Materials management

MATERIALS
MANAGEMENT
DR. PALLAVI.

Materials Management
Definition
Materials Management can be said to
be that process of management which
coordinates, supervises and executes
the tasks associated with the flow of
materials to, through, and out of an
organisation in an integrated fashion.
This approach follows the progressive
production-distribution system from
its conception stage to final
embodiment (a tangible or visible form
of an idea) into a product, when it is
finally delivered for end-use.

Spectrum of Control
The underlying spectrum is to provide
effectiveness to a function that must start
from planning stage and will end when the
finished product is finally distributed.
1. Planning sets the Goal and indicates
the available sources of finance.
2. Scheduling specifies the requirements,
the quantum and the delivery schedules.
3. Purchasing and Procurement select
and retain vendors; and contracts with
them.

Spectrum of Control (contd.)
4. Inspection and Quality control
conduct test checks for conformance to
specifications.
5. Stores and Inventory control
determine inventory status, undertake
maintenance and upkeep.
6. Material Handling controls physical
movement at any stage the material is.
7. Distribution Logistics controls flow
and distribution, and finally, traffic,
shipment and despatch conclude with final
delivery.

Integration of Functions (Cost Mantra)
Materials Management needs an integrated
approach of all concerned, viz., R & D,
Engineering, Production, Finance, Marketing
and Sales. To derive maximum benefits each
has to assist the other. This is possible
through proper appreciation of each others’
role and top management support, as
materials management, in isolation, cannot
achieve the desired result.
Example: The production division would like
to ensure the availability of all items of
materials at all times. This means holding
huge stocks of idle inventory leading to
losses to a company in terms of increased
holding cost, insurance cost, interest cost
etc.

Integration of Functions (Cost Mantra) contd.
It leads to the concept of ‘sub-optimisation
of sub-systems’ for ‘optimisation of the
whole system’.
Therefore, two objectives, Inventory cost and
availability ( no risk of stock-outs) are of
primary importance for integration. It calls
for a delicate balance between professional
skills and all-round cooperation. This will in
turn, depend on four aspects:
1. Quality: Quality is decided by the R&D,
Engineering, Marketing and Production
divisions.

2.Quantity:Quantity is a function determined
by Finance, Sales and Production.
3. Urgency: Urgency is also a matter to be
mutually discussed and decided between the
Marketing, Sales and Production
departments.
4. Essentiality: Essentiality by users and
technical experts.
Therefore, Decisions cannot be taken in
isolation. Conflicts are bound to occur owing
to different perceptions, role and priority.
The moderating force binding all the groups
and divisions together is the realisation of
the ultimate cost of production.

Interesting to note that intra-departmental
conflicts are far more in those organisations
where cost consciousness is ABSENT.
In an integrated approach, the Designer,
Salesman, Production engineer, Works
manager, the Purchase man and the Finance
officer, will have to work as a team and each
has a SAY in almost all of the ACTIVITIES
bound by a single objective: to bring down
the Cost of production.

Functions of Materials
Management
General Electric Company of USA, who are
pioneer in the field of Materials Management,
listed the functions under the following heads:
1. Planning and Programming for Materials
Purchase.
2. Stores and Stock Control.
3. Receiving and issue of Material.
4. Transportation and Handling of material.
5. Value Engineering and Value Analysis.
6. Disposal of Scrap and Surplus Material.
Materials Management deals with controlling
and regulating the flow of materials in relation to
changes in variables like Demand, Prices,
Availability, Quality, Delivery schedules etc.
In all, Materials Management embraces all
activities concerned with materials except those
directly concerned with designing or
manufacturing the product.

Objectives of Materials
Management
1. Regular uninterrupted supply of raw-
materials to ensure continuity of production.
2. By providing economy in purchasing and
minimising waste. It leads to higher
productivity.
3. To minimise storage and stock control
costs.
4. To purchase items of optimum/ useable
Quality at the competitive price.
5. To help minimise cost of production to
achieve breakeven and profits as a whole.

Stages of Materials
Management
• Decision Stage
• Sourcing Stage
• Production Planning Stage
• Stage of Ordering
• Receiving Stage
• Inventory Control
Inventory Control system as a part of
Materials Management must have the
appropriate procedures, documentation,
information and organisational structure to
support it.

