Material Management

The economic working of business enterprises requires that the available capital resources are used most judiciously. Several studies in the field of inventory control have revealed that materials account for more than 60 per cent of the sale value. However, these costs vary from industry to industry. Information management in the field of inventory control can thus easily lead to 5 per cent reduction in material costs. These trends can help in developing management information system in this important area

The objectives:

1. To minimise investment in inventories;

2. To provide materials of a specified quality at the lowest cost;

3. To perform functions of material handling and storage so that keeping costs are minimised

4. To cut cost through standardisation, value analysis, waste control and import substitute

5. To improve procedures and to delegate authority and responsibilities at various levels of materials management.

Major Activities:

1) Material Planning/Specifications

2) Requirement determination

3) Inventory management

4) Purchasing

5) Production Scheduling

6) Stocking

7) Allocation

8) Distribution

Materials Planning:

This is the first crucial activity in materials management. The important input here is the sales forecast. The sales forecast is converted into finished goods forecast, and the bill of materials is used for exploding the requirements of finished goods into the requirements of materials.

The bill of materials is a document containing a detailed list of all raw materials, components and sub- assemblies needed for manufacturing a particular final product. Computer systems can help in storing the bill of materials internally in the machine.

Also, in computerised planning it is possible to send the exploded requirements over the future. This is done by assigning levels which is known as product structuring. Prograrnrnes are available to assign a level.

Requirements Determination:

a) Direct Materials.

These include raw materials, components, assemblies, etc. which form a part of the products which a company is selling. The requirements of direct materials have to be derived from forecast of product sales. The computer can assist in forecasting product demand. The requirement of all the direct materials car be arrived at using the Bill of Materials File. Further, the requirement it provides will be net requirement taking into account inventories on hand. Thus, at each level (finished goods, assembly, sub-assembly, component, raw material) it will check inventory, compute net requirement, explode this into the requirement for the next level materials and so on until it derives the requirements for the lowest level materials.

b) Indirect Materials:

Indirect materials, do not form part of products, but are necessary to keep an organisation working e.g.; Spares, Oils, Stationary, etc.

The requirement of indirect materials is usually derived from the past consumption figures. The requirement of indirect material, for the coming year can be calculated by taking the consumption for the past year and increasing it by an ad-hoc percentage.

Some of the items in any organisation are impossible to forecast well. However, much better forecasts can be obtained for the bulk of items using statistical forecasting techniques.

The adverse effect of Poor detertnination of requirements is the excess inventory, stock-out, non- moving items etc. Hence, through computers quick and economical forecasting of the materials can be obtained in comparison to the manual forecasting which may take a lot of time and labour.

Inventory Management

In organisations, goods such as raw materials, finished products, spares, consumables etc. are kept in stock so that whenever need arises these items are available off the shelf and the business does not suffer on account of non-availability of the items.

Computers are used to control the level of inventories and to provide materials at the right time. Computers can handle various data such as price, lead time, ordering cost, carrying cost, historical data on delivery performance and so on very easily.

ABC analysis, Economic Order Quantity etc are a few techniques, explained below, which are programmed into the computer to avoid tedious and time-consuming calculations. Statistical and mathematical analysis of reserve stock, safety stock and reorder points for thousands of items becomes almost impossible to control manually which is made easier by using computer programmes for each of' these factors.


ABC Analysis
Items stocked are usually classified into A, B and C depending on specific criterion e.g. all items whose issues are above Rs. 10,000 could be classified as A items, below Rs. 1000 as C items and all others into items.

A look at the inventory value of the items in the store will clearly indicate that a few items in inventory account for much of the value whereas a great number of other items comprise a minor portion of the total value. Classification of the items into different classes commonly known as A, B and C enables a better management of the inventory. About 15% to 20% of the items falling under ‘Class A' will account for 75% to 80% of the total value.

A-items are normally controlled manually with crucial and timely information support from computers. Thus, computers may print out the stock status of A-items, orders pending execution, expected consumption etc. so that follow-up will be done on a selective basis to keep inventories at minimum. B- and C- items are usually large in number and here computers may be used to order Economic Order Quantity and reorder point control can be used.

Economic Order Quantity (EOQ):


Often, when the stock of an item falls below the minimum level, replenishment orders are placed with the Purchase Department. When an order is placed, we should consider what is the most economical quantity to be ordered. For example, suppose the stock of bricks in a construction company has gone below the minimum level and you immediately need a quantity of another 500 bricks for completion of a certain job. If you order for just 500 bricks, which has to be procured from say 50 kilometeres away, you will have to engage a truck for transportation and pay for a full load as freight charges, which would be rather too costly. So, the economic order level would be for a full load of bricks, which may be in the order of 5000 bricks. Thus, the cost per brick stocked would be kept to the minimum.
Requisition analysis, processing of enquiries and quotation analysis can be done effectively using computers, Receipt and issue documents can be easily computerised.

Inventory Management and Control has the duty maintaining a minimum level of inventory to give a maximum customer service. The inventory and control in a computerised MIS always helps to know what has been supplied, received requisitioned the previous month. How much we have on hand and on order? 
These questions are answered by the standard stock status report prepared by the computer centre which gives:

Part Number
Month Beginning Inventory
Month-to-Date Supplies
Month-to-Date Receipts

Month-to-Date Requisitions
Inventory on Hand, Quantity and Value
Inventory on Order, Quantity and Value

The Production Control Sub-system has the responsibility of keeping the Inventory Management and Control Subsystem supplied with parts If a purchased part is required, production control sends a notice to purchasing. If manufactured part is required, production control sends a request to computer centre processing the information which then types the shop order and at the same time, generates job tickets and material requisitions.

Purchasing:


The main functions of the purchase department are as follows:
1. Receiving indent information, inviting quotations, tenders and to carry out scrutiny of quotations.
2. The purchase department arranges import licence and foreign exchange if any component and materials required in the production of the product is to be imported.
3. It handles the placement of orders, follow-up action till the material is received in the department.
4. The storage of materials, passing of bills and payments to the vendors is entrusted by the purchase ` department.
5. It handles the disposal of the items in different departments which have become obsolete or for which the stock levels are much in excess of the demand.

The advantage of using computers


1. For the purpose of routine purchase order follow-up, the computer can provide either a complete list of outstanding purchase orders or an exception report of those purchase orders where the delivery is either overdue or due within a specified period.

2. The computer can provide a warning signal for those ordered items which have to he expedited very urgently even though their delivery is not due for quite some time. It does this by showing outstanding purchase orders where the stock is either zero or very low.

3. The computer can provide the following information for vendor evaluation:
a) Quality, in terms of percentage of rejections b) Delivery, in terms of actual lead time versus promised lead time of supply c) Price, in relation to supplies from other vendors

Production Scheduling:

Computer Packages in job shop type of companies provide the following benefits:


1. A delivery data indication for the final product that is realistic and can be adhered to.
2. Better utilisation of manufacturing capacity.
3. Indication of overloads so that timely action can be taken to sub-contract or provide for overtime working.


Production Scheduling packages indicate the last date on which each part must be available to enable completion of finished product on time.

Computerised production scheduling requires the preparation of a Structured Bill of Materials file which indicate the assemblies that go into the finished product, the sub assemblies that go into each assembly and so on.

Stocking:

Computer can assist in the random physical Verification of the stock and provide a list of all items which are there in the stock. Also, if location codes have been assigned to storage locations in the stores, the computer can provide the list in the sequence of' location codes. This saves considerable time and also enables persons with very limited familiarity of stores to do the physical stock verification.