MODULE 2

Introduction to materials management – objectives – Types of material handling equipment

- principles of material handling –Material selection – value analysis – make or buy decisions
-Purchasing and procedures. Basic inventory management - Inventory -Functions, Costs,
Classifications - EOQ Models- Assumptions- Quantity discount model- Q system- P system-
Reorder level - Simple problems- Concept of JIT manufacturing system.

2.1 Materials Management:

Materials management deals with planning, organizing and controlling the activities
that are related to the flow of materials. It helps in: i) Procurement or purchasing; ii) Store
keeping or inventory control; iii) Material handling and iv) Transport of materials from the
producer to the consumer.
2.1.1 Objectives of material management
i) Cost savings; ii) Improved production capacity of the plant; iii) Savings in labour time; iv)
Reduction in storage space; v) Reduction in damage to materials; vi) Smooth flow of
production; vii) Easier production control; viii) Reduced employee fatigue.
2.1.2 Function of Materials Management:
1. Materials planning and programming, 2. Purchasing materials inspection of materials, 3.
Inspection of Materials, 4. Classification, codification and standardization in stores, 5.
Storage of materials, 6. Issuing of materials, 7. Maintenance of proper inventory records, 8.
Materials receiving.
2.2 Material Handling (MH):
Material handling can be defined as “the operations in connection with the movement of
bulk, packaged and individual products in a semi-solid or solid state, by means of gravity,
manually or power actuated equipment and within the limits of individual producing,
fabricating, processing or service establishment”.
2.3 Objectives of Material Handling:
 Minimize cost of material handling.
 Minimize delays and interruptions by making the materials available at the point of use.
 Safety in material handling through improvement in working condition.
 Maximum utilization of material handling equipment.
 Prevention of damage to materials.
2.4 Elements of Material Handling:
 Motion: Move in most, economic, safe and efficient manner.

