Materials Management and purchase management.pptx

Introduction to Materials Management and Purchase management

1. MATERIALS MANAGEMENT IN MINES

2. INTRODUCTION TO MATERIAL MANAGEMENT : Definition of Materials management: M aterials Management is the process of planning, organizing, and controlling the flow of materials from procurement to production and final delivery. Example: In Mining Industry, materials like Roof bolts, tires, Lubricants, Spares, HSD oil etc., must be managed efficiently for production continuity. Thus it establishes full responsibility over the material flow system with full accountability for quality, delivery and cost. Material management can also be defined as an organisational concept in which a single manager has authority and responsibility for all activities principally concerned with the flow of materials into an organisation, which includes purchasing, production, planning and scheduling, incoming traffic, inventory control, receiving and stores.

3. INTRODUCTION TO MATERIAL MANAGEMENT : Scope of Materials management: Scope of Material management can be divided into two categories namely Primary and Secondary. 1) Primary : a) Purchasing b) Inventory management c) Maintaining continuity of supply d) Quality assurance e) Good supplier relations 2) Secondary : i ) Make or buy decision ii) Standardization iii) Value engineering iv) Product development and introduction of new products v) Forecasting

4. INTRODUCTION TO MATERIAL MANAGEMENT : Objectives of Materials management: Material management aims at reducing the cost of production so as to help the organisation in maximising its profit. The main objectives of Material management are: a) To reduce materials cost b) Ensure uniform flow of materials for production. c) Ensure right quality at right price. d) Establish and maintain good relations with suppliers e) Economy in using the imported items and to find their substitutes

5. Functions of M aterials management: Materials management is a crucial function in any organization that deals with the procurement, storage, and movement of materials needed for production and operations. It ensures that the right materials are available at the right time, in the right quantity, at the right place, and at the right cost. This helps in reducing waste, optimizing costs, and improving efficiency. Below are the  key functions of materials management : 1. Material Planning Material planning involves forecasting and determining the quantity and quality of materials required for production. It ensures that raw materials and components are available as needed, avoiding shortages or excess inventory.

6. Key Activities in Material Planning: Demand forecasting based on production schedules. Setting inventory levels (minimum, maximum, and reorder points). Planning procurement schedules to avoid disruptions. Coordinating with production and sales teams for material requirements. Example:  A car manufacturing company estimates how much steel, rubber, and electronic components will be needed for production in the next quarter. 2. Procurement and Purchasing This function involves acquiring raw materials, components, and supplies at the best possible cost while ensuring quality and timely delivery. Key Activities in Procurement: Supplier selection:  Choosing reliable vendors based on price, quality, and delivery performance. Negotiation:  Securing favorable terms, including cost, lead time, and payment conditions.

7. Purchase order management:  Issuing and tracking purchase orders. Contract management:  Handling agreements with suppliers to ensure compliance with terms. Example:  A furniture company negotiates with a wood supplier for bulk discounts and ensures that deliveries are made on time to meet production schedules. 3. Inventory Control and Management Inventory control ensures that the right amount of stock is maintained—neither too much nor too little—to optimize costs and avoid disruptions. Key Activities in Inventory Control: Stock monitoring:  Keeping track of raw materials, work-in-progress (WIP), and finished goods. ABC analysis:  Categorizing inventory based on value and frequency of use (A = high value, B = medium, C = low).

8. Just-in-Time (JIT):  Ordering materials only when needed to reduce storage costs. Stock verification:  Conducting physical audits to ensure accuracy in records. Example:  A retail company uses inventory software to monitor stock levels and prevent overstocking or shortages. 4. Receiving and Inspection of Materials After materials are procured, they must be inspected for quality and stored properly. Key Activities in Receiving and Inspection: Verification:  Checking the quantity and quality of received materials against purchase orders. Quality control:  Ensuring materials meet required specifications and rejecting defective items. Documentation:  Recording received goods and updating inventory records.

9. Storage allocation:  Placing materials in designated storage areas. Example:  A pharmaceutical company inspects raw chemicals upon arrival to ensure they meet strict safety and quality standards. 5. Warehousing and Storage Proper storage of materials prevents damage, theft, and wastage while ensuring easy accessibility. Key Activities in Warehousing: Storage planning:  Organizing materials based on usage frequency and storage requirements. Handling and safety measures:  Implementing precautions to prevent damage, especially for perishable or hazardous materials. Inventory tracking:  Using barcodes, RFID, or warehouse management systems (WMS) to track stock. Security:  Preventing theft and pilferage through security systems and audits.

10. Example:  An e-commerce company stores its best-selling products in easily accessible warehouse sections to speed up order fulfillment. 6. Materials Handling and Transportation Efficient movement of materials within the organization ensures smooth production and distribution. Key Activities in Material Handling: Movement within the plant:  Transporting raw materials to production units and finished goods to storage or dispatch. Equipment usage:  Using forklifts, conveyors, cranes, or automated systems for material handling. Safety compliance:  Ensuring safe handling of materials to prevent workplace accidents. Outbound logistics:  Coordinating transportation of goods to customers or distributors. Example:  A beverage company uses conveyor belts to move bottles from the filling station to the packaging unit.

