1)
Define Materials Management, what are its objectives? explain importance of materialsManagement
Definition:
Materials Management means controlling the kind, amount, location, movement and timing of the
various commodities used in and produced by the industrial enterprise.
Materials management consist all activities related with materials right from need generation of
materials until they are issued to the production.
Materials management concerned with all activities of management such as planning, organizing,
directing, controlling and coordination related to materials.
Objectives of Materials Management:
➢ To maintain steady flow of the materials to ensure uninterrupted production. Any interruption
effects on the cost of the product.
➢ To achieve economy in cost of materials by adopting cost reduction techniques like value analysis,
variety reduction, JIT, MRP etc.
➢ To ensure consistency of quality by providing right materials, of right quality, in right quantity and at
the right time.
➢ To reduce inventory investment through scientific inventory control techniques.
➢ To improve corporate image by improving good buyer- seller relations.
➢ To maintain good records of purchase, stores, traffic etc. to eliminate possibility of corruption.
➢ To preserve materials in stock so that losses due to pilferage, deterioration, obsolescence are kept at
low
➢ To reduce operating cost by reducing wastage and improving productivity of materials.
➢ To improve competitive strength of the firm by producing best quality products using quality
materials at lowest possible cost
Importance of Materials Management:
Materials Productivity has significant effect on profitability (Return on investment).
Rate of return on investment is ratio of profit to capital invested.
This ratio split into two basic constituents such as profit Margin and capital turnover ratio
Two ways to improve R.O.R. are
•
Increase profit keeping capital constant
•
Reduce capital keeping profit constant
*This should be sufficient. However, it is
recommended to just read once about the ways
to improve R.O.R. from Sir’s slides
2)
Why Material planning is important for organization? Explain Material requirement planning (MRP) in
detail.
➢ Materials planning is important function of materials management. Materials planning is the
scientific way of determining requirements of raw materials, bought out part and others and
ensuring their availability in the right quantities, at right time with minimum capital locked up
➢ Lack of materials planning causes ill-planned purchased which gives over ordering and under
ordering. Over ordering results in over investment, improper use of working capital, shortage of
storage facilities and deterioration of stock. Under ordering causes stock outs and partial utilization
of facilities
➢ Lack of materials planning leads to unwanted emergency orders which are usually processed at high
cost
➢ Improper materials planning increases work load of the purchase department, receiving stores and
inspection hence increasing manpower requirement
Objectives of MRP:
1) Determine requirements
MRP main objective is to determine what components are needed to meet master production schedule
and based on lead time, to calculate periods when the components must available. It must determine
What to order, How much to order, When to order, When to schedule delivery
2) Keep priorities current
The demand and supply of the components changes daily. Customer enter or change orders.
Component get used up, suppliers are late with deliveries, scrap occurs, machine break down. In this
ever-changing world MRP reorganize the priorities to keep plan current. It must be able to add, delete,
expedite, delay and change orders
Inputs to MRP:
Master production schedule- It is statement of which end items are to be produced, the quantity of
each, and the dates they are to be completed. It provides initial input to MRP for the items needed.
Inventory Records- A major input to the MRP system is inventory. When calculation is made to find out
how many are needed, the quantities available must be considered.
There are two kinds of information needed:
First is planning factors such as order quantities, lead times, safety stock and scrap. This information is
needed to plan what quantities to order and when to order for timely delivery.
Second information needed is status of each item. MRP requires how much is available, how much is
allocated and how much is available for future demand. This information is dynamic and changes with
every transaction.
Bill of Materials- BOM is very important document which gives requirement of the inventory.
*This should be sufficient. However, it is
recommended to just read once about the
advantages and disadvantages of MRP
3)
What are the different methods of economic analysis of investment explain any 2 methods indetail
Economic Analysis of the investment:
➢ Economic analysis is most important factor for evaluation of bids
➢ Economic analysis consists total cost that involved over whole life of the equipment and the return
it brings in the form of profit over its life span
➢ Methods of economic analysis are Payback period approach, Return on Investment, Internal Rate
of Return and Discounted Cash flow.
Payback period approach:
• This is simplest and widely used approach for evaluation of the investment.
• It is length of time required for the cash inflow resulting from investment to equal the original
outlay on the investment.