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 Time: Provide materials on time.
 Quantity: Ensure supply of correct quantity.
 Space: Ensure optimum use of space.
 Define cost. List the various costs associated with production. Why is it necessary to
analyze the production cost?
2.5 Unit Load Concept:
Unit load may be defined as a number of items or bulk material, so arranged that the
mass can be picked up and moved as a single object and which upon being released will retain
its initial arrangement for subsequent movement. Examples of unit load are: small castings
put in a container, a stack of bricks on a pallet, trailer full of sand.
2.5.1 Characteristics of a Unit Load:
 There should be minimum number of handlings.
 Manual handling should be eliminated.
 Materials are assembled into a unit load for economy of handling and storage.
 Redesign packages, containers etc. for better assembly into unit loads and retain
them to prevent product damage.
 Unit load should be as large as possible within the constraints of building,
equipment etc.
2.5.2 Types of Unit Load:
1. Unit Load on a Platform: Pallet, Skid
2. Unit load on a sheet : flat sheet, moulded sheet
3. Unit load on a Rack or Trays
4. Unit load in a container: boxes, bins, crates etc
5. Self-contained Unit Load: bundles, bales, interlocked unit loads and
fastened unit loads
2.6 Principles of Material Handling:
1. Planning principle: All handling activities should be Planned.
2. Systems principle: Plan a system integrating as many handling activities as possible
covering operations such as receiving, storage, production, inspection, packing
warehousing, supply and transportation.
3. Space utilization principle: Make optimum use of cubic space.
4. Unit load principle: The size of unit load/unitized should be optimum so that it can be
efficiently handled by the handling equipment
5. Gravity principle: Wherever practicable, utilize gravity to move a material
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6. Material flow principle: Plan an operation sequence and equipment arrangement to
optimize material flow.
7. Safety principle: Provide for safe handling methods and equipment.
8. Simplification principle: Reduce combine or eliminate unnecessary movement and/or
equipment.
9. Mechanization principle: Use automated material handling equipment.
10. Standardization principle: Standardize method, types, size of material handling
equipment.
11. Flexibility principle: Use methods and equipment that can perform a variety of task
applications.
12. Equipment selection principle: Consider all material, move and method to be utilized.
13. Motion principle: Equipment designed to transport material in motion.
14. Idle time principle: Reduce idle time/unproductive time of both machine handling
equipment and man power.
15. Maintenance principle: Plan for preventive maintenance or scheduled repair of all
handling equipment.
16. Obsolescence principle Replace obsolete handling methods/equipment when more
efficient method/equipment will improve operation.
17. Capacity principle: Use handling equipment to help achieve its full capacity.
18. Control principle: Use material handling equipment to improve production control,
inventory control and other handling.
19. Performance principle: Determine efficiency of handling performance in terms of cost per
unit handled which is primary criterion.
20. Dead weight principle: The ratio of dead weight (weight of the material handling
equipment and containers) to payload (weight of the material) should be reduced.
2.7 Types of Material Handling Equipments:
1. Fork lift truck: In fork lift truck, the forks are attached to a column on the truck. Forks
can be lifted to desired height along with the material on them and the material can be
stacked at the proper place, even very close to the roof. They are most suitable for
intermittent production and for handling various sizes and shapes of material.
2. Cranes: Cranes are employed for lifting and lowering bulky items and packages or cases.
They find in heavy engineering and generally in intermittent type of production. They
provide overhead movements. The crane hook can move in a rectangular area or a circular
area. A jib crane is preferred where lifting of the jobs is required in few locations only or
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 where bridge crane cannot be erected. Jib crane consists of a horizontal arm called jib
which can rotate in a horizontal plane between 180° up to 360°, so that loads can be lifted
and deposited within the sector of circle.
3. Hoist: Hosting equipment are usually powered equipment used for lifting and lowering
unit of varying loads intermittently. The equipment can be stationary, portable or
travelling type. Often hoisting equipment are mounted on powered vehicles like truck, rail
or ship, when the movement of the lifted load is not limited to a fixed area of operation.
4. Monorail: It is an I section beam attached to the ceiling and having either a trolley or carrier
moving along it. The material can be transferred from one place to another along the
beam. It is employed for intermittent type of material handling in machine shop and other
shops.
5. Conveyors: They are employed to transport material over a fixed path which may be
horizontal or inclined (up or down), to different locations in the factory. They prove
economical, if the flow of material is continuous. In a belt conveyor, the belt may be flat
or trough shape to hold (granular) materials which may tend to fall from the flat belt. The
belt material may be rubber covered canvas, steel, plain fabric or woven wire. A fixed
conveyor is used on mass production shop floor whereas portable conveyors are preferred
for intermittent job.
6. Roller conveyors: May be gravity aided or powered and are employed for transporting
products having flat bottoms. Bigger jobs can be handled using roller conveyors. Small
items are put in boxes, before being transferred. Roller conveyors can move the material
along straight or curved path. Bucket conveyor consist of overhead endless chain. It is
supported from the ceiling and has a fixed path to travel. A lifting mechanism used for
loading and unloading the products. Pipe line conveyors are used for transporting granular
or pulverize materials. Roller conveyor
7. Slides and chute: They transfer small jobs which can slide down under gravity. Vibrating
slides transport materials up an incline also. Chutes have sheet metal base for transporting
components down the incline.
8. Lifts: In multi-storied plants, materials are lifted up and transported by lifts. It is fast and
flexible equipment for to floor travel. Buckets or trays can be mounted on the endless chain
running from the ground floor to the top floor.
9. Tractors and trailers: Tractors, three wheeled or for wheeled employ IC Engine drive
and are generally used for outdoor application. Material is loaded in the trailers which are
attached to the tractor.

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2.8 Selection of material handling equipment
The following factors are to be taken into account while selecting material handling
equipment--0:
1. Nature of operations: Selection of equipment depends on nature of operations like
whether handling is temporary or permanent, whether the flow is continuous or
intermittent and material flow pattern-vertical or horizontal.
2. Properties of the material: Whether it is solid, liquid or gas, and in what size, shape and
weight it is to be moved, are important considerations. Similarly, if a material is fragile,
corrosive or toxic this will imply that certain handling methods and containers will be
preferable to others.
3. Layout and characteristics of the building: Another restricting factor is the availability
of space for handling. If the type of the building is multi-storied, chutes or ramps for may
beused. Layout will indicate the type of industrial production operation.
4. Production flow: If the flow is fairly constant between two fixed positions that are not
likely to such as conveyors can be successfully used. If, on the other hand, the flow is not
constant and the direction changes occasionally from one point to another, because several
products are being produced, moving equipment such as trucks would be preferable.
5. Cost considerations: Several cost elements need to be taken into consideration when
comparisons are made between various items of equipment that are all capable of handling
the same load. Initial investment and operating and maintenance costs are the major cost to
be considered.
6. Engineering factors: Selection of equipment also depends on engineering factors like door
and ceiling dimensions, floor space, floor conditions and structural strength.
7. Equipment reliability: Reliability of the equipment and supplier reputation and the after
sale service also play an important role in selecting material handling equipment.
2.9 Material selection
Material selection is the process of choosing the material best suited to achieve the
requirements of a given application. Purchasing experts, manufacturing engineers, design
engineers, customers and suppliers could potentially be brought in during this process so that
the optimum decision is made.
2.9.1 Factors to be considered in material selection:
Following are important factors that are considered while evaluating the suitability ofmaterials.
1. Cost: Obviously, the cost of the material is a major factor which influences the choice of
the material or process.