11. 7. Waste Management and Surplus Control Effective materials management includes reducing waste and managing surplus materials to minimize costs and environmental impact. Key Activities in Waste Management: Recycling and reuse:  Identifying materials that can be recycled or repurposed. Disposal of hazardous materials:  Ensuring compliance with environmental regulations. Sale of surplus materials:  Selling excess inventory or scrap materials to recover costs. Lean manufacturing:  Reducing waste through efficient processes. Example:  A paper manufacturing company recycles waste paper into new products instead of discarding it. 8. Standardization and Value Analysis Standardization ensures uniformity in materials and processes, while value analysis focuses on cost reduction without compromising quality.

12. Key Activities in Standardization and Value Analysis: Reducing material variety:  Limiting the number of different raw materials to simplify procurement. Supplier consolidation:  Reducing the number of suppliers for better pricing and efficiency. Cost-benefit analysis:  Evaluating alternatives to find cost-effective solutions. Process improvement:  Identifying inefficiencies and eliminating unnecessary costs. Example:  A smartphone manufacturer standardizes battery sizes across models to reduce procurement and production costs. 9. Performance Evaluation and Cost Control Tracking performance ensures that materials management processes are efficient and cost-effective. Key Activities in Performance Evaluation: Supplier performance review:  Analyzing supplier reliability, quality, and delivery times.

13. Inventory turnover ratio:  Measuring how quickly inventory is used or sold. Cost control strategies:  Identifying areas to reduce costs, such as bulk purchasing or reducing waste. Key performance indicators (KPIs):  Monitoring metrics like procurement efficiency, storage costs, and order accuracy. Example:  A logistics company reviews supplier delivery performance every quarter and replaces underperforming vendors. 10. Coordination with Other Departments Materials management must work closely with production, finance, and sales to ensure smooth operations. Key Areas of Coordination: Production planning:  Ensuring materials are available for manufacturing schedules. Finance:  Budgeting and controlling costs related to procurement and storage.

14. Sales and marketing:  Aligning inventory levels with demand forecasts. Research and development:  Sourcing new materials based on product innovation. Example:  A cosmetics company coordinates with R&D to source new eco-friendly packaging materials. Conclusion Materials management plays a vital role in optimizing costs, improving efficiency, and ensuring the smooth flow of materials from procurement to production and distribution. By focusing on  planning, procurement, inventory control, warehousing, transportation, waste management, and performance evaluation , businesses can minimize waste, reduce costs, and enhance productivity.

15. INTRODUCTION TO MATERIAL MANAGEMENT : INTEGRATED MATERIALS MANAGEMENT APPROACH: Material management is a very wide term and covers a wide range of activities. Various functions performed by materials management must be well integrated; otherwise a conflict of interest must arise, in case they function independently. In such a situation; 1) Purchase department, in order to avail of discount may buy large quantities without taking into account its impact on inventory carrying cost and warehousing cost. 2) Marketing department may be interested to have a high level of finished goods inventory to satisfy his customers need. 3) Production department may be interested to have high raw material inventory to achieve optimum level of machine utilisation. 4) Purchase department may interest to have the materials well in advance to avoid the chance of stock out.

16. INTRODUCTION TO MATERIAL MANAGEMENT : These individual interests on inventory level create a lot of problems in the non-liquidity of money and sometimes lead to bankruptcy of financial resources. In order to sort out these problem “integrated materials management” concept is adopted to take care of needs of all functions, and close control of inventory is ensured to make use of resources in an optimum way. An ideal situation of inventory level is “just in time”, which is in practice in Japan, where only six hours inventories are kept. In integrated approach all the departments make efforts to optimise the inventories.

17. INTRODUCTION TO MATERIAL MANAGEMENT : Advantages of Integrated Approach: Integrated materials management approache has got following advantages. 1. It ensures better support and cooperation in the accomplishment of materials functions. 2. It creates an atmosphere of trust and better relations between different sections/departments. 3. This ensures faster and accurate communication. 4. It establishes clear accountability. 5. This helps in evaluating the performance of materials management in an objective manner. 6. This develops team spirit resulting in better morale and cooperation. 7. This ensures better opportunities for growth development of the organisation.

18. Importance of Integrated Materials Management : Integrated Materials Management (IMM) is a strategic approach where all aspects of materials management—procurement, inventory, warehousing, logistics, and distribution—are coordinated under a unified system. Instead of handling these functions separately, IMM ensures smooth operations by integrating them, reducing costs, improving efficiency, and enhancing overall supply chain performance. 1. Cost Reduction and Efficiency Improvement When materials management is integrated, organizations can reduce costs in multiple ways: Bulk Purchasing Power: With a unified purchasing strategy, companies can negotiate better deals with suppliers, reducing costs. Reduced Waste and Overstocking: Integration helps maintain optimal inventory levels, avoiding unnecessary stockpiling or shortages.

