Integrated Materials Management Dr D T Manwani B

Integrated Materials Management Dr. D. T. Manwani B. E(Mech), M. B. A(Finance), Ph. D(Finance) Professor & Head

Management n Management refers to the establishment and attainment of objectives. The basic resources six M’s – Men, Materials Machine, Methods, Money and Market are brought together and integrated. Further they are planned, organized , coordinated, processed harmoniously and controlled with a view to achieve the end results. Basic Resources MEN Planning MATERIALS M/Cs METHODS Coordinating Staffing & Communicating ER MONEY MARKET 6 M’s Organising Directing Controlling

Materials Management n It is a distinct process of management covering all aspects pertaining to n n Cost of Materials Timely supply of quality material. Materials utilization For a balanced growth and efficient running of the enterprise , the above aspects are so controlled that they lead to n n n Maximisation of production Reduction in the cost of production Maximisation of the margin of profit. Materials Management is both science as well as an art of managing materials.

Functions of Integrated Materials Management n n n n Planning & Sourcing Budgeting Researching & Analysing Indenting & Procuring Receiving, Moving, storing & preserving Accounting & controlling Issuing & Dispatching Disposing.

FINANCE PAYS THE BILLS ENGINEERING SPECIFIES MATERIAL MANAGEMENT MARKETING SELLS PRODUCTION TRANSFORMS INTO PRODUCT

INTERGRATED MATERIALS MANAGEMENT OBJECTIVES MINIMISATION OF COST MAXIMISATION OF PROFIT ATTAINMENT OF THE OBJECTIVES OF THE ENTERPRISE PRIMARY PROVISION OF MATERIALS 1. Economic Procurement 2. Proper storage 3. Proper issue & distribution SECONDARY MINIMISATION OF INVENTORIES 1. Inventory Control 2. Movement, storage accounting 3. Assuring High capital turnover ratio 1. Location of New sources of supply 2. Variety reduction & simplification 3. Standardisation & Quality control 4. Value Analysis 5. Coordination 6. Development of skill & Knowledge.

IMPORTANCE OF MATERIALS MANAGEMENT n Materials form the largest single expenditure in most of the manufacturing organizations. They usually represent 40 -70% of the total cost of the final product. Maximisation of Wealth of Share holders Maximise Earning per Share Maximise Profit after Tax Maximise Earnings before Interest & Taxes Maximising Operating Profit Optimal capital structure Minimise interest Burden long Term Loan Working Capital Minimise cost of Products Minimise Cost of materials Minimise Inventories

M. M. integrates, coordinates & entwines functions of Management n Dimensions of Materials Management are wide & large. Though historically it has emerged from the purchasing function yet it has acquired the full role of the whole management process or a separate branch though quite interdependent and interwoven with others.

Benefit of Integrated Materials Management Centralised Authority & Responsibility ¨ Well coordinated Efforts resulting in n Better inventory planning n Faster inventory turnover n Assured Material availability n Efficient coordination n Better communication n Better Buyer- Supplier relations n Reduced materials handing costs. n Smooth flow of materials n Improved productivity n Increased profitability ¨

Objective Evaluation of Performance – The performance of materials department is judged by – n A better inventory turnover n Reduced stock outs n A reduced lead time n Reduced paper work n A minimum handling of materials. n Reduced storage & preservation costs. n A better materials planning. n A better result oriented communication, judicious inventory control & speedy solutions to materials problems. ¨ Team spirit – Integrated Materials Management offers better scope for active coordination. ¨ Economic use of data processing systems. Integrated Materials Management facilitates the collection, processing retention, analysis & distribution of data for use in management decisions. ¨ Computerised integrated Materials Management Systems are being utilized by the companies to obtain the gains. ¨