Documentation in Materials
Management
A stock control system will require a stock item
file which consists of the basic information of all
items stocked with one record for each item
including basic information which falls into four
categories:
General: Description, Code number, Unit of
measure, Minimum level, Maximum level, Order
Quantity
Issues: Date, Works order Number, Quantity (or
number) issued, Balance
Purchases: Date of Order, Purchase order
number, Quantity (or number) ordered, Delivery
date, Quantity (or number) delivered, Price
Allocation: Date allocated, Job number,
Quantity, Date issued.

Documentation in Materials
Management (contd.)
Other documentation, reflecting various types of
transaction, includes the following:
 A material return note, which permits unused
material to be returned from the manufacturing
department to the stores.
 A material transfer note, which allows
material to be transferred from one location to
another or from one job to another.
 A scrap note, which records the scrap
generated and permits it to be handed in to the
stores in exchange for good material.
 A shortage note, which is issued from the
stores to a requisitioner informing him/her that
material required is not available and citing the
action being taken.
These documents are in addition to the
materials (or stores) requisition and purchase
requisition.

The Material Flow Process
Information requirement and movement control
are not under any one function, but spread
across many functions’ activities. To improve
upon the working of the unit’s operations, jointly
and severally, an integration is necessary for the
following control functions:
1. Material Quantity Control at each of the stages
of conversion and Distribution.
2. Material Movement Control for effective
Allocation, Location, and Flow control.
3. Material Quality Control for maintenance of
quality standards and maximizing product-
service.
4. Control of overall costs for enhancement of
profit and improvement of materials productivity.

PURCHASING
The Prime function of Purchasing is that of
being sensitive to the external supply market
situation and also of feeding back this
information to the other functions of the
organisation.
The objective of purchasing is to obtain
correct equipment, materials, supplies, and
services in the right Quantity, of the right
Quality, from the right Origin, at the right
Time and Cost.

THE PURCHASE SYSTEM
The control of purchasing should be set out
in a written ‘Purchasing manual’ which:
a) Assign responsibilities for and within the
purchasing function;
b) Defines the manner in which suppliers are
selected to ensure that they are continually
capable of supplying the requirements in
terms of materials and services;
c) Indicates the appropriate purchasing
documentation – written orders,
specifications and certificates of conformity
– required in any modern purchasing
activity.

PURCHASE PROCESS
Define Objective: Specify objectives,
Constraints, and Criteria of Materials
Purchase
Collect Information: Identification of
materials and specification, Look for
possible sources, Collect data on Price and
other terms of suppliers, Delivery schedule,
Rejection and replacement terms,
Compensation for shortages, Payment
terms, Guarantee and warranty terms,
Transportation and package; Establish time
constraints.

PURCHASE PROCESS (contd.)
Develop options: Locate possible vendors,
Quantity and price considerations
Evaluate & decide: Listing pros and cons
of options, Examine consequences of
selecting various alternatives measuring
against criteria of evaluation; Testing
against overall objectives and selecting the
best option(s).
Implement: Initiate action to carry out the
decision taken, Monitoring the
implementation of decision, Review the
decision if necessary.

Standardisation: The Materials’ Way
It consists of reducing the varieties of materials
stocked in the inventory to a workable minimum; by
fixing Sizes, Shapes, Dimensions, and other Quality
characteristics of the materials. By combining
materials into Standard groups it will no more be
necessary to keep as high a level of inventory of
items as was necessary when there was a variety of
items in the stock.
With less variety and more standardisation, the
advantages are:
i) The purchase cost expected to be lowering down.
ii) Reduced stocks to be maintained for current
consumption as well as for safety stocks.
iii) As a result, the amount of paper work is reduced
in addition to streamlining Materials’ planning
process.

Standardisation & Simplification: A
Holistic Approach
Standardisation involves the definition of products
and services fixing specification, specifying
dimensions, allocation of identification code;
stipulating performance characteristics, quality
levels, safety measures; and reducing variety.
Simplification means elimination of superfluous
varieties, sizes, dimensions, etc.
Product simplification means reducing the number
of varieties. e.g. if the same component or
subassembly can be used in a variety of products,
or in a product family, production costs can be
reduced.
Modular design is one way to offer product variety
while holding the number of components and
subassemblies to some reasonable level.
The concept is advantageous to Manufacturers,
Suppliers and Buyers.

