Purchasing and Material Management training Certification with iACT Global
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The purchasing management department ensures that all goods, supplies and inventory needed to operate the business are ordered and kept in stock. It is also responsible for controlling the cost of the goods ordered, controlling inventory levels and building strong relationships with suppliers.IACT offers Purchasing and Material Management Certification along with several e-learning courses to working professionals and students across India. To know more call: 0120-3843057, 9654449005 or visit http://www.iactglobal.in/
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Purchasing and Material Management training Certification with iACT Global
- 1. www.iactglobal.in PURCHASING AND MATERIALS MANAGEMENT • Materials Management • Integrated materials management • Computer Application and System Analysis
- 2. www.iactglobal.in Learning Objectives •Materials Management • Definition • Primary and secondary objectives • Functions of Materials Management •Integrated materials management • Need for integrated approach •Materials Requirement Planning •Computerized materials management • EDP • Basic MRP concepts • Computer application to MRP process • Advantages and disadvantages
- 3. www.iactglobal.in Materials Management Definition Material management is a scientific technique, concerned with Planning, Organizing &Control of flow of materials, from their initial purchase to destination. •An approach for planning, organizing, and controlling all those activities principally concerned with the flow of materials into an organisation. •The scope of Materials Management varies greatly from company to company and may include material planning and control, production planning, Purchasing, inventory control, in-plant materials movement, and waste management. •It is a business function for planning, purchasing, moving, storing material in a optimum way which help organisation to minimise the various costs like inventory, purchasing, material handling and distribution costs.
- 4. www.iactglobal.in Primary Objectives 1. Low Prices 2. Lower Inventories 3. Reduction in Real Cost 4. Regular Supply 5. Procurement of Quality Materials 6. Efficient handling of Materials 7. Enhancement of firm’s goodwill 8. Locating and developing future Executives Objectives of Materials Management
- 6. www.iactglobal.in Integrated Materials Management All the materials related activities such as material planning & indenting, purchase systems & procedure, variety reduction through standardization & rationalization, reducing uncertainties in demand & supply, handling & transportation, inspection, proper storage & issue of materials to the internal customers, inventory management, vendor management & finally disposal of obsolete, surplus & scrap materials etc. taken together is termed as Integrated Materials Management. Tangible Advantages: •Better accountability •Better coordination •Better performance •Better adaptability to EDP Intangible Advantages: •Noticeable team spirit •Morale and cooperation Logical sequence in Materials management: •Forecasting the requirements •Deciding stocking policies •Vendor evaluation/source selection •Release of orders •Follow up of orders •Receipt of materials •Issue/stock of maintenance •Stock accounting •Inventory control
- 7. www.iactglobal.in Integrated Materials Management Adds to the profitability of the organization. Maximizing materials productivity Efficient management of input materials is of utmost importance Efficient management of input materials is of utmost importance in a business organization for maximizing materials productivity, which ultimately adds to the profitability of the organization. Well coordinated approach towards various issues involving decision making with respect to materials is integrated materials management.
- 8. www.iactglobal.in Inventory Control Methods Independent –Versus Dependent-Demand Items: Demand for end-product items is called independent demand, while demand for items contained in manufacturing inventories is called dependent demand. Some independent-demand items must be carried on a continual basis; some dependent-demand items need only to be stocked just priori to the time they will be needed in the production process. The predictability of some dependent- demand items means that there is little or no need for safety stock.
- 9. www.iactglobal.in Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, while it is possible to conduct MRP by hand as well. MRP calculates and maintains an optimum manufacturing plan based on master production schedules, sales forecasts, inventory status, open orders and bills of material. If properly implemented, it will reduce cash flow and increase profitability. MRP will provide you with the ability to be pro-active rather than re-active in the management of your inventory levels and material flow. Materials Requirement Planning
- 10. www.iactglobal.in Materials Requirement Plan Integrating MRP and JIT The need for integration arises in companies that have an installed MRP system and are in the process of implementing some aspect of JIT. Often these JIT programs seem to conflict with the MRP system that the firm may have in place. As lead times shrinks and material velocity increases, the limiting activity can turn out to be transaction processing; increased demand can compound the problem. The primary inputs of MRP are a bill of materials, which tells the composition of a finished product; a master schedule, which tells how much finished product is desired and when; and an inventory record file, which tells how much inventory is on hand or on order. The planner processes this information to determine the net requirements for each period of the planning horizon.
