.bscitmumbai.blogspot.com38 [c] Invoice checking supplier sends his invoice to customer’s finance department for payment for the goods supplied. Invoice checking system ensures that the invoice is checked against the PO terms, receipt details, quantity received, inspection reports [accepted quantity and rejected quantity], losses, damages etc. this system helps materials management to coordinate with finance department for payment to suppliers.
shared by ANANDwww.bscitmumbai.blogspot.com39 Special purchasing systems Forward buying: when an organization enters into a contract with another company for buying an item for a period as long as a year or more it is called forward buying. Forward buying is a commitment for a long period. This commitment is made after studying availability of the item, financial position, EOQ for that item, discounts, etc. Tender buying: There are two types of tendering systems in practice. One is called open tendering system that is adopted by public sector companies. In this case bids are invited by advertisements in papers. On the day of opening the tenders the lowest bidder is chosen for awarding the contract of purchase. This method is time consuming and expensive. Private companies make a list of well known and serious bidders known in the market and invite tenders from these bidders. When the tenders are opened lowest bidder is identified.
shared by ANANDwww.bscitmumbai.blogspot.com40 Blanket orders: order covers a long period like a year. Price is fixed. Delivery is as and when customer desires. Supplier to hold inventory. Benefits are no of orders are less, inventory is passed on to the supplier. Zero stock: Supplier holds the stock for the buyer. Supplier and customer are close to each other. Suppliers production schedule is as per customers. Dedicated supplier and customer. Rate contract: after finalizing the rates through negotiations for a definite period, customer shall buy required quantity from the specified supplier. Railways and other government organizations practice this method. Price shall not be negotiated once again. Rate contracts normally do not specify lead time. Hence suppliers demand higher rates for early delivery.
shared by ANANDwww.bscitmumbai.blogspot.com41 Reciprocity Organizations resort to reciprocal buying when they find it difficult to do business in highly competitive environment. Reciprocal buying is buying form one’s own customers. If this is done in conditions of competition, there should not be anything wrong about this. But, in this situation one tries to take care of the other as each one keeps changing the role of customer & supplier. This leads to over all deterioration of product quality and downfall of the pair. Systems contract Purchase order is used as a single document during the course of completing entire transaction. Same document is used as delivery challan at the time of delivery. The document is updated at every stage of the process. Reduction in number of documents and documents preparation is major saving in administration expenses. This results in cost reduction to the value chain.
shared by ANANDwww.bscitmumbai.blogspot.com42 Importance of source Source is the place from where we procure our inputs. These inputs may be in the form of raw material or semi finished items. As outsourcing is gaining importance in business, importance of source is becoming high. Following reasons are considered to be making source an important element in materials management. Source of market intelligence: source is a window through which the buyer organization looks at the world outside. Information about current trends and industrial climate is obtained from the sources.[market conditions, industrial climate, what is new?
shared by ANANDwww.bscitmumbai.blogspot.com43 Crucial for product quality: buyer organizations depend on out sourced components for producing the product which central to the objectives business. Reliance on capabilities of supplier to meet tough quality standards is very high in current business environment. Member in the value chain: supply source is an important element in the value chain. Any cost added to the value chain reaches the end user as price. Hence effectiveness and efficiency of the source becomes vital to business. Import substitution, cost reduction, value improvement: as indigenization of sub assemblies, components and spare parts is necessary to reduce the cost of product in competition, buyer organizations turn to supply sources to develop these items. Several trials and corrections may be required to finalize the substitute. In house capacity is generally not available for this kind of trials. A resourceful supplier is very useful in this process. Same logic holds good in other exercises for cost reduction and value improvement. It is quite logical that entire process is not outsourced but isolated developmental activities are invariably done. It is common knowledge that many small scale companies do not have full fledged tool rooms but rely on sources for all tool room activities
shared by ANANDwww.bscitmumbai.blogspot.com44 Definition and scope :- Definition – Coordination and planning of all functions for controlling materials in an optimum manner to meet customer expectations at minimum cost. scope Materials management works closely with Production, Finance, Engineering and Quality control in the process of performing the functions to meet the objectives of customer satisfaction.