Objective of Standardisation: ISO Way
International organisation for
Standardisation has stated the Objective as
‘to facilitate international exchange of goods
& services and to develop mutual co-
operation in the sphere of Intellectual,
Scientific, Technological and Economic
activity’.
The objective of Standardisation has
following four dimensions:
1. Manufacturer
2. Trader
3. User
4. Society

Scope of Standardisation
1. Technological factors such as
Specification, Tolerance & Limits,
Testing.
2. Disciplines such as Engineering,
Agriculture, Education etc.
3. Legal aspects such as Forms,
Contracts, Labeling etc.
4. Sectoral areas such as Company
Industry, National, International etc.

Application of Standardisation
1. Units and Measurement
2. Safety of Persons and Goods
3. Products and Processes: Definition and
Selection of characteristics of product
testing methods, Specification of
characteristics of production for defining
their quality, Regulation of variety,
Interchangeability etc.
4. Variety Reduction (simplification) and
rationalisation.
5. Inspection and Sampling
6. Nomenclature and Codification

VALUE ANALYSIS: The Materials’ Way
Value Analysis (or Value Engineering) is a Design
Methodology, developed by Lawrence Miles in the
late 1940s, that focuses on the Function of the
Product, rather than on its structure or form, and
tries to maximize the Economic value of a product or
component relative to its cost.
Three important aspects of Value Analysis are:
1. The use of Multidisciplinary teams,
2. A systematic procedure for evaluating Product
Functionality and Value, and
3. A focus on Product simplification.
Value Analysis normally begins by analysing the
Product as a whole, then each sub-assembly, and
finally each component if necessary.
A series of questions are used to guide the process
at each step:

VALUE ANALYSIS: STEPS
First step is to specify the Function of the Product
and to identify those Product Characteristics and
Dimensions that are of value to Customers.
Typical questions might be:
a. What is the Product or Component?
b. What is its Function? What does it do? Why do we
need to do it?
c. What characteristics are of value to the
customers? How will the customer use the Product?
It is helpful to define the function of a product or
component using two-word statements. For example
to the question ‘What is the product or component
supposed to do?’ The answer might be: Control
current (Electrical device), Transfer funds (bank
cheque), Cure illness (Medical procedure), Heat fluid
(Heating element in machine). This type of answer
reveals the core of the product.

VALUE ANALYSIS: STEPS (contd.)
 The second step is to determine how each
product characteristic or component contributes to
its value (functionality) and to determine what each
component costs. Typical questions might be:
a. How does this component contribute to
functionality? How does it increase the product’s
value?
b. What does it cost.
 The final step is the creative phase in which we
redesign product or component to reduce its cost or
improve its value. During this phase, team members
focus especially on simplifying the design and
evaluating the appropriateness of the product
specifications, using the following questions:

VALUE ANALYSIS: STEPS (contd.)
a. Can this be done another way? Can it be done
more cheaply?
b. Is the item over-engineered? Does it do more than
necessary?
c. Can the item’s function be combined with that of
another component? How much does it cost to do
this?
d. Can a standard or existing component be used?
e. Can a different material be used?
f. Can this product be made easier to assemble?
The answers to these questions represent design
alternatives that can be compared and evaluated in
terms of their value and cost.
Example: VE played an important role in Honda’s
design of its 1994 ACCORD. Each part has to pass
careful examination by a VE team. Not until the part
passed this evaluation (answering questions such
as: Why this shape? Why this material?) could a
designer sketch a prototype part.

CLASSIFICATION & CODIFICATION
The system to be adopted for accurate identification
of materials is through allotment of a numeral to
each item. In Materials Management terminology it is
known as ‘Codification’. The objective of
Codification is to provide a common language for
identification of every single input item in the
inventory for all transaction within and outside the
organisation.
Principles of Classification of Materials
1. The entire inventory needs to be classified under
major groups known as ‘Generic’ groups. For
example ‘General Engineering’.
2. Items under each Generic group should then be
further classified into distinct sub-groups according
to the type of material; known as ‘Specific’ group.
For example, under the Generic group ‘General
Engineering’ one of the specific group may be
‘Bearing’. It covers present and also the anticipated
future holdings of Ball bearings, Roller bearings, or
other forms of Bearings.

