MATERIAL MANAGEMENT

DEFINITION -

Material management is defined as an approach for planning ,

organizing ,and controlling all those activities principally concerned with
the flow of materials into an organization. This includes the storage of raw
material and parts and the manning of production operation centres.

SCOPE OF MATERIAL MANGEMENT

1. Materials planning and control Function: the materials planning

and control is performed on the basis of sales forecast and
production plans. It 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.

2. Purchasing Function: It involves choosing of sources of supply in

terms of purchase, purchase orders, follow-up, keeping good
relations with suppliers, payments to suppliers, evaluating suppliers. 

3. Stores Management Function: It includes physical control on

materials such as conservation of materials on stores, timely disposal
 and efficient handling, maintaining stores records, proper location
andstocking. 

4. Inventory Control Function: Effective inventory control is a must

for effective and efficient running of the production cycle with least
interruptions. Inventories refer to 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. 

5. Other related activities

 Standardization
 Simplification
 Specifications
Value analysis

INTEGATED SYSTEM OF MATERIAL

MANAGEMENT

In an integrated system the materials manager is responsible to

exercise control and coordinates with an overview that ensures
proper balance of conflicting objectives of the individual functions.
Integration also helps in the rapid transfer of data, through effective
and informal communication channels. This is crucial as the materials
management function usually involves handling a vast amount of
data. Therefore, integrating the various functions ensures that
message channels are shortened and the various functions identify
themselves to a common materials management department
which, in turn, results in greater co-ordination and better control.
ADVANTAGES OF AN INTEGRATED
SYSTEM OF MATERIALS
MANAGEMENT
Organizations which have gone in a big way for the integrated
materials management usually enjoy the following advantages :

1. BETTER ACCOUNTABILITY :

Through centralization of authority and responsibility for all aspects

of materials function, a clear cut accountability is established. This
helps in evaluating the performance of materials management in an
objective manner.

2.BETTER CO-ORDINATION :

When a central materials manager is responsible for all functions,

the departments under the materials manager create an identity
which is common. This results in better support and co-operation in
the accomplishment of the materials function. The user departments
also find that they have to approach one department for discussing
and solving their materials problems. This creates an atmosphere of
trust and generally better relations between the user departments
and the materials management department.

3. BETTER PERFORMANCE :
As all the inter-related functions are integrated organizationally,
greater speed and accuracy results in improved communication.
Need for materials is promptly brought to notice by materials
planning. Purchase department is fed with stock levels and order
status by stores and inventory control departments. All this calls for
judicious decisions leading to lower costs, better inventory in paper
work.

4.ADAPTABILITY TO EDP :

The centralization of the materials function has made it possible to

design data processing system. All information with regard to
materials function is centralized under the integrated materials
management function. This has facilitated the collection and
analysis of data, leading to better decisions. Advanced and efficient
electronic data processing systems can be economically introduced
under in integrated set-up.

5.MISCELLANEOUS ADVANTAGE :

Under a Centralized Materials Manager, a team spirit is inculcated

and this results in better morale and co-operation. The opportunities
and exposure available for the individuals for growth and
development are better in an integrated set-up. an integrated set-up,
the materials manager is responsible to exercise control and
coordinates with an overview that ensures proper balance of
conflicting objectives of the individual functions. Integration also
helps in the rapid transfer of data, through effective and informal
communication channels. This is crucial as the materials
management function usually involves handling a vast amount of
data. Therefore, integrating the various functions ensures that
message channels are shortened and the various functions identify
themselves to a common materials management department
which, in turn, results in greater co-ordination and better control.