19. Minimized Handling Costs: Efficient coordination between procurement and warehousing leads to fewer storage and handling expenses. Lower Transportation Costs: Streamlined logistics management reduces unnecessary shipping and freight costs. Example: A manufacturing company that integrates purchasing with inventory control can ensure raw materials arrive just in time (JIT), reducing storage costs and minimizing waste. 2. Better Coordination Between Departments In traditional systems, different departments (procurement, warehousing, production, and logistics) operate independently, leading to inefficiencies such as: Delays in material availability Miscommunication in demand forecasting Overordering or underordering of materials

20. With IMM, all departments share real-time data, improving synchronization and decision-making. Example: If the production team updates its material requirements in an integrated system, the purchasing team can instantly adjust orders to meet demand without delays. 3. Improved Inventory Control and Optimization Integrated materials management ensures real-time tracking of inventory levels, preventing two major issues: Overstocking – Leads to excessive capital being tied up in unused materials. Stockouts – Can halt production and cause customer dissatisfaction. By using technologies like *Enterprise Resource Planning (ERP)* and *Just-in-Time (JIT) inventory systems, businesses can keep inventory levels optimized. Example: Automotive companies like Toyota use JIT inventory systems to receive parts exactly when needed, reducing the cost of excess stock while maintaining smooth production. --- ## *4. Enhanced Quality Control* Quality issues in raw materials can impact the final product. Integrated materials management allows: - *Standardized Supplier Selection* – Ensures that all materials meet quality specifications before procurement. - *Automated Quality Checks* – Real-time quality inspections during receiving and storage. - *Immediate Issue Resolution* – If a quality problem is detected, it can be traced back to the supplier quickly. Example: In pharmaceutical manufacturing, ensuring raw materials meet strict quality standards is crucial. IMM systems track supplier performance and flag any deviations to maintain product integrity. --- ## *5. Faster and More Accurate Decision-Making* With integrated systems, decision-makers have access to *real-time data* on: - Inventory levels - Supplier performance - Production schedules - Logistics and transportation status This allows companies to make proactive decisions, such as: - Adjusting procurement plans based on demand fluctuations. - Rerouting shipments in case of supply chain disruptions. - Allocating resources efficiently to meet production deadlines. Example: Retail giants like Amazon use real-time inventory tracking to manage stock across warehouses, ensuring fast and efficient delivery to customers. --- ## *6. Stronger Supplier and Customer Relationships* IMM improves supplier and customer relationships by ensuring: - *On-time Deliveries* – Preventing delays in production and shipment. - *Transparent Communication* – Suppliers get real-time updates on orders, while customers receive accurate delivery timelines. - *Stable Supply Chain* – Reducing uncertainty and fostering long-term partnerships. Example: A global electronics company with an integrated supply chain can share production forecasts with suppliers, allowing them to plan ahead and meet demand without disruptions. --- ## *7. Better Risk Management and Supply Chain Resilience* An integrated approach helps businesses *anticipate, analyze, and respond* to risks like: - *Supply Chain Disruptions* – Alternative suppliers can be activated quickly if a primary supplier fails. - *Market Fluctuations* – Dynamic adjustments in material procurement based on market trends. - *Natural Disasters or Pandemics* – Rapidly shifting production and logistics strategies when faced with crises. Example: During the COVID-19 pandemic, companies with integrated supply chains adapted faster by switching suppliers, adjusting inventory levels, and optimizing logistics routes. --- ## *8. Increased Profitability and Competitive Advantage* By reducing costs, improving efficiency, and ensuring consistent material flow, integrated materials management enhances profitability. *Companies with well-optimized materials management systems can produce goods faster, cheaper, and with higher quality, giving them a competitive edge.* Example: Companies like Apple integrate materials management with supply chain strategies to ensure they have high-quality components available at the right time, maintaining their reputation for fast product launches and reliable deliveries. --- ## *Conclusion* Integrated Materials Management is a crucial strategy for businesses aiming to *streamline operations, reduce costs, improve efficiency, and enhance quality control. By adopting technologies like **ERP systems, real-time inventory tracking, and automation*, companies can ensure seamless coordination between procurement, inventory, logistics, and production. ### *Key Takeaways* ✅ Reduces costs by eliminating inefficiencies in purchasing, storage, and transportation. ✅ Improves coordination between departments for better decision-making. ✅ Optimizes inventory management, preventing stock shortages and excesses. ✅ Enhances quality control by standardizing procurement and inspection processes. ✅ Strengthens supplier and customer relationships through transparency and reliability. ✅ Builds a resilient supply chain capable of handling disruptions. ✅ Gives companies a competitive advantage by increasing profitability and efficiency. Would you like to explore specific strategies or real-world case studies on how companies implement IMM?