PURCHASING (6 R’s) n n n n Purchasing in modern industrial environment does not refer to mere buying or procurement of materials. Purchasing is the procurement of right quantity of material, of right quality, at right price, to be supplied at right time , at right place, from right source

n n n Historically purchasing focus has been on price and continuity of supply, but modern trends have added following strategic actions : Integration – The firm’s supply strategy must be integrated with the organization’s marketing, conversion & finance strategy and that of the company or SBU(Strategic Business Unit) Business Environment – Supply Management must address the identification of threats & opportunities in the firm’s supply environment. Technology – Supply management must address issues of technology access and control. Component & commodity strategies – Supply management must develop formalized market driven supply plans for critical purchased materials & sources. Management Information System Supply base strategy – Suppliers and the resulting supply base must be carefully developed.

Purchasing Activities National Association of Purchasing Management USA has identified following activities related to purchasing – n n n n n Materials requirement review Specifications Development Make or buy analysis Materials standardization Determination of inventory levels Quality requirement determinations Negotiation of price & terms Supplier selection Joint problem solving with suppliers. Supplier monitoring & analysis. n n n n Communication and specification changes Productivity/cost improvements Development of sourcing strategy Market Analysis Price forecasting Large range purchasing planning Determination of purchasing policy Value Analysis

BAR CODING n n n Bar Codes are patterns of alternating wide and narrow black lines and white spaces and numbers and symbols that are seen on everyday products at super markets and retail stores. The bar codes are read by scanning devices that use the information for a variety of purposes, such as recording prices and quantities, printing sales receipts and updating inventory records. Bar codes are also useful in manufacturing and distribution. In manufacturing, bar codes track the progress of the jobs just before each operation and specific processing instructions for each job can be provided to operations.

BAR CODING- Contd…… n n n They are also used to update in, company inventory records, monitor quality losses and monitor productivity. In distribution, companies can keep track of items in ware houses and reroute to customers. Managers can instantaneously determine the location of any item in the system and its status. Employee bar codes can be used to track employee attendance and location.

BAR CODING(Contd…. . ) n Bar codes provide companies with high ability to monitor and control items in manufacturing and distribution by providing accurate , up to date information on quantity , quality, location and other data. This enables managers to realize significant improvements in productivity and effectiveness and to provide outstanding levels of customer service.

Value Analysis (VA) n History – n VA had its genesis during the war years of the early 1940 s. By the mid – 1960 s Values analysis was established as the corner stone of most purchasing research and cost reduction programs in major manufacturing firms. n During World War II many critical materials and components were difficult to obtain, and most manufacturers were required to specify numerous substitutes in their design and production activities. n Harry Erlicher, the Vice President of Purchasing for the General Electric Company, observed that many of the required substitutions during this period resulted not only in reduced costs but also product improvement. Consequently, Mr. Erlicher assigned to L. D. Miles, the task of developing a systematic approach to the investigation of the function/cost aspect of existing material specifications. Larry Miles not only met this challenge successfully, but subsequently pioneered the scientific procurement concept, General Electric called “Value Analysis”.

Value Analysis (Contd) n In 1954, the U. S. Navy’s Bureau of Ships adopted a modified version of General Electric’s Value analysis concept in an attempt to reduce the cost of Ships and related equipment. In applying the concept, the Navy directed its efforts primarily at cost guidance during the initial engineering design. Stage and called the Value Engineering program. n “Value Engineering” (VE), even though it embodied the same concepts and techniques as GE’s value analysis (VA) program, In an operational sense however, the two terms typically are used synonymously in industry today – only the timings differ.

Concept n The technique of V. A. represent a potentially powerful set of tools which can be used by management in controlling materials costs. The fundamental objective of all V. A. activities is the procurement (or manufacture) of materials representing the “Best Buy” in terms of the function to be performed. V. A is the systematic and thorough approach used in attaining this objective. Function (f) Value = ……………. . Cost (c)

V. E vis -a- vis V. A n As practiced in U. S. firms for many years, V. A techniques were most widely used in programs designed to engineer unnecessary costs out of existing products. n Finally the most progressive firms began to follow the Navy’s V. E programs, that applied the V. A concept during the early states of the new product design process to obtain the greatest benefits.