CLASSIFICATION & CODIFICATION (contd.)
3. To classify and to list out, firstly in Alphabetical
order and then in size chronology, all the items
under each specific group. For example, all ball
bearings should be listed size-wise to be followed by
roller bearing and other forms of bearings etc. Each
item should then be allotted consecutive numerals.
4. As a precaution, care should be taken to leave few
serial numbers vacant for the induction of new items
or new sizes in the period ahead as a result of R&D
activities, Expansion of capabilities etc.
 Sometimes classification may be based on either
prime composition of materials e.g. Oil & Lubricants,
Rubbers, Plastic, Ferrous or Non-ferrous metal etc.;
OR may be based on usage-wise e.g. Electrical,
Mechanical, Electronic, Chemical, Miscellaneous
etc.

 In case of overlapping, the decision may be to
place such items in the category in which a
particular material is predominated or in some
cases a mixture of both ‘Composition’ and ‘Usage’
principles.
READING THE CODE
1. The code number of each item would consist of
the Generic group number, the Specific group
number and its own code serial number in that
order. In most cases, the Generic group and the
Specific group are expressed in TWO digit
numbers each, and the individual item code
number is expressed in Seven digits. A one digit
space should be left blank to express the Code
number. e.g. AB CD EFG

2. If the number of items under any specific group
is estimated to exceed 999, the three digit system
is inadequate and we adopt four digit system for
all items in the inventory.
3. For convenience in handling, a separate code
book is to be prepared for each Generic group.
The Generic group and the Specific group code
number should be displayed boldly on the cover
of each booklet.

INVENTORY
Typically Inventory implies a list of ITEMS
held in stock. Stock implies the Quantity of
a particular item on hand.
 Inventory is a STOCK of Materials used
to facilitate Production or to satisfy
Customer demands. It include Raw-
materials, Work-in-progress and Finished
goods.
 Inventory acts as a BUFFER between the
demand and supply rates of different
nature.
 Inventories are VITAL to the successful
functioning of Manufacturing & Retailing
organisations.

INVENTORY MANAGEMENT
 The maintenance, upkeep and assurance
of adequate supply of something in order
to meet an expected pattern of distribution
of Demand for a given financial investment.
 Inventory Management is a key
Operations responsibility because it greatly
affects Capital requirements, Costs, and
Customer service.
 Inventories need efficient Management,
as generally, a Substantial share of its
funds is invested in them.

TYPES OF INVENTORY
 Raw Material and Production Inventories: These
are raw materials and other supplies, parts and
components which enter into the product during
the production process and generally form part of
the product.
 In-process Inventories: These are semi-finished
WIP, and partly finished products formed at
various stages of production. Also named as
Decoupling Inventories to decouple or disengage
different parts of the production system.
 MRO Inventories: Maintenance, repairs and
operating supplies which are consumed during the
production process and generally do not form part
of the product itself are referred to as MRO
Inventories. e.g. oils and lubricants, machinery and
plant spares, tools and fixtures etc.

TYPES OF INVENTORY (contd.)
 Movement Inventories: It is also named as
Transit or Pipeline inventories. It arises because of
the time necessary to move stocks from one place
to another. The average amount can be determined
mathematically as I = S x T whereas
I – the Movement inventory needed
S – the average rate of sales say weekly average
T – the transit time required to move from one
stage to another in a week
Example: say T is 3 weeks i.e. it takes 3 weeks to
move materials to a warehouse from the plant; S is
110 per week; then average inventory is 110x3=330
Explanation: When a unit of finished goods is
manufactured and ready for sale, it must remain
idle for three weeks for movement to the
warehouse. Therefore, the plant stock on an
average must be equal to three weeks’ sale in
movement.

 Lot-size Inventories: It is a common practice to
buy some raw materials in Large quantities than are
necessary for immediate need in order to avail
quantity discounts and lowering down costs of
buying, receiving, inspection, transport and
handling. It is also termed as Cycle inventories.
 Fluctuation Inventories: In order to cushion
against unpredictable fluctuation in demand these
are maintained. The general practice of serving the
customer well is the reason for holding such
Inventories. But they are not absolutely essential in
the sense that such stocks are always
uneconomical.

 Anticipation Inventories: In case of seasonal
variations in the availability of some raw materials, it
is convenient and also economical to build up
stocks where consumption patterns may be
reasonably uniform and predictable. Such
inventories are carried to meet predictable changes
in demand.

