Materials management

Contents
Definition chapter one

Objective and importance

Principles of material management

Functions of material management

Organization of materials management

1
 Material Definition

It is defined as an organizational concept,

which has the authority and responsibility of
all activities, concerned with the flow of
materials in the organization.

2
 Definition of material
It is concerned with planning,
organizing and controlling the flow of
materials from their initial purchase
through internal operations to the service
point through distribution.
OR

Material management is a scientific

technique, concerned with Planning,
Organizing &Control of flow of materials,
from their initial purchase to destination.
3
 Cont…..
• The parameters related to materials
management are as follows:
• Planning
• Storing
• Procuring
• Furnishing the appropriate material of true
quality
• Coordinating production activities
• Scheduling production activities
4
 Cont….
• Many industries buy the materials and do
the following activities with them in a step
by step manner:
• Transport materials into a plant
• Transform materials into parts
• Gather parts into furnish goods
• Sell products or goods to customers
• Transport products to customers
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 Cont…..
• Materials management does the following activities
for the materials requirements:
• Planning
• Inventory planning
• Purchasing
• Storage
• Inventory control
• Supply of materials
• Transportation of materials
• Handling of materials
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 Cont……
• Important functions of materials management are
planning, purchasing and controlling. The
enhanced productivity is its aim and is used to
perform the following:
• To decrease the cost
• To enhance profitability
• In production streamline
• In proper utilization of materials
• In transportation
• In distribution
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PURPOSE OF MATERIAL MANAGEMENT
•To gain economy in purchasing
•To satisfy the demand during period of
replenishment
•To carry reserve stock to avoid stock out
•To stabilize fluctuations in consumption
•To provide reasonable level of client
services
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 Objective ofmaterial
Primary
management
•Right price Secondary
•High turnover •Forecasting
•Low procurement •Inter-departmental
•& storage cost harmony
•Continuity of supply •Product improvement
•Consistency in quality
•Standardization
•Good supplier
relations •Make or buy decision
•Development of •New materials &
personnel products
•Good information •Favorable reciprocal
system relationships
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 Cont…
The primary objectives are as below:
• Planning about efficient materials
• Buying
• Receiving and procuring
• Storing of materials
• Inventory control
• Supply of materials
• Distribution of materials
• Assurance of quality
• Having a good supplier and customer relationship
• Enhanced departmental efficiency
10
 CONT..
• Secondary objectives: there are many
secondary objectives and few of them are as
below:
• To make decisions
• Scheduling of efficient production
• Make specifications of materials
• Make standardization of materials
• Assisting in design of product
• Assisting in development of product
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 CONT…
• Quality control on purchased materials
• Handling of materials
• Availing value analysis
• Availing value engineering
• Advancing skills of workers in materials
management
• Easy flow of materials in organization
• Easy flow of materials out of organization
12
 CONT….
• Apart from these objectives, there few other important
objectives in a firm and those are as follows:
• Enhancing sales via sales promotion
• Maximization of benefit
• Enhancement in service of customers
• Globalization of the sales of product
• Meeting the transformations in technology
• Having a good employer and employee relationship
• Decrease in manufacture cost and other costs
• Objectives of social

13
Functions of Materials Management:
• The functions of materials management are as follows:
• Primary functions
• Secondary functions
Primary functions: primary functions of materials
management are as follows:
• Materials requirement planning i.e. MRP
• Purchasing
• Inventory planning and control
• Ascertaining and Maintaining the Flow and Supply of
Materials
• Quality Control of Materials
• Departmental Efficiency
14
 Cont….
• Secondary functions: secondary
functions of materials management are as
below:
• Standardization and Simplification
• Design and Development of the Product
• Make and Buy Decisions
• Coding and Classification of Materials
• Forecasting and Planning

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Organization of Material Management

16
The Structure of Materials Management’s
Department in an Organization:

17
Four basic needs of Material management

1.To have adequate materials on hand

when needed
2.To pay the lowest possible prices,
consistent with quality and value
requirement for purchases materials
3.To minimize the inventory investment
4.To operate efficiently
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 Chapter 2
Material demand forecasting
• Meaning of forecasting: it is estimate of
occurrence timing or magnitude of future
events.
• Forecasting is the basis for planning a
head even though the actual demand is
quite uncertain

19
 Forecasting is a technique that uses
• historical data as inputs to make informed
estimates that are predictive in
determining the direction of future trends.
Businesses utilize forecasting to
determine how to allocate their budgets or
plan for anticipated expenses for an
upcoming period of time.
• What are the techniques of forecasting?

