Materials Management Unit-1: Course Code: MBLS6003 Faculty: Mr. Ashok Kumar Sharma Mba 3 Semester

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Materials Management

Unit-1
Course code: MBLS6003 Faculty: Mr. Ashok Kumar Sharma
MBA 3rd semester

I.RAGHAVENDER
TANMAY SINHA
Table Of Contents:
1. Importance of material management
2. Structure of material management
3. K.F.A of material management
4. Operational activities of material management
5. Challenges of M.M planning
6. Material resources planning
7. Importance and role of MRP
8. Systems approach to M.M
9. Standardization and its benefits
10.Purchasing process and generation of receipts
11.Flowchart of quality check process
12.Objectives and scope of M.M
IMPORTANCE OF MATERIALS MANAGEMENT

PLANNING AND PURCHASING OF INVENTORY STORE KEEPING STORES REDUCES


PROGRAMMING OF MATERIALS CONTROL ACCOUNTING TRANSPORTATION
MATERIALS COST

MATERIALS WASTE
ECONOMICS MANAGEMENT
STRUCTURE OF MATERIAL MANAGEMENT

Client:
• From a business viewpoint, the client could represent a
corporate group.
• The client is the highest hierarchical level in the SAP system.
• A client is considered synonym for a group. Creation of client in
SAP is a technical requirement.
• It is the highest node or the hierarchy of the enterprise or
organizational structure in SAP.
• Several company codes can be maintained within a client.
STRUCTURE OF MATERIAL MANAGEMENT
Company Code:
• Company code is SAP is the organizational unit which is the created in Finance
(FI) module and the same is linked with Materials Management module.
• Strictly speaking it does not belong to SAP MM organizational structure.
• Company code represents an independent company.
• Company which is a legal entity and statutory requirement is to maintain a
separate balance sheet.
• Profit and loss statement are created and maintained at the company code
level.
STRUCTURE OF MATERIAL MANAGEMENT

Plant:
• Plant in the SAP system is a broad term which has a varying
definition when different logistics modules come into
discussion.
• In Materials Management (MM) module, a plant is referred
to as a facility where the material stock is kept, stored and
inventory is maintained.
• In Production Planning (PP) module, a plant is referred to as
a production facility where the production of goods is done.
STRUCTURE OF MATERIAL MANAGEMENT

Storage Location
• Storage Location is an organizational unit in logistics
which is assigned to a plant where the stock is kept, and
inventory is managed.
• Storage Location can be characterized and vary based on
their properties like Raw Material Storage Location,
Finished Goods Storage Location, Spares Storage
Location, Returns Sales Storage Location, Temperature
Controlled Storage Location, etc.
• Materials management is defined as “the
function responsible for the coordination of
planning, sourcing, purchasing, moving, storing
DEFINITION OF and controlling materials in an optimum manner
MATERIAL so as to provide a pre-decided service to the
customer at a minimum cost.” From the
MANAGEMENT definition it is clear that the scope of materials
management is vast.
KEY FUNCTION AREAS OF MATERIAL MANAGEMENT

• Materials planning and control:


Based on the sales forecast and production
plans, the materials planning and control is
done. This involves estimating the individual
requirements of parts, preparing materials
budget, forecasting the levels of inventories,
scheduling the orders and monitoring the
performance in relation to production and
sales.
KEY FUNCTION AREAS OF MATERIAL MANAGEMENT

• Purchasing:
This includes selection of sources of
supply finalization in terms of purchase,
placement of purchase orders, follow-
up, maintenance of smooth relations
with suppliers, approval of payments to
suppliers, evaluating and rating
suppliers.
KEY FUNCTION AREAS OF MATERIAL MANAGEMENT

• Stores management or management:


This involves physical control of materials,
preservation of stores, minimization of
obsolescence and damage through timely
disposal and efficient handling, maintenance
of stores records, proper location and
stocking. A store is also responsible for the
physical verification of stocks and reconciling
them with book figures. A store plays a vital
role in the operations of a company.
KEY FUNCTION AREAS OF MATERIAL MANAGEMENT

• Inventory control or management:


Inventory generally refers to the materials in stock. It is also called
the idle resource of an enterprise.
• Inventories represent those items, which are either stocked for sale
or they are in the process of manufacturing or they are in the form
of materials, which are yet to be utilized. 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.
KEY FUNCTION AREAS OF MATERIAL
MANAGEMENT
• Other related activities
3S