INVENTORY CONTROL SYSTEM
Inventory control system is either Manual or
Computerized or a combination of two. It performs
following functions:
1. Transaction Accounting: Every Inventory system
requires a method of record keeping, which must
support the accounting needs of the organisation
and the inventory management function.
It requires the Perpetual (never ending or changing)
records be kept by recording every disbursement
and receipt. In some other cases, periodic counts
e.g. annual of the inventory may be required.
Whatever the exact method used, every Inventory
control system requires a suitable transaction
accounting to follow with.

INVENTORY CONTROL SYSTEM (contd.)
2. Inventory Decision Rules: A decision system is
to be developed regarding when and how much to
order.
3. Exception Reporting: A reporting system so as to
alert Management to changing assumptions e.g.
Stockouts, Excessive Inventory, Forecasting not
meeting demand schedules.
4. Forecasting: Judgment plays a Vital role in
forecasting, however, to modify Quantitative
forecasts for unusual events.
5. Top Management Reporting: The reports should
include (a) costs of operating the Inventory, (b)
Investment levels at a time compared with other
periods, (c) the Service levels provided to
customers etc.

SELECTIVE INVENTORY CONTROL (SIC)
 ABC Inventory Classification: The rationale of
ABC classification is the impracticality of giving an
equally high degree of attention to the record of
every inventory item, due to limited information-
processing capacity.
But, in a modern computerized well-implemented
planning system, every item, irrespective of its cost
and volume, can receive the same degree of care
and attention.
Possible exceptions are certainly extremely low-cost
items, that may have large safety stocks and be
ordered in large quantities. These exceptions are
made, however, not due to some inability of the
computer system to plan and maintain the status of
such items, but because of the impracticality of
accurate physical control. It simply does not pay to
do exact amount of screws, bolts and nuts of small
sizes, washers and cotter pins.

Materials Management involves thousand of
individual transactions each year. To do their job
effectively, materials managers must avoid
distraction of unimportant details and concentrate on
significant matters.
Inventory control procedures should isolate those
items that require precise control from those that do
not. SIC can indicate where the Manager should
concentrate his efforts.
Physical Inventory control still remains a problem in
inventory management and the ABC control concept,
when applied in this area (to inspection, storage,
frequency of cycle checks, etc.) still remain valid.
ABC analysis leads to classification of Inventory
items on the basis of their USAGE in monetary
terms.
A – High consumption value items .
B – Moderate consumption value items.
C – Low consumption value items.

A B C
% age of items 10-20 20-30 60-70
% age of value 70-85 10-25 5-15
The division of items is obtained by plotting
percentage of value against percentage of items and
termed as ABC distribution curve/ Pareto curve/
Curve of Maldistribution.
 FSN Analysis: FSN Study may be made to weed
out (discard/remove) unwanted materials and parts.
It is based on the Consumption pattern of items.
F stands for Fast
S stands for Slow moving
N stands for non-moving materials and parts
This speed classification helps in the arrangement
of stocks in the stores and in determining the
distribution and handling patterns.

Further, it will automatically reduce inventory costs.
Say a part or material has not been issued within a
period of three years can be completely weeded out.
A part moves sparingly within this period, its stock
can be substantially reduced. Fast moving material,
however, pose no such problem.
 VED Analysis: VED Analysis is also the same in
principle. The only difference is that it finds out
which materials and parts are valuable, which are
essential, and which are desirable.
Inventory items are classified on the basis of their
criticality to the production process or other
services.
V – Vital items without which the production process
would come to a standstill.

E – Essential items whose stock-out might cause
temporary losses in production.
D – Desirable items which are required but do not
immediately cause a loss of production.
This is also essentially meant for a sizeable
reduction in inventory.
 HML Analysis: Similar to the ABC analysis except
that the items are classified on the basis of Unit
Cost rather than their Usage value.
H stands for High cost per unit.
M stands for Medium cost per unit.
L stands for low cost per unit.
 SDE Analysis: SDE Analysis works on the criteria
of availability of items.
S stands for Scarce items
D stands for Difficult to obtain
E stands for Easily available

 S-OS Analysis: This analysis is based on the
nature of Supplies.
S stands for Seasonal items
OS stands for Off-seasonal items
 GOLF Analysis: This analysis is based on the
Source of Supplies
G stands for Government Sources
O stands for Ordinary Sources
L stands for Local Sources
F stands for Foreign Sources
This is meant for deciding Procurement of materials
from different sources.