21. Example: Automotive companies like Toyota use JIT inventory systems to receive parts exactly when needed, reducing the cost of excess stock while maintaining smooth production. 4. Enhanced Quality Control : Quality issues in raw materials can impact the final product. Integrated materials management allows: Standardized Supplier Selection – Ensures that all materials meet quality specifications before procurement. Automated Quality Checks – Real-time quality inspections during receiving and storage. Immediate Issue Resolution – If a quality problem is detected, it can be traced back to the supplier quickly. Example: In pharmaceutical manufacturing, ensuring raw materials meet strict quality standards is crucial. IMM systems track supplier performance and flag any deviations to maintain product integrity. --- ## *5. Faster and More Accurate Decision-Making* With integrated systems, decision-makers have access to *real-time data* on: - Inventory levels - Supplier performance - Production schedules - Logistics and transportation status This allows companies to make proactive decisions, such as: - Adjusting procurement plans based on demand fluctuations. - Rerouting shipments in case of supply chain disruptions. - Allocating resources efficiently to meet production deadlines. Example: Retail giants like Amazon use real-time inventory tracking to manage stock across warehouses, ensuring fast and efficient delivery to customers. --- ## *6. Stronger Supplier and Customer Relationships* IMM improves supplier and customer relationships by ensuring: - *On-time Deliveries* – Preventing delays in production and shipment. - *Transparent Communication* – Suppliers get real-time updates on orders, while customers receive accurate delivery timelines. - *Stable Supply Chain* – Reducing uncertainty and fostering long-term partnerships. Example: A global electronics company with an integrated supply chain can share production forecasts with suppliers, allowing them to plan ahead and meet demand without disruptions. --- ## *7. Better Risk Management and Supply Chain Resilience* An integrated approach helps businesses *anticipate, analyze, and respond* to risks like: - *Supply Chain Disruptions* – Alternative suppliers can be activated quickly if a primary supplier fails. - *Market Fluctuations* – Dynamic adjustments in material procurement based on market trends. - *Natural Disasters or Pandemics* – Rapidly shifting production and logistics strategies when faced with crises. Example: During the COVID-19 pandemic, companies with integrated supply chains adapted faster by switching suppliers, adjusting inventory levels, and optimizing logistics routes. --- ## *8. Increased Profitability and Competitive Advantage* By reducing costs, improving efficiency, and ensuring consistent material flow, integrated materials management enhances profitability. *Companies with well-optimized materials management systems can produce goods faster, cheaper, and with higher quality, giving them a competitive edge.* Example: Companies like Apple integrate materials management with supply chain strategies to ensure they have high-quality components available at the right time, maintaining their reputation for fast product launches and reliable deliveries. --- ## *Conclusion* Integrated Materials Management is a crucial strategy for businesses aiming to *streamline operations, reduce costs, improve efficiency, and enhance quality control. By adopting technologies like **ERP systems, real-time inventory tracking, and automation*, companies can ensure seamless coordination between procurement, inventory, logistics, and production. ### *Key Takeaways* ✅ Reduces costs by eliminating inefficiencies in purchasing, storage, and transportation. ✅ Improves coordination between departments for better decision-making. ✅ Optimizes inventory management, preventing stock shortages and excesses. ✅ Enhances quality control by standardizing procurement and inspection processes. ✅ Strengthens supplier and customer relationships through transparency and reliability. ✅ Builds a resilient supply chain capable of handling disruptions. ✅ Gives companies a competitive advantage by increasing profitability and efficiency. Would you like to explore specific strategies or real-world case studies on how companies implement IMM?

22. 5. Faster and More Accurate Decision-Making With integrated systems, decision-makers have access to real-time data on: Inventory levels Supplier performance Production schedules Logistics and transportation status This allows companies to make proactive decisions, such as: Adjusting procurement plans based on demand fluctuations. Rerouting shipments in case of supply chain disruptions. Allocating resources efficiently to meet production deadlines. Example: Retail giants like Amazon use real-time inventory tracking to manage stock across warehouses, ensuring fast and efficient delivery to customers.

23. 6. Stronger Supplier and Customer Relationships : IMM improves supplier and customer relationships by ensuring: On-time Deliveries – Preventing delays in production and shipment. Transparent Communication – Suppliers get real-time updates on orders, while customers receive accurate delivery timelines. Stable Supply Chain – Reducing uncertainty and fostering long-term partnerships. Example: A global electronics company with an integrated supply chain can share production forecasts with suppliers, allowing them to plan ahead and meet demand without disruptions. 7. Better Risk Management and Supply Chain Resilience An integrated approach helps businesses anticipate, analyze, and respond to risks like: Supply Chain Disruptions – Alternative suppliers can be activated quickly if a primary supplier fails.

24. *Key Takeaways* ✅ Reduces costs by eliminating inefficiencies in purchasing, storage, and transportation. ✅ Improves coordination between departments for better decision-making. ✅ Optimizes inventory management, preventing stock shortages and excesses. ✅ Enhances quality control by standardizing procurement and inspection processes. ✅ Strengthens supplier and customer relationships through transparency and reliability. ✅ Builds a resilient supply chain capable of handling disruptions. ✅ Gives companies a competitive advantage by increasing profitability and efficiency.

25. Need for Integrated Materials Management (IMM) : To Reduce Operational Costs One of the primary reasons for implementing IMM is cost reduction. By integrating material management functions, businesses can: Reduce Procurement Costs – Bulk purchasing and better supplier negotiations lower material costs. Minimize Storage Expenses – Optimized inventory levels prevent excessive warehousing costs. Lower Transportation Costs – Coordinating procurement and logistics helps avoid unnecessary shipping expenses. - Eliminate Waste – Improved planning ensures materials are used efficiently, reducing excess or expired stock.

26. 2. To Improve Coordination Between Departments In traditional systems, departments such as purchasing, production, warehousing, and logistics often work independently, leading to miscommunication and inefficiencies. IMM ensures real-time data sharing and collaboration, leading to: Better Demand Forecasting – Procurement aligns with production needs, avoiding shortages or excess stock. Faster Decision-Making – Managers have access to accurate data for quick adjustments. Smoother Operations – Production, storage, and distribution work in sync, reducing delays. Example: In the automobile industry, *production planning* depends on the availability of thousands of parts. An integrated materials management system ensures that suppliers, inventory managers, and production teams work together to avoid production halts.

27. 3. To Optimize Inventory Management : Managing inventory effectively is a challenge without integration. Businesses often struggle with: - Overstocking, which ties up capital and increases storage costs. - Stockouts, which halt production and lead to missed sales opportunities. With IMM, companies can: - Track inventory levels in real-time using ERP (Enterprise Resource Planning) systems. - Automate reordering processes to maintain optimal stock levels. - Reduce obsolescence by monitoring material usage trends. Example: Retail companies like *Amazon* use integrated inventory management systems to track stock levels across multiple warehouses, ensuring fast restocking and delivery.

