MATERIAL MANAGEMENT AND
INVENTORY CONTROL
INTRODUCTION
Material management may be defined as process by
which an organization is supplied with goods and
services that they need to achieve its objective
-Ammer
Material management as a confederacy of traditional
material activity bound by A common idea-the idea to
integrate management approach to planning
acquisition ,conversion, flow and distribution of
production material from raw material to finished
product
-Lee and Dobler
IMPORTANCE OF MATERIAL MANAGEMENT
[Link] prices for material and equipment
[Link] inventory turnover
[Link] of supply
[Link] lead time
[Link] transportation cost
[Link] duplication of efforts
[Link] material obsolescence
[Link] supply relationship and better record information
[Link] inter-departmental cooperation
[Link] development
OBJECTIVES OF MATERIAL MANAGEMent
[Link] price
[Link] inventory turnover
[Link] cost acquisition and possession
[Link] of supply
[Link] of quality
[Link] payroll cost
[Link] supply relation
[Link] of personnel
[Link] records
Materials Management in pharma
Enterprise
Finished-goods Storage
Orders
Purchasing
Raw-material
Storage
Customers
Suppliers
Distribution
Transformation
Receiving
Processes
In-process
Storage
5
Definitions of inventory
Inventory-A physical resource that a firm holds in stock with
the intent of selling it or transforming it into a more valuable
state.
Types of Inventory:
Raw material
Purchased but not processed
Work-in-process
Undergone some change but not completed
A function of cycle time for a product
Maintenance/repair/operating (MRO)
Necessary to keep machinery and processes productive
Finished goods
Completed product awaiting shipment
Why to Hold Inventories in pharma industry
Improve customer service
Reduce certain costs
Contribute to the efficient and effective operation of
the production system
Finished Goods
Essential in produce-to-stock positioning strategies
Products can be displayed to customers
Work-in-Process
Necessary in process-focused production
Raw Material
Suppliers may produce/ship materials in batches
Why Not to Hold Inventories
Certain costs increase such as
carrying costs
cost of customer responsiveness
cost of coordinating production
cost of diluted return on investment
reduced-capacity costs
large-lot quality cost
cost of production problems
Inventory Costs
Procurement costs
Carrying costs
Out-of-stock costs
Procurement Costs
Order processing
Shipping
Handling
Inventory Costs
Carrying Costs
Capital (opportunity) costs
Inventory risk costs
Space costs
Inventory service costs
Out-of-Stock Costs
Lost sales cost
Back-order cost
Objectives of Inventory Control in pharma industry
1) Maximize the level of customer service by avoiding
under stocking.
2) Promote efficiency in production and purchasing by
minimizing the cost of providing an adequate level of
customer service.
FACTORS AFFECTING Inventory Control
Type of product
Type of manufacturer
Volume
Inventory Control TECHNIQUE
ABC Classification
Class A
5 – 15 % of units
70 – 80 % of value
Class B
30 % of units
15 % of value
Class C
50 – 60 % of units
5 – 10 % of value
OTHER ANALYSIS TECHNIQUE
HML Classification
VED Classification
SDE Classification
FSN Classification
Inventory control System
What is inventory control system ?
Activities Included in inventory control
system of an organization
Inventory is ordered on bases of :
Fixed Order Quantity System
Fixed Order Period System
INVENTORY CONTROL SYSTEM
vTwo questions before the manager
When to order ?
How much to order ?
vReorder Point
vReorder Quantity
ECONOMIC ORDER QUANTITY (EOQ) Model
System in which order for supplier is placed when the existing
stock reaches to reorder point
EOQ assumptions:
Known and constant lead time
Instantaneous receipt of material
No quantity discounts
Only order (setup) cost and holding cost
No stock outs
EOQ Model
EOQ inventory over time:
Order quantity Usage Rate
= Q (maximum Average
inventory Inventory
level) (Q*/2)
Inventory Level
Minimum
inventory
0 Time
Fixed Period Model
Answers how much to order
Orders placed at fixed intervals
Inventory brought up to target amount
Amount ordered varies
No continuous inventory count
Possibility of stock out between intervals
Useful when vendors visit routinely
P-System Periodic Review Method
An alternative to EOQ - system control is periodic review
method
Q-system - each stock item reordered at different times -
complex, no economies of scope or common
prod./transport runs
P-system - inventory levels for multiple stock items
reviewed at same time - can be reordered together
higher carrying costs - not optimum, but more practical
Hybrid Inventory Models
Base stock model
Startwith a certain inventory level
Whenever a withdrawal is made, an order of equal
size is placed
Ensures that inventory maintained at an
approximately constant level
Appropriate for very expensive items with small
ordering costs
BENEFITS OF INVENTORY management
[Link] an adequate supply of material
[Link] down investment in inventories
[Link] purchasing economies
[Link] duplication in ordering
[Link] utilization of available stocks
[Link] against the loss of materials
[Link] a cost accounting facility
[Link] to make cost and consumption comparisons
[Link] and reliable basis for preparing financial statements
THANK YOU
sandesh bhoir