• Standardization: Standardization means producing maximum variety of products from the minimum variety of materials, parts, tools and
processes. It is the process of establishing standards or units of measure by which extent, quality, quantity, value, performance etc. may be
compared and measured.
• Simplification: The concept of simplification is closely related to standardization. Simplification is the process of reducing the variety of products
manufactured. Simplification is concerned with the reduction of product range, assemblies, parts, materials and design.
• Specifications: It refers to a precise statement that formulizes the requirements of the customer. It may relate to a product, process or a
service.
• Example:
Specifications of an axle block are Inside Dia. = 2 ± 0.1 cm, Outside Dia. = 4 ± 0.2 cm and Length = 10 ± 0.5 cm.
• Value analysis: Value analysis is concerned with the costs added due to inefficient or unnecessary specifications and features. It makes its contribution
in the last stage of product cycle, namely, the maturity stage. At this stage research and development no longer make positive contributions in terms
of improving the efficiency of the functions of the product or adding new functions to it.
• Ergonomics (Human Engineering): The human factors or human engineering is concerned with man-machine system. Ergonomics is “the design of
human tasks, man-machine system, and effective accomplishment of the job, including displays for presenting information to human sensors, controls
for human operations and complex man-machine systems.” Each of the above functions is dealt in detail.
OPERATIONAL ACTIVITIES OF MATERIAL
MANAGEMENT
Activity Areas of Materials Handling:
• For effective materials handling, materials handling engineer must look after handling work in different areas, some of them are:
• 1. Packaging and packing of raw material for the industry.
• 2. Loading and transportation to the plant.
• 3. Unloading activities.
• 4. Receiving, storage and issue of material for production.
• 5. In-process handling.
• 6. In-process storage.
• 7. Work-place handling.
• 8. Infra-departmental handling.
• 9. Inter-departmental handling.
• 10. Intra plant handling.
• 11. Packaging.
• 12. Warehousing.
• 13. Packing.
• 14. Loading and transportation to customers/distributors/dealers place.
CHALLENGES OF MATERIAL MANAGEMENT
PLANNING
CHALLENGES -- DECISION MODELING:
• There are a number of managerial decisions that create and regulate
the supply chain and are embedded in the five-phase process for
materials management.
• Tables offers a consolidated list of these decisions and the elements of
each decision in terms of alternatives, parameters, and performance
measures.
CHALLENGES OF MATERIAL MANAGEMENT
PLANNING
Bidding Phase Decision

Decision Alternatives Parameters Performance Measures


What is the EC’s bid price? • Contract bid price • Project specifications • Expected contract profit
• Reject bid request • Project schedule • Financial risk
CHALLENGES OF MATERIAL MANAGEMENT
PLANNING
Sourcing Phase Decisions

Decision Alternatives Parameters Performance Measures


What type of material to • Major material • Project specifications • On site availability
buy? • Commodities • Project schedule • Purchase cost
• Consumables • Foreman’s • Alternative use
habits/practices • Suitability
• Production and usage
• Needed vs. wanted
Award • Local suppliers • Arrangement with • Projected shortages
supplier/manufacturer • Non-local suppliers suppliers • Inventory
contracts. • Vendor Managed • Availability • Quality
Inventory • Criticality • Quantities
• Manufacturers • Location of supplier
• Location of project
• Supplier’s performance •
Discounts
CHALLENGES OF MATERIAL MANAGEMENT PLANNING
Procurement Phase Decisions
Decision Alternatives Parameters Performance Measures
When to buy material? • 3 months in advance • Type of material (commodity • Projected shortages
• 1 month in advance vs. major) • Inventory
• 1 week in advance • Project schedule • Direct costs
• 1 day in advance • Uncertainty in project • Indirect costs
• Same day schedule
• Storage Capacity
• Location of the project
• Location of the supplier •
Criticality of the material
• Order to install vs. order to
pre-fab
• Supplier’s performance and
ability to meet schedules
• Project specifications
• Project schedule
• Foreman’s habits/practices
• Needed vs. wanted
CHALLENGES OF MATERIAL MANAGEMENT
PLANNING
Procurement Phase Decisions

Decision Alternatives Parameters Performance Measures


How much to order? • As estimated • Project schedule • Surplus
• Less than estimated Uncertainty in project • Projected shortages
• More than estimated schedule • Indirect costs
• Storage capacity
• Installation rate and
usage
• Procurement cost rates •
Indirect cost rates
• Discounts
CHALLENGES OF MATERIAL MANAGEMENT
PLANNING
Procurement Phase Decisions

Decision Alternatives Parameters Performance Measures


When to deliver? • Single or multiple • Project schedule • Surplus
shipments • Uncertainty in project • Projected shortages
• Shipment quantities schedule • Indirect costs
• Storage capacity
• Installation rate and
usage
• Procurement cost rates •
Indirect cost rates
CHALLENGES OF MATERIAL MANAGEMENT
PLANNING
Construction Phase Decisions