 XYZ Analysis: XYZ analysis is based on the
criteria of Closing Inventory value of different items.
X – Items whose Inventory value is high.
Y – Items whose Inventory value is neither too high
nor too low.
Z – Items with Low investments in them.
Summary: The various types of analysis are not
mutually exclusive. They can be, and often are, used
jointly to ensure better control over MATERIALS.

TITLE BASIS MAIN USES
ABC
Analysis
Usage value To control on the
Significant few & the
Insignificant many
FSN
Analysis
Consumption
pattern of the
Component
To control Obsolescence
VED
Analysis
Criticality of
the Component
To determine the Stocking
Levels of Spare parts
HML
Analysis
Unit Price of
the Material
To control purchases
SDE
Analysis
Problems faced
in Procurement
Lead-time analysis and
Purchasing Strategies

TITLE BASIS MAIN USES
SOS
Analysis
Nature of
Supplies
Procurement/ Holding
Strategies for Seasonal
items like Agricultural
products
GOLF
Analysis
Source of
material
Procurement Strategies
XYZ
Analysis
Value of items
in Storage
To review the Inventories
and their Uses at
Scheduled intervals

INVENTORY CONTROL–REVIEW SYSTEM
Continuous Review System: A Continuous Review
System provides one way to handle random demand.
When the stock position drops to the reorder point R,
a fixed Quantity Q is ordered. The time between
orders will vary depending on actual demand. The
value of Q is set equal to EOQ. The value of R is
based on the Service level desired.
Periodic Review System: A Periodic Review System
provides another way to handle random demand. The
stock position is reviewed at fixed intervals P, and an
amount is ordered equal to the Target Inventory T
minus stock position. The amount ordered at each
review period will vary depending on actual demand.
The value of P is set by use of the EOQ and the value
of T is based on the service Level desired.

INVENTORY CONTROL–REVIEW SYSTEM
The choice between P and Q systems should be
based on the timing of replenishment, type of record
keeping and cost of the item. A periodic review
system should be used when inventory orders must
be regularly scheduled.

MATERIALS REQUIREMENT PLANNING
 DEFINITION: A method that uses the approach to
SCHEDULE Production and Purchasing of Dependent
demand items is Materials Requirement Planning.
 WHAT IT DOES: MRP takes the Output from the
Master schedule, combines that with information
from Inventory records and Product structure
records, and determines a SCHEDULE of Timing and
Quantities for each item. The basic idea is to get the
right Materials to the right Place at the right Time.
 DEPENDENT DEMAND: Dependent demand
systems focus primarily on coordinating the Timing
of Production and Purchases for Related items/
products and managing their Inventories as a
GROUP. Demand for many items, especially
Components and Raw-materials, can be irregular
and directly determined by the Production plans for
other products.

 THE DEPENDENT DEMAND SITUATION: When
demand for the finished product is lumpy or erratic,
it is desirable to use some form of CONTROL on
Purchasing and Manufacturing which is derived
from an examination of the Orders received for the
Finished goods. One such form of control is known
as MRP, and since the control depends upon the
order for the finished products, this procedure is
said to be one of Dependent demand.
In Dependent demand situations, the Problem facing
the Production Manager is to Schedule the Purchase
of Externally obtained components and raw-
materials, and the Production of Internally
manufactured components or Sub-assemblies; and
Final assembly in a timely and Cost-effective
manner.

 STRUCTURE OF MRP: MRP is a Computer based
information system for scheduling Production and
Purchases of Dependent demand items. It uses
information about End-product demands, Product
structure and component requirements, Production
and Purchase Lead times, and Current Inventory
levels to develop COST-EFFECTIVE Production and
Purchasing schedules.
 MECHANICS OF MRP: The basic philosophy and
Mechanics of MRP are simple and straight forward.
The system assumes that the End-product is made
up of a hierarchy of Assemblies, Sub-assemblies,
Components, and Raw materials. A schedule of end-
product requirements, based on demand forecasts
or actual customer orders, is developed outside the
MRP system.

 Using these End-product requirements, Product
structure data, and Historical Lead time information,
the MRP system traces back when Assemblies, Sub-
assemblies, and Components must be produced or
ordered in order to have the Materials when needed
for subsequent Production steps, but no earlier than
necessary to avoid excessive inventory costs.
 If a company makes dozens or Hundred of
products, the number of Components that must be
produced and scheduled can be in the thousands,
many of which may be common to several products.
This is where the Computer is able to maintain
current information about Inventory on all
components, INTEGRATE component needs over
time, and Schedule & Coordinate Production and
Purchasing activities quickly, so that they can be
UPDATED on a regular basis.

