WHAT IS MATERIAL

MANAGEMENT?
Definition: A process encompassing

acquisition, shipping, receiving, evaluation,

warehousing and distribution of goods,
supplies and equipment

The scope of material management lies on :

1. Material Planning.
2. Material Obtaining.
3. Material Controlling.
4. Material Storing.
5. Material Handling.

OBJECTIVE
MGMT

OF

MATERIAL

1. Maintain steady flow of material.

2. Achieve economy in terms of

material.
3. Ensure consistency of quality.
4. Reduction of inventory cost.
5. Conservation of the materials.
6. Minimize operational cost.
7. Improve competitive strength of
the co.

Materials management
functions

Material planning and programming

Purchasing and outsourcing

Inventory control

Storekeeping and warehousing

Codification

CONTINUES

Standardization and evaluation of all

products

Transportation and material handling

Inspection and quality control

Cost reduction through value analysis

Disposal of surplus / obsolete material

Distribution

THE

MATERIAL

CYCLE

Design Stage
Sourcing
Stage
Planning
Production
Ordering
Process
Receiving
Process
Inventory
Control
Final Stage

INVENTORY

CONTROL

Inventory generally refers to the

material in stock. It is also the idle

resource of an enterprise . Inventories
are those items which are either
stocked for sale or they are in the
WIP or they are in the form of raw
materials.

TYPES
1.

OF

INVENTORIES

RAW MATERIAL INVENTORIES.

2. BOUGHT OUT PARTS INVENTORIES.

3. WIP INVENTORIES.
4. FINISHED GOODS INVENTORIES.
5. MAINTANENCE, REPAIR & OPERATING STORE.
6. TOOLS INVENTORIES.

REASONS FOR
INVENTORIES

KEEPING

1. TO STABALIZED PRODUCTION.
2. TO TAKE ADVANTAGE OF PRICE DISCOUNT.
3. TO MEET THE DEMAND DURING THE

REPLISHMENT PERIOD.

4. TO PREVENT LOSS OF ORDER.

5. TO KEEP PACE WITH CHANGING MARKET

CONDITION.

A.B.C. ANALYSIS
ABC analysis is a basic tool which helps the mgmt

to place their efforts where the results would be

useful to the greatest possible extent. First
important step in inventory mgmt is to have a
selective approach to fix up inventory levels,
order quantities & the extent to which the control
can be exercised.
ABC ( Always Better Control ) analysis is an

effective tool for such selective control. This

technique involves the classification of inventory
items into three categories A,B and C in
descending order of annual consumption and
monetary value of each items.

A.B.C. Continues
CATEGORY

PERCENTAGE OF
ITEMS

PERCENTAGE OF
MONETARY VALUE

5-10 (%)

75-85 (%)

10-15 (%)

10-15(%)

70-80 (%)

5-10(%)

COMPARISON OF A, B & C
CLASS A ITEMS
CLASS B ITEMS
CLASS
ANALYSIS

C ITEMS

1. Close control
required

1.Moderate control
required

1. Loose control
required

2. Size of order is
based on calculated
requirement.

2. Size of the order

based on their
consumption.

2. Size of the order

based on their level
of inventory.

3. Procured from
many sources.

3. Procured from 2
or 3 sources.

3. Procured from 2
sources.

4. More effort is
made to reduce lead

4. Moderate effort to 4. Minimum effort to

reduce lead time.
reduce lead time.

CONTINUES.
A ITEMS

B ITEMS

C ITEMS

5. Close check on
schedule revision
are required.

5. Some check on
changes are
required on need.

5. No checks are
required against
any need.

6. Frequent
ordering is
required.

6. Less frequent
ordering is
required.

6. Bulk ordering is
required.

7. Accurate
forecast needed

7. Less accurate
forecast needed

7. Approximate
forecast needed.

8. Low safety
8. Large safety
stock for less than stock up to two
two weeks.
to three months.

8. Large safety
stocks more than
three months.

9. High
consumption
value.

9. Low
consumption
value.

9. Avg
consumption
value.

CLASSIFICATION OF A,B & C OF

MATERIALS
The following information known about a group of items.

Classify them in A, B & C classification.

MODEL/NUMBER

Annual consumption

Unit Price (In paise)

501

30,000

10

502

2,80,000

15

503

3,000

10

504

1,10,000

505

4,000

506

2,20,000

10

507

15,000

508

80,000

509

60,000

15

510

8,000

10

SOLUTION
Model
Number
(1)

Annual
Consumpti
on
(2)

Unit Price
( In Paise)
(3)

Usage
Value
(In Rs.)
(4)=(3)*(2)

Ranking
(5)

501

30,000

10

3000

502

2,80,000

15

42,000

503

3,000

10

300

504

1,10,000

5,500

505

4,000

200

10

506

2,20,000

10

22,000

507

15,000

750

508

80,000

4,000

509

60,000

15

9,000

510

8,000

10

800

CONTINUED
Now computing cumulative total no. of items &
their usage values we are classifying the
materials :
Rank

Model
No.

% of
Items

(2)

(3)

Cumulati
ve Usage
Value
(Rs.)
(4)

1
2
3

502
506
509

10
20
30

42,000
64,000
73,000

48.0
73.0
83.0

4
5
6
7

504
508
501
510

40
50
60
70

78,500
82,500
85,500
86,300

90.0
94.0
98.0
98.6

8
9
10

507
503
505

80
90
100

87,050
86,350
87,550

99.4
99.6
100

(1)

Cumulati
ve % In
(Rs.)

Category
(6)

(5)

VED ANALYSIS
VED ( VITAL-ESSENTIAL-DESIRABLE )

analysis represents classification of items

based on their criticality.
VITAL- This category encompasses those
items for want of which production would
come to halt.
ESSENTIAL- Items whose stockout cost is
very high.
DESIRABLE Items which do not cause
immediate halt in production or their
stockout cost nominal & cause very minor
disruption for a short duration.

CONTINUED.
VED analysis categorization plan :
Assign points/weightage

to the factors according to

their importance for the company. Examples of the
weightage to the above four factors may be 30, 30,
20
& 20 points. FIRST
FACTOR
SECOND
THIRD
DEGREE
DEGREE
DEGREE

1. Stock out
cost (30)

Above Rs. X

Between Rs.
X & Y (60)

Above Y (90)

(30)
2. Lead time
for
procurement
(30)

1-4 weeks
(30)

4-8 weeks
(60)

Over 8 weeks
(90)

3. Nature of
items (20)

Produced to
commercial
std. or off
the shelf
(20)

Produced to
suppliers
design (40)

Produced to
buyers
design or
proprietary
items (60)

Typical
plan

categorization

POINTS

CLASSIFICATION

100 160

DESIRABLE

161 230

ESSENTIAL

231 - 300

VITAL

F-S-N ANALYSIS
F-S-N analysis is based on the

consumption figure of items. The items

under this analysis are classified into
three groups : F ( fast moving ) ,
S ( slow moving ) & N ( non moving ).
To conduct this analysis the last date of
receipt or the last date of issue
whichever is later taken into account and
the period, usually in terms of no. of
months, that has elapsed since the last
movement is recorded.

Importance of F-S-N
analysis
It helps to identified :
1. active items which require to review

regularly.
2. surplus items whose stocks are higher

than their rate of consumption.

3. non moving items which are not being

consumed. The last two categories are

viewed further to decide on disposal action
to deplete their stocks & thereby release
co.s productive capital