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2. Cost of processing: In most of the industries, the processing cost (labour cost) and other
costs such as overhead costs account for about 50% of the production cost.
3. Manufacturing requirements: The manufacturing processes, such as casting, forging,
extrusion, welding and machining govern the selection of material.
4. Mechanical properties: Mechanical properties include strength, elasticity, stiffness,
toughness, ductility, malleability and hardness. Depending upon the service conditions
different mechanical properties are considered and a suitable material is selected.
5. Availability of material: The material should be readily available in the market to meet the
requirement.
2.9.2 Material Selection Process:
The general steps for the materials selection process is as below.
1. Identify the design requirements: The design requirements include identifying
performance requirements, reliability requirements size, shape, and cost requirements, etc.
2. Identify the materials selection criteria: The materials selection criteria are specific
materials properties derived from the requirements identified in step 1.
3. Identify potential materials: In this step, the materials selection criteria are used to rule
out materials that does not satisfy the materials selection criteria.
4. Evaluate materials: In this step, a detailed comparison of the various potential material is
done by ranking them.
5. Select materials: This involves the selection of the most appropriate material considering
the product manufacturing requirements.
2.10 Value Engineering (VE) & Value Analysis (VA):
What is value?
Different customers will answer to that question in different ways. The value of a product
can be the performance of its functions or its aesthetic beauty, when applicable and
needed. As a general statement high level performances, capabilities, emotional appeal,
style, all compared to cost is commonly what we consider as value.
Therefore Value = Function / Cost
2.10.1 Value Engineering (VE)
Value engineering is the process of improving the value of a product at every stage of
the product life cycle. It is a creative approach to ensure that the functions of a product or
service are provided at minimum overall cost without sacrificing quality and reliability.
2.10.2 Types of values:
 Cost Value: Includes the total cost of material, labour and other elements of cost that have
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 to be incurred to produce an item.
 Use Value (Function Value): Includes the value of the functions performed. It is the price
paid by the buyer or the cost incurred by the manufacturer in order to ensure that the
product performs its intended functions efficiently. An item without use value can have
neither exchange value nor esteem value.
 Esteem Value: Involves the qualities and appearance of a product which attract people
and create a desire in them to possess it.
 Exchange Value: It is a measure of all the properties, qualities and features of the product
which make the product possible of being traded for another product or for money.
Value can be increased by increasing the utility for the same cost or by decreasing the
cost for the same utility.
2.10.3 Value Analysis (VA):
Value analysis is an approach to improve the value of a product or process by
understanding its constituent components and their associated costs. It then seeks to find
improvements to the components by either reducing their cost or by increasing the value of
the functions.
Value Engineering Value
Analysis
VE is applied to the product at the design VE is applied to the existing product, a
stage, a preventive process. remedial process.
Ensures prevention of unnecessary cost. Ensures elimination of unnecessary cost.
It is worked out mostly with the help of
It requires specific technical knowledge. knowledge and experience.
The changes made by VE are executed at the It may change the present stage of the
initial stages only. product or operation.

2.11 Purchasing:
In any industry, purchase means buying of equipment, materials, tools, parts, etc.
required for the industry.
2.11.1 Objectives of Purchasing:
 To avail the materials, suppliers and equipment at the minimum possible cost
 To ensure the continuous flow of production.
 To increase the asset turnover.
 To develop source of supply.