shared by ANANDwww.bscitmumbai.blogspot.com45 As we saw earlier JIT system needs very reliable procurement and delivery systems for inputs and outputs. Hence very close interaction with production department is primary to meet internal customer expectations and customer delight. Only this ensures unfailing satisfaction and delight of the external customer. Scope of materials management function decisions includes suppliers, production support warehouses, transportation service providers and internal departments subordinate to the function.
shared by ANANDwww.bscitmumbai.blogspot.com46 Materials management and Finance – Timely payment to suppliers is important for the smooth working of the supply chain which is fundamental system. Close interaction with finance function is needed to ensure the above. Materials management and Engineering – Materials Management in the course of discharge of their functions plan activities involving change in material inputs. This obviously has an impact on design of the product and process of manufacturing. Hence a close working is necessary between Materials management and Engineering.
shared by ANANDwww.bscitmumbai.blogspot.com47 Materials management and Quality control – For the same reasons that as above, close working is necessary between Materials management and Quality control. Organization & control Materials Management is growing in height on account of changes in management thought process. Materials function has moved into board rooms which is an evidence of its importance in corporate structures.
shared by ANANDwww.bscitmumbai.blogspot.com48 Materials Management & Corporate Organization structure A materials director is usually on the board to give overall directions to the material function in corporate bodies. This provides unity of command and thereby uniform direction.
shared by ANANDwww.bscitmumbai.blogspot.com49 As we were discussing earlier it is the need of the organization triggered by product, process and market that ultimately decides how the control should be exercised on the material function. The control may be centralized or decentralized fully or in parts keeping in mind overall need. Centralized control keeps most of the decision making at headquarters level delegating only routine level decision making. Decentralized control delegates decision making to unit level enabling the units to respond to their respective environment.
shared by ANANDwww.bscitmumbai.blogspot.com50 Advantages of Centralization - 1. Combining the requirements of all units to buy in bulk and gain benefits of bulk buying. 2. Interplant transfer of material to deal with emergencies in individual plants. And interplant transfer to utilize excess material available at some plant and thereby reduce overall inventory cost for the company. 3. Buying needs skills specific to the commodity in market specially buying is in large quantities. Knowledge of the market is essential to anticipate market trends in terms of price and availability. 4. Benefits of unity of command. 5. Centralized material research resulting in savings for the company.
shared by ANANDwww.bscitmumbai.blogspot.com51 Advantages of Decentralization - 1. Decentralization overcomes problems posed by significant physical separation between Plants and Central Office. These problems can occur due to information flow. 2. When individual plants are engaged in production of different products, their requirement is product specific and thereby unique. Decentralized control can deal with the requirements effectively, independently.
shared by ANANDwww.bscitmumbai.blogspot.com52. Better coordination with production & other functions of the plant: Production is the internal customer of material management function. Decentralized control enjoys the benefit of being close to the customer. There is also the need to interact with various other functions in the plant. Decentralized control can take decisions based on these interactions effectively.
shared by ANANDwww.bscitmumbai.blogspot.com53 What is Inventory? - 1.Inventory is an unused asset, which lies in stock without participating in value adding process. 2.Unused equipment, raw material, Finished goods, consumables, spare parts, bought out parts, tools, etc.
shared by ANANDwww.bscitmumbai.blogspot.com54 Manufacturing: manufacturer’s commitment to inventory is deep and duration is long. MRO: Maintenance, repairs and operating supplies. Location inventory: inventory at a fixed location Tools and fixtures Inspection gauges and instruments
shared by ANANDwww.bscitmumbai.blogspot.com55 STORES MANAGEMENT Normally it is assumed that store is a place where excess material is kept which will be used as and when required. Loss of items, deterioration, inadequacy of what is stored to what is needed are treated as ‘part of life’.