Materials and inventory Essay

Q. 1 Setting up the new stores, helping to meet Purchase and Stores requirements Suitability of the building.

After the fire accident in the main stores, the immediate task is to restart the store in the empty West Building, shifting the let-out good materials from the burnt stores and purchasing store materials to maintain output and keep the customers in hand.

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Materials management plays a big role to organize the things in the proper way. It is about moving the materials within an organization and are those objects that are to be moved in order to produce goods. These are the intangible materials that are moved.   The better is the materials management in a company the better is the health of that company.

MATERIALS MANAGEMENT–THE NECESSITY

Materials are put in three categories. First category is purchased materials like the raw materials, components, spare parts and items that are used and do not appear in the end product. The second category is of in-process materials or the materials in the semi-finished stages and lastly the finished goods that are ready for customers. One has to manage these materials. The aim is to obtain the materials at the minimum possible price while maintaining quality also and to maintain the inventories in such a way that minimum cost is incurred while maintaining adequate materials for the production process.

It is a function that integrates purchasing, storage, inventory control, material handling and standardization in an origination to achieve its objectives of reducing the cost. The company has to maximize its profit by maximizing its production and minimizing the cost of production. The average material cost in a manufacturing setup is around 50-70% of the total expenditure, which further goes up if one takes into account the inventory costs, storage, waste and other factors etc. It is imperative for our organization to have a sound materials management with an objective to reduce material costs, control inventories, ensure uniform flow of materials and maintain good relations with suppliers. Materials Management is to do activities related to planning, accusition and utilization of materials.

Since the amount of money incurred on materials is higher than the cumulative amount for machines, men and methods, we have to give high importance to the materials. It is the most feasible area which offers opportunities for reduction of costs and improvement of profits. Materials add value to the product, as the product quality is directly dependent on the materials used. Materials Management as a system assures the availability of products to the customers at minimum cost. Materials management makes available the right materials in right quantity at a right price on the right time.

FUNCTIONS

Materials management functions as materials planning and control, purchasing, inventory control, store keeping, material handling, warehousing, standardization & simplification and organization & appraisal of materials.

1) Materials planning and control: Material requirement lies at the core of successful material management. This function is at the core of all the material requirements in any manufacturing process.

2) Purchasing: This function identifies the sources of supply, does market research, call tenders and select suppliers, negotiate with them and makes available the raw materials

3) Inventory control: This function is responsible for the location and storage of materials so that they remain available at the minimum cost and quickest time.

4) Store keeping: This function is responsible for the receipt and issue of the materials. The materials are stored in such a way that minimum handling is required and wastage is minimal.

5) Material handling: This function aims at minimizing handling and provision of equipments for handling materials. This function is crucial for minimizing space requirements, effective distribution and for providing better working space.

6) Warehousing: This function is responsible for the storage facilities for the materials, weighing facilities, materials handling equipments, material distribution facilities, fire fighting instruments etc.

7) Standardization and simplification: This function selects items of great demand and sets the standards for quality, raw material, sizes and performance of any product.

8) Organization & appraisal of materials: This function helps in effective functioning by proving smooth flow. It provides coordination and avoids delays and wastages.

An integrated materials management system helps in taking judicious decisions that in turn leads to lower cost for materials. As our organization is having low inventory carrying costs, less stock outs etc., it is bound to do well.

Our organization has now become multidimensional in nature. Total materials management concept evolves to address this dimension and avoid conflicting objectives. Total material management helps in establishing accountability so that response to a problem is quick and appropriate. The material functions are accomplished in more coordinated ways with the help of this integrated approach. When this happens there is increased communication for the need of materials and hence our company will get lower costs, better inventory turnover, reduce stock outs and other significant benefits

MATERIALS FLOW

The aim of our organization is to manage Men, Machines, Money, Methods and Materials effectively. The purpose of this coordination is production of superior goods at minimal costs. Flow of materials from vendor/supplier to the warehousing/customer and the organization is abounded in information flow. Materials and information both are extremely important and both should be readily available at a time when needed. The effectiveness of the materials flow is dependent on decision-information. Our organization will be able to control these two flows easily and effectively and finally it will definitely render goods products at a low cost and also would be able to offer good service.