The V. E concept finds its most unique use in two types of companies – n n Those companies that produce a limited number of units of a very expensive product. Those companies that produce mass products requiring expensive tooling. The Federal Acquisitions Regulations U. S stipulate that most defense procurement contracts must be subjected to V. E studies prior to initial productions. VA/VE Tools – n Design Analysis of the required produce part or material. n Cost Analysis of the required produce, part or material.

Design Analysis – n It entails a methodical step by step study of all phases of the design of a given item in relation to the functions it performs. Approach is designed to lead the analyst away from a traditional perspective which views a part as having certain accepted characteristics and configuration. It encourages the analyst to adopt a broader point of view and to consider whether the part performs the required functions both as effectively and as efficiently as possible. Both quality and cost are the objects of the analysis.

Analysis of each component attempts to answer four specific questions : n n Can any part be eliminated without impairing the operation of the complete unit ? Can the design of the part be simplified to reduce its basic cost? Can the design of the part be changed to permit the use of simplified or less costly production methods Can less expensive but equally satisfactory materials be used in this part ?

n When viewed in this manner from the stand point of composite operation and cost possibilities for making component design, simplifications frequently are more apparent than is possible under the original design conditions. n An organized VA/VE study usually utilizes a number of individuals with different types of backgrounds, experience and skill impossible to combine in the person of a single designer. Resulting design changes often permit the substitution of standardized producing operations for more experience operations requiring special set up work. In some cases, considering the volume of parts to be produced, an entirely different material or production process turns out to be more efficient than the one originally specified.

The Values Analysis Check List National Association of Purchasing Management suggests “ first determine the functions of the item & then determine the following” n Can the item be eliminated n If the item is not standard, can a standard item be used? n If it is a standard item, does it completely fit the application, or is it a misfit ? n Does the item has greater capacity than required ? n Can the weight be reduced ? n Is there a similar item in inventory that could be substituted ? n Are closer tolerances specified than are necessary ?

The Values Analysis Check List(Contd) n Is unnecessary machining performed on the item n Are unnecessarily fine finishes specified ? n Is “Commercial quality” specified ? (Commercial quality is usually most economical. ) n Can you make the item less expensively in your plant ? If you are making it now, can you buy it for less? n Is the item properly classified for shipping purposes to obtain lowest transportation rates ? n Can cost of packaging be reduced ? n Are suppliers being asked for suggestions to reduce cost ?

Cost Analysis n It involves the investigation of a supplier’s probable cost of producing a given product. The analyst constructs estimated elemental costs for materials, labour, manufacturing, overhead & general overhead. An experienced analyst, with the use of wage data, material price lists and various industry time standards can determine a total theoretical cost which reasonably approximates the actual cost. To this figure is added a reasonable point of margin.

Cost Analysis(contd) n Though cost analysis is used in negotiating an original procurement, it has become useful in V. A. in two ways ¨ Cost analysis is conducted for currently purchased items whose costs appear excessive. ¨ It serves as a means of locating high cost parts which should be subject to design analysis.

Generalized procedure model of the value analysis : -

VENDOR ANALYSIS Vendor Analysis is the process of evaluating the sources of supply. The main factors for selecting a vendor are: Price, Quality, Services, location, Inventory policy of supplier & flexibility n

Supplier Certification It is a detailed examination of the policies and capabilities of a supplier. ISO 9000 QMS is most widely used international certification.

Suppliers Audit Periodic Audits of supplier are helpful in getting current information on supplier’s production capabilities, quality and delivery problems etc. Supplier audits are also important first step in the supplier certification program.

Simplification Most frequently, simplification means reducing the number of standard items a firm uses in its product design and carries in its inventory. For example, no of types of grease were reduced to Six from earlier twenty seven types. Number of bearings and fasteners reduced by 50%

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