BANSURI SAMPAT LECTURER AT SLPT BBA MAHILA COLLEGE

MAL-010-001601 3RD YEAR BBA SEM 4 CBCS EXAMINATION

MARCH/APRIL-2018 MATERIAL MANAGEMENT: 601

[TIME: 2 ½ HRS] [ TOTAL MARKS:70]

Q.1. Define the term material management. Also discuss importance of material management.

Ans. INTRODUCTION:- Historically the five M's of an industrial organization viz., Men, Machines, Money, Materials, and Methods have shifted their positions from time to time in their relative importance. In the early days, the focus was men as they were the main source of productive power. In the course of time, the emphasis shifted towards machines, which became the main source of industrial power. As years went by, the methods of production became more complex and in order to manage the complicated manufacturing system, efficient management became necessary. Naturally, the attention was shifted to scientific management. The oil crisis of the 1970's changed the priorities of industrialists all over the world. The unprecedented hike in the oil prices and consequent heavy budged allocations on oil made the captains of industrial establishments take note of one of the Ms, viz., money. Materials as an input in production systems started receiving attention of the industrialists from 1900 onwards. Earlier to this, materials were taken for granted as they presented no major problem with regard to either supply or cost. Since the beginning of 20* century, materials have been occupying a place of the importance among the M's and this will continue to be so in the years to come.

Definition:- (i) Materials Managements is the "management of the flow of materials into an organization to the point, where, those materials are converted into the firm's end product(s)." ---- (Bailey and Farmer)

(ii) Materials management is the "process by which an organization is supplies with goods and services that it needs when the material is either consumed or incorporated into some product. The executives, who engage in materials management, are concerned with three basic activities viz., buying, storage of materials and movement". --- (Ammer)

(iii) Materials management is "a confederacy of traditional materials activities bound by a common idea-the idea of an integrated management approach to planning, acquisition, conversion, fiow and distribution of production materials fi"om the raw materials stage to the finished product stage." (Lee andDobler )

(iv) Materials management is "the function responsible for the coordination of planning, sourcing, purchasing, moving, storing, preserving and controlling materials in an

optimum manner so as to provide a pre-determined service to the customer at minimum cost."

(P. GopalaKrishnan and MSundaresan)

Importance of material management:-

1. The material cost content of total cost is kept at a reasonable level. Scientific purchasing helps in acquiring materials at reasonable prices. Proper storing of materials also helps in reducing their wastages. These factors help in controlling cost content of products.

2. The cost of indirect materials is kept under check. Sometimes cost of indirect materials also increases total cost of production because there is no proper control over such materials.

The equipment is properly utilized because there are no break downs due to late supply of materials.

4. The loss of direct labour is avoided.

5. The wastages of materials at the stage of storage as well as their movement is kept under control.

6. The supply of materials is prompt and late delivery instances are only few.

7. The investments on materials are kept under control as under and over stocking is avoided.

8. Congestion in the stores and at different stages of manufacturing is avoided.

OR

Q.1. Write in detail function of material management.

Ans:- Introduction

Historically the five M's of an industrial organization viz., Men, Machines, Money, Materials, and Methods have shifted their positions from time to time in their relative importance. In the early days, the focus was men as they were the main source of productive power. In the course of time, the emphasis shifted towards machines, which became the main source of industrial power. As years went by, the methods of production became more complex and in order to manage the complicated manufacturing system, efficient management became necessary. Naturally, the attention was shifted to scientific management. The oil crisis of the 1970's changed the priorities of industrialists all over the world. The unprecedented hike in the oil prices and consequent heavy budged allocations on oil made the captains of industrial

establishments take note of one of the Ms, viz., money. Materials as an input in production systems started receiving attention of the industrialists from 1900 onwards. Earlier to this, materials were taken for granted as they presented no major problem with regard to either supply or cost. Since the beginning of 20* century, materials have been occupying a place of the importance among the M's and this will continue to be so in the years to come.

Functions of material management

While the field of materials management covers all aspects of material costs, supply and utilization, opinion is divided as to what functions should be included under the unified working of materials manager. In the opinion of experts on materials management, the following eleven functions may come under the headship of materials manager.

