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Materials management can deal with campus planning and building
design for the movement of materials, or with logistics that deal with the
tangible components of a supply chain. Specifically, this covers the
acquisition of spare parts and replacements, quality control of
purchasing and ordering such parts, and the standards involved in
ordering, shipping, and warehousing the said parts.
GOALS OF MATERIAL MANAGEMENT:
The goal of materials management is to provide an unbroken chain of
components for production to manufacture goods on time for the
customer base. The materials department is charged with releasing
materials to a supply base, ensuring that the materials are delivered on
time to the company using the correct carrier. Materials is generally
measured by accomplishing on time delivery to the customer, on time
delivery from the supply base, attaining a freight budget, inventory
shrink management, and inventory accuracy. The materials department
is also charged with the responsibility of managing new launches.
In some companies materials management is also charged with the
procurement of materials by establishing and managing a supply base. In
other companies the procurement and management of the supply base is
the responsibility of a separate purchasing department. The purchasing
department is then responsible for the purchased price variances from
the supply base.
In large companies with multitudes of customer changes to the final
product over the course of a year, there may be a separate logistics
department that is responsible for all new acquisition launches and
customer changes. This logistics department ensures that the launch
materials are procured for production and then transfers the
responsibility to the plant materials management
BENEFITS:
The effective materials management plan builds from and enhances an
institutional master plan by filling in the gaps and producing an
environmentally responsible and efficient outcome. An institutional
campus, office, or housing complex can expect a myriad of benefits
from an effective materials management plan. For starters,there are longterm cost savings, as consolidating, reconfiguring, and better managing a
campus’ core infrastructure reduces annual operating costs. An
institutional campus, office, or housing complex will also get the highest
and best use out of campus real estate.
An effective materials management plan also means a more holistic
approach to managing vehicle use and emissions, solid waste, hazardous
waste, recycling, and utility services. As a result, this means a “greener,”
more sustainable environment and a manifestation of the many demands
today for institutions to become more environmentally friendly.
INVENTORY
The word inventory is commonly used to describe the goods and
materials that a business holds for the ultimate purpose of resale (or
repair). InAmerican English, the word stock is commonly used to
describe the capital invested in a business
 Inventory management is a science primarily about specifying the
shape within a facility or within many locations of a supply
network to precede the regular and planned course of production
and stock and percentage of stocked goods. It is required at
different locations of materials.
 The scope of inventory management concerns the fine lines
 , set targets, provide replenishment techniques, report actual and
projected inventory status and handle all functions related to the
tracking and management of material. This would include the
monitoring of material moved into and out of stockroom between
replenishment lead time, carrying costs of inventory, asset
management, inventory forecasting, inventory valuation, inventory
visibility, future inventory price forecasting, physical inventory,
available physical space for inventory, quality management,
replenishment, returns and defective goods, and demand
forecasting. Balancing these competing requirements leads to
optimal inventory levels, which is an on-going process as the
business needs shift and react to the wider environment.
 Inventory management involves a retailer seeking to acquire and
maintain a proper merchandise assortment while ordering,
shipping, handling, and related costs are kept in check. It also
involves systems and processes that identify inventory
requirements locations and the reconciling of the inventory
balances. It also may include ABC analysis, lot tracking, cycle
counting support, etc.
 Management of the inventories, with the primary objective of
determining/controlling stock levels within the physical
distribution system, functions to balance the need for product
availability against the need for minimizing stock holding and
handling costs.
Definition
Inventory management is primarily about specifying the size and
placement of stocked goods. Inventory management is required at
different locations within a facility or within multiple locations of a
supply network to protect the regular and planned course of production
against the random disturbance of running out of materials or goods. The
scope of inventory management also concerns the fine lines between
replenishment lead time, carrying costs of inventory, asset management,
inventory forecasting, inventory valuation, inventory visibility, future
inventory price forecasting, physical inventory, available physical space
for inventory, quality management, replenishment, returns and defective
goods and demand forecasting and also by replenishment Or can be
defined as the left out stock of any item used in an organization
The reasons for keeping stock
There are four basic reasons for keeping an inventory:
1. Time - The time lags present in the supply chain, from supplier to
user at every stage, requires that you maintain certain amounts of
inventory to use in this lead time. However, in practice, inventory
is to be maintained for consumption during 'variations in lead
time'. Lead time itself can be addressed by ordering that many
days in advance.
2. Uncertainty - Inventories are maintained as buffers to meet
uncertainties in demand, supply and movements of goods.
3. Economies of scale - Ideal condition of "one unit at a time at a
place where a user needs it, when he needs it" principle tends to
incur lots of costs in terms of logistics. So bulk buying, movement
and storing brings in economies of scale, thus inventory.
4. Appreciation in Value - In some situations, some stock gains the
required value when it is kept for some time to allow it reach the
desired standard for consumption, or for production. For example;
beer in the brewing industry
All these stock reasons can apply to any owner or product
What are the objectives of inventory management?
The main objective of inventory management is to maintain inventory at
appropriate level to avoid excessive or shortage of inventory because
both the cases are undesirable for business. Thus, management is faced
with the following conflicting objectives:
1. To keep inventory at sufficiently high level to perform production and
sales activities smoothly.
2. To minimize investment in inventory at minimum level to maximize
profitability.
Other objectives of inventory management are explained as under:-
1. To ensure that the supply of raw material & finished goods will
remain continuous so that production process is not halted and demands
of customers are duly met.
2. To minimize carrying cost of inventory.
3. To keep investment in inventory at optimum level.
4. To reduce the losses of theft, obsolescence & wastage etc.
5. To make arrangement for sale of slow moving items.
6. To minimize inventory ordering costs.
Points wise objectives:
(1) Maximize customer service
(2) Minimize costs
1. Cost Objective: Minimize sum of relevant costs
2. Service Objective: desired customer service levels significantly
impact inventory levels.
Service level may be defined in a number of ways, such as: order
quantity and order timing.
Economic order quantity
Economic order quantity is the order quantity that minimizes total
inventory holding costs and ordering costs.
EOQ applies only when demand for a product is constant over the year
and each new order is delivered in full when inventory reaches zero.
There is a fixed cost for each order placed, regardless of the number of
units ordered. There is also a cost for each unit held in storage,
commonly known as holding cost, sometimes expressed as a percentage
of the purchase cost of the item.
We want to determine the optimal number of units to order so that we
minimize the total cost associated with the purchase, delivery and
storage of the product.
The required parameters to the solution are the total demand for the year,
the purchase cost for each item, the fixed cost to place the order and the
storage cost for each item per year. Note that the number of times an
order is placed will also affect the total cost, though this number can be
determined from the other parameters.
Variables


