Importance of Aggregate planning:-
MATERIALS MANAGEMENT
D. Speculative purchasing:
This refers to buying when market is low (low price), more than can possibly be used in manufacturing, with the idea of reselling much of the material at a higher price to users who may come to the market when the price is high.
e. Forward Buying:-
It is nothing but committing an organization into the future (usually one year). The buyer commits to buy a future date a contracted quantity at contracted price, whatever may be the ruling market price in the contracted period. The future commitment is decided depending upon the availability of the item, financial policies, EOQ, Qty Discounts and staggered delivery.
f. Hedging:-
It is different from forward buying. In this the buyer tries to protect himself in the future by entering into two transactions. A purchase contract and a sales contract in two different markets, whose prices move up and down together. The profit or loss sustained in the buying transaction is compensated by the loss / profit in selling transaction.
Contract purchasing offers advantages comparable to those of speculative purchasing. By a contract calling for deferred delivery over a period, advantages can be had of low prices in effect on materials at the time of placing the contract, while spreading delivery of materials over a schedule consistent with estimated future requirements.
h. Group purchasing:-
A no. of small items can be purchased as group which offers the possibility of large savings. When the items are small and of trivial value, the cost of placing an order often exceeds the value of items purchased. Hence such items are better bought under the method of group purchasing.
i. Blanket order:-
These are purchase orders placed and accepted for large quantities of Materials to be delivered as later specified. By the agreement, the vendor agrees to supply and the buyer the
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vendor agrees to supply and the buyer agrees to accept a stated no. of units, normally within a given period.
j. Tender Buying:-
This method (also known as tender system) is adopted to procure materials at the most competitive rates and to eliminate chances of undue favor to any supplier. The prime objective is to avoid negotiation and give equal opportunity for all vendors. It is usually adopted by Govt. Departments and public sector undertaking to choose the best supplier without any bias.
There are three kinds of tenders used are:-
a. Open Tender. b. Limited Tender. c. Single Tender
a. Open Tender: - Tenders are invited by advertising in at least three or four English Newspaper and in Indian Trade Journal. The suppliers will usually have to quote in the Tender forms along with earnest Money deposit. Once the quotations are received, the tenders are opened publicity and a comparative statement is made and the tender is awarded to the lowest tender meeting the technical specifications.
b. Limited Tender: - To avoid the quotation of an irresponsible bidder (Who quotes a very low price in order to get the order, but will not be able to execute the orders) Limited
Tender system is used. In this, quotations are solicited by sending tender forms to get quotations from a few selected suppliers who are competent to executive the order. c. Single Tender: - For proprietary items or single source items, single tender system is
adopted.
Vendor Development & Selection: - Usually a combination of price, quantity, quality, delivery
time and service is used to rate the vendors, giving relevant weight ages to each of these factors.
a. Reliability:-
- Is supplier reputed, stable and financially strong? - Are the supplier‘s Integrity and ability beyond doubt - Is the supplier going along with product development?
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- Is the supplier‘s competitive strength as to price, quality etc proved by past experience?
b. Technical Capabilities:-
- Can supplier provide assistance as to application engineering? - Can the supplier provide assistance as to analytical engineering? - Can the supplier provide design assistance?
- Can the supplier handle special needs?
C. Convenience:-
- Can the supplier help reducing acquisition cost? - Can he / she offer other related products?
- is he / she qualified to help in solving difficult problems? - Does the supplier pack his product conveniently?
d. Availability:-
- Does the supplier help reducing acquisition cost? - Does the supplier assure delivery in time?
- Are his / her stocks locally available and / or at short notice? - can he / she plan his supply to Minimize inventory?
materials? e. After –Sales service:-
- does the supplier have a service organization? - is an emergency service available?
- Are parts available when needed?
Sales assistance:-
-Can the supplier help building mutual markets? - will he / she recommend our products?
- Does the use of supplier‘s product enhance the appearance of our products?
Stores management:-
Receiving and storing are important flow control activities in the Materials Management chain. In industries, Materials have to be stocked to meet the consumption requirements during lead time or extension of lead time due to delay by suppliers or due to unexpected increase in the
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consumption rate. Ware housing is not the simple act of storing materials, but rather a package of services which enables the smooth flow of materials through the production departments without causing stoppage of production due to shortage of materials.
Types of Stores:-
a. Raw Material Store. b. Component store.
c. Consumable Materials Stores. d. Semi-finished goods stores. e. Finished goods stores.
f. Inward goods stores / transit stores. g. Holding stores.
h. Spare parts stores.
i. Inflammable materials stores. j. Tools stores.
k. Stationery stores.
l. Maintenance Materials stores. m. Rejected materials stores. n. Scarp / disposal stores. o. Stationary items stores.
p. Packing materials stores.
Functions of Stores Keeping:-
1. To receive raw materials, components, tools, equipments and other items and account for them.
2. To provide adequate and proper storage and preservation of various kinds of materials. 3. To meet the demands of user departments by proper issues and keeping accounts of items
used by user department.
4. To minimize obsolescence, surplus and scrap through proper codification, preservation and handling.
5. To highlight accumulation of stocks, discrepancies and abnormal consumption and implement proper control measures.
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6. To ensure good house-keeping to facilitate proper material handling, material preservation receipt, stocking and issue of materials.
7. To assist material accounts department in stock verification and provide supporting information for effective purchasing.
8. To co-ordinate store keeping with related production functions.
Roles & Responsibilities of Stores management:-
1. Facilitate a balanced and smooth flow of raw materials, components, tools and any other items necessary to meet production requirements.
