ABC ANALYSIS (1).pptx

material management

1. MATERIAL MANAGEMENT AR.AKANKSHA PENDHARKAR. DATE: 17 -02-2023

2. Material Management  is the process of planning, procuring, Controlling and providing raw material in the right quantity, in the right place, at the right time, with the right cost for production purposes . COST OF CONTROL CONTROL OF INDIRECT MATERIALS SUPPLY OF MATERIALS WASTAGE OF MATERIALS LOSS OF DIRECT LABOUR INVESTMENT CONGESTION IMPORTANCE OF MATERIAL MANAGEMENT : Cost kept at reasonable level Scientific purchasing helps to keep cost reasonable. Why there is no proper control over such materials which controls total cost? Prompt supply. The equipment is properly utilized. No breakdown due to late supply. Kept under control- at the stage of storage -Movement Avoided Kept under control. Over stocking is avoided. Avoided- in the stores. -At different stages of manufacturing. MATERIAL MANAGEMENT

3. MATERIAL MANAGEMENT AIM OF MATERIAL MANAGEMENT : Right QUANTITY Right QUALITY Right TIME Right PLACE Right COST OBJECTIVES OF MATERIAL MANAGEMENT : PRIMARY Right price High turnover Low procurement & storage cost Continuity of supply Consistency in quality Good supplier relations Development of personnel Good information system SECONDARY Forecasting Inter-departmental harmony Product improvement Standardization Make or buy decision New materials & products Favorable reciprocal relationships MATERIAL CALCULATION AT SITE MATERIAL PROCUREMENT VENDOR SELECTION DELIVERY & TESTING ISSUE & UTILIZATION PAYMENT DETAILS STAGES OF MANAGEMENT:

4. WHAT IS PROCUREMENT? Procurement is the process of acquiring goods and services from vendors, typically for business purposes . STEPS OF PROCUREMENT PROCESS :   MATERIAL MANAGEMENT

5. WHAT IS PURCHASING? Purchasing is the act of buying goods or services. Unlike procurement, which is a strategic process, purchasing definitions claim that purchasing is transactional in nature. B uyers do not necessarily take the time to consider all of their options before making a purchase decision; rather, they simply buy what they need when they need it . While this approach may work for some buyers, it does not always lead to the best possible price or terms. Therefore, it’s important for buyers to understand both procurement and purchasing so that they can make informed decisions about how to best acquire goods and services. STEPS OF PURCHASE PROCESS :   MATERIAL MANAGEMENT

6. PROCUREMENT PURCHASING Activities related to acquiring goods and services Functions associated with buying goods and services Steps that happen before, during, and after purchase The straightforward process of purchasing commodities Used in a production environment (internal process) Used in a wholesale environment (external process) Puts more importance on an item’s value than its cost Tends to focus more on the item’s price than its value Refers to a set of tasks that spot and fulfill needs Refers to the specific task of committing expenditure Includes need recognition,  sourcing , and contract closure Includes ordering, expediting, and payment fulfillment Follows a proactive approach to spot and fulfill needs Follows a reactive approach to satisfy internal needs Relational–focuses on creating long-term vendor relationships Transactional–focuses on transactions than vendor relationships DIFFERENCE BETWEEN PROCUREMENT AND PURCHASING:

7. INVENTORY CONTROL NEED FOR INVENTORY CONTROL Inventories constitute the most significant part of the current assets, representing as much as 50%-70% of the capital investment. Therefore it is absolutely imperative to manage inventories effectively and efficiently in order to avoid unnecessary investment in them. If a company's inventory level is too low, it risks delays in fulfilling it's customers orders. If the inventory level is too high, it is using up money that can be better used in other areas. It also risks obsolescence and spoilage INVENTORY CONTROL is defined as the supervision of supply, storage and accessibility of items in order to ensure an adequate supply without excessive oversupply. The objective of inventory management is to have the appropriate amounts of materials in the right place, at the right time, and at low cost. INVENTORY CONTROL METHODS 1. ABC ANALYSIS 2. EOQ ANALYSIS