ADVANTAGES TO THE COMPANY

Materials Management will serve core objectives and many secondary objectives. The core objectives are:

• Proper, cost effective material procurement.

• Proper storage of materials so as to minimize wastages and material hold

• Making available the material TIMELY.

Besides these primary objectives a materials management system indirectly fulfills many secondary objectives also. Some of these secondary objectives are:

• identifying new or better sources of supply

• Development and sustenance of relationships with the vendors

• Creating a standardized quality of the products

• Performing the value analysis of inventory. This can be related to the cost of materials.

• Creating a smooth flow of materials and information among the various sections of materials management system.

The material management system works under the broad basic objectives of an organization that is “maximum profit with sustained growth and research, satisfied customers and staff of the organization”. The material management supports this objective by providing support through:

• Continuity of supply by maintaining a uniform flow of materials,

• Minimizing holdups of working capital and performing effective inventory control,

• Releasing working capital by ensuring effective control over inventories,

• Providing high quality at the lowest price, and

• Development of better relationships with customers and suppliers.

SUITABILITY OF THE WEST BUILDING STORE

Stores play a vital role in the effective operations of a company. Incoming materials and supplies, in process goods, and finished goods are important assets to a business enterprise. In a majority of manufacturing organizations, materials constitute the major fraction of cost, i.e., 40 to 80% of total cost. The cost of capital blocked in inventories is substantial. Since production and consumption cycles rarely match, the success of  our company in the  business, besides other factors, depend largely on the process of efficient storage and material control of these assets in order to provide uninterrupted supply to the points of use or consumption and the store is the place for the operation of this process.Our company is concerned with carrying the right kind of materials or goods in right quantity neither in excess nor in short supply and also keeping it safe against any kind of deterioration, pilferage or theft. Stores is the custodian of the organization’s money, as money is locked up in stocks.

PROPOSED SETUP

The suitability of the stores building is a crucial decision which has to be taken with utmost care as the process of relocation, once the facilities are installed and made operational, may be an expensive exercise. The present proposed building i.e., the West Building is suitable in all respects as its optimal location will result in the following advantages:

• Minimization of total transportation, handing and other related costs.

• Minimization of delays in providing materials and goods to the point of use.

• Maximization of effectiveness of stores operations.

• Conservation of efficiency of human, machine and equipment.

• Better Facility planning.

• Lending flexibility and adaptability to the company’s futuristic outlook.

 

Q.2.Plan of action—company’s needs, all activities and items that are to be procured to provide a new functioning Warehouse.

There are three kinds of items which are normally be procured to start functioning the new company’s warehouse.

a) Raw materials used in production.

b) Semi-finished goods part way through production process or work in progress.

c) Finished goods awaiting sale.

In general, the problem of inventory is, if too much of stock is kept then it amounts to wasted cost. On the other hand, if too little stock is kept then it leads lost sales. Therefore, the ideal situation is to have stock at desired levels.  Like any stock, inventory has inflow and outflow. Stock inflow is from new production or receipt of material from suppliers. Stock outflow is finished goods to customers or use of materials in the production process.

The demand for our store items will be:

a)      External or independent demand: Where the usage is determined outside the company, as with finished goods inventory demanded by customers. In this case, with many different customers, demand may be fairly constant.

b) Internal or dependent demand: Where the usage is derived from our own company’s rate of production of finished product, as with demand for materials and work-in-progress. To implement an optimal inventory policy, two points are important:

a) Reorder point

b) Order quantity

STOCK HOLD

Purchasing and inventory control are the major areas in the day to day running of our unit. Raw material inventory, process inventory, and finished goods inventory are the factors on which the entire warehouse system works. Process inventory is the inventory of goods that are essential part of the production process. Process inventories are an expensive preposition and in order to really cut the costs one has to control them.