1. Materials planning and sourcing.

2. Purchasing

3. Stores keeping

4. Inventory planning

5. Receiving, warehousing and transportation

6. Value analysis

7. Standardization and variety reduction

8. Production planning and production control

9. Vendor development

10. Material handling

11. Disposal of scrap and surplus

The production planning and production control has been included under the materials management because for manufacturing a huge quantity of finished product (big industry), a large number of components are purchased from sub-contracting for end-use or for final assemblies. Sub-contracting and vendor development is best known by materials manager. The materials manager should not be burdened with value analysis, codification of stores, material handlings, etc. Many experts believe that these should be separate staff functions. However, these functions cannot be, by their very nature, independent of materials manager. The function of disposal of obsolete items, scrap and surplus is best done by materials manager who is familiar with market trends of all materials. Some of the important functions of material management are briefly discussed below:

1.Material Planning: Involves setting up of consumption standards for working out the requirements of a given production programme. Deciding whether to make or buy considering the financial aspects, manufacturing capacity, availability and dependability of outside sources, laying down procurement standards and specifications valve analysis, standardization etc.

2.Scheduling; Detailing the receipt of items to meet the procurement lead time availability or scarcity of materials, economic lot sizes, etc., this involves follow up of actual deliveries against the schedules and taking special action for expediting in case of any other short fall.

3. Inventory Control: To ensure that stock-outs don't occur for want of materials and able to minimize the inventory holding. Selective control or ABC analysis, analysis of lead times, rejection rates consumption rates, costs and other relevant factors to determine safety minimum and maximum levels re-order level etc., maintenance of central stock records to ensure better control.

4. ; Locating and development of sources of supply, market research for purchasing negotiating prices, calling for tenders, selection of suppliers, issue of purchase orders, vendor rating, preparations of material budgets etc.

5. Warehousing and Material Budgeting; Involves receiving of materials moving them to stores after inspection return of rejected materials of any proper and adequate storage facilities to ensure minimum retrading, provision of suitable material handling equipment like cranes, hoists, forklifts, conveyor systems, etc., suitable warehousing arrangement to eliminate fire hazard, loss due to pilferage and determination in storage.

6. Salvage and Disposal of Scrap and Surpluses: Investigating into cases of surpluses and obsolescence and to find out alternative uses or otherwise disposal and also to minimize recurrence of the same, aggregation if different types of swarf and scrap so that maximum prices could be obtained while disposing off.

7. Stores Management: Involves stores layout, improvement of storage system, stores control of terms of receipt and issues of materials, maintenance or stores records and stores accounting.

A.K.ChitaIe and R.C.Gupta have brought out all the functions of materials management under four broad activities. The following table gives the broad four activities of material management and brief description of all those activities.

Activity Description

(1) Inventory control

Planning and maintaining levels of raw materials, tools, general supplies, etc. Keeping a watch on in-process and finished goods inventory. Applying selective

(2) Purchasing (3)Storekeeping (4) Traffic or carrying and forwarding

inventory control methods calculating economic order quantities and economic manufacture quantities, doing simulation to work out when to order and how much to order. Doing material requirement planning in case of dependent demand inventory.

Developing vendors for supply of components, sub-assembly and also for other items such as supplies, assisting design department in standardization, value analysis, advising and disposal of surplus and scrap. Procurement of materials at right time in right quantities from right source, right quality, etc. Receiving, storing and issuing as well as material handling in stores. Receiving incoming materials called inbound logistics and carrying for outbound logistics.

Q.2. what do you mean by vendor selection? Also discuss methods of vendor rating.

Ans. In a supply chain, a vendor, or a seller, is an enterprise that contributes goods or services. Generally, a supply chain vendor manufactures inventory/stock items and sells them to the next link in the chain. Today, these terms refer to a supplier of any good or service.

A vendor, or a supplier, is a supply chain management term that means anyone who provides goods or services to a company or individuals. A vendor often manufactures inventorial items and then sells those items to a customer.

Typically vendors are tracked in either a finance system or a warehouse management system.

Vendors are often managed with a vendor compliance checklist or vendor quality audits and these activities can be effectively managed by software tools.

Purchase orders are usually used as a contractual agreement with vendors to buy goods or services.

Vendors may or may not function as distributors of goods. They may or may not function as manufacturers of goods. If vendors are also manufacturers, they may either build to stock or build to order.

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'Vendor' is often a generic term, used for suppliers of industries from retail sales to manufacturers to city organizations. 'Vendor' generally applies only to the immediate vendor, or the organization that is paid for the goods, rather than to the original manufacturer or the organization performing the service if it is different from the immediate supplier.

Methods of vendor rating:-

(a) Categorical Plan: The categorical plan is a sample of all vendor rating schemes. It relies heavily on the judgement and experience of the decision maker. The purchaser maintains a list of his suppliers and their products. The vendor performance is reviewed periodically by an evaluation committee comprising of all representatives.