8. ABC ANALYSIS : ( ABC = Always Better Control) Consumption Value = (Unit price of an item) (No. of units consumed per annum)

9. SR.NO ITEM DESCRIPTION UNIT UNIT COST ANNUAL USAGE 1 4 ” HOLLOW CLAY BRICK NOS 35.00 228766.00 2 CEMENT BAGS 350.00 23515.00 3 FINE SAND BRASS 6000.00 491.00 4 CRUSH SAND BRASS 3000.00 722.00 5 LIME BAGS 50.00 1428.00 6 AGGREAGATE BRASS 1600.00 282.50 7 MURUM BRASS 400.00 254.00 8 RUBBLE SOLING BRASS 860.00 162.00 9 STEEL TON 75000.00 239.90 10 FLOORING SQ.FT . 90.00 4677.19 11 WINDOWS NOS 3344.00 566.03 12 DOORS NOS 1060.00 408.22 13 ELECTRICAL MATERIAL NOS 870000.00 - 14 PLUMBING MATERIAL NOS 4567503.00 - 15 SANITARY FITTINGS NOS 840.00 336.00 16 CP FITTINGS NOS 315.00 916.00 17 PAINTING LITRE 265.00 944.67 18 M.S.GRILLS TON 42.00 10607.47 19 S.S . RAILINGS TON 2583.00 799.65 Q: For a bungalow construction site, material unit cost and annual demands are given in a table. Please conduct ABC analysis for the same.

10. SR.NO ITEM DESCRIPTION UNIT UNIT COST ANNUAL USAGE TOTAL COST/ YR % USAGE VALUE 1 4 ” HOLLOW CLAY BRICK NOS 35.00 228766.00 8006810.00 16.85 2 CEMENT BAGS 350.00 23515.00 8230250.00 17.32 3 FINE SAND BRASS 6000.00 491.00 2946000.00 6.20 4 CRUSH SAND BRASS 3000.00 722.00 2166000.00 4.56 5 LIME BAGS 50.00 1428.00 71400.00 0.15 6 AGGREAGATE BRASS 1600.00 282.50 452000.00 0.95 7 MURUM BRASS 400.00 254.00 101600.00 0.21 8 RUBBLE SOLING BRASS 860.00 162.00 139320.00 0.29 9 STEEL TON 75000.00 239.90 17992500.00 37.86 10 FLOORING SQ.FT . 90.00 4677.19 420947.10 0.89 11 WINDOWS NOS 3344.00 566.03 1892804.32 3.98 12 DOORS NOS 1060.00 408.22 432713.20 0.91 13 ELECTRICAL MATERIAL NOS 870000.00 - 870000.00 1.83 14 PLUMBING MATERIAL NOS 4567503.00 - 467503.00 0.98 15 SANITARY FITTINGS NOS 840.00 336.00 282240.00 0.59 16 CP FITTINGS NOS 315.00 916.00 288540.00 0.61 17 PAINTING LITRE 265.00 944.67 250337.55 0.53 18 M.S.GRILLS TON 42.00 10607.47 445513.74 0.94 19 S.S . RAILINGS TON 2583.00 799.65 2065495.95 4.35    TOTAL MATERIAL COST       47521974.86 100.00 Calculating total cost of all material & percentage of cost for each one,