28. 4. To Enhance Supplier and Vendor Management IMM helps companies establish better relationships with suppliers by: Providing accurate demand forecasts, allowing suppliers to plan production efficiently. Reducing order fluctuations, ensuring a steady and predictable supply chain. - Automating procurement, making purchase orders and payments faster. Example: In the electronics industry, companies like Apple use integrated supplier management systems to maintain strong relationships with component manufacturers, ensuring timely deliveries for their product launches.

29. 5. To Improve Quality Control Quality control is crucial in manufacturing and production. With IMM, businesses can: - Set standardized quality benchmarks for materials. - Track supplier performance based on past quality issues. - Automate quality inspections for incoming materials. Example: Pharmaceutical companies require strict quality control. An integrated quality management system ensures that only raw materials meeting regulatory standards are accepted. 6. To Increase Supply Chain Visibility and Transparency A fragmented materials management system makes it difficult to track where materials are, how much stock is available, and when shipments will arrive. IMM provides: - End-to-end visibility of materials from suppliers to production to customers. - *Real-time tracking* of inventory and shipments.

30. - Data-driven decision-making using analytics and reports. Example: A global logistics company like *FedEx* uses integrated tracking systems to provide real-time shipment updates, ensuring accurate delivery timelines. 7. To Reduce Risks and Supply Chain Disruptions Supply chain disruptions, such as supplier failures, transportation delays, and natural disasters, can severely impact operations. IMM helps mitigate these risks by: - Identifying alternative suppliers in case of disruptions. - Predicting demand fluctuations to adjust procurement plans. - Ensuring compliance with regulatory and safety requirements. Example: During the COVID-19 pandemic, companies with *integrated supply chain systems* were able to quickly adapt by switching suppliers and rerouting logistics, minimizing disruption.

31. 8. To Enhance Customer Satisfaction Customers expect timely deliveries and high-quality products. IMM helps businesses meet customer demands by: - Ensuring faster production and delivery cycles. - Maintaining consistent product quality. - Providing accurate order tracking and fulfillment. Example: E-commerce platforms like *Amazon* use integrated materials management to process and ship orders efficiently, ensuring customer satisfaction with fast delivery. 9. To Improve Environmental Sustainability Integrated materials management contributes to sustainability by: - Reducing material wastage through better planning. - Optimizing transportation routes to lower carbon emissions. - Promoting the use of recyclable and eco-friendly materials.

32. Example: Companies like *Tesla* integrate sustainable materials management practices to reduce waste and optimize energy-efficient production. 10. To Gain a Competitive Advantage In today’s competitive business environment, companies that manage materials efficiently gain a significant edge. IMM allows businesses to: - Reduce lead times and production costs. - Improve operational efficiency and agility. - Enhance decision-making through real-time data insights. Example: Global brands like *Nike* and *Zara* leverage integrated materials management to streamline their supply chains, ensuring they can respond quickly to market trends.

33. *Key Takeaways* ✅ Reduces operational costs by eliminating inefficiencies in procurement, inventory, and logistics. ✅ Improves coordination between departments for smooth production and supply chain flow. ✅ Optimizes inventory management to prevent overstocking and shortages. ✅ Strengthens supplier relationships and ensures consistent material supply. ✅ Enhances quality control by standardizing material inspections. ✅ Provides real-time supply chain visibility for better decisions ✅ Reduces risks and prepares for supply chain disruptions. ✅ Increases customer satisfaction with timely deliveries and quality products. ✅ Supports sustainability by reducing waste and optimizing resources. ✅ Offers a competitive advantage by improving speed, efficiency, and profitability.

34. ABC Analysis : ABC stands for ‘Always Better Control’. The intention is to control the best, then better and, lastly the good. ABC analysis is the analysis of stores on cost criteria. By analysis of the total cost of various inventories it has been found that inventories can be divided into three groups as A, B, and C. The analysis has revealed that 10 percent of item of inventory attribute to nearly 70 percent of the value of the inventory, 20 percent of the items attribute to 20 percent of the value of the inventory, and 70 percent of item of inventory will be of low value and attribute only 10 percent of the value of the inventory.

35. Based on ABC analysis, an average pattern of percentage of item and percentage of their respective rupee values can be worked out as follows: It has been seen that a large number of items consume only a small percentage of resources and vice versa. ‘A’ items represent high cost centre, ‘B’ items represent intermediate cost centre, and ‘C’ items are low cost centers. So far as inventory control is concerned, the following guidelines help in keeping the system optimum: item  Percentage of items Percentage of rupee value ‘A’ items 10 70 ‘B’ items 20 20 ‘C’ items 70 10

36. ‘A’ items : Tight control should be exercised. Rigid estimates of requirements should be maintained Strict and close watch should be kept Safety stocks should be low Management of items should be done at top management Exact cost of individual items should be counted ‘B’ items Moderate control should be exercised Purchase should be based on exact requirement Reasonably strict watch and control should be kept Safety stocks should be moderate Management should be done at middle level.