20
 Use of forecasting
• Improve employee relation
• Improve material management.
• Helps to have better use of capital and facilities.
• Improve customer services
Characteristics of forecasting
• Casual system that assisted in the past will
continue to exist in the future
• It is rarely perfect : actual result usually different
from predicted values
• forecast for the group is more perfect than
individual forecasting
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 Categories of forecasting methods
Type of Forecasts
•Forecasts can be obtained by variety of
techniques. The two type of forecasting models
are:- 1) Qualitative 2) Quantitative
1) Qualitative Forecasting
•The qualitative model uses personal judgment
and involves qualities like intuition and experience
as the bases of forecasts and are subjective by
their very nature.
• On the other hand quantitative models are
objective in their very nature and they employ
numerical information
22
 Quantitative and qualitative forecasting
techniques
• 1. Qualitative forecasting is an estimation
methodology that uses expert judgment, rather
than numerical analysis.
• They are four common types of qualitative
forecasting
1:expert opinion methods: it is the most simple
and widely used to collect judgement of
individuals who have expected to have best
knowledge of current activities and future plan
•
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 Advantages
• Decision is fast
• Responsibility and accountability is clear.
Dis advantages
• Probably poor forecast due to lack of
experience.
• Domination by one or few manager

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 2 sales force opinion
• The sales representatives are required to estimate the
demand for each product.
• And the fore cast of each sales representative to
consolidated to prepare the over all fore cast for the
company.
Advantages
• It can reset in quality forecast.
Dis advantages
• Time taking decision
• Influenced by majority of high
• Avoidance of responsibility
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 3 consumer survey
• This forecasting technique is based on the
data which is collected from the consumer.
Advantages
• Tap information that may not be available
else.
• Enhance the quality and accuracy of the
forecasts
Dis advantages
Expensive and time consuming.
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 4. Delphi Technique
A group of experts responds to a series of
questionnaires. The experts are kept apart
and unaware of each other.
Advantage
•No influence of the majority
Dis advantage
•It takes time to reach consensus
•Coordination and interpretation difficulty
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 Quantitative forecasting
techniques
• quantitative methods rely on past
numerical data to predict the future
• The different types of forecasting
1.seasonality
2 trend
3 Market Experiment Method
3. Naïve forecasting etc

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 Cont….
1. Seasonal Index: A useful indication of
the degree of seasonal variation for a
product is the seasonal index. This index is
an estimate of how much the demand during
the season will be above or below the
average demand for the product

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 Cont…
• . For example, swimsuit demand might average
100 per month, but in July the average is 175,
and in September its 35.The index for July
demand would be 1.75, and for September it
would be 0.35.
• The formula for the seasonal index is:
• Seasonal index =
• The period can be daily, weekly, monthly, or
quarterly depending on the basis for the
seasonality of
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 Cont….
• demand. The average demand for all
periods is a value that averages out
seasonality.This is called the
deseasonalized demand. The previous
equation can be rewritten as:
• Seasonal index =

31
 Cont..
• A product that is seasonally based on
quarterly demand and the demand for the
past three years shows, as there is no
trend, but there is definite seasonality.If
average quarterly demand is 100 units and
the historical average demand of quarter’s
shows 128, 102, 75, 95 units respectively
then what is the seasonal index?

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 Cont….
• Answer: the seasonal indices can be now
calculated as
• Seasonal index = = 1.28(quarter 1)
• = = 1.02(quarter 2)
• = = 0.75(quarter 3)
• = = 0.95(quarter 4)
• Total of seasonal indices=4.00

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 Cont…
• Simple Moving Averages: The simple
moving average method uses the average
of the most recent n data values in the
time series as the forecast for the next
period. One simple way to forecast is to
take the average demand for, say, the last
three or six periods and use that figure as
the forecast for the next period.

