Materials Mgt

8/2/2019 Materials Mgt

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MATERIALS MANAGEMENT

Presented by

Prof. S. N. RayHead MBA (Day) Deptt.

Indian Instt. of Social Welfare & Business ManagementKolkata

McNally Bharat Engineering Co. Ltd.11 th , 12 th , 15 th , 16 th and 17 th October, 2007


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Session # 1

CONCEPT EVOLUTION OF MM

11 th October, 2007


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Period One : The Early Years (1850-1900)

Greatest interest in and development of purchasing during theearly years occurred after the 1850s growth of the Americanrailroad.

By 1866, Pennsylvania Railroad had given the purchasingfunction departmental status, under the title of Supplying

Department.Comptroller of the Chicago and Northwestern Railroad wrote the

first book exclusively about the purchasing function. Handling ofRailway Supplies Their Purchase and Disposition, in 1987.

Period Two : Growth of Purchasing Fundamentals (1900-1939)

In 1905 the second book devoted to purchasing. Book on Buyingcontained 18 chapters, each written by a different author.


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Purchasing gained importance during World War-I of its role inobtaining vital war materials.

Harold T. Lewis noted that from World War-I to 1945, gradual ifuneven recognition development of the importance of soundprocurement to company operation.

Period Three : War Years (1940-1946)

World War-II introduced a new period in purchasing history. Themembership of the National Association of Purchasing Agentsincreased from 3,400 in 1934 to 5,500 in 1940 to 9,400 in theautumn of 1945.


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Period Four : The Quiet Years (1947-Mid 1960s)

Bruce D. Henderson, also commented about the state of affairsfacing purchasing. He noted that purchasing was a neglectedfunction in most organizations because it was not important tomainstream problems. Procurement is regarded as a negativefunction can handicap the company if not done but can makelittle positive contribution.

Postwar period saw the development of the value analysistechnique, pioneered by General Electric in 1947. GEs approachconcentrated on the evaluation of which materials or changes inspecifications and design would reduce overall costs.

Emphasis during the postwar years and throughout 1960s wason satisfying consumer demand and the needs of a growingindustrial market.


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Period Five : Materials Management Comes of Age(Mid 1960s Late 1970s)

Vietnam War, resulted in upward price and material availabilitypressures. During the 1970s, firms experienced widespreadmaterial problems related to oil shortages and embargoes.

The role of purchasing throughout the age of materialsmanagement was notable. Purchasing managers emphasizedmultiple sourcing competitive bid pricing and rarely viewed as avalue-added partner.

Period Six : The Global Era (Late 1970s - 1999)

Global competitors from the Pacific Rim and Europe capturedworld markets from American firms. These firms emphasizedquality at a lower cost in order to capture market share.


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Individual-country-based organizational structure favored bymost U.S. firms during the 1960s and 1970s became inadequatefor competing in global markets.

Technological innovation spread rapidly around the world.World Wide Web emerged ability supported taking a global view

of purchasing to achieve maximum performance benefit.

Period Seven : Integrated Supply Chain Management(2000 and Beyond)

It is possible to reach three conclusions about the new eraReshaping of purchasings role in the modern economy is

underway

Overall importance of the purchasing process is increasing

Purchasing must continue to become more integrated with customer requirements, as well as with operations, logistics,human resources, finance, accounting, marketing, and

information systems


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Session # 2 & 3

INTEGRATED APPROACH TO MM

11 th October, 2007


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MATERIALS MANAGEMENT INTRODUCTION

The word materials is synonymous with civilization.

The evolution of man is known by the material they used.

Stone Age

Bronze Age

Steel Age

Plastic Age

Nuclear AgeElectronic Age


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Material management can be defined as the functionresponsible for

Coordination of planningSourcing

Purchasing

Moving

Strong & controlling in an optimum manner so as to providea predecided service to the customer at a minimum cost.

Scope of achievement

We live in materials and grow on profits says JapaneseManagement Expert.