37. ‘C’ items: Ordinary control measure should be exercised Purchase should be based on usage estimate Controls exercise may be done by storekeeper Safety stock should be high Management should be done at lower levels. From the above, it is observed that ‘A’ class items receive strict control and ‘B’ class items receive moderate control from overstock and stock out points of view, and ‘C’ class items are not subjected too much control or attention. Advantages of ABC analysis : Preferences for storing inventory and their purchasing can be done appropriately after ABC classification. After the process of ABC analysis, the stores personnel are in a better position in utilizing and issuing the items. The storing , handling and delivery of material to the service department become a systemic process.

38. MATERIAL CODIFICATION SYSTEM : Codification in Materials Management refers to the process of systematically identifying, classifying, and assigning a unique code to materials, parts, and products used in an organization. This system ensures accurate tracking, efficient inventory control, and easy retrieval of materials, reducing confusion and errors in material handling. A well-structured codification system enhances supply chain efficiency by standardizing material descriptions, improving communication between departments, and preventing duplication.

39. Importance of Codification in Materials Management : a) Eliminates Duplication and Redundancy - Prevents ordering or storing duplicate materials by ensuring each item has a unique code. - Reduces confusion caused by different departments using different names for the same material. b) Improves Inventory Management - Makes material identification easier, reducing search time and inventory handling costs. - Enables precise stock control, minimizing overstocking or shortages. c) Enhances Communication and Standardization - Standardized codes ensure clarity in transactions between departments, suppliers, and customers. - Prevents misinterpretation of material descriptions across different locations or teams.

40. d ) Facilitates Automation and Computerized Management - Essential for ERP (Enterprise Resource Planning) and other automated inventory management systems. - Supports barcode scanning and digital inventory tracking. e) Improves Purchasing and Supplier Management - Streamlines procurement by using standardized codes instead of ambiguous material descriptions. - Helps in negotiating better prices by consolidating similar material requirements. f) Enhances Decision-Making and Cost Control - Helps managers analyze material usage patterns and make informed purchasing decisions. Reduces unnecessary procurement and minimizes wastage. g) Aids in Maintenance and Spare Parts Management - Ensures easy identification of spare parts, reducing downtime in maintenance. - Facilitates quick replacement by avoiding confusion over part numbers and descriptions.

41. 3. Characteristics of a Good Codification System A well-designed codification system should have the following characteristics: 1. Uniqueness – Each material should have a distinct code to prevent duplication. 2. Simplicity – The code should be easy to understand and apply. 3. Scalability – The system should accommodate future expansions as new materials are added. 4. Flexibility – The code structure should allow for modifications without complete restructuring. 5. Standardization – Codes should follow industry or company-wide standards for consistency. 6. Conciseness – The code should be as short as possible while conveying necessary information.

42. 4. Methods of Codification There are several methods of codification used in materials management, depending on the organization’s needs and industry standards. a) Numerical Codification - Uses numbers to classify materials (e.g., 1001, 2002, 3003). - Simple and easy to use but may lack descriptive clarity. - Best for automated systems and bulk inventory management. *Example:* - 1001 – Steel Rod - 1002 – Copper Wire - 1003 – Aluminum Sheet

43. b) Alphabetical Codification - Uses letters instead of numbers (e.g., SR for Steel Rod, CW for Copper Wire). - More descriptive but can be difficult to organize when large numbers of items are involved. *Example:* - SR – Steel Rod , CW– Copper Wire , AS – Aluminum Sheet c) Alphanumeric Codification - Combines letters and numbers for better classification (e.g., SR1001 for Steel Rod, CW2002 for Copper Wire). - Offers both categorization and description in a single code. - Commonly used in engineering, manufacturing, and retail sectors. *Example:* - SR1001 – Steel Rod, 10mm, CW2002 – Copper Wire, 5mm, AS3003 – Aluminum Sheet, 3mm

44. d ) Mnemonic Codification - Uses codes that resemble the item’s name or characteristic for easy recognition (e.g., CABLE-RED for Red Cable). - Helps in quick identification but may not be ideal for automated processing. Example: - CABLE-BLK – Black Cable, CABLE-RED – Red Cable , PIPE-SS – Stainless Steel Pipe e) Decimal Codification (Group Classification) - Uses a hierarchical numbering system similar to the Dewey Decimal System used in libraries. - Helps group materials into broad categories and subcategories. Example: - 1000 – Raw Materials, 1100 – Metals,1110 – Steel, 1120 – Copper, 2000 – Electrical Components, 2100 – Wires, 2200 – Switches

45. f) Faceted Codification - Uses a combination of different classification factors such as material type, size, shape, and function. - Ideal for complex industries like aerospace, automotive, and pharmaceuticals. Example: For a bolt: B-10-SS-50 - B = Bolt - 10 = Diameter (10mm) - SS = Stainless Steel - 50 = Length (50mm)

46. 6. Challenges in Codification a) Complexity in Large Organizations - Companies handling thousands of materials need robust software and training to manage codification. b) Standardization Issues - Different suppliers may use different coding systems, leading to confusion. c) Resistance to Change - Employees accustomed to old systems may resist adopting new coding structures. d) Regular Maintenance and Updates - Codification systems must be updated periodically to accommodate new materials.

47. Key Takeaways: ✅ Prevents duplication and reduces material confusion. ✅ Enhances efficiency in procurement and inventory management. ✅ Enables automation and ERP integration. ✅ Improves communication between suppliers, warehouses, and departments. ✅ Standardizes material descriptions for better control and decision-making.