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 To establish and maintain good relationships with the suppliers.
 To achieve maximum integration with other departments of the company.
 To train and develop the personnel.
 To keep records efficiently and report to management.
2.11.2 Purchasing Procedure:
 Recognition of the need: the demand is lodged with the purchase department in the
prescribed purchase requisition form forwarded by authorized person either directly or
through the stores department. The purchase requisition clearly specifies the details such as
specification, quantity, etc.
 Selection of the supplier: The important considerations are the quoted price, ability to
supply the required quantity on time, maintenance of quality standards, etc.
 Placing the order: Once the supplier is selected the next step is to place the purchase
order. Purchase order is a letter sent to supply the said material. Of the copies of the
purchase order, one copy each is sent to store keeper, supplier, accounts section,
inspection department and to the department placing the requisition and one copy is
retained by the purchase department.
 Follow-up of the order: It tries to make sure that the purchase order is confirmed by the
supplier and the delivery is promised.
 Receipt and inspection of the material: The purchase order received in verified and
tallied with the purchase order. The receipt of materials is recorded on the specifically
designed receiving slips or forms which also specify the name of the vendor and the
purchase ordernumber.
 Payment of the invoice: After the goods received are checked, the invoice is checked to
see that the goods were duly authorized to purchase, they were properly ordered, they were
priced as per the agreed terms, the quality and quantity conform to the order, etc.
 Maintenance of the records: Records are useful for deciding the timings of the purchases
and in selecting the best source of supply.
 Maintenance of vendor relations: The rapport with the same key suppliers provide a
platform for the purchase department to establish and maintain good relations with them.
2.12 Cost & its Types:
Cost is the amount of expenditure incurred on or attributable to a specified article,
product or activity. Cost in an industry can be direct or indirect, fixed or variable and any cost
has three basic elements namely, material, labour and expense. Direct Costs are those which
can be identified with or related to the product or service, which may increase or decrease in
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proportion to the increase or decrease in unit cost. Indirect cost, on the other hand, cannot be
identified to a given cost object and are related to the expense incurred for maintaining
facilities for such production or services. The aggregate of direct materials cost, direct wages
and direct expense is called Prime Cost, while indirect materials cost, indirect wages and
indirect expense are collectively called Overhead Cost. Overhead Cost includes: Production
overheads, administrative overheads, selling overheads, distribution overheads, research and
development overheads.
Different Costs & Their Relationships:
Prime Cost = Direct (Material + Labour + Expenses) Cost
Factory Cost = Prime Cost + Factory Overhead
Cost of Production = Factory Cost + Administrative Overhead
Total Cost = Cost of Production + Selling & Distribution
Overhead Selling Price = Total Cost + Profit
2.13 Inventory control:
Inventory refers to the goods and materials, held available in stock by a business,
which though remains idle in a store. Inventory includes tools required for manufacturing,
raw materials, goods in process (semi-finished goods) and also finished goods. Inventory
control is the systematic storage and recording of goods in such a way that the desired goods
can be made to the operating shops at minimum ultimate cost. The interval between receiving
the purchased parts and transforming them into final products varies from industries to
industries depending upon the cycle time of manufacture.
It is, therefore, necessary to hold inventories of various kinds to act as a buffer
between supply and demand for efficient operation of the system. Thus, an effective control
on inventory is a must for smooth and efficient running of the production cycle with least
interruptions.
2.13.1 Types of inventory:
 Raw materials: Raw materials are the materials a company uses to create and finish
products.
 Works in Process (WIP): WIP are materials and components that have begun their
transformation to finished goods. WIP or In-Process Inventory consists of the unfinished
products in a production process. They are not completed but either being fabricated or
waiting in a queue.
 Finished goods: These are goods that have completed the manufacturing process but have
not yet been sold.