PROCESS INVENTORY

Process inventory is also termed as in-process inventory or work-in-process inventory (WIP). They are concerned with the materials or semi-finished goods on the production floor. These materials are essentially an integral part of the total production process. Each product has some stages of production attached to it and, a delay in one or many stages results a delay in the time it takes for finally reaching the warehouse. These delays cause flow of other materials on hold. Maintaining a WIP is on one hand essential in ensuring that the required material is available at the time when it is required in the production process and on other hand holding a material for too long will add to our cost. There are other reasons also like lack of proper production planning; lack of coordination between purchase and production; urgency of production of another manufactured goods or an error in a machine on the production floor etc. WIPs are as expensive as the other inventories and therefore it is a must to control them. From raw materials inventory, the materials go to the production floor where different workstations at different stages transform them into finished goods. Once the finished goods are obtained, these are moved to the finished goods inventory.  The company then transfers these products to various distribution centers and warehouses and finally the finished goods are moved to customers. The phase between the raw materials inventory and the finished goods inventory is performed on the production floor and involves many workstations for the conversion of the raw materials into the product. These materials that are present on the production floor are day to day requirement.

IMPORTANT INVENTORIES

Our company is specialized in manufacture of seatings of car manufactures and hence the following inventories are absolute essential:

1 Raw Materials Inventory: All items required for manufacturing and assembly process

2 Work-in-process (WIP) Inventory: Materials waiting to be processed or assembled, those that are in semi-finished stage, subassemblies etc.

3 Finished goods Inventory: Outputs of this production process, ready to go to the customer.

Inventory is a quantity of commodity that incurs cost.  Inventories are meant for satisfying the demand as it occurs and hence there is a trade-off between the benefits and cost of carrying inventories. The ultimate goal is to maximize the benefits while minimizing the cost

PURCHASE ACTION

The procurement action stems from the need to integrate the planning for purchasing of the needed materials, their conversion and flow, and the inventories of finished products. To start the warehouse, all necessary items are to be purchased. These materials include not only raw materials in different forms, but also components and subassemblies. Components must be purchased and this can only be done if the type, quantity of the requirement of these materials is determined first. Purchasing and storage have to be preceded by planning and budgeting of material requirements. These activities of materials management are:

(1) materials planning, (ii) purchasing, and (iii) storing, inventory control and material handling. The basic purpose of the system is to develop manufacturing plans and a flow of materials that will conform to the stated plans and policies, using inventories properly to minimize operating costs. The working of this system depends on the product diversity/product mix, the conversion processes and cycles, and the manufacturing environment.

FACTORS INFLUENCING WIP INVENTORIES

Our company today faces many challenges and is in continuous pursuit to improve the effectiveness of the operations and the quality of the products by creating ways to remain responsive and competitive in the marketplace. Four “Ws” of product: who, what, when and where to make and ship to satisfy customer requirements are crucial in production. A significant portion of our company’s financial resources are involved in inventories stored at various points in the supply chain. This is to create buffer demand and supply variability, including raw materials and work-in- process (WIP) as well as finished goods.

Our company is well aware of   the factors and reasons for existence of WIP inventories. A flow process is prepared to trace the flow of materials from the start to the finish. By this method we are able to find the delays that occur in the course of production process than getting converted into a finished product. This halts the cash flow of the organization and important to be considered.

The criteria are as follows:

• These materials remain in the inventory as protective buffer against production breakdown or rejection.

• These materials remain in the inventory for economic lot production i.e. a larger quantity is sometimes produced than what is actually required.

• ‘These materials remain in the inventory, as sometimes they have to wait for matching components and other materials for final assembly.

• These materials remain in the inventory due to the delay in the next stage of production.

An effective way to control WIP inventories is effective planning and coordination of production activities. The amount of WIP inventory is directly dependent on the length of the production cycle, the percentage of machine utilization, the “make or buy” policies of the organization and the management policy. The amount of WIP inventory depends on the type of production job.

MATERIALS   REQUIREMENT PLANNING

Materials requirement planning (MRP) is a computational technique that converts the master schedule for the end products (MPS) into a detailed schedule for the materials and components required in the end products. The detailed schedule identifies each raw material and component item required for the end product.  Our company will always try to keep the inventory in a sound position so that there is no disturbance in the production line. It also determines when each of these items must be ordered by the factory and delivered by the vendor to the factory so as to meet the planned completion date for the end product as per the MPS

The kinds of inventory items that are needed for the end products are termed as items of production inventory to distinguish them from maintenance and tooling inventory items. The bulk of the total production inventory in our plant is in raw material, components and subassemblies, and all of these are largely subject to dependent demand. Their demand is derived from the demand of the end products i.e., car seats, for which they are needed. Dependent demand should not be forecast, as it can be precisely determined from the demand for car seats which are in the process of manufacture.