Decision Alternatives Parameters Performance Measures


Where to deliver? • Jobsite • Project schedule • Loss
• Warehouse/ Pre-fab • Uncertainty in project • Theft
shop schedule • Damage
• Subcontractor • Storage capacity • Re-handling
• Immediate installation
vs. critical item not be
installed immediately.
• To be used in prefab or
not
• Costs
• Location of the project
• Location of the
warehouse
CHALLENGES OF MATERIAL MANAGEMENT
PLANNING
Post-Construction Phase Decisions

Decision Alternatives Parameters Performance Measures


What to do with surplus • Return to the supplier • Space availability in • Projected shortages
material? with penalty warehouse • Inventory costs
• Return to the supplier • Expected need for the • Damage
with no penalty material in future projects. • Penalty costs
• Send it to the warehouse • Actual need for the • Opportunity costs
• Sell it to other material in an existing
contractors project.
• Scrap it
MRP(MATERIAL RESOURCE PLANNING)
MRP is a production planning, scheduling, and inventory control system used to
manage manufacturing processes. Most MRP systems are software-based, but it is
possible to conduct MRP by hand as well.

An MRP system is intended to simultaneously meet three objectives:

• Ensure materials are available for production and products are available for
delivery to customers.

• Maintain the lowest possible material and product levels in store

• Plan manufacturing activities, delivery schedules and purchasing activities.


The Importance and Role of MRP

The purpose of MRP which is to streamline 3 main processes within a manufacturing unit:

• Minimise lead times

• Optimise inventory levels

• Maximise service levels to boost business efficiency

• Inventory Levels - MRP enables inventory managers to be able to reduce the level of component parts
and raw materials inventory. MRP systems work backward from production scheduling, in which it
determines the amount of inventory needed to meet overall production demand.

• Purchasing Planning - This portion of the software pertains to what inventory is needed in order to meet
demand. Any information pertaining to how much material is needed in order to meet product demand
will help managers plan for any future facilities expansion.
The Importance and Role of MRP

• Production Planning - Production of finished goods is dependent on availability of raw materials and
component parts. MRP is able to identify shortages in inventory times in order that managers can then
shift production assets to the manufacturer of other items that have those parts on hand.

• Work Scheduling - MRP systems are able to provide a concise visual representation of inventory
available for the production process. Managers can then use this information to schedule labor to meet
needs of the overall process without overstaffing the production line.
How Does MRP Work
Systems Approach To Material Mgmt
Standardization

What is process standardization?


• Fundamentally, process standardization describes the establishment of a set of rules governing how
people in an organization are supposed to complete a given task or sequence of tasks.

• Standardization can be applied to any process, any task or procedure that is relevant to the
organization: answering the phone, doing payroll, taking down client information, keeping track of
tasks, etc.
The benefits of standardization

Fundamentally, standardization means that your employees have an established, time-tested process to
use.
When done well, standardization can decrease ambiguity and guesswork, guarantee quality, boost
productivity, and increase employee morale.

Some benefits of standardization are as follows:

• Improves clarity — because a standard process will eliminate the need for guesswork or extra
searching

• Guarantees quality — because work is done in a pre-defined, optimized way

• Promotes productivity — because your employees won’t need to ask around or comb documentation
to get answers

• Boosts employee morale — because employees can take pride in having mastered the process and
refined their skills
Purchasing Process and generation of receipts
Quality Check Process
Procedure for Purchasing and Receiving of
Materials

• Purchase Requisition

• Selection of Suppliers

• Purchase Order and Follow-Up

• Receipt of Materials

• Inspection and Testing of Materials

• Return of Rejected Materials

• Passing Invoices for Payment


Documents needed in support of the invoice:

(a) Purchase Order.

(b) Goods Received Note.

(c) Inspection Report.

(d) Debit/Credit Note.

After comparing these documents with the invoice, if it is found that the invoice is in order, the
purchase manager will sign it and pass it to the accounts department for payment.
Objectives and Scope of Material Management
• To effect economies in the cost of materials by purchasing materials of the right quality, in the right quantity, at
the right time, from the right source, at the right price

• To affect economies in the costs incurred on materials after they have been purchased, through storage,
processing and warehousing, till the finished goods ultimately reach the customer. These economies contribute
towards cost thereby leading to higher profits

• To reduce working capital requirements through proper and scientific inventory control

• To be alive to the changes in the market in respect of new products; and consequently
• To increase the competitiveness of manufactured goods by making it possible to reduce their prices through
cost reduction, especially by value analysis

• To save foreign exchange through import substitution and economizing on foreign purchases

• To ensure cooperation among all departments of the enterprise to meet materials management objectives
both at the corporate and functional levels and to ensure proper coordination in respect of such activities

• To conserve materials resources within enterprise, thereby contributing to the conservation of national
resources.
THANK YOU

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