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 Goods for resale: Returned goods that are saleable.
 MRO inventory: MRO stands for Maintenance Repairing and Operating supplies.
Examples of MRO items are lubricants, coolants, uniforms and gloves, nuts, bolts, etc.
Inventory control is a planned approach of determining what to order, when to order
and how much to order and how much to stock, so that costs associated with buying and
storing are optimal without interrupting production and sales. Inventory control basically
deals with two problems, viz., (i) when should an order be placed? (Order level), and (ii) how
much should be ordered? (Order quantity). These questions are answered by the use of
inventory models.
The scientific inventory control system strikes the balance between the loss due to
non-availability of an item and cost of carrying the stock of an item. Scientific inventory
control aims at maintaining optimum level of stock of goods required by the company at
minimum cost.
2.13.2 Objectives of inventory control:
 To ensure adequate supply of products to customer and avoid shortages.
 To make sure that the financial investment in inventories is minimum
 Efficient purchasing, storing, consumption and accounting for materials.
 To maintain timely record of inventories of all the items and to maintain the stock within
the desired limits.
 To ensure timely action for replenishment.
 To provide a reserve stock for variations in lead times of delivery of materials.
 To provide a scientific base for both short-term and long-term planning of materials.
2.13.3 Terms used in inventory control:
1. Demand: It is the number of units required per unit time.
2. Maximum quantity: Maximum limit to which the inventory can be kept in stores at any
time.
3. Minimum quantity: Minimum limit of inventory which should be kept in stores at any time.
4. Standard order: It is the difference between maximum and minimum quantity.
5. Reorder point: It is the point at which stock replenishment (refill) should be initiated.
When the stock level reaches reorder point, the order is placed.
6. Reorder quantity: It is the quantity to be ordered at the reorder point.
7. Lead time: Duration of time between placing of order and receipt of items.
8. Order cycle: It is the time period between two successive orders.
9. Safety stock: Safety stock is the stock maintained to meet the unanticipated demand. It is
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 also called as buffer stock or minimum stock.

2.14 Costs associated with inventory

In making any decision that affects inventory size, the following costs must be
considered.
1. Holding (or carrying) costs: This broad category includes the costs for storage facilities,
handling, insurance, pilferage, breakage, obsolescence, depreciation, taxes, and the
opportunity cost of capital.
2. Ordering costs: These costs refer to the managerial and clerical costs to prepare the
purchase or production order Ordering costs includes costs such as counting items and
calculating order quantities. The costs associated with maintaining the system needed to
track orders are also included in ordering costs. The costs of ordering are generally
classified under the following heads;
a) Cost of purchasing: This includes the clerical and administrative costs associated with
purchasing such as cost of placing the order, follow-up, receiving, etc.
b) Cost of inspection: This includes the costs of checking the item after they are received.
c) Transportation costs: This involves the costs associated with transporting the
component to the company warehouse.
3. Setup (or production change) costs: To make each different product involves obtaining
the necessary materials, arranging equipment setups, appropriately charging time and
materials, and moving out the previous stock of material. Production cost refers to the
value of an item expressed as Rs. /unit.
4. Shortage costs: When there is demand for the product and the item needed is not in stock,
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 then we incur a shortage cost or cost associated with stock out. The shortage cost includes
back order cost, loss of future sales, loss of customer goodwill, etc. A back order is when
the order is made and filled at a later date. The assumed shortage cost is little more than a
guess.

2.14.1 Inventory Models:

Inventory models are concerned about how much to order and when to order so as to
minimize the total cost. The different models of inventory are:
2.14.1.1 Basic Inventory Model (Economic Order Quantity):
In this model, orders of equal size are placed at periodic intervals. The items against
an order are replenished instantaneously and the items are consumed at a constant rate. This
pattern of inventory variation resembles a saw tooth and hence, is also called saw tooth
pattern of inventory control. The basic inventory model helps to find out the order quantity or
lot size, which minimizes the total costs (sum of ordering costs and inventory carrying costs).

Expression for Economic Order Quantity (Q*):

Let ‘Q’ be the order quantity; ‘D’ be the annual demand/total items consumed per year; ‘Co’
be the ordering cost/order and ‘Cc’ be the carrying cost/item/year.
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Note: Inventory carrying cost is usually expressed as percentage of unit price cost.

Total inventory cost/year =

Q
= Average inventory in a year x Annual inventory carrying cost/item/year = x Cc
2

D
Ordering cost/year = Number of orders placed in a year x Cost per order = x Co
Q

Q D
Total Cost, TC = ( x Cc ) + ( Q x Co)
2

d
Condition for minimum Total Cost is; (TC) = 0;
dX

1 D 𝟐𝑪𝒐𝑫 ----------------------
i.e., 0 = ( x Cc ) - ( x Co); Hence, EOQ, Q* = √ (1)
2 𝑄2 𝑪𝒄

Assumptions made in deriving EOQ:

 Ordering cost and price of materials is constant.

