Management

Science
Week 5
MATERIAL MANAGEMENT
• The purchasing, storage, and movement of materials
during production, and the distribution of finished
goods.
PURCHASING
• The purchasing function is responsible for obtaining
materials inputs for the operating system. The section
describes the purchasing function as it operates in most
organization. It begins by discussing how purchasing interacts
with other functional areas of the organization and with
outside suppliers.
PURCHASING INTERFACES:
• As a service functions, purchasing has interfaces with a
number of other functional areas, as well as with outside
suppliers, purchasing is the connecting link between the
organization and its suppliers. In this capacity, it exchanges
information with suppliers and functional areas.
1) Operating units
Constitute the main source of request for purchased
materials, and close cooperation between these units and the
purchasing department is vital if quality, quantity and delivery
goals are to be met. Cancellations, changes in specifications or
changes in quantity or delivery times must be communicated
immediately for purchasing to be effective.
2) Accounting
Is responsible for handling payments to suppliers and must be
notified promptly when goods are received in order to take
advantage of possible discounts, accounting department ,
which keeps inventory records, check invoices, and monitor
vendor performance.
3) Design and engineering
Prepare material specifications, which must be communicated
to purchasing, because of its contacts with suppliers,
purchasing is often in a position to pass information about
new products and materials improvements on to design
personnel.
4) Receiving
Checks incoming shipments of purchased items to determine
whether quality, quantity, and timing objectives have been
met, and moves the goods to temporary storage.
5) Suppliers or vendors of materials
Work closely with purchasing to learn what materials will be
purchased and what kinds of specifications will be required in
terms of quality, quantity, and deliveries.
Purchasing Objectives

• The basic objectives of purchasing :

1)To determine the quality and quantity and when an
item is needed.
2)To obtain a reasonable price.
3) To maintain good relations with suppliers.

4) To maintain sources of supplies.

5) To be knowledgeable about prices, new products, and new services

that become available.
Purchasing Cycle
• Series of steps that begin with a request for purchase and
end with notification of shipment received in satisfactory
condition.
The main steps in the cycle are:

1)The requisition is received by purchasing – The requisition

includes:

(a) description of the items or material desired

(b) The quality and quantity necessary,
(c) desired delivery days, and
(d) Who is requesting the purchase.
2) A Supplier selected – The purchasing department must
identify suppliers who have the capability of supplying the
desired goods, if no suppliers are currently listed in the files,
new ones must be sought.
3) The order is placed with a vendor – If the order involves a
large expenditure, particularly for a one-time purchase of
equipment, for example; vendors will usually be asked to bid
on the job, and operating and design personnel may be asked
to assist in negotiations with a vendor.
4) Monitoring orders – Routine follow-up on orders,
particularly large orders or those with lengthy delivery
schedules, allow the purchasing department to foresee delays
and relay this information to the appropriate operating units.
5) Receiving orders – Incoming shipments from vendors must
be checked for quality and quantity, purchasing, accounting,
and the operating unit that requested the goods must be
notified.
Evaluating Sources of Supply (Vendor Analysis)

• In many aspects, choosing a vendor involves taking into

account many of the same factors associated with making a
major purchase. A company consider price, quality, the
suppliers reputation, past experience with the suppliers, and
service after sale; this process called vendor analysis.
Factors of vendor analysis:

1)Price – The most obvious factor, along with any discounts

offered, although it may not be the most important.

2) Quality – A company may be willing to spend more money

to obtain high quality.
3) Services – Special services can sometimes be very important
in choosing supplier. Replacement of defective items,
instruction in the use of equipment, repair of equipment, and
similar services can be key in selecting one supplier over
another.
4) Location – Location of a supplier can have impact on
shipping time, transportation costs, and response time for
rush orders or emergency services. Local buying can create
goodwill in the community by helping local company.
5) Inventory policy of suppliers – If a supplier maintains an
inventory policy of keeping spare parts on hand. This could be
helpful in case of an emergency equipment breakdown.

6) Flexibility – The willingness and ability of a supplier to

respond to changes in demand and to accept design changes
could be important considerations.
Suppliers as Partners
• A recent article in purchasing pointed out why it pays for an
organization to listen to its suppliers; suppliers can be a
source of ideas that contribute to the competitiveness of an
organization. A poll of 1,000 purchasing / supply operations
identified nine areas in which potential ideas from suppliers
could lead to improved competitiveness.
Nine Areas to improve competitiveness:

1)Reduce the cost of making the purchased

2)Reduce transportation costs

3)Reduce production costs

4)Improve product quality

5)Improve product design

6) Reduce time it takes to get the product to market

7) Improve customer satisfaction

8) Reduce inventory costs

9) Introduce new products or processes

Objectives of Material Management:
1)Minimize material costs
2)To reduce inventory for use in production process
3)To procure materials of desired quality when
required, at lowest possible cost
4) To reduce paper work procedure
5) To note changes in market conditions and other
factors affecting concern
6) To purchase, receive, transport, store materials
efficiently
Functions of Materials Management:
 Materials planning
 Purchasing and inspection of materials
 Classification and codifications
 Storage of materials
 Issuing of materials
 Maintenance of proper inventory records
 Materials receiving
Inventory
• As a comprehensive list of movable items which are
required for manufacturing the products and to
maintain the plant facilities in working conditions.
Inventory Control
• The systematic location, storage and recording of
goods in such a way the desired degree of service can
be made to the operating shops at minimum ultimate
cost.
Objectives of Inventory Control:
1)To support production department – with materials of the
right quality in the right quantity, at the right time, the right
price and from the right supplier.
2)To minimize investment – by ensuring economics of storage
and ordering costs.
3)To maintain adequate inventories – at the required sales
outlets to meet the market needs, and avoiding both
excessive or shortages at any given time.
Five Basic Variables of Inventory Management:

1) Minimum Inventory – or Buffer stock is needed to take care

of any temporary unpredictable increase in the part usage or
in the procurement led time.

2) Reorder Point – It is sufficient above minimum inventory to

allow for issuing the purchase order and for delivery by a
vendor, reorder point stock level is equal to the minimum
stock plus the expected consumption during the procurement
led time.
3) Reorder Quantity – this is fixed quantity of item for which
order is paced every time the stock drops to the reorder point.
This quantity is fixed either on the basis of experience or
calculated.

4) Procurement Lead Time – This comprises the time required

for preparing the purchase order, the time gap between
placing an order and receiving supplies and time required for
inspection.
5) Maximum Inventory – It is approximately the sum of the
order quantity and minimum inventory. It will exactly equal to
the sum of these two quantities if the ordered material is
received just when the minimum stock is reached.
Purchasing Process

1)Requisitioning purchases

2)Exploring sources of supply

3)Obtaining quotations

4)Opening of tenders, quotations, and preparation of

comparative statement
5) Negotiate about prices and terms of supply

6) Placing purchasing order

7) Receiving materials along with the invoice

8) Checking invoice
9) Inspecting and testing materials

10) Forwarding the materials to stores

11) Checking invoice and passing of bills for payment

SELLING MARKETING

1. Product enjoys the supreme importance Customer enjoys unique importance

1. Emphasis on company needs( Sellers) Emphasis market needs

1. Company oriented selling effects Market oriented selling effects

1. Goods are already produced and then sold as profit Customers demand determines production supply is adjusted to
demand

1. Selling aims at short term objectives Marketing aims as long term objectives

1. Top priority is given to sales volume rather than profit volume Top priority is given to profitable of sales and market share at fair
increasing sales prices and reasonable risk

1. Production oriented Customer oriented