11. SR.NO ITEM DESCRIPTION UNIT UNIT COST ANNUAL USAGE TOTAL COST/ YR % USAGE VALUE CUMULATIVE % OF TOTAL COST 1 STEEL TON 75000.00 239.90 17992500.00 37.86 37.86 2 CEMENT BAGS 350.00 23515.00 8230250.00 17.32 55.18 3 4 ” HOLLOW CLAY BRICK NOS 35.00 228766.00 8006810.00 16.85 72.03 4 FINE SAND BRASS 6000.00 491.00 2946000.00 6.20 78.23 5 CRUSH SAND BRASS 3000.00 722.00 2166000.00 4.56 82.78 6 S.S . RAILINGS TON 2583.00 799.65 2065495.95 4.35 87.13 7 WINDOWS NOS 3344.00 566.03 1892804.32 3.98 91.11 8 ELECTRICAL MATERIAL NOS 870000.00 - 870000.00 1.83 92.94 9 PLUMBING MATERIAL NOS 4567503.00 - 467503.00 0.98 93.93 10 AGGREAGATE BRASS 1600.00 282.50 452000.00 0.95 94.88 11 M.S.GRILLS TON 42.00 10607.47 445513.74 0.94 95.82 12 DOORS NOS 1060.00 408.22 432713.20 0.91 96.73 13 FLOORING SQ.FT . 90.00 4677.19 420947.10 0.89 97.61 14 CP FITTINGS NOS 315.00 916.00 288540.00 0.61 98.22 15 SANITARY FITTINGS NOS 840.00 336.00 282240.00 0.59 98.81 16 PAINTING LITRE 265.00 944.67 250337.55 0.53 99.34 17 RUBBLE SOLING BRASS 860.00 162.00 139320.00 0.29 99.63 18 MURUM BRASS 400.00 254.00 101600.00 0.21 99.85 19 LIME BAGS 50.00 1428.00 71400.00 0.15 100.00   TOTAL MATERIAL COST       47521974.86 100.00   A B C Arranging materials in descending order according to percentage cost, As stated above ABC classification is, Item 1 – Item3 = Category A Item 4 – Item 8 = Category B Item 9 – Item19 = Category C. Here, Steel , Cement and brick have highest % cost, Which means it requires very tight control and accurate records. No major wastage can be afforded for these materials.

12. (EOQ) ECONOMIC ORDER QUANTITY Economic order quantity (EOQ) is a calculation companies perform that represents their ideal order size, allowing them to meet demand without overspending. Inventory managers calculate EOQ to minimize holding costs and excess inventory . ASSUMPTIONS OF BASIC EOQ MODEL Demand is known, constant, and independent Lead time is known and constant Order quantity received is instantaneous and complete No shortage is allowed Calculation of EOQ The formula for calculation of the EOQ is: EOQ=√(2 x D x S / H.) Here, D= Annual demand in units of a product. S= Ordering cost per order H= Holding cost per unit of the product.

13. 2. CEMENT A= 23515 Units per year O= 200 Rs . Per order C= 50% of the unit cost i.e. 50% X 350 = 175. Hence EOQ = 2 X 23515X200 175 = 231 Bags 2. HOLLOW BRICKS A= 228766 Units per year O= 500 Rs . Per order C= 5% of the unit cost i.e. 80% X 35 = 28. Hence EOQ = 2 X 228766 X500 28 = 2858 Bricks SR.NO ITEM DESCRIPTION UNIT UNIT COST ANNUAL USAGE TOTAL COST/ YR % USAGE VALUE CUMULATIVE % OF TOTAL COST 1 STEEL TON 75000.00 239.90 17992500.00 37.86 37.86 2 CEMENT BAGS 350.00 23515.00 8230250.00 17.32 55.18 3 4 ” HOLLOW CLAY BRICK NOS 35.00 228766.00 8006810.00 16.85 72.03 As per performed ABC analysis ,for bungalow construction site, following are the A CATEGORY ITEMS. Here determining eoq in units for the same. Assuming ordering cost is respectively 1000, 200, 500 Rs per order & carrying cost is 5%, 50% & 80%of unit price . STEEL A= 239 Units per year O= 1000 Rs . Per order C= 5% of the unit cost i.e. 5% X 75000 = 3750. Hence EOQ = 2 X 239 X1000 3750 = 11 TON

14. THANK YOU !