MATERIAL
MANAGEMENT
WHAT
IS
MATERIAL
MANAGEMENT?
 Definition: A process encompassing acquisition,
shipping, receiving, evaluation, warehousing and
distribution of goods, supplies and equipment

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


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The scope of material management lies on :
1. Material Planning.
2. Material Obtaining.
3. Material Controlling.
4. Material Storing.
5. Material Handling.
OBJECTIVE
OF
MATERIAL
MGMT
 1. Maintain steady flow of material.
 2. Achieve economy in terms of material.
 3. Ensure consistency of quality.
 4. Reduction of inventory cost.
 5. Conservation of the materials.
 6. Minimize operational cost.
 7. Improve competitive strength of the co.
Materials management
functions

Material planning and programming

Purchasing and outsourcing

Inventory control

Storekeeping and warehousing

Codification
CONTINUES…………………

Standardization and evaluation of all
products

Transportation and material handling

Inspection and quality control

Cost reduction through value analysis

Disposal of surplus / obsolete material

Distribution
THE
MATERIAL
CYCLE
Design Stage
Sourcing Stage
Planning Production
Ordering Process
Receiving Process
Inventory Control
Final Stage
INVENTORY
CONTROL
 Inventory generally refers to the material in
stock. It is also the idle resource of an
enterprise . Inventories are those items which
are either stocked for sale or they are in the
WIP or they are in the form of raw materials.
TYPES
OF
INVENTORIES
 1. RAW MATERIAL INVENTORIES.
 2. BOUGHT OUT PARTS INVENTORIES.
 3. WIP INVENTORIES.
 4. FINISHED GOODS INVENTORIES.
 5. MAINTANENCE, REPAIR & OPERATING STORE.
 6. TOOLS INVENTORIES.
REASONS
FOR
KEEPING
INVENTORIES
 1. TO STABALIZED PRODUCTION.
 2. TO TAKE ADVANTAGE OF PRICE DISCOUNT.
 3. TO MEET THE DEMAND DURING THE REPLISHMENT
PERIOD.
 4. TO PREVENT LOSS OF ORDER.
 5. TO KEEP PACE WITH CHANGING MARKET
CONDITION.
A.B.C. ANALYSIS
 ABC analysis is a basic tool which helps the mgmt to
place their efforts where the results would be useful
to the greatest possible extent. First important step
in inventory mgmt is to have a selective approach to
fix up inventory levels, order quantities & the extent
to which the control can be exercised.
 ABC ( Always Better Control ) analysis is an effective
tool for such selective control. This technique involves
the classification of inventory items into three
categories A,B and C in descending order of annual
consumption and monetary value of each items.
A.B.C. Continues………
CATEGORY
PERCENTAGE OF ITEMS
PERCENTAGE OF
MONETARY VALUE
A
5-10 (%)
75-85 (%)
B
10-15 (%)
10-15(%)
C
70-80 (%)
5-10(%)
COMPARISON OF A, B & C ANALYSIS
CLASS ‘A’ ITEMS
CLASS ‘B’ ITEMS
CLASS ‘ C’ ITEMS
1. Close control required
1.Moderate control
required
1. Loose control required
2. Size of order is based on
calculated requirement.
2. Size of the order based
on their consumption.
2. Size of the order based
on their level of inventory.
3. Procured from many
sources.
3. Procured from 2 or 3
sources.
3. Procured from 2 sources.
4. More effort is made to
reduce lead time.
4. Moderate effort to
reduce lead time.
4. Minimum effort to
reduce lead time.
CONTINUES………………….
‘A’ ITEMS
‘B’ ITEMS
‘C’ ITEMS
5. Close check on
schedule revision are
required.
5. Some check on
5. No checks are
changes are required on required against any
need.
need.
6. Frequent ordering is
required.
6. Less frequent
ordering is required.