- 11. www.iactglobal.in Computerized Inventory Management System Advantages & Disadvantages •Speed and Efficiency •Document Generation •Timely Data •Reliance on Technology •Accuracy Issues •Risk of Fraud 4/13/15 3 types of computerised materials management function: •Materials planning subsystem •Stock maintenance and stores accounting subsystem •Purchase subsystem
- 12. www.iactglobal.in Computerized Inventory Management System Types of activities performed: •Posting of inventory records. •Computation of economic order quantities. •Preparation of purchase requisitions. •Preparation of purchase orders. •Distribution of accounting charges. • Automatic preparation of follow-up memos. •Posting of delivery and quality records, by part and by vendor. •Preparation of numerous operating reports for management. •Auditing of invoices and preparation of cheque for payment of invoice.
- 13. www.iactglobal.in Computerized Inventory Management System Operational And Exceptional Reports 1) Bill of materials 2) Price forecasts 3) Purchase budget 4) ABC Analysis 5) Inventory levels 6) Items below safety stock levels 7) Movement analysis 8) Materials accounting and summary of issues 9) Stock verification 10) Vendor rating 11) Sector-wise and material category-wise purchase list 12) Outstanding payments Following exceptional reports for managerial purpose: 1) Items for which consumption is morel than the norms 2) Items for which there is a supply shortage and anticipated price increase 3) Items with stock level above maximum norms 4) Obsolete items
- 14. www.iactglobal.in Net requirements planning It is carried out in MRP in the planning run after the planning file check and at plant level. The system checks whether it is possible to cover requirements with the plant stock and fixed receipts already planned. In the case of a shortage the system creates a procurement proposal. Gross requirements Planning It is often combined with repetitive manufacturing. This strategy is particularly useful if you need to produce, regardless of whether you have stock or not. For instance, steel or cement producers might want to use this strategy This strategy is also frequently used if there is a Material Requirements Planning system in a legacy system that needs to be linked which serves as a production execution system. Computerized Inventory Management System
Hinweis der Redaktion
- Hello everyone. Welcome to the first session of Purchasing and materials management session on behalf of iACT. Our first module will be covering topics on
- //edited The planning and control of the functions supporting the complete cycle (flow) of materials, and the associated flow of information. These functions include (1) identification, (2) cataloguing, (3) standardization, (4) need determination, (5) scheduling, (6) procurement, (7) inspection, (8) quality control, (9) packaging, (10) storage, (11) inventory control, (12) distribution, and (13) disposal.
- 1. Low Prices: If materials department succeeds in reducing the price of items it buys, it contributes in not only reducing the operating cost but also in enhancing the profits. 2. Lower Inventories: By keeping inventories low in relation to sales, it ensures that less capital is tied up in inventories. This increases the efficiency with which the capital of the company is utilized resulting in higher return on investment. Storage and carrying costs are also lower. 3. Reduction in Real Cost: Efficient and economical handling of materials and storage lowers the acquisition and possession cost resulting in the reduction in the real cost. 4. Regular Supply: Continuity of supply of materials is essential for eliminating the disruption in the production process. In the absence of regular supply of materials, production costs go up. 5. Procurement of Quality Materials: Materials department is responsible for ensuring quality of materials from outside suppliers. Therefore, quality becomes the single most objective in procurement of materials. 6. Efficient handling of Materials: The effective material control techniques help the efficient handling of materials resulting in the lowering of production cost. 7. Enhancement of firm’s goodwill: Good relations with the suppliers of materials enhance the company’s standing in the society as well as in the business community. 8. Locating and developing future Executives: Materials manager must devote special effort to locate men at lower position who can take up the executive posts in future. It helps in developing talented personnel who are ready to undertake future responsibilities of the business relating to materials management.