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 Cont….
• At the end of the next period, the first-
period demand is dropped and the latest-
period demand added to determine a new
average to be used as a forecast. This
forecast would always be based on the
average of the actual demand over the
specified period.
• Mathematically, the simple moving
average is expressed as:
35
 Cont…
• Time-series methods of forecasting.
• Forecasting is a method or
a technique for estimating future aspects
of a business or the operation. It is
a method for translating past data or
experience into estimates of the future

36
 2. What is naive forecasting?

• Naive Forecasting. Estimating technique

in which the last period's actuals are used
as this period's forecast, without adjusting
them or attempting to establish causal
factors. It is used only for comparison with
the forecasts generated by the better
(sophisticated) techniques

37
 3. Market Experiment Method :
• Involves collecting necessary information
regarding the current and future demand for a
product.
• This method carries out the studies and
experiments on consumer behavior under
actual market conditions.
• In this method, some areas of markets are
selected with similar features, such as
population, income levels, cultural background,
and tastes of consumers.
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 4. Trend Projection Method:
• Trend projection or least square method is
the classical method of business
forecasting.
• In this method, a large amount of reliable
data is required for forecasting demand.
• In addition, this method assumes that the
factors, such as sales and demand,
responsible for past trends would remain
the same in future.

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 CONT…
B. Exponential Trend:
• Implies a trend in which sales increase over
the past years at an increasing rate or
constant rate.
C. Barometric Method:
• In barometric method, demand is predicted
on the basis of past events or key variables
occurring in the present. This method is also
used to predict various economic indicators,
such as saving, investment, and income. 40
 CONT….
Econometric Methods:
• Econometric methods combine statistical
tools with economic theories for
forecasting. The forecasts made by this
method are very reliable than any other
method. An econometric model consists of
two types of methods namely, regression
model and simultaneous equations model.

41
 Cont…
• The market experiments are carried out
with the help of changing prices and
expenditure, so that the resultant changes
in the demand are recorded. These results
help in forecasting future demand.

42
 Cont…
• The Material Forecasting Program (MFP)
is a complete decision support sub-system
used for raw material requirements
planning. ... The MFP program derives its
raw material requirements from three
sources: Current Inventory.

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 Chapter 3; Purchasing
Meaning and concepts of purchase and procurement
 Purchasing - the process of obtaining
goods and services.
 Procurement - the combined functions of:
identifying needs, initiating a procurement
project, selecting a vendor, contracting
with a vendor, purchasing of the goods or
services, managing the resulting contract,
and using goods and/or deploying services
provided by a non-State entity on behalf of
the State. 44
 Cont…..
Scope of Purchasing & Procurement
•The terms purchasing and procurement are often used
interchangeably.
 Purchasing is a component of procurement.
 Purchasing is the act of acquiring goods and services on
behalf of an organization

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Critical Thinking and Outcomes of a Purchase
or Procurement

1.The identified needs

2.the alternatives that were analyzed (and why some
alternatives were not chosen)
3.the procurement method chosen and why
4.the outcomes expected from the purchase or
procurement.
• Example – you may determine through this process
that it’s best to do a sole source procurement rather
than a competitive process. This process allow you
to fully justify your decision.
46
 Cont…….
Procurement Includes all the activities required to
acquire goods or services
Purchasing of material , machinery and services is done
by purchasing department.
For buying the material health organization has to pay
up a price, the value that a seller sets on his material in
the market is called as the price of that good.
Price is one of the greatest variables in the
purchasing of material.

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Purchase policy and procedure
• The purchasing department of the company is
responsible for the purchase of all the raw
materials as well as the requirements.
The following steps are followed in the purchasing
cycle.
1) Recognition of need and receipt of requisition: The
requisition includes the following information:-
- Name
- Quality and quantity specifications
- Date by which material is required
- Place at which material is to be delivered
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 Cont…….
Selection of potential sources of supply
3) Making request for quotation.
4) Receipt and analysis of quotations
- material specifications and quality
- price of the material
- taxes
- terms of payemeny
- place of delivery
- delivery period
- guarantee period
- validity of tender
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 Cont…….
5) Selection of right source of supply
6) Issuing the purchase order
7) Follow-up of the order
8) Receipt of material, reports and analysis.
9) Checking and approving of vendor’s
invoice for payment.
10) Closing of completed order
11) Maintenance of record and file.

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