2. To maintain optimum stock of materials to compensate for irregular supplies by suppliers.
3. To achieve efficient utilization of storage space. 4. To reduce usage of materials handling equipments.
5. To provide codification of stored items for easy recognition. 6. To enable flexibility in production schedules.
7. To facilitate quantity purchases at discount prices. 8. To keep the account of all goods kept in stores.
10. To maintain record of all incoming materials and issue of materials to user department.
Inventory management:-
The term Inventory refers to any resource that has a certain value, which can be used at a
future occasion when the demand arises. Alternatively inventory may be defined as ―Stock of
items kept on hand by an organization to be used to meet customer demand.‖
Types of Inventory:-
I. Based on Nature of Materials:-
1. Production Inventories: - Raw materials, parts and component which become part of the firm‘s finished product in the production process.
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2. MRO Inventories: Maintenance, repair and operating supplies which are consumed in the production process, but which does not become part of finished product.
E.g., Lubricants, grease, cotton waste, spare parts.
3. In-process Inventories: - Also known as work-in-progress or semi-finished goods. Inventories-these are parts or sub-assemblies found at various stages in the production process.
4. Finished Goods Inventories: - Completed products kept in stores ready for
shipment.
II Classified by how it is created:
1. Cycle Inventory: The position of total Inventory which varies directly with Lot size (quantity ordered) e.g., If Q is the order quantity or the Lot size and the exactly lot, and the supply is received exactly when the stock is NIL, maximum inventory is Q and the average cycle inventory is half of quantity ordered.
2. Safety Stock Inventory: - Safety Inventories are held to avoid stock out conditions which cause production stoppages and to protect against uncertainties in demand, lead time, supply and consumption rates.
3. Anticipation Inventory: - Inventory of materials purchased in Bulk quantities in anticipation of price rise and products having seasonal demands produced in quantities more than the demand during off-seasons and held in inventory to meet higher demand rate during seasons of High demand.
4. Pipe-Line Inventory: - Inventory moving from point to point in the materials flow system. Materials move from supplier to a plant, from one operation to the next in the plant and from the plant to the customer. Pipeline inventories also include materials that have been ordered but not received.
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5. Fluctuation inventory: - Inventory held as reserve stock to meet the unexpected fluctuating demand over a period which cannot be predicted accurately.
Functions of Inventory:-
1. To meet anticipated Demand, 2. To smooth production requirements.
3. To decouple components of the production, distribution system. 4. To protect against stock outs.
5. To take advantage of order cycles. 6. To take advantage of quantity discounts. 7. To hedge against price increases.
Inventory costs:-
There are two types of costs associated with Inventory namely-
a. Costs associated with the purchase of Inventory items (cost of materials purchased) b. Costs on materials consisting of three basic costs
- Carrying cost. - Shortage Cost.
EOQ: - (Economic Order Quantity)
D= Annual demand Co= Ordering cost. P= Unit price.
C1= Carrying cost in percentage.
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Selective Inventory control
1. A-B-C-analysis:-
This is also referred to as ―Always better control‖ or Pareto analysis. A-B-C analysis is a basic inventory control Technique which is often the starting point. It can be applied to almost all aspects of Materials management such as purchasing, receiving, inspection, store keeping and issue of materials from stores, verification of bills. Inventory control, value analysis etc,
2. XYZ analysis:-
This classification is based on the value of inventory of materials actually held in stores at a given time (usually during stock checking annually or half- yearly. XYZ analysis helps to control average inventory value by focusing efforts to reduce the inventory of X items which are usually 10% of the no. of items stored, but counting for 70% of the total inventory value. Similarly Y items are 20% of the no. of items stored and account for 20% of the inventory value the remaining 70% of the items accounting for 10% of the total inventory value are Z‘‗ items
3. VED Analysis:-
V-vital, E-Essential and D-Desirable. This classification is usually applied for spare parts to be stocked for maintenance of machines and equipments based on the criticality of spare parts. The stocking policy is based on the criticality of the items. The vital spare parts are those which can cause stoppage of the plant if not available. Usually such spare parts are known as capital or insurance spares. The inventory policy is to keep at least one number of the vital spare irrespective of its value.
4. FSN Analysis:-
It stands for fast moving, slow-moving and non-moving items. The classification is based on past consumption pattern. Items which are usually drawn from stores frequently are classified as Fast moving items; items which are drawn once or twice a year are classified as slow- moving items and items not drawn at all for past two years are classified as non-moving
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items FSN analysis is useful to control obsolescence of raw materials, components, tools and spare parts.
5. HML Analysis:-
This stands for high value, medium value and low value items based on unit price of the item.
6. SDE analysis:-
This stands for scarce, items, difficult to procure items and easy to procure items. A scare item is one which is not easily available in the market and reliable source may have to develop. Eg, imported items may have to be stocked because it is difficult to procure and takes long lead time.
S- Stands for seasonal items and OS stands for off-seasonal items. It may be advantageous to buy seasonal items at low prices and keep inventory or buy at high price during off seasons.
8. G O L F Analysis:
This stands for Government, open market, local / foreign source of supply. For many items, imports can canalized through Government agencies such as ―state Trading Corporations, mineral and metals Trading Corporation. Indian Drugs and pharmaceutical etc.
For such items the buying firms cannot apply any inventory control techniques and have to accept the quota allotted by the government. Open market is those who form bulk of suppliers and procurement is rather easy. L category includes those local suppliers from whom items can be purchased. Off-the-shelf on cash purchase basis. F category indicates foreign suppliers. Since an elaborate import procedure is involved. It is better to buy imported items in bigger lots usually to buy imported items in bigger lots usually covering the annual requirements.
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