- 1. Reciprocity: The purchase of raw materials from the organisations/customer’s by the concern and in turn, sale of finished products to the above customers is known as reciprocity. It serves the twin purpose of increasing purchasing as well as sales. 2. New Developments: The staff of the materials department deals regularly with the suppliers responsible for new developments in material handling. These developments can be successfully applied in material handling and management. 3. Make or Buy Decisions: The material manager with regular reviews of cost and availability of materials can safely conclude that whether the material is to be purchased or developed in the organisation itself. 4. Standardisation: Standardisation of materials is greatly helpful in controlling the material management process. With regular stock-taking, the non-standardised items can be rejected and standard components may be brought into product designs to reduce the cost of production. It is further helpful in promoting the standardisation with suppliers. 5. Assistance to Production department: By supplying the standardised materials or components to the production department, quality products can be assured. It is helpful in imparting the economic knowledge in bringing about the desired improvement in the product. 6. Co-operation with other departments: Successful management of materials department contributes to the success of every other department in the organisation. At the same time the success of materials department depends on how successful it is in getting the co-operation of the staff of the other departments. 7. Conception of future outlook: The materials manager must have some conception of future outlook for prices, cost and general business activity. Forecasting can be made about the future trends in materials. The materials manager should be able to foresee the prices and costs of the raw materials and general business conditions through their daily contracts with the suppliers. From the above it is clear that materials management serves two fold objectives viz., to strive for a reduction in cost of production and distribution and to help the enterprise in attaining its objectives. These dual objectives of the materials management further aim at maintaining the regular flow of production by purchasing materials of right quality, in a right quantity at a right time from a right source, on right terms and conditions and at lower price. It is helpful in efficiently controlling the inventories. It is further beneficial in developing good buyer seller relations. Coordination with other departments is established and considerably helps the organisation to grow and advance in technical field.
- Various functions served by materials management include the material planning, purchasing, receiving, stores, inventory control, scrap and surplus disposal. All these functions can have separate working norms including the one for performance. Efficient management of input materials is of utmost importance in a business organization for maximizing materials productivity, which ultimately adds to the profitability of the organization.This requires well coordinated approach towards various issues involving decision making with respect to materials. All the materials related activities such as material planning & indenting, purchase systems & procedure, variety reduction through standardization & rationalization, reducing uncertainties in demand & supply, handling & transportation, inspection, proper storage & issue of materials to the internal customers, inventory management, vendor management & finally disposal of obsolete, surplus & scrap materials etc. taken together is termed as Integrated Materials Management. For example , while inventory manager would like to have minimum level of inventory to show of his performance , Purchasing manager would like to place bulk orders in order to lessen his work load and show discounts as reductions. Both of these acts may be little contradictory from the organisational point of view. That is if some of the functions were to be handled separately, a conflict of interests may occur. Therefore, the conflicting objectives need to be balanced and intertwined from a total organisational viewpoint so as to achieve optimum results for the organisation as a whole.In an integrated set up, one materials manager (usually the chief) is responsible for all such inter related functions and he is in a position to exercise control and coordinate all the activities with a view to ensure proper balance of the conflicting objectives of the individual functions. Integration also attains the synergetic advantage in terms of eliminating water tight compartments that set in in a disjointed environment of working. The resulting benefits can be seen in terms of rapid transfer of data, through effective and informal communication channels.
- Various functions served by materials management include the material planning, purchasing, receiving, stores, inventory control, scrap and surplus disposal. All these functions can have separate working norms including the one for performance. Efficient management of input materials is of utmost importance in a business organization for maximizing materials productivity, which ultimately adds to the profitability of the organization.This requires well coordinated approach towards various issues involving decision making with respect to materials. All the materials related activities such as material planning & indenting, purchase systems & procedure, variety reduction through standardization & rationalization, reducing uncertainties in demand & supply, handling & transportation, inspection, proper storage & issue of materials to the internal customers, inventory management, vendor management & finally disposal of obsolete, surplus & scrap materials etc. taken together is termed as Integrated Materials Management. For example , while inventory manager would like to have minimum level of inventory to show of his performance , Purchasing manager would like to place bulk orders in order to lessen his work load and show discounts as reductions. Both of these acts may be little contradictory from the organisational point of view. That is if some of the functions were to be handled separately, a conflict of interests may occur. Therefore, the conflicting objectives need to be balanced and intertwined from a total organisational viewpoint so as to achieve optimum results for the organisation as a whole.In an integrated set up, one materials manager (usually the chief) is responsible for all such inter related functions and he is in a position to exercise control and coordinate all the activities with a view to ensure proper balance of the conflicting objectives of the individual functions. Integration also attains the synergetic advantage in terms of eliminating water tight compartments that set in in a disjointed environment of working. The resulting benefits can be seen in terms of rapid transfer of data, through effective and informal communication channels.