 The rate of demand is constant.
 Stock replenishment is instantaneous.
 The costs include only set up cost and holding cost.

Example 2.1. A manufacturer has to supply his customers 3,600 units of his product per year.
Inventory carrying cost amounts to Rs. 1.2 per unit per annum. Ordering cost per run is Rs.
80. Find a) EOQ b) Optimum number of orders per annum c) Minimum annual average
inventory cost d) Optimum period of supply per optimum order.
Solution:
Given, Annual demand, D = 3600 units, Inventory carrying cost, Cc = Rs. 1.2/unit/annum,
Ordering cost, Co = Rs. 80/order

𝟐𝑪𝒐𝑫 2 X 80 X 3600
a) EOQ, Q* = √ =√ = 692.82 ~ 693 units
𝑪𝒄 1.2

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 Annual Demand 3600
b) Optimum number of orders/annum = Annual demand = = = 5.19 ~ 5
EOQ 693
Q D 693
c) Total inventory cost, TC = ( x Cc) +( Q x Co) = ( 2 x 1.2 ) + (3600 x 80) = Rs.831.38
2 693

d) Number of orders/ year = 5 orders

1
.:. Optimum period of supply/optimum order = = 0.2 years
5

2.14.1.2 Inventory Model with shortages are allowed:

If the shortages or stock outs are allowed in the inventory control, the cost of
shortages will also be there. If orders are received when inventory level falls to zero and
demand or requirement continues, the situation arises where negative inventory or stock out
will be there. If there is no stock at the time of receiving a request for the items, it is assumed
that it will be satisfied at a later date with a penalty termed as back order cost. In this model,
the items on order will be received instantaneously and they are consumed at a constant rate.

𝟐𝐂𝐨(𝐂𝐜+𝐂𝐬)
The Economic Order Quantity is expressed as, Q** = √
𝐂𝐜 𝐱 𝐂𝐬

where, Cs, is the back order cost

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Example 2.2. The demand for an item is uniform at a rate of 300 units/year. Ordering cost is
Rs. 360. Inventory carrying cost is Rs. 6 per unit per year and if shortage cost is Rs. 3.6 per unit
per year. Determine EOQ.

Solution:

Given: Annual demand, D = 300, Inventory carrying cost, Cc = Rs. 6, Ordering cost, Co = Rs.
360/order, Shortage cost, Cs = Rs. 3.6

𝟐𝐂𝐨(𝐂𝐜+𝐂𝐬) 𝟐 𝐱 𝟑𝟔𝟎 𝐱 𝟑𝟎𝟎 𝐱 (𝟔+𝟑.𝟔)

We have, Q** = √ =√ = 2165.1 ~ 2166 units
𝐂𝐜 𝐱 𝐂𝐬 𝟔 𝐱 𝟑.𝟔

2.14.1.3 Inventory Model with Fixed Order Quantity and Variable Cycle System (Q System):

When this system is used, the quantity ordered every time is fixed and the number of
cycle for which orders are placed and cycle time may vary. It is also called Continuous Review
System. In this system, the order quantity (Q) is fixed and ordering time varies according to
the fluctuations in demand. In this system of inventory, whenever the stock level touches the
reorder level, an order is placed for a fixed quantity (which is equal to EOQ).

Order quantity Q is decided in such a way so as to minimize the total cost of

procurement (production), storage, handling, distribution and other changes of inventory.
The safety stock is always present in this system. The reorder level is computed as the sum
demand during lead time and safety stock.

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2.14.1.4 Inventory Model with Fixed Cycle and Variable Quantity System (P System):

This is also called Periodic Review Inventory System. In this system, period of review is
fixed and quantity ordered change as per demand or rate of consumption. The period of
review ‘P’ is decided such that the order quantity is economical to purchase the items. When
the amounts that need to be withdrawn from inventory are allowed to vary from period to
period, the EOQ formula no longer ensures a minimum-cost solution.

Period of review inventory control system typically results in larger inventory levels.
Such a system also requires that a new order quantity be determined each time a periodic
order is made. Periodic inventory review reduces the time a business owner or manager
spends analysing inventory counts, which allows more time for other aspects of running the
business. However, it may not provide accurate inventory counts for businesses with high
volume sales.