Depending upon the performance, the vendor is given a plus point, neutral or minus. The performance trends over a period of time are built up and the vendor with increasing trend of plus point is chosen. A preponderance of pluses or minuses needs notification to supplier with comments.

On the basis of experience and periodical meetings, a list of factors can be established on the suppliers’ performance in each area and each factor is given a grading as ‘never’, ‘seldom’, ‘usual’, ‘always’, etc. This system, though non-quantitative, provides a means of systematic record keeping on performance criteria.

(b) Weighted Point Plan: Quality, delivery or service and price are the three most important attributes of a good supplier. Depending upon the importance, a purchaser attaches to a particular attribute he fixes a weightage for it. The total weightages are being 100. The weightages, for example, of the attributes are as follows:

Quality — 60%

Delivery — 25%

Price — 15%

The quality rating (Table 15.1), delivery (service) rating (Table 15.2), price rating (Table 15.3) and composite rating (Table 15.4) are calculated.

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The weighted point plan technique enables a purchaser to evaluate a supplier on quantitative basis. This plan is more objective than categorical plan and the only way the subjectivity can enter is while assigning the weights. Proper records have to be kept.

If services of a computer are available, then this plan can be used very successfully. Under this plan, the supplier can be classified as excellent, acceptable, average and unacceptable if their composite rating is over 90%, between 75% and 90%, between 60% to 75% and below 60%.

(c) Cost Ratio Method: This method relates to identifiable purchasing and receiving costs to the value of shipment received from respective suppliers. The higher the ratio of costs to shipments, the lower the rating applied to the supplier: Quality, delivery, service and price are the usual categories to which costs are allocated, after subdividing each factor into various elements.

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The respective cost ratios are suitably combined with the vendors’ quoted price, to determine the net cost. Here, the vendor performance is reviewed periodically by an evaluation committee comprising of representatives from all departments involved with purchasing.

(d) Eavaston’s Vendor Selection: The suppliers’ past performance is utilized in the choice of vendors and the basic steps in this method are as follows: (i) The vendors on the approved list are ranked on the basis of the buyer’s subjective evaluation, (ii) The first satisfactory vendor, meeting or exceeding all the standards, (iii) If the applied vendors do not fulfill the minimum standards, then the minimum standard may be relaxed till a vendor is chosen. It presupposes that standards of acceptability for every criterion are formed to fit in order to take decisions.

(e) Forced Decision Matrix: The attributes of rating like price, quality, service, reliability of the supplier, lead time of supply etc. — are identified first. Then these factors are compared between themselves, like quality and price. If price is considered more important than quality by the evaluation committee, then a weightage of one is given to price and zero to quality.

The quality is compared with each of the remaining factors and the relative weightages are recorded in the form of a table or matrix. Similarly, each factor is compared in turn with each of the others and their relative weightages are recorded. Weightages given to the different attributes are added up for each attribute and divided by the total number of comparisons to give the attribute weightage co-efficient for each attribute.

After this, the next step is to compare the suppliers in pairs in respect of each attribute, giving the superior supplier a weightage of one and the other. These results are tabulated and the supplier weightage co-efficient is thus obtained.

The above two types of coefficients are combined by multiplying for each attribute and for each supplier. These are then added up to give the total weightage and this is ranked to take the appropriate decisions on the vendors. The weightage can be varied and the matrix can be suitably built for a large number of suppliers and evaluators.

(f) Service Cost Ratio: There are other intangible aspects of a supplier’s services. They can only be measured subjectively. The procedure is as follows:

(i) Listing the service factors like R&D, Labour stability, financial stability, flexibility in production for rush orders, etc.

(ii) Assigning weights to each factor according to its importance to the purchaser.

(iii) Setting an acceptable norm e.g., out of a total of a 100 service points 70 may be an acceptable norm.

(iv) Rating suppliers for each service factor.

(v) Determining the percentage by which the supplier is over or under the acceptable norm

(vi) Multiplying the percentage obtained in (v) by value of package percent. For sophisticated items the value of package percent may be 10% and for common Bazzar items it may be just 1%.

(vii) The percentage figure arrived at in (vi) is minus if the percentage in (v) is over the acceptable norm and is plus if it is below the acceptable norm.

The sample procedure of calculating the service cost ratio is shown in table

(g) Bell Quality Rating System: The bell helicopter company