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1.material Management An Introduction - PPT - CMA

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Hasim Saiyed

The document discusses materials management in companies. It describes how materials are procured, received, stored, and issued. The key aspects of materials management are planning and controlling the flow of materials from purchase to internal use to minimize costs. This includes using economic order quantities and just-in-time approaches to balance ordering and carrying costs. Inventory control systems help companies determine optimal order levels and timing.

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1.material Management An Introduction - PPT - CMA

Uploaded by

Hasim Saiyed
102 views15 pages
The document discusses materials management in companies. It describes how materials are procured, received, stored, and issued. The key aspects of materials management are planning and controlling the flow of materials from purchase to internal use to minimize costs. This includes using economic order quantities and just-in-time approaches to balance ordering and carrying costs. Inventory control systems help companies determine optimal order levels and timing.

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1.Material Management An Introduction_PPT_CMA

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The document discusses materials management in companies. It describes how materials are procured, received, stored, and issued. The key aspects of materials management are planning and controlling the flow of materials from purchase to internal use to minimize costs. This includes using economic order quantities and just-in-time approaches to balance ordering and carrying costs. Inventory control systems help companies determine optimal order levels and timing.

Copyright:

© All Rights Reserved
Download as PDF, TXT or read online from Scribd
Download as pdf or txt
102 views15 pages

1.material Management An Introduction - PPT - CMA

Uploaded by

Hasim Saiyed
The document discusses materials management in companies. It describes how materials are procured, received, stored, and issued. The key aspects of materials management are planning and controlling the flow of materials from purchase to internal use to minimize costs. This includes using economic order quantities and just-in-time approaches to balance ordering and carrying costs. Inventory control systems help companies determine optimal order levels and timing.

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You are on page 1/ 15

Materials

Material is any substance (Physics term) that forms


part of or composed of a finished product.

Inventory in a company includes stock of raw


materials, work-in-progress, finished & semi-finished
products, spare components and by-products, etc.

Inventory control is an important feature of cost


accounting system
P8_CAFM_Syl12 The Institute of Cost Accountants of India
57
Material Control Procedure
Purchase

Receipt

Storage Stocktaking

Issue

P8_CAFM_Syl12 The Institute of Cost Accountants of India


58
Material Management

It is concerned with planning, organizing and


controlling the flow of materials from their initial
purchase through internal operations to the service
point through distribution.

P8_CAFM_Syl12 The Institute of Cost Accountants of India


59
Aim of Material Management
To get
1. The Right quality

2. Right quantity of supplies

3. At the Right time

4. At the Right place

5. For the Right cost

P8_CAFM_Syl12 The Institute of Cost Accountants of India


60
Purchase
Basic Principles

1. Based on need assessment


2. Ultimate aim: Right quality, right quantity, right prices, right
source and at right time to the right place
3. Centralize the purchase system
4. Back up of good systems management

P8_CAFM_Syl12 The Institute of Cost Accountants of India


61
Economic Order Quantity
 The total costs of a material usually consist of Buying Cost + Total Ordering Cost + Total Carrying
Cost.
Economic Order Quantity is „The size of the order for which both ordering and carrying cost are
minimum‟. 

EOQ = Average Monthly Consumption X Lead Time [in months] + Buffer Stock – Stock on hand

ECONOMIC ORDER OF
QUANTITY(EOQ)

PURCHASING CARRYING
COST COST

P8_CAFM_Syl12 The Institute of Cost Accountants of India


62
EOQ Model
Annual Cost

Total Cost Curve

Holding Cost
Order (Setup) Cost

Optimal Order Quantity


Order Quantity (Q*)

P8_CAFM_Syl12 The Institute of Cost Accountants of India


63
EOQ Formula Derivation
D= Annual demand (units)
C= Cost per unit (`) Total cost = (Q/2) x I x C + S x (D/Q)
Q= Order quantity (units) inv carry cost order cost
S= Cost per order (`)
I = Holding cost (%) Take the 1st derivative:
H= Holding cost (`) = I x C
d(TC)/d(Q) = (I x C) / 2 - (D x S) / Q²

Number of Orders = D / Q To optimize: set d(TC)/d(Q) = 0


Ordering costs = S x (D / Q)
DS/ Q² = IC / 2
Average inventory
units = Q / 2 Q²/DS = 2 / IC
` = (Q / 2) x C
Q²= (DS x 2 )/ IC
Cost to carry
average inventory = (Q / 2) x I x C Q = √(2DS / IC)
= (Q /2) x H
P8_CAFM_Syl12 The Institute of Cost Accountants of India
64
Economic Order Quantity

2 D S
EOQ 
H
D= Annual demand (units)
S= Cost per order (`)
C= Cost per unit (`)
I = Holding cost (%)
H= Holding cost (`) = I x C

P8_CAFM_Syl12 The Institute of Cost Accountants of India


65
Just In Time
“Because of larger carrying cost of inventory in the stores & godowns,
manufacturers now interested in Just in time purchasing.

JIT purchasing is the purchase of material or goods in such a way that


delivery of purchased items is assured before their use or demand.

P8_CAFM_Syl12 The Institute of Cost Accountants of India


66
Receiving
1. Establish written protocols, assign responsibility
2. Checking of goods for quality, expiry etc.
3. Cross check with purchase order & invoice / delivery
chalan
4. Proper record in designed registers
5. Signature of receiver & delivery person
6. Periodic checks

P8_CAFM_Syl12 The Institute of Cost Accountants of India


67
Material Receipt Register
Date Sr. Supplier’s P. O. Challan No. Qty Qty Qty MRN
No. Name Ref. & Dt. Received Rejected Accepted No.
Date

P8_CAFM_Syl12 The Institute of Cost Accountants of India


68
Inventory

Stocks to ensure un interrupted supplies

The idle resources which have future economic

value

Cushion between estimated and actual demand of

materials
P8_CAFM_Syl12 The Institute of Cost Accountants of India
69
Types of Inventory

P8_CAFM_Syl12 The Institute of Cost Accountants of India


70
Inventory control
A scientific system which indicates:

1. What to order

2. When to order

3. How much to order

4. How much to stock

P8_CAFM_Syl12 The Institute of Cost Accountants of India


71

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