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ACTIVITIES OF MATERIALS MANAGEMENT

The functions of materials management are -Materials planning & programming

Purchasing & subcontracting

Inventory control

Store keeping & warehousing

Codification, standardisation & variety reduction

Transportation & material handling

Inspection & quality controlCost reduction through value analysis

Disposal of surplus materials / scrap / obsolete materials.


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Distinguished characteristics of project purchase

Materials management for project in the business is relatedto managing and directing materials, time, personnel,transport & costs to complete a particular project in anorderly, economical manner and to meet establishedobjectives in time, rupees and technical results.

In a project

There is a specific start and a specific end point

There is a well defined objective

The endeavour is unique and not repeatative

The project usually contains costs and time schedule toproduce a specified result or product.


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BASIC APPROACH

The alphabetical result approach to materials managementfor a project.

Mind your Ps

Plan for the proper utilisation of the companys fund.

Procure the most effective materials and service

Put a way to efficiently receive, inspect & utilise storagefacilities at site.

And Qs Quality is important from raw materials through

workmanship to final product.

Quality must be controlled to ensure the right quantity atright time.


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Using the Rs

Record with accuracy all transactions

Reports must be made to ensure satisfaction of objectivesand customer service.

With a basis of the Cs

Cost must be considered not only as the initial expensebut as the ultimate factor.

Communication must ensure that there is no information

gap and duplication of effort.Coordination of all materials management functions.

Cooperation among all areas of the business.


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Session # 4

BASIC PRINCIPLES OF PROCUREMENT

11 th October, 2007


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Right Quality

Right Quantity

Right Price

Right Source

Right Time

Right Place of Delivery

Right Transport


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Session # 1 VENDOR SELECTION PRINCIPLES

& BEST PRACTICES

Session # 2 VENDOR EVALUATION

TECHNIQUES 12 th October, 2007


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PROCEDURE

Searching Stage

Selection StageNegotiation & Trial Order

Rating & Experience Stage

DEVELOPMENT OF NEW SOURCES IS NECESSARYFor import substitution

To incorporate functional improvement

To reduce the overall cost of the product

To avoid the monopoly situation

Due to delay of delivery by existing vendors.

When capacity of existing vendor is limited.

To ensure availability from more than one source.


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VENDOR DEVELOPMENT AND INVENTORY CONTROL

Definition

Why vendor development or significance of it

Types of supplier development

How vendor development


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Types of supplier development

Standard items from established suppliers, e.g., steel millsfor alloy steel, large chemical industries for petroleumproducts, manufacturer of aluminium.

Proprietory item suppliers, e.g., Bearing, Grinding Wheels,etc.

Govt. Policy determines supplier, e.g., MMTC.

Items procured from Dealer, Stockist.

Procurement of near similar or standard items andconversion to original desired or non-standard items.


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Non standard items on medium or large suppliers.

Non standard items on small scale suppliers.

Off-loading of process, I.e., after carrying out someoperations on raw materials in house, balance operationsare off-loaded.

Ancillary suppliers develop suppliers as ancillarieswherein the substantial portion of the production would belifted by the purchaser.


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How vendor development

Suppliers

Who are my immediate suppliers ?

What are my true requirement ?

How do I communicate my requirements ?

Can my suppliers measure and meet my requirements ?

How do I inform them of changes in my requirements ?

Vendor Behaviour

Vendor behaviour can be defined as the behaviour that avendor displays in a dynamic market, searching for buyers,marketing goods and services.


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Procedure

Searching stage

Selection stage

Negotiation & trial order

Rating & experience stage

Monitor and upgrade performance of existing vendor.

Develop a common concern.

While searching following points are to be considered for

vendor Sound business sense and attitude.

A good track record in supplying the market in which the buyeroperates.


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A sound financial base.

A suitable technical capability with modern facilities.

A total quality orientation.

Cost effective management.

Effective purchasing acquisition and control.

Good morale among the work force.

