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RECEIVING STORE

CONVERSION PROCESS

FINISHED GOODS STORE

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Importance - 1
51.1% of product cost is on account of materials materials account for 70% to 80% of working capital Accounts payable are mostly to materials suppliers large scope exists for productivity improvement

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Importance - 2
Materials input-

excess,shortage and stock outs

Out of 5Ms,that are inputs to a conversion process, Materials is substantial Quality of the Input and

product quality

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Types of materials -1
Production Inventory

Raw Material
work in process semi finished items

bought out parts

Finished goods

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Types of materials -2
MRO [Maintenance, Repairs and operating] Tooling Inventory Construction Inventory Maintenance Inventory Stationery Inventory Welfare Inventory Chemicals and Gases

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Functions of Materials Management

Materials Planning & Control Procurement Handling Storage, Preservation Retrieval and issue Inventory control Vendor development Vendor rating Material handling waste control
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Integrated Materials Management

Traditional Approach Various functions trying to optimize their individual inputs Impact on other functions is ignored Integrated approach Trace the common thread running through the organization Common umbrella, Unity of command Balancing of conflicting interest
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Profit Center Approach

Service department and profit Competition Price and Target Costing Cost reduction results into profit A company with turn over Rs.100 crores Cost of materials Rs.60 crores Other expenses Rs.30 crores Profit Rs.10 crores [10%] How can you increase profit by 30%? [Rs.3crores]

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Profit Center Approach

Integrated Materials Management & Profit Center concept Return on Investment, ROI=
Profit/Sales
X

Sales /[F.A+C.A]

Benefits Integration Better Accountability functional activities Coordination Better performance Adaptability EDP Internal conflicts resolved Other advantages - Present & future scene in India shift to JIT system
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Definition and scope Coordination and planning of

all functions for controlling materials in an optimum manner to meet customer expectations at minimum cost. Materials management works closely closely with Production, Finance, Engineering and Quality control in the process of performing the functions to meet the objectives
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