48. Standardization in Materials Management 1. Introduction to Standardization Standardization in Materials Management refers to the process of establishing uniform specifications, design, size, quality, and usage of materials, components, and products used in an organization. This ensures consistency, interchangeability, cost-effectiveness, and operational efficiency across procurement, production, and supply chain management. Standardization helps reduce complexity, improve quality control, and streamline supply chain operations, making it a fundamental practice in industries such as manufacturing, construction, automotive, electronics, and healthcare.

49. Importance of Standardization in Materials Management a) Reduces Procurement Costs - Eliminates the need to source multiple variations of the same material. - Allows bulk purchasing, leading to better supplier negotiations and volume discounts. - Reduces procurement lead time by streamlining vendor selection. b) Simplifies Inventory Management - Reduces the number of different materials that need to be stocked. - Enhances inventory tracking, storage efficiency, and stock control. - Minimizes wastage and obsolescence by focusing on commonly used materials.

50. c) Improves Production Efficiency - Ensures compatibility and interchangeability of components across different production lines. - Reduces manufacturing lead times by using predefined material specifications. - Minimizes setup time and rework caused by inconsistent material quality. d) Enhances Quality Control and Reliability - Enforces uniform quality standards across all materials and components. - Reduces defects, inconsistencies, and production errors. - Ensures compliance with international quality and safety regulations.

51. e) Strengthens Supplier Relationships - Helps in long-term supplier contracts by maintaining consistent material requirements. - Reduces dependency on multiple suppliers, simplifying vendor management. - Improves supply chain stability and reduces disruptions. f) Supports Innovation and Design Consistency - Enables engineers and designers to work with predefined material specifications. - Reduces variations in product designs, leading to cost-effective production. Encourages modular and interchangeable component designs. g) Environmental and Sustainability Benefits - Reduces material wastage by optimizing raw material usage. - Encourages the use of eco-friendly, recyclable, and sustainable materials. - Minimizes energy consumption in production and transportation.

52. 3. Types of Standardization in Materials Management a) Dimensional Standardization - Standardizing the size, shape, and dimensions of materials and components. - Ensures interchangeability and compatibility between parts. Example: - Standardization of nut and bolt sizes in the automotive industry. - Use of fixed pipe diameters in plumbing. b) Quality Standardization - Establishing uniform quality parameters to ensure consistency and performance. Ensures compliance with ISO, ASTM, BIS, and other industry standards. Example: - Pharmaceutical companies following GMP (Good Manufacturing Practices). - Food companies adhering to FDA or FSSAI standards

53. c) Material Specification Standardization - Defining specific grades, chemical compositions, and physical properties of materials. - Ensures optimal material selection and avoids unnecessary variations. Example: - Using standardized steel grades (e.g., ASTM A36, SS304) in construction. - Standardization of plastic resins in packaging industries. d) Process Standardization - Establishing standard operating procedures (SOPs) for handling, storing, and processing materials. - Ensures consistency in material usage and reduces human errors. Example: - Standardized heat treatment processes for metal parts. - Predefined paint application methods in automotive manufacturing.

54. e) Packaging and Labeling Standardization - Standardizing the packaging materials, dimensions, and labeling formats. - Improves logistics, storage, and inventory tracking. Example: - Use of standard-sized pallets and containers in global shipping. - Barcode and *RFID tagging* for standardized product identification. f) Coding and Classification Standardization - Implementing material codification systems for efficient inventory tracking. - Reduces confusion and ensures uniform identification of materials.

55. e) Packaging and Labeling Standardization - Standardizing the packaging materials, dimensions, and labeling formats. - Improves logistics, storage, and inventory tracking. Example: - Use of standard-sized pallets and containers in global shipping. - Barcode and *RFID tagging* for standardized product identification. f) Coding and Classification Standardization - Implementing material codification systems for efficient inventory tracking. - Reduces confusion and ensures uniform identification of materials. Example: - Standard HSN (Harmonized System of Nomenclature) codes for trade.

56. 4. Methods of Standardization a) National and International Standards Organizations adopt industry-wide standards to ensure global compatibility. *Examples:* - *ISO (International Organization for Standardization)* – Global quality and material standards. - *BIS (Bureau of Indian Standards)* – Indian national standards for materials. - *ASTM (American Society for Testing and Materials)* – Standards for metals, plastics, and construction materials. - *ANSI (American National Standards Institute)* – US-based engineering and product safety standards.

57. b) Company-Specific Standardization - Organizations develop *internal standards* for material selection and procurement. - Helps in maintaining brand consistency and operational efficiency. *Example:* - *Automotive companies (Toyota, Ford, BMW)* have their own standardized components across different car models. c) Industry-Specific Standardization - Some industries adopt specific *sector-wide standardization practices*. *Example:* - *Telecommunication industry* follows standard * fiber optic cable specifications*. - *Pharmaceuticals* standardize drug formulations and packaging sizes.

58. b) ) Use of Material Codification Systems ERP systems (SAP, Oracle, Microsoft Dynamics) integrate standardized material codes for better supply chain management. 5. Challenges in Implementing Standardization a) Resistance to Change - Employees and departments may resist adopting new standardized materials. - Requires *training and change management* for successful implementation. b) Balancing Customization with Standardization - Some industries require *custom materials*, limiting standardization. c) Supplier Constraints - Not all suppliers may comply with standard specifications. - Requires *collaboration with vendors* to ensure compliance.