ABC ANALYSIS
DEFINITION
Analysis of a range of items which have different levels of
significance and should be handled or controlled differently. It is
a form of Pareto analysis in which the items (such
as activities, customers, documents, inventory items, sale territories)
are grouped into three categories (A, B, and C) in order of their
estimated importance. 'A' items are very important, 'B' items are
important, 'C' items are marginally important. For example, the best
customers (typically 20 percent of the total number of customers)
who yield highest revenue (typically 80 percent of the total revenue)
are given the 'A' rating, are usually serviced by the sales manager,
and receive most attention. 'B'and'C'customer warrant  progressively
less attention and are serviced accordingly.
ADVANTAGES OF ABC ANALYSIS
This approach helps the material manager to exercise selective
control and focushis attention only on a few items when he is
confronted with lakhs of storesitems. By concentrating on ‘A’ class
items, the material manager is able to controlinventories and show
visible results in a short span of time. By controlling the ‘A’items, and
doing a proper inventory analysis, obsolete stocks are
automaticallypinpointed. Many organizations have claimed that ABC
analysis has helped inreducing the clerical costs and resulted in
better planning and improved inventoryturnover. ABC analysis has to
be resorted to because equal attention to ‘A’, ‘B’and ‘C’ items will
not be worthwhile and would be very expensive. Concentratingon all
the items is likely to have a diffused effect on all the items,
irrespective ofthe priorities.

LIMITATION OF ABC ANALYSIS

ABC analysis in order to be fully effective should be carried out
withstandardization and codification. ABC analysis is based on
grading the itemsaccording to the importance of performance of an
item that is by VITAL,ESSENTIAL and DESIRABLE (VED ANALYSIS)
analysis. Some items, thoughnegligible in monetary value may be
vital for running the plant and constantattention is needed. If the
inventory position is analyzed according to the value,commonly
known as XYZ analysis, then result of ABC andwill be different,
depending upon the nature of obsolete items. The results ofABC
analysis have to be reviewed periodically and updated. It is a
commonexperience that a ‘C’ item, like diesel oil in a firm, will
become the most highvalue item during power crisis. However, ABC
analysis is a powerful approach inthe direction of cost reduction as it
helps to control items with a selectiveapproach. The A B C system of
classification should, however, be used withcaution. For example, an
item of inventory may be very inexpensive. Under the AB C system it
would be classified into C category. But it may be very critical tothe
production process and may not be easily available. It deserves the
specialattention of management. But in terms of the A B C
framework, it would beincluded in the category which requires the
least attention. This is a limitation ofthe A B C analysis.

APPLICATION OF ABC ANALYSIS

The ABC analysis can be also be useful in several steps of the
Sourcing Value Chan:
- Demand Identification, to gather the annual spend of a site
- Demand Aggregation, to gather the annual spend of several sites
-Opportunity Assessment, to identify leveraging opportunities
The ABC tool is used to identify the “vital few” from the “trivial
many”, according to a defined set of criteria (e.g. annual
expenditure, number of orders, number of claims, occupied space
in the inventory, etc.). Different decisions may be taken from the
result of the ABC analysis.The basic utilization of the ABC analysis for
a buyer is to use it with the spend as a criterion.It helps the buyer to
identify the few A segments which will require special attention due
to the “large amount of money” they represent. A small “mistake” in
managing the few A segments may cost a lot to your company. The C
segments will require a different approach to simplify the
administrative burden to handle them.Special attention must be
given to some C segments which may represent high risk for the
business! This is one of the limits of the ABC analysis on spend!

Risk must be discussed with the stakeholders. They will define with
the buyer which of the C
segments may be “risky” for the business and will require special
attention from the buyer.
Different categories will have different “risk” criteria. For examples:
production items may be
classified by “lead time”. The longer the lead-time the “riskier” the
segment is. Other criteria
for risk may be customer sensitivity to the segment, safety issues,
etc.

CONTENTS
1 Definition of material managent

2 Scope of material management

3 Integrated system of material management

4 Advantages of integrated system of material management

5 ABC Analysis

Definition of ABC Analysis

Advantage of ABC Analysis

Limitation of ABC Analysis

Application of ABC Analysis

ASSIGNMENT OF
 MANAGEMENT OF
MANUFACTURING SYSTEM

MATERIAL MANAGEMENT

Submitted to - S.C.Mishra

Submitted by - Ravi shanker

MBA/1115/2010
Sec - B