- //Independent demand refers to the demand of finished goods. Dependent demand refers to the demand for items that are subassemblies or component parts to be used in the production of finished goods. The amount of dependent demand is the function of the amount of independent demand. For example, the parts and materials that go into the production of an automobile are examples of dependent demand, because the total amount of parts and raw materials needed during any time period is a function of the number of cars that will be produced. Conversely, demand for the finished cars is independent. A car is not a component of another item. Independent demand is fairly stable once allowances are made for seasonal variations, but independent demand tends to be sporadic or "lumpy"; large quantities are used at specific points in time with little or no usage at other times. Some independent-demand items must be carried on a continual basis; some dependent-demand items need only to be stocked just priori to the time they will be needed in the production process. The predictability of some dependent-demand items means that there is little or no need for safety stock. For example, a firm that produces lawn and garden equipment might make a variety of items, such as trimmers, lawn mowers, and small tractors. Suppose that the various products are produced periodically --- in one month, push mowers; in the next month, mulching mowers; and in the third month, tractors. Some components may be used in most of the items (e.g., nuts and bolts, screws). It makes sense to have a continual inventory of these parts because they are always needed. On the other hand, some parts may be used for only one item. Consequently, demand for those parts occurs only when that item is being produced, which might be once every eight or nine weeks; the rest of the time, demand is zero. Thus, demand is "lumpy."
- //Slide added Since investment in MPC systems is large and fixed over a long period of time, its design must support the firm’s competitive strategy. A wide range of options are available in designing MPC systems, and the choices must be governed by the firm’s competitive needs. Business as well as technical specifications need to be considered in designing an MPC system.
- Edited Just-in Time system has been defined and identified worldwide by many researchers and practitioners for world class manufacturing. This system has been accepted as a systematic approach to achieve competitiveness and excellence in manufacturing by many researchers and practioners in many countries in last three decades. This system has potential to compete in the present scenario of rapid development and growth of industrialization. The objectives of JIT are achieved through several physical systems or projects. Some of JIT objectives are as follows: • To reduce the set-up times and lot sizes. • To achieve ‘zero defects’ goal in manufacturing. • To focus on continuous improvement. • To concentrate on involving workers and using their knowledge to a greater extent. • Layout of equipments in such a way so as to minimizes both travel distances and inventories between the machines. • To reduce inventories and thus economize on inventory carrying costs. • To eliminate waste (such as long set-up times, zig-zag material flow, scrap, machine breakdown, higher stocks, rework, inspection etc.). • To identify any problem related to waste and solve that through total employees involvement. • To eliminate all non- value adding activities by systematically identifying these. • To cross –train the workers in multi-functions to maintain and enable them to run several machines at a time. The primary inputs of MRP are a bill of materials, which tells the composition of a finished product; a master schedule, which tells how much finished product is desired and when; and an inventory record file, which tells how much inventory is on hand or on order. The planner processes this information to determine the net requirements for each period of the planning horizon. Inventory Record file: It is mandatory to have accurate current data on inventory status. This can be accomplished by utilising a computerised inventory system which maintains inventory record file or item master file. A definition of time for raw materials, components and assempblies must be established in inventory record file.
- Advantages & Disadvantages of a Computerized Inventory Management System No matter the nature of your business, you need to keep track of the products your firm has on hand. Keeping an accurate inventory is critical to lowering costs and providing a more streamlined operation. As a business owner, you can rely on traditional hand counting methods or institute some form of computerized inventory control. Both approaches have their benefits and drawbacks, and it is important to weigh the relative advantages carefully. Speed and Efficiencybe A computerized inventory management system makes everything from inputting information to taking inventory easier. Doing a hand count of inventory can take days, but with a computerized inventory management system, the same process can be done in a matter of hours. Document Generation Once the computerized inventory management system is in place, managers and workers can use it to automatically generate all kinds of documents, from purchase orders and checks to invoices and account statements. Managers can also use the system to automatically order products when they run low. Timely Data With a manual system, the data is only as accurate and up to date as the last hand count. With a computerized inventory management system, the management team can pull a report and instantly see how many units are on the floor, how many have sold and which products are selling the fastest. Reliance on Technology With a computerized inventory management system, the company is at the mercy of its technology. Outside factors like a power failure or the loss of Internet or network connectivity can render the system temporarily useless. Accuracy Issues A computerized system alone does not ensure accuracy, and the inventory data is only as good as the data entry that created it. Companies that plan to use a computerized inventory management system need to have a system in place to validate their data and check the numbers reported by the system. A select hand count or targeted audit may be necessary to ensure the integrity of the system. Risk of Fraud Any computerized system carries the risk of intrusion, and with a computerized inventory management system comes the risk of fraud as well. A dishonest vendor could hack the system to receive payment for products never delivered, or a dishonest employee could redirect checks to themselves.