MATERIALS REQUIREMENT PLANNING: Major Inputs
 The overall Structure of an MRP System has
THREE Major INPUTS:
1. The Bill of Materials (BOM) for all Finished
Products; this must be kept up-to-date with any
Product specification changes. BOM specifies
Product structure relationships between Products
and Raw-materials.
2. Stock status information for all items including
Lead times; this should be Updated with all Relevant
stock transactions as they occur.
3. Master Production Schedule (MPS) requirements
for all Finished product items, period-by-period over
the Planning horizon. This MPS will be made up of
both Firm orders and Forecasts, for each time
period, and Item [e.g. week-by-week for the next 3
months]. Since all Procurement, Manufacturing and
Assembly plans are based on this, it is imperative to
represent the best possible estimate of requirements.

MATERIALS REQUIREMENT PLANNING:
Formulation
The Basic Formula for MRP is
NR = GR – OH – OD + SS [ PO is NR offset by Lead
Time]
NR stands for Net Requirements
GR stands for Gross Requirements
OH stands for On-hand Stock
OD stands for Orders Due
SS stands for Safety Stock
PO stands for Planned orders
Steps to follow in a Typical MRP Programme
STEP 1: Assign Level number to each Part Number
STEP 2: Take-up Finished Goods at Level Zero
STEP 3: Calculate Net Requirement from the Basic
Formula
STEP 4: Go for Planned Order Release

Inputs Summary
An MRP system requires FOUR specific types of
information:
^ A schedule of requirements for each end
product
^ A list of all components of the Product
according to the Product’s Hierarchical structure
^ Expected Lead times for Producing or
Purchasing all components and materials
^ Information about current Inventory Levels
To maintain this input, Three standard data files
are used:
# The Master Schedule File
# The Bill-of-Materials File
# The Inventory Record File

REPORTS
An MRP system, generally, generates FOUR
specific types of Reports:
^ Order and Production release schedules
which specify the Amount and Timing of future
Orders and Production runs for each item.
^ Order releases which authorize the Purchase
or Production of items
^ Change reports which highlight changes to the
previous Production and Purchase plans, if any.
^ Load reports which indicate the Amount of
each Production resource or Department
capacity that is to be utilised with the Plan.

CLASSES BASED ON PERFORMANCE
CLASS CHARACTERISTICS
D
• MRP working in Data-processing
department only
• Poor Inventory Records
• Master Schedule mismanaged
• Reliance on Shortage lists for progressing
C
• Used for Inventory ordering, not
Scheduling
• Scheduling by shortage Lists
• Overloaded Master Schedule

CLASSES BASED ON PERFORMANCE
CLASS CHARACTERISTICS
B
• System includes Capacity Planning, Shop-
floor control
• Used to Plan Production, not manage the
Business
• Help still needed from Shortage lists
• Inventory higher than necessary
A
• Uses closed-loop MRP
• Integrates Capacity Planning, Shop floor
control, Vendor scheduling
• Used to Plan Sales, Purchasing
• No shortage lists to Over-ride schedules

MRP II: MANUFACTURING RESOURCES
PLANNING
 The scope of MRP has been expanded in
recent years to INTEGRATE with
^ Order Processing
^ Billing
^ Shop Floor Scheduling &
^ Personal and Machine utilization activities of
the company.
 These newer systems, called MRP II contains
the Classical MRP scheduling function as their
centre-piece. However, MRP II systems may
include a MODULE that collects Sales and
Customer order data and generates a Master
Production Schedule (MPS) for Future End-
product requirements e.g. using a forecasting
Model.

PLANNING
 In addition, an MRP II system may convert
information from the Material requirement plans
into specific:
^ Work schedules for departments and machines
^ Evaluate department workloads & Capacity
conditions
^ Generate Shipping documents and Customer
invoices and
^ Produce Management reports on Production
and Financial performance.

PLANNING
 Typically, these systems have a feedback
mechanism so that if Department, Machine, or
Personnel capacity limits are exceeded; the
Material requirement plans and corresponding
Production schedules are REVISED to stay
within Capacity limits.
 MRP II systems are an expansion of MRP to
inter-connect with and support other activities
better, but the basic method used to generate
Material Requirement Plans is the same.