Q-System P-System
The quantity to be ordered each time is The period of ordering the inventory is fixed and
fixed and normally it is equal to EOQ the order quantity depends on the stock in hand.
It is suitable for low unit cost, high Suitable for high unit cost and less in number of
volume items. items.
Normally preferred when the supplier Preferred when the supplier delivers at fixed
puts minimum quantity restriction. periods.

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2.15 Just In Time (JIT) Manufacturing:
JIT is a special tool developed at Toyota Motor Co., Japan to improve the quality and
production of various workstations during the production and delivery of goods. JIT is based
on the Japanese Management Philosophy that right items of the right quantity in right place
at right time. JIT is defined as “philosophy that focuses attention on eliminating waste by
purchasing or manufacturing just enough of right items just in time, using quality concept”.
JIT reduces small lot sizes which leads to low Work-in-process (WIP) and finished goods
inventory, low carrying cost, less storage space and makes for easier inspection and rework.
JIT is a cost efficient production by using minimum of the facilities.

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2.15.1 Elements of JIT:
 Pull method of materials flow: Here, customer demand activates production of items

 Quality at the source: Measures to eliminate waste and rework in JIT require conformance
to product or service specifications i.e., to control quality at the source
 Cellular manufacturing: Here, workstations are arranged in a sequence that supports a
smooth flow of materials and components through the process, with minimal transport or
delay
 Small lot sizes: Maintain inventory with lot sizes as small as possible
 Uniform workstation loads: Can be achieved by assembling the same type and number of
units each time, thus creating a uniform demand at all workstations
 Close supplier ties: Close relationships with suppliers are needed in JIT to operate with low
levels of inventory
 Automated production: Automation is a key to low cost production

Traditional Manufacturing JIT Manufacturing

Material flow-Push system. Material flow-Pull system.
Large WIP inventory. Small WIP inventory.
Large Lot Sizes. Small Lot Sizes.
Large number of suppliers and Fewer suppliers with long term
short run relationships. relationships.

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Benefits of JIT:
 Fewer inventories of raw materials.
 Reduction of waste.
 Able to remain competitive through delivering superior service to customers.
 Massive reduction in WIP inventory, which results in lower space requirements.
 Stronger and more reliable working relations with suppliers.
 Higher profits, reduction in lead time to customer and increased customer satisfaction.
 Improved working relations between employees.
Limitations of JIT:
 Cultural difference is a possible constraint (Japanese environment)
 Success of JIT depends on the cooperation between employer-employee, training of
operators, adaptability to market functions, etc.
 There’s no flexibility and only “First Come First Served” basis
 No safety stock to offset inaccurate demand forecast
 Effective only if the daily demands are fairly stable
 Workers attitude and culture should be improved to implement the system

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 MODEL QUESTIONS

1. What is unit load in material handling? How unit load can be accomplished?
2. List different equipment used for material handling between fixed points over a fixed path.
3. Describe the factors to be considered in the design of material handling system.
4. What are the criteria for the choice of a type of material handling equipment?
5. Describe the role played by the materials management function in enabling an
organisation to achieve profitability.
6. Differentiate between P system and Q system with the help of a diagram.
7. What is P system?
8. What is Q ystem?
9. Derive the basic EOQ model and list the various assumptions on which it works.
10. Define value and its types. Compare value engineering and value analysis.
11. Describe the procedure for purchasing an item.
12. How inventories are classified and costs associated by inventories?
13. A manufacturer has to supply 10,000 units of product annually. The unit cost is Rs. 2 and it
costs Rs. 36 to place an order. The inventory carrying cost is estimated at 9% of average
inventory investment. Determine 1. EOQ 2. Optimum number of orders to be placed per
annum. 3. Minimum total cost of inventory.
14. A retailer procures batteries for quartz watches and sells them to watch repair shops. The
price paid by the retailer varies on the basis of the quantities of batteries procured by him.
The quantity and the price/unit pattern offered to him are given below:
Quantity (Q) Price per one unit of battery
0<=Q<100 Rs.20
100<=Q<200 Rs.18
200<=200 Rs.15
The monthly demand for the batteries is 600 units. The storage cost is 15% of unit cost of
the battery and the cost of ordering is Rs.30 per order. Determine the optimum quantity
to be ordered by the retailer so that the total cost of procurement is minimum.
15. Compare JIT with traditional manufacturing system.
16. What are the merits and demerits of JIT?
17. Discuss about the elements of Just In Time manufacturing.

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