6. Bulk ordering is
required.
7. Accurate forecast
needed
7. Less accurate
forecast needed
7. Approximate forecast
needed.
8. Low safety stock for
less than two weeks.
8. Large safety stock up 8. Large safety stocks
to two to three months. more than three
months.
9. High consumption
value.
9. Avg consumption
value.
9. Low consumption
value.
CLASSIFICATION OF A,B & C OF
MATERIALS
 The following information known about a group of items. Classify them in
A, B & C classification.
MODEL/NUMBER
Annual consumption
Unit Price (In paise)
501
30,000
10
502
2,80,000
15
503
3,000
10
504
1,10,000
5
505
4,000
5
506
2,20,000
10
507
15,000
5
508
80,000
5
509
60,000
15
510
8,000
10
SOLUTION………………………
Model Number
(1)
Annual
Consumption
(2)
Unit Price
( In Paise)
(3)
Usage Value
(In Rs.)
(4)=(3)*(2)
Ranking
(5)
501
30,000
10
3000
6
502
2,80,000
15
42,000
1
503
3,000
10
300
9
504
1,10,000
5
5,500
4
505
4,000
5
200
10
506
2,20,000
10
22,000
2
507
15,000
5
750
8
508
80,000
5
4,000
5
509
60,000
15
9,000
3
510
8,000
10
800
7
CONTINUED…………………
Now computing cumulative total no. of items & their usage
values we are classifying the materials :
Rank
Model No.
% of Items
Cumulative
% In (Rs.)
Category
(3)
Cumulative
Usage Value
(Rs.)
(4)
(1)
(2)
(5)
(6)
1
2
3
502
506
509
10
20
30
42,000
64,000
73,000
48.0
73.0
83.0
A
4
5
6
7
504
508
501
510
40
50
60
70
78,500
82,500
85,500
86,300
90.0
94.0
98.0
98.6
8
9
10
507
503
505
80
90
100
87,050
86,350
87,550
99.4
99.6
100
B
C
VED ANALYSIS
 VED ( VITAL-ESSENTIAL-DESIRABLE ) analysis
represents classification of items based on their
criticality.
 VITAL- This category encompasses those items for
want of which production would come to halt.
 ESSENTIAL- Items whose stockout cost is very
high.
 DESIRABLE –Items which do not cause immediate
halt in production or their stockout cost nominal
& cause very minor disruption for a short duration.
CONTINUED…………………….
 VED analysis categorization plan :
 Assign points/weightage to the factors according to their importance
for the company. Examples of the weightage to the above four
factors may be 30, 30, 20 & 20 points.
FACTOR
FIRST DEGREE
SECOND
DEGREE
THIRD DEGREE
1. Stock out cost
(30)
Above Rs. X
(30)
Between Rs. X &
Y (60)
Above Y (90)
2. Lead time for
procurement
(30)
1-4 weeks (30)
4-8 weeks (60)
Over 8 weeks
(90)
3. Nature of
items (20)
Produced to
commercial std.
or off the shelf
(20)
Produced to
suppliers design
(40)
Produced to
buyers design or
proprietary items
(60)
4. Source of
supply (20)
Availability Local
( 20 )
Outstation ( 40 )
Imported , quota
items(controlled)supply (60)
Typical
categorization plan
POINTS
CLASSIFICATION
100 – 160
DESIRABLE
161 – 230
ESSENTIAL
231 - 300
VITAL
F-S-N ANALYSIS
 F-S-N analysis is based on the consumption figure
of items. The items under this analysis are
classified into three groups : F ( fast moving ) ,
S ( slow moving ) & N ( non moving ).
To conduct this analysis the last date of receipt or
the last date of issue whichever is later taken into
account and the period, usually in terms of no. of
months, that has elapsed since the last movement
is recorded.
Importance of F-S-N analysis
 It helps to identified :
 1. active items which require to review regularly.
 2. surplus items whose stocks are higher than their
rate of consumption.
 3. non moving items which are not being
consumed. The last two categories are viewed
further to decide on disposal action to deplete
their stocks & thereby release co.’s productive
capital