= purchase price, unit production cost
= order quantity

= optimal order quantity

= annual demand quantity

= fixed cost per order, setup cost (not per unit, typically cost of
ordering and shipping and handling. This is not the cost of goods)

= annual holding cost per unit, also known as carrying cost or
storage cost (capital cost, warehouse space, refrigeration, insurance,
etc. usually not (but sometimes) related to the unit production cost)
The Total Cost function
The single-item EOQ formula finds the minimum point of the following
cost function:
Total Cost = purchase cost or production cost + ordering cost + holding
cost
- Purchase cost: This is the variable cost of goods: purchase unit price ×
annual demand quantity. This is c×D
- Ordering cost: This is the cost of placing orders: each order has a fixed
cost K, and we need to order D/Q times per year. This is K × D/Q
- Holding cost: the average quantity in stock (between fully replenished
and empty) is Q/2, so this cost is h × Q/2
.
To determine the minimum point of the total cost curve, partially
differentiate the total cost with respect to Q (assume all other variables
are constant) and set to 0:
Solving for Q gives Q* (the optimal order quantity):
Therefore:
.
Q* is independent of c; it is a function of only K, D, h.
The optimal value Q* may also be found by recognising that
where the non-negative quadratic term disappears for
which provides the cost minimum
CRITICISM OF EOQ CONCEPT:
The EOQ is mainly criticized due to the following aspects:





Unrealistic assumptions
Difficulties in measurement of various cost
Criteria of minimizing total cost
Computational complications
Difficulties in its implementation
ABC Analysis:
ABC analysis (Inventory)
In supply chain, ABC analysis is an inventory categorization method
which consists in dividing items into three categories, A, B and C: A
being the most valuable items, C being the least valuable ones. This
method aims to draw managers’ attention on the critical few
(Aitems) and not on the trivial many (C-items).
Prioritization of the management attentionInventory optimization is
critical in order to keep costs under control within the supply chain.
Yet, in order to get the most from management efforts, it is efficient
to focus on items that cost most to the business.
The Pareto principle states that 80% of the overall consumption
value is based on only 20% of total items. In other words, demand is
not evenly distributed between items: top sellers vastly outperform
the rest.
The ABC approach states that, when reviewing inventory, a
company should rate items from A to C, basing its ratings on the
following rules:
-items are goods which annual consumption value is the highest.
The top 70-80% of the annual consumption value of the company
typically accounts for only 10-20% of total inventory items.
-items are, on the contrary, items with the lowest consumption
value. The lower 5% of the annual consumption value typically
accounts for 50% of total inventory items.
-items are the interclass items, with a medium consumption
value. Those 15-25% of annual consumption value typically
accounts for 30% of total inventory items.
ABC analysis can be efficiently utilized for the stores layout as well.
Quite a bit of time and effort can be saved, which otherwise is lost in
locating the items, by depositing the fast moving items near the points of
issue.
Most of these items will; belong to ‘A’ Category
B items which are less active can be put slightly further.
Most of C items can be put in the less accessible area except those few
which might have fallen in C category because of their low unit price
and not because of their low consumption. Such items may also be
located in readily accessible areas.
Value Analysis:
To secure maximum benefits it is essential to select those items for value
analysis which offer the highest scope for cost reduction. The ABC
analysis is a helpful step in this direction.
Purpose of ABC Analysis:
The object of carrying our ABC analysis is to develop policy guidelines
for selective controls. Normally, once analysis has been done, the
following broad policy guidelines can be established in respect of each
category.
‘A’ items merit a tightly controlled inventory system with constant
attention by the purchase manager and stores management.
‘B’ items formalized inventory system with periodic attention by
purchase and stores management.
‘C’ items use a simpler system designed to cause the least trouble for the
purchase and stores department.
A items: High consumptions value
1) Very strict control
2) No safety stock
3) Frequent ordering
4) Weekly control statements
5) As many sources as possible for each item
6) Rigorous value analysis
7) Accurate forecast in materials planning
8) Minimization of waste obsolete and surplus
9) Maximum efforts to reduce lead time.
B items: Moderate value
1) Moderate control
2) Low safety stock
3) Once in 3 weeks
4) Monthly control reports
5) Two or more reliable sources
6) Moderate value analyses
7) Estimate based on past data on present plans
8) Quarterly control over surplus and obsolete items
9) Moderate efforts.
C items: Low consumptions value
1) Low control
2) High safety stock
3) Bulk ordering once in 6 months
4) Quarterly control reports
5) Two reliable sources for each item
6) Minimum value analysis
7) Rough estimates for planning
8) Annual review over surplus and obsolete materials
9) Minimum clerical efforts
Making ABC Analysis:
The entire procedure for making ABC analysis can be summarized in the
following steps:
1) Calculate rupee annual issues or each item in inventory by
multiplying the unit cost byte number of units used in a year.
2) Sort all items by rupee annual issues in descending order.
3) Prepare a table showing item No., Unit cost, annual units issued and
annual rupee value of unit issued.
4) Starting at the top of the list compute a running total item by item
issue value and the rupee value of consumption.
5) Compute the cumulative percentage for the item count and
cumulative annual issue value.
The normal items in most organizations show following pattern:
1) 5% to 10% of top numbers items account for 70% of total
consumption value. These items are ‘A’ class.
2) 15% to 20% of the number items account for 20% of total
consumption value. They are ‘B’ class.
3) The remaining number of items account for the balance 15% of total
consumption value. They are ‘C’ class items.
Advantages of ABC analysis:
This approach helps the materials manager to exercise selective control
and focus his attention only on a few items when he is confronted with
lakhs of stores items.
By concerning on ‘A’ category the materials manager is able to control
inventories and show visible results in a short span of time, By
controlling the ‘A’ its and doing a proper inventory analysis, obsolete
stocks are automatically pinpointed. Many organizations have claimed
that the ABC analysis has helped in reducing the clerical costs and
resulted in better planning and improved inventory turnover. ABC
analysis has to be resorted to because equal attention to ‘A’ ‘B’ and ‘C’
items will not be worth while and would be very expensive.
Concentrating on all the items is likely to have a diffused effect on all
the items irrespective of the priorities.