CLASSIFICATION & CODIFICATION: The Systems
 Alphabetical System
Under this system, ‘alphabets’ become the
basis and codes are allotted to each item in
alphabetical order. Each item is grouped
according to its nature, use, etc. and the first
alphabet of the name of the material is the
starting point of codification.
Subsequent sub-alphabets are used
depending upon other characteristics of the
material in question. The illustration is shown
how the system works:

Alphabetical System
Class Group Code
Raw
Materials:
Iron
Bars, MS
Bright Steel
Melted
Mould
ORE
Pig
Sheets, MS
Sheets, Bright Steel
IR-BA-MS
IR-BA-BS
IR-MEL
IR-MLD
IR-OR
IR-PG
IR-SH-MS
IR-SH-BS

Alphabetical System & Numerical System
Limitation: However, it is not always easy to
remember the codes and there are chances of
duplication. Coding mistakes are frequent due
to repetition of alphabets in the same code.
Suitability: It is only suitable where the number
of items is not large as availability of the
number of items at desired level is limited.
 Numerical System
Against the alphabetical system, the numerical
system is based on numbers, either simple
numbers, block numbers or dash/ stroke
numbers. For example:

Numerical System
Materials Simple
Number
Block
Number
Dash or
Stroke
Number
Raw Materials
Iron Ore
Pig Iron
Melted Iron
Bright Iron
Steel Iron
Iron Sheets
Iron Bars
Iron Mould
01
05
06
07
08
09
10
11
12
1 – 1000
1 – 10
11 – 20
21 – 30
31 – 40
41 – 50
51 – 60
61 – 70
71 – 80
15
15-1 or 15/1
15-2 or 15/2
15-3 or 15/3
15-4 or 15/4
15-5 or 15/5
15-6 or 15/6
15-7 or 15/7
15-8 or 15/8

Numerical System
Simple number: One number is allotted against
each material, with some other number being
kept as provision for other item.
Block number: The number are so designed that
materials of similar nature of group come under
one block. As for example, raw material block
comes under 1-1000, consumable oil and
lubricant materials block comes under 1001 –
2000, packaging materials block come under
2001 – 3000, jigs, tools and fixtures materials
block come under 3001 – 4000 and so on.
Again, raw material block may be sub-divided
into small blocks according to the category or
materials, as for example, iron, steel and allied
group, copper, nickel, alloy, etc.
1-100, 101 – 200, 201 – 300, 301 – 400, 401 – 500, respectively.

Numerical System & Decimal System
Dash/Stroke number. A further improvement
over the block numbering is ‘dash/stroke’
numbering system. A dash or stroke is put
against the main element of the material in order
to code the material in the same group.
 Decimal System
Under this system of codification, within the
range of ten numerals 0-9, some significance is
attached to every digit in the code. Thus the
whole range of items in stores can be codified
without difficulty. Generally 7 to 8 digits will be
found sufficient for all practical purposes, but it
may also be extended up to 10 digits in order to
accommodate any other characteristic of the
material desired to be described.

Decimal System
Under this system of codification:
[Digital code structure under one-digit decimal
system for each class characteristic]
X X X X X
Class Group Sub-group Type Size
X X X
Grade Shape Condition
[Digital code structure under two-digit decimal
system for each class characteristic]
X X X XX XX
Class Group Sub-group Type Size
XX XX X
Grade Shape Condition

Decimal System
Where to use TWO-DIGIT Decimal System:
If, however, for any particular class
characteristic, more than 10 sub-divisions are
necessary, the one-digit decimal system can be
substituted for two-digit decimal system.
For example, if for type, size, and grade, it is
thought that provisions have to be made for
more than ten, this may be done by a decimal
after two-digit numerals. This will make a
provision for 100 items in each group starting
from 00 -99.
Limitation: However, this system may be made
complicated by insertion of a decimal point,
which if wrongly inserted, may put the whole
system in disorder.

Materials management

Recomendados

Recomendados

Mais conteúdo relacionado

Mais procurados

Mais procurados (20)

Semelhante a Materials management

Semelhante a Materials management (20)

Mais de DR .PALLAVI PATHANIA

Mais de DR .PALLAVI PATHANIA (20)

Último

Último (20)

Materials management