59. d) Cost of Transition - Switching to standardized materials may involve *redesigning processes and retraining staff*. - However, *long-term benefits outweigh the initial investment*. 6. Real-World Examples of Standardization Example 1: Toyota Production System (TPS) Toyota follows *strict standardization* of components, materials, and manufacturing processes. Uses *common parts across multiple car models*, reducing procurement complexity. Implements *standardized quality checks*, ensuring defect-free production. Example 2: Pharmaceutical Industry (Pfizer, GSK, Johnson & Johnson)* - Adheres to *standardized drug formulations and packaging*. Ensures compliance with *FDA, WHO, and GMP regulations*.

60. Example 3: Construction Industry (Cement and Steel Standardization) Cement grades (OPC 33, OPC 43, OPC 53)* are standardized for construction. Steel grades (Fe 415, Fe 500, Fe 550)* follow BIS/ASTM standards. Example 4: Retail Industry (IKEA) - Uses *modular and standardized furniture components* for global consistency. Simplifies inventory and production across multiple countries. Key Takeaways: ✅ *Reduces procurement costs and improves supplier management.* ✅ *Simplifies inventory tracking and minimizes waste.* ✅ *Ensures high-quality, defect-free production.* ✅ *Supports sustainability and eco-friendly practices.* ✅ *Facilitates automation and ERP-based material tracking.*

61. Variety Reduction in Materials Management Variety Reduction in materials management refers to the systematic process of *minimizing the number of types, sizes, and specifications of materials, components, or products used in manufacturing and operations. The goal is to standardize materials, reduce inventory complexity, lower procurement costs, and improve operational efficiency. This concept is particularly important in industries where excessive material variety leads to high costs, inefficient storage, production delays, and supply chain complications. By reducing unnecessary variations, organizations can streamline their operations and achieve significant cost savings.

62. Importance of Variety Reduction in Materials Management Cost Reduction - Reducing material variety *lowers procurement costs by enabling bulk purchases and reducing order complexity. - Minimizes storage costs by decreasing the number of different materials that need to be stocked. - Reduces waste and obsolescence by focusing on frequently used, standardized materials. b ) Simplified Inventory Management - Fewer material types make it easier to track stock levels, reorder efficiently, and reduce excess inventory. - Reduces the risk of stock outs and overstocking, leading to better demand-supply balance . c) Improved Production Efficiency - Standardized materials and components lead to *faster production and assembly processes. - Reduces setup and changeover times in manufacturing, improving productivity.

63. Enhances compatibility between different product lines, reducing the need for specialized tools or equipment . d ) Strengthened Supplier Relationships - Consolidating material requirements allows businesses to negotiate better prices and contracts with fewer, more reliable suppliers. - Simplifies supplier management by reducing the number of vendors needed. e ) Improved Quality Control and Standardization - Consistency in material specifications ensures uniform product quality. - Makes it easier to implement quality checks and maintain compliance with industry standards . f ) Faster and More Reliable Logistics - Reduced material variety simplifies warehousing and transportation, minimizing handling errors and reducing storage space requirements.

64. - Ensures faster material retrieval from stock, reducing lead times . g ) Supports Sustainability and Environmental Goals - Minimizing unnecessary material types reduces waste , energy consumption, and environmental impact. - Encourages the use of eco-friendly and recyclable materials. Methods of Variety Reduction : There are several strategies to achieve variety reduction in materials management : Standardization - Establishing uniform specifications for materials, components, and products. - Reducing the number of different sizes, grades, and types of raw materials. - Ensuring compatibility across different product lines. Example: A car manufacturing company may standardize the types of screws and bolts* used across multiple vehicle models instead of using different fasteners for each model

65. b ) Simplification - Eliminating unnecessary features, variations, or product designs that do not add value. - Focusing on essential materials and components required for core operations. Example: An electronics company may reduce the number of different cable connectors used in its devices by adopting a universal connector standard. c ) Value Engineering (VE) and Value Analysis ( VA) –VE : Optimizing material usage during the design phase to minimize unnecessary variety. - VA : Reviewing existing materials and components to find ways to reduce variation without affecting performance. Example: A furniture manufacturer may replace multiple types of wood with a single high-quality wood type to simplify production and reduce procurement complexity. d ) Rationalization of Suppliers - Selecting a smaller number of reliable and cost-effective suppliers.

66. Reducing dependency on multiple suppliers offering similar materials with minor differences. Example: A company may consolidate its steel purchases to a single supplier that provides standardized grades, ensuring cost efficiency and quality consistency . e ) Modularization - Designing products with interchangeable and standardized components to reduce unique material requirements . - Allows greater flexibility in product customization while using fewer material types. Example: In the smartphone industry, manufacturers standardize battery sizes across multiple phone models, simplifying inventory and maintenance . f ) Classification and Coding Systems - Implementing a material codification system to group and classify materials efficiently . - Helps identify redundant or unnecessary material variations that can be eliminated.

67. Example: An organization using A-B-C analysis might find that several low-value (C-category) items could be replaced with a single, multi-purpose material . g ) Reviewing Customer and Market Needs - Eliminating rarely used or outdated products from production . - Focusing on high-demand items that align with customer requirements. Example: A consumer electronics company may discontinue less popular phone models and focus on producing high-demand variants . Challenges in Implementing Variety Reduction Resistance to Change Balancing Standardization with Customization Supplier Dependence Initial Costs of Implementation Compatibility Issues