• Time required to get back the initial investment on the equipment.
• This is mainly used in case of purchase equipment that have short economic life and
organization thinks that equipment should pay for itself.
• Shorter the payback period the better is investment.
• Formula for pay back is given as t=C/I
• t= Payback period C= initial capital outlay I=Average annual cash inflow expected from
investment
• Although it is simple method of economic analysis this method suffers from many limitations
such as it considered uniform cash inflow each year. It cannot handle varying annual cash inflow.
• This method ignores the profit earn by investment after recovery of initial investment.
• This method selects the investment which gives higher cash flow initially and reject the
investment which gives less cash inflow initially and more later
Return on Investment:
• It is reciprocal of payback period approach
• ROI=I/C where I= average cash inflow after taxes, C= original cash outlay
• Two methods of estimating ROI
• Return on original investment- in which return is calculated on the actual value of the original
investment.
• Return on average investment- In which average investment means mean of original investment
and salvage value expected at the economic life equipment instead of C.
• ROI method gives only approximate rate of return and ignore the differences in the time at
which investment generate their revenue.
*This should be sufficient. However, it is
recommended to just read once about the other
2 methods as well
4)
Explain import procedure in detail also explain Letter of credit and its types
First-Time Importing Process:
• Check import eligibility in the red book.
• If the item is banned, gather quotes from local manufacturers.
• Obtain written statements if manufacturers can't supply.
• Present statements to the government for import clearance.
Import Clearance Steps:
• If clearance is obtained, follow these stages:
Locate Foreign Source:
• Contact Ministry of Trade, Foreign Consulates, Embassies, and Indian Consulates.
• Commercial attachés can provide supplier lists.
Procure the Item:
• Involve foreign source, company's manufacturing unit, engineering department, and governmental
institutions (DGTD, MMTC, STC).
Documentation:
• Use special documents for imports, including Bill of Lading, Invoices, Certificate of Origin, Weight
Certificate, Insurance Policy, and Markings of Packages.
Customs Clearance Process:
• Items must clear port and customs before use.
• Organizations can use clearing agents if no separate clearing cell.
• File a bill of entry with accompanying documents for customs clearance.
• Scrutiny by custom appraiser, assessment of consignment, and fixing of duty.
• On duty payment, consignment is released.
• Clear port dues before goods removal.
• Option to store bulk materials in a bonded warehouse and release as needed with duty payment.
Import License Considerations:
• Ensure the import license is valid.
• Consistency between license description and goods description.
• Use Brussels tariff nomenclature for ease with suppliers and authorities.
Letter of Credit
• An arrangement where a bank undertakes the obligation to pay an exporter.
• The importer's credit standing is unknown and untrusted by the exporter.
• If an L/C is received from the bank, the importer's credit standing becomes less consequential.
• Exporters focus on the credit standing of the bank issuing the L/C, not the importer.
• The importer requests a bank in their country to issue an L/C in favor of the exporter.
• The issuing bank notifies a correspondent or another bank in the exporter's country about the
opened credit.
• The advising bank informs the exporter that it will honor drafts under the L/C's terms and
conditions.
• The payment liability lies with the issuing bank, and the bank honoring the drafts is reimbursed by
the issuing bank
Components of a Letter of Credit:
Name of issuing bank, beneficiary, amount, importer's name, tenor, list of documents, expiry date, type
of L/C, and any additional conditions.
Types of L/Cs:
Irrevocable, Revocable, Stand-by, Confirmed, Unconfirmed, Transferable, Back-to-Back, and Payment at
Sight.
*This should be sufficient. However, it is
recommended to just read once about the
Types of L/C in detail
5)
Define classification of materials and its advantages also explain classification on the basis of nature and
usability of materials
6)
Why codification is important? Explain different methods of codification.
7)
Define standardization, what are the different levels of standards? How Indian standards evolved?
8)
Define surplus, obsolete and scrap items, why Management of surplus, obsolete and scrap is important
for organization? What are the different reasons for generation and accumulation of surplus, obsolete
and scrap items?
9)
Why ethics are important in materials management? Explain ethics in buying and problems in ethics in
details
10) What do you mean by Palletization and containerization? Explain different benefits of Palletization and
containerization.
11) What is Store Management? What are the different functions of Stores, also explain different store
layouts in detail.
