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- AN OVERVIEW
INTRODUCTION
For running any industry or business, we
need a number of resources. These resources are popularly known as 5 M's of any Industrial activity i.e. Men Machines Methods of Production & Management. Money Oil price hike Materials 1900 to till date
INTRODUCTION
In the past there were well defined and rigid
mutual analysis for cost reduction mutual product design greatly reduced inventory improved communications (internet, EDI)
INTRODUCTION
Planning and controlling the flow of materials
Maximize the use of the firms resources Provide the required level of customer service
Company Objectives
Income = Revenue - Expense
Need to increase income with:
Best customer service Lowest production costs Lowest inventory investment Lowest distribution costs
Importance of MM
Materials input is very important
as excess material as inventory causes costs to the company. shortage of material results into stoppage of conversion process and subsequently shortage of finished goods leading to customer dissatisfaction.
The efficiency of organization depends upon the availability of right materials, in right quantity at the right time & at the right place.
Importance of mm
Materials Management and Profits
Direct labour
Direct material
Overhead
Sales Revenue Cost of Goods Sold Direct Material $500,000 Direct Labour $200,000 Overhead $200,000 Total Cost of Goods Sold $900,000 Gross Profit $100,000
Sales Revenue Cost of Goods Sold Direct Material $450,000 Direct Labour $190,000 Overhead $200,000 Total Cost of Goods Sold $840,000
45 19 20 84 16
Gross Profit
$160,000
50 20 17
87
$160,000
13
Importance of MM
Out of 5Ms, that are inputs to a conversion process,
material is substantial in terms of its contribution to product cost and current assets.
51.1% of product cost is on account of materials. Materials account for 70% to 80% of working capital.
Importance of MM
Quality of the Input and Product quality:
When the companies become leaner and leaner, it is crucial that inputs should remain in the plant only as long as the Through Put Time demands
to a product, apart from manufacturing & distribution. Establishment expenses, depreciation on facilities & equipments & other expenses.
Importance of MM
Management of materials is crucial in a Just In Time
company.
Production process needs very strong materials management support to gear up to face challenges of current market.
availability of new products and services in the market which leads to cost efficient changes in the process
flow of materials into an organization to the point, where those materials are converted into the firms end product(s) Bailey & Farmer the planning, sourcing, purchasing, moving, storing & controlling materials in an optimum manner, so as to provide the pre-decided service to the customer at a minimum cost .
Functions of MM
Materials Planning & Control Primary function.
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. Purchasing Sourcing the supply after short listing suppliers through vendor rating. Preparation placement of purchase order, follow up, transportation and handling.
Functions of MM
Storage & Preservation The procured material is to be stored and preserved against internal and external deterioration and theft. Against the authorized demand the material from the store is retrieved and issued.
Inventory control Inventory control function controls the inventory levels to ensure shortage free and excess free stock to check the costs and ensure customer satisfaction
Integrated Approach to MM
Need for Integrated Approach
Conflict of Interest within departments
To
exercise control & coordination by materials manager. Rapid Transfer of Data common message channel
Integrated Approach to MM
Considering the importance of materials,
establishments have a centralized authority vested with the responsibility of planning, procuring, preserving, handling, usage & other related aspects.
Such
centralized authority wherein, all related activities of materials are combined is called Integrated Materials Management.
Benefits of Integration
Better Accountability
No mans lands of cost between various functions are now addressed effectively by integrated materials management function.
Coordination
The inter departmental conflicts are balanced. As a result various functions work like a team under the control of Materials Manager.
Benefits of Integration
Better performance
Performance of Materials management improves on account of the first two results of integration. Accountability reduces costs and teamwork improves productive performance. Computerization requires preparatory work that calls for integrated efforts where there is no scope for conflicts. Internal conflicts make computerization untenable
Adaptability to EDP
Benefits of Integration
Other Benefits
Present & Future: At present industry in our country is passing through the transition from traditional systems to Just in Time like production. Just In Time needs dependable procurement systems. Only an integrated materials management function can provide such support to operations.
Objectives of MM
Primary Objectives
Consistency of Quality Variety of items of different qualities needed. Rigid specification to be meet Low Payroll Costs Low operating costs of material personnel leads to higher profits.
management
Objectives of MM
Primary Objectives
Favorable Supplier Relations Attract customers Product Development & Research efforts are passed on. Last minute cancellation. Development of Personnel Long term growth of company Good Records Prevents corruption
Department
Suggesting materials or components that will do better or equivalent job at lower cost
Interdepartmental harmony Define departmental responsibilities clearly Familiarize others with materials directives, polices & organization.
Purchasing
Warehouses
production, materials management is not considered as a sub function of production, but considered as equal to production management.
Engineering Manager
Finance Manager
Materials Manager
Marketing Manager
Personnel Manager
Traffic Manager
Purchasing Manager
to
promote
maximum
functional.
For example, the materials management job is
divided functionally into its traffic, purchasing & materials control elements
giving responsibility of performing vital function in the manufacture & marketing of a particular product/product line.
For example, one buyer may specialize in castings &
Disadvantages
has field expediters in Delhi, Bangalore, Chennai & Mumbai to expedite needed shipments from various suppliers
process and market that ultimately decides how the control should be exercised on the material function.
The control may be centralized or decentralized fully
education can provide knowledge about available options in practice but the choice rests with the corporate management. New options can be developed to satisfy specific needs conceptually combining various available options.
Benefits of Centralization
Bulk Buying Combining the requirements of all units to buy in bulk and gain benefits of bulk buying. Interplant
to
deal
with
And interplant transfer to utilize surplus material available at some plant and thereby reduce overall inventory cost for the company.
Benefits of Centralization
Benefit of specialized skills of one individual at the
Buying needs specialized 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.
the company.
Benefits of De - Centralization
Decentralization
overcomes problems posed by significant physical separation between Plants and Central Office.
These problems can occur due to information flow. They may occur due to lack of sensitivity to environment due to physical separation .
Plant:
When individual plants are engaged in production of different products, their requirement is product specific and thereby unique.
Benefits of De - Centralization
Better
Production
&
other
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.
Supportive to the Concept of Profit Center: Any successful attempt to reduce this cost without harming the QCD objectives of the company results into profit.
coordination with
Management plan activities involving change in material inputs. This obviously has an impact on design of the product and process of manufacturing.
Gives advance information on requirement to facilitate planning. Through efficient competitive level. operations can
forecast
&
special
keep
prices
at
Formal Committees
Consisting of executives from various department to finalize annual sales targets, production programmes, total budget, materials budget etc Formal organizational arrangement helps in further interdepartmental relationships