MRP is not a system, by itself it is simply a technique and forms a part of the manufacturing planning and control system. MRP does the following jobs:

I) Determines the quantities of each item required for the manufacture o planned to be produced, and this includes purchased components and sub-assemblies, manufactured components and subassemblies and raw materials.

2) Suggests the proper time to release orders, namely purchase orders for raw materials and bought-out components and shop orders for production activities.

3) Indicates the dates by which each of the above items are needed and provides the necessary information for material control.

4) Provides information to assist the planning of capacity requirements.

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Q  3  Protecting the stores from such type of disasters

Security is an important factor of business efficiency. The objective of security management is loss prevention. LOSS is a cost and all efforts have to be undertaken to minimize it or preferably eliminate it. LOSS in warehouses seriously erodes the profitability of any organization as huge amount of money is locked up in stores.

The principal aim of security management is to protect the assets of the company and devise adequate counter measures to create secure conditions within the company. Security problems in warehouses are dependent upon the Nature and Value of the materials stored, and in general, it may be said that more valuable the item, the Greater is the need for tightened security. The security measures should be commensurate with the potential threats following a through and professional assessment of the risks. Having established the extent of the threat to the company the policies of denial, detection and deterrent need to be implemented i.e., denial of the company’s assets to the potential threats by good physical and mechanical protection, detection of any undesirable activity within the company by the direct methods of good security checks, alarm systems or other physical means. All the procedures and practices should be examined frequently to ensure that they are adequate and that the person responsible for carrying out these duties is observing the procedures. Loss analysis should be done based on reliable figures. LOSS analysis charts should be supplied as matter of routine to people to ensure that the problems are tackled when they are first apparent and not when they have been allowed to magnify.

TYPE OF LOSSES DUE TO FIRE

Fire safety is critical element in any warehouse safety programme. Consideration must be given to emergency programmes, sprinkler protection, fire hoses, fire extinguishers and flammable liquids and gases. Fire protection is a serious subject, which if not addressed, could result in a catastrophic loss of property and life.

Many warehouses handle or store flammables. When storing a chemical always consider the flash point. The lower the flash point, the greater is the danger. Flammables in container may leak as a result of handling or damage and it can get ignited from static sparks, friction sparks or electrical sparks. Another source of ignition is heat generated from rapid compression.

Following actions need to be taken for prevention and control of fires:

• Select and install fire extinguishers that are appropriate for the workplace hazard.

• Fire extinguishers should be installed at places where they are easily accessible.

• Make arrangement for portable extinguishers also.

• Ensure regular inspection of the extinguishers for signs of wear and potential malfunctioning.

• Fire extinguishers with Carbon dioxide units have to be weighed to determine if they are full.

• Install sprinkler system as it is one of the most reliable forms of fire fighting protection.

• All employees should be trained in fire fighting techniques.

Provision of fire fighting facilities is necessary especially where inflammable materials are stored and handled. In point of fact, large organizations have a well-maintained fire fighting equipment with the warehouse in preparedness. This, in the long run reduces losses and insurance expenses. Fire extinguishers, fire escapes, alarms and sprinklers must be available and personnel should be familiar in handling them.

 

 

 

 

 

References

1.      Bowersox D.J., Carter, P.L. and Monczk, KM. (1984), “Materials Logistics Management”, IJPD & MM Christopher (1992).

2.      Christopher M. (1992), Logistics: The Strategic Issues, Chapman & Hall, London.

3.      Moore,J.M.(1998), Materials Management: Procedures, Text and Cases, Macmillan,New York

4.      Finely,H.F. (1998), Materials Management: An Integrated Approach, Oxford University Press, Oxford.

5.      Noble James S., Klein Cerry M., (1998), “An Integrated Model of the Material Handling System ”, Harper and Row Inc. New York.

6.      James R Stock (1996), An Integrated Concept of Materials Management, New York, Macmillan.

7.      Sharnia S.C. (1997), Materials Management and Materials Handling, John Wiley& Sons,Inc..

8.      Brown R.G. (1977), Materials Management System, John Wiley, New York.

9.      Dobler, D. W. (1990), Purchasing and Inventory Management, McGraw-Hill, New York.

10.  Kehoe,D.K.(1977) Materials Management: An Integrated Approach,Chapman&Hall.

 

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