12) Why stores accounting is important for organization? Explain different methods of stock verification.
13) What are the different elements of the procurement cycle? Explain legal aspect of purchasing indetail
Elements of Procurement cycle:
1. Establishing the need for procurement
Recognizing the need for procurement, Determining the requirements, Spelling out the specifications,
Communicating requirement to purchase through purchase indent
2. Scrutiny of purchase Indent
Completeness of description, Appropriateness of request, Routing of indent through stores, Logging of
indent into indent register
3. Market Research
Telephonic Quotations, Written Quotations, Scheduled buying, Source selection and development
4. Order Preparation
Scrutiny of quotations, Negotiations, Placing order on suppliers, Obtaining supplier’s acceptance of
purchase order
5. Follow up
Pre delivery follow up, Shortage chasing, reminder, personal visits, telephones, fax etc.
6. Receiving and Inspection
Receiving dispatch details and logging them into consignment register, Collection of materials,
Inspection for physical damage, packages and no of packages, entering consignment details in GRR
register
7. Storage and record keeping
Movement of materials to storage, Quality certification, Storage of materials in proper racks, Posting of
receipt into stock card
8. Invoicing and payment
Receiving GRR in accounts department, Receiving suppliers bills, Linking of GRR and suppliers bills,
Posting of purchase register, Passing of bills, Effecting payments
Legal aspect of Purchasing:
➢ Purchase orders legally bind a company to the commitments made in them.
➢ They establish a contractual relationship between buyer and seller based on agreed terms.
➢ Purchase orders are legal documents affecting a company's contract performance.
➢ Both buyer and seller can enforce the agreement through the law.
➢ Purchasing officers act as agents, creating legal relationships for their companies.
➢ Acceptance of a specific bid or offer by a vendor turns it into a contract.
➢ Contracts impose specific obligations on both parties and require consideration.
➢ Unpriced purchase orders are void, and delivery times should be clearly stated.
➢ Contract purposes should be lawful and expressly mentioned.
➢ Warranties can be implied or express, and suppliers can be held liable for express warranties.
➢ Buyers have the right to inspect and reject materials that do not meet contract terms.
➢ Non-compliance with the purchase contract constitutes a breach, allowing the buyer to cancel
the order.
➢ After cancellation, the buyer can sue for damages if actual losses occurred.
➢ If the breach is due to natural calamities, neither party can sue for damages.
14) What do you mean by supplier quality assurance programme? Explain process and benefits of supplier
quality assurance programme.
15) Explain international purchasing in detail
16) How is standardization used for variety reduction?
17) Explain store management and its benefits in detail
18) what are the different types of store layouts Explain in detail
19) Explain capital equipment purchase vs used and leased equipment
Capital Equipment Purchase:
Preference for New Equipment: Industries generally prefer new equipment over used ones
Used Equipment Purchase:
Economic Considerations: Used equipment may be chosen for economic reasons.
Sources: Obtained from owners, used equipment dealers, brokers, and auctioneers.
Primary Source: Majority of used equipment is purchased from used equipment dealers.
Dealer Guarantee: Dealers often provide guarantees for re-conditioned and rebuilt equipment.
Types of Used Equipment: Re-conditioned and rebuilt equipment are available from dealers.
Risky Sources: Brokers and auctioneers are riskier as they offer no warranty, and equipment cannot be
tested beforehand.
Reasons for Purchase: Used equipment is chosen for meeting specific needs and easy integration into
existing operations.
Financial Constraints: Limited company finances may restrict purchasing new equipment
Leased Equipment:
Considerations for Leasing:
•
Availability of funds
•
Required equipment for a specific duration
•
Immediate need (compared to delays in new equipment purchases)
•
Specific equipment only available for lease
•
Economical for short-term needs with leases terminating on short notice
•
Helps avoid investing in less efficient equipment due to fast-changing technology
•
Lessee bears dismantling, loading, unloading, and transportation expenses
•
Lease rent is an expense for tax purposes, while purchase price is depreciated over years
•
Disadvantage: Lessor retains control, imposing restrictions on equipment use
•
Lessee must allow lessor access for inspections at any time
20) what are the different material handling equipments Explain in detail
21) Explain reasons of surplus and obsolescence of materials in detail