- Advantages & Disadvantages of a Computerized Inventory Management System No matter the nature of your business, you need to keep track of the products your firm has on hand. Keeping an accurate inventory is critical to lowering costs and providing a more streamlined operation. As a business owner, you can rely on traditional hand counting methods or institute some form of computerized inventory control. Both approaches have their benefits and drawbacks, and it is important to weigh the relative advantages carefully. Speed and Efficiencybe A computerized inventory management system makes everything from inputting information to taking inventory easier. Doing a hand count of inventory can take days, but with a computerized inventory management system, the same process can be done in a matter of hours. Document Generation Once the computerized inventory management system is in place, managers and workers can use it to automatically generate all kinds of documents, from purchase orders and checks to invoices and account statements. Managers can also use the system to automatically order products when they run low. Timely Data With a manual system, the data is only as accurate and up to date as the last hand count. With a computerized inventory management system, the management team can pull a report and instantly see how many units are on the floor, how many have sold and which products are selling the fastest. Reliance on Technology With a computerized inventory management system, the company is at the mercy of its technology. Outside factors like a power failure or the loss of Internet or network connectivity can render the system temporarily useless. Accuracy Issues A computerized system alone does not ensure accuracy, and the inventory data is only as good as the data entry that created it. Companies that plan to use a computerized inventory management system need to have a system in place to validate their data and check the numbers reported by the system. A select hand count or targeted audit may be necessary to ensure the integrity of the system. Risk of Fraud Any computerized system carries the risk of intrusion, and with a computerized inventory management system comes the risk of fraud as well. A dishonest vendor could hack the system to receive payment for products never delivered, or a dishonest employee could redirect checks to themselves.
- Advantages & Disadvantages of a Computerized Inventory Management System No matter the nature of your business, you need to keep track of the products your firm has on hand. Keeping an accurate inventory is critical to lowering costs and providing a more streamlined operation. As a business owner, you can rely on traditional hand counting methods or institute some form of computerized inventory control. Both approaches have their benefits and drawbacks, and it is important to weigh the relative advantages carefully. Speed and Efficiencybe A computerized inventory management system makes everything from inputting information to taking inventory easier. Doing a hand count of inventory can take days, but with a computerized inventory management system, the same process can be done in a matter of hours. Document Generation Once the computerized inventory management system is in place, managers and workers can use it to automatically generate all kinds of documents, from purchase orders and checks to invoices and account statements. Managers can also use the system to automatically order products when they run low. Timely Data With a manual system, the data is only as accurate and up to date as the last hand count. With a computerized inventory management system, the management team can pull a report and instantly see how many units are on the floor, how many have sold and which products are selling the fastest. Reliance on Technology With a computerized inventory management system, the company is at the mercy of its technology. Outside factors like a power failure or the loss of Internet or network connectivity can render the system temporarily useless. Accuracy Issues A computerized system alone does not ensure accuracy, and the inventory data is only as good as the data entry that created it. Companies that plan to use a computerized inventory management system need to have a system in place to validate their data and check the numbers reported by the system. A select hand count or targeted audit may be necessary to ensure the integrity of the system. Risk of Fraud Any computerized system carries the risk of intrusion, and with a computerized inventory management system comes the risk of fraud as well. A dishonest vendor could hack the system to receive payment for products never delivered, or a dishonest employee could redirect checks to themselves.
- Net requirements planning The net requirements calculation is carried out in MRP in the planning run after the planning file check and at plant level. The system checks whether it is possible to cover requirements with the plant stock and fixed receipts already planned. In the case of a shortage the system creates a procurement proposal. Gross requirements Planning: The make-to-stock strategy gross requirements planning is particularly useful in mass production environments; it is often combined with repetitive manufacturing. This strategy is particularly useful if you need to produce, regardless of whether you have stock or not. For instance, steel or cement producers might want to use this strategy because they cannot shut down production; a blast furnace or a cement factory must continue to produce, even if this means having to produce to stock. This strategy is also frequently used if there is a Material Requirements Planning system in a legacy system that needs to be linked which serves as a production execution system.
- Thank you for being a part of this session. I look forward to taking your questions in the Q&A session soon to follow.