Effective logistical arrangement.A customer service mentality.

Mainly the variables which determine the choice of supplier are :

1. Quality

2. Quantity

3. Timing

4. Service

5. Price


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While searching following points are to be considered for buyer :

Appreciate the vendors problems and help them to performtheir part of obligations.

Vendors views to be respected instead of talking to them in thelanguage of legal terms.

Treat the vendors as equal to that of customers as the goodwillof the vendor is not less important that customers in actualpractice.

Vendors must be treated as persons equally responsible forachieving the target. Periodical meeting with all the vendors toiron out the difficulties.

Be generous in arranging payment without feeling of doing acourtesy.

Initiate appropriate rewarding schemes for prompt suppliersand encourage for continuous defect-free supplies.

Gain the confidence of the vendors by consistent and soundbusiness ethics extending uniformly to all the vendors.

Lastly establish a relation of Mutual Trust.


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Techniques of Vendor DevelopmentCriticality

Selection of Items Technology

AvailabilityEconomy

Notifications in Media Trade Directories, etc.

Response from Vendors

Analyse Criteria

Select Vendors

Sample Order

Lab / Field Test

Not Accepted Accepted

Reject Make Contract


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Method of Appraisal

Preparation and issue of a questionnaire

Checking returned questionnaire

Verifying statements of short listed suppliers

Visiting suppliers premises after inspection

Verification of solvency ratios

Current ratio = Current assets

Current liabilities

Return on Capital Employed = Profit x 100%Capital employed

Vendor RatingCategorical PlanWeighted Point PlanCost-Ratio Plan


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Vendor Rating

a) Price Rating = P = Lowest Price (X initial) x 10Vendor Price (Y initial)

Data for price shall be collected from vendors initial offers.

b) Delivery Rating = D = P O Delivery (X) x 50Actual Delivery (Y)

Data for delivery shall be collected from vendors challan

Ref Transporters Consignment Note, as follows :

Delivery as per P O = X days from P O Date

Actual Delivery = Y days from P O Date


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c) Quality Rating = Q = Accepted Quantity (X) x 40

Inspected Quantity (Y)

The Data for quality shall be collected from Inspection Report.

In cases, a, b and c, if Y X, then the weightage value 10, 50 and40 respectively are to be considered as maximum value.

Minimum qualifying marks in our organization has beensuggested as below :

Price Rating : 05

Delivery Rating : 25

Quality Rating : 20Total points if 90 : Type A

75 90 : Type B

50 75 : Type C


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Session # 3

ETHICS IN PROCUREMENT MANAGEMENT

12 th October, 2007


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Framework of Ethical Behavior

Perceived ethicalissue confronts

buyer

Variablesaffecting buyers

ethical perspective

Judgment renderedby buyer

Buyer behavior

Organizationalenvironment

Personalexperiences

Culturalenvironment

Industryenvironment


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Types of Unethical Purchasing Behavior

Esciprocity

Personal BuyingAccepting Supplier Favors

Sharp Practices

Financial Conflicts of Interest

SMI Professional Code of Ethics

Supply Management Institute (formerly the National Associationof Purchasing Managers (NAPM)) is the organizationrepresenting the purchasing profession. SMI officially adoptedits initial Standards of Conduct. Standards of Conduct specifiesthree guiding principles of purchasing practice : 1) Loyalty tocompany, 2) justice to those with whom a buyer deals, and 3)faith in the purchasing profession.


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Code of Ethics

1. Consider, first, the interest of your company in alltransactions and carry out and believe in its establishedpolicies.

2. Be receptive to competent counsel from your colleaguesand be guided by such counsel without impairing thedignity and responsibility of your office.

3. Buy without prejudice, seeking to obtain the maximumvalue for each dollar of expenditure.


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Supporting Ethical Behavior

Developing a Statement of Ethics

Top-Management Commitment

Closer Buyer-Seller Relationships

Ethical Training

Developing Consistent Behavior

Internal Reporting of Unethical Behavior

Preventive Measures

Example : A firms policy limit a buyers authority awarding

purchase contracts amounts of $ 10,000. Contracts greater than$ 10,000 then require a managers signature. Must justify theselection decision based on sound purchasing criteriaobtaining the final sign-off. This provides a system of checksand balances and reduces the possibility of unethical supplierselection.


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Sources of U. S. Purchasing Law

Written law

Common law

Administrative law


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Session # 4

LEGAL ASPECTS OF PROCUREMENT

12 th October, 2007


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The Sale of goods Act, 1930

The Negotiable Instruments Act, 1881

The Central Sales Tax Act, 1956

The Indian Contract Act, 1872The Partnership Act, 1932

The Sales Tax Acts and Rules of various States

The Companies Act, 1956

The Arbitration Act 1948 (Arbitration & Conciliation Act, 1998)


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The Sale of goods Act, 1930SaleAgreement to sale

GoodsContract of Sale of Goods

A contract may provide for a) Immediate delivery of goods or immediate payment or both

b) Delivery or payment by installments or both at a future dateThe Price :a) may be fixed ; orb) may be left to be fixed in a manner agreed upon ; orc) may be determined in the course of dealing between the two

parties ord) may be fixed after valuation by a third party

If the price is not fixed as per a) or b) or c) or d) the buyer shallpay to the seller a reasonable price.


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Conditions and warranties

Effects of a contract

Transfer of title

Delivery

Rights of unpaid seller

Agency

Definition of agent

a person employed to do any act for another, or torepresent in dealings with third persons


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Termination of agency

If the principal revokes his authority or

If the agent renounces the business of the agency or

If the business of the agency is completed or

If either the principal or the agent dies.

Arbitration


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Session # 1

INVENTORY MANAGEMENT /FORECASTING TECHNIQUES

17 th October, 2007


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TYPE OF INVENTORY

Inventory

Direct Inventory Indirect Inventory(MRO Inventory)(Maintenance, Repairs& Operating Supplies)e.g., Petrol, Oil,Lubricating Oil, M/cand Repair Parts, Jigs,Tools, etc. These arenot part of finishedproduct but requiredfor maintenance of theproduction process.

ProductionInventory

WIPInventory

FinishedInventory Goods

1. Raw Materials

2. Components3. Special parts

for finishedproducts


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CLASSIFICATIONS CRITERIA

1. A-B-C (sometimes Annual value of consumption ofcalled : Always the items concerned.Better control) (It has nothing to do with the

unit value of the item)

2. H-M-L Unit Price of material.(High, Medium, Low) (This is opposite of A-B-C

and does not take consumptioninto account)

3. V-E-D By the critical nature of the(Vital, Essential component or material with& Desirable) respect to production.

4. S-D-E (Scarace, Purchasing problems in regardDifficult to obtain, to availability.

easy to obtain)


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CLASSIFICATIONS CRITERIA

5. G O L F (Govt., Source from which the materialordinary, local, is obtained.foreign)

6. F S N (Fast moving, Issues from stores.

Slow moving &Non-moving)

7. S-O-S (Seasonal, Seasonality. This applies

Off-seasonal) specially to commodities.

8. X-Y-Z The inventory value of theitems stored.


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Session # 2

E-COMMERCE LOGISTICS

Session # 3

PROJECT MANAGEMENT &GLOBAL SOURCING CASE

ANALYSIS

17 th October, 2007


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PROCESS OF GLOBAL SOURCING

MBE AGMPurchase

Search for productand suppliers

CatalogueTest Drives

Orderproduct

Vendor communication& negotiation

World widewev

Test andinspection passed

Delivery ofconsignment

RamseyAustralia

Credit suppliersaccount

Pay by cardE-cash

KEY___ Electronic Highway of Internet----- Physical Highway

E-Cash - Emergency cash of cyberspace available to buyerfor Global procurement through Internet.


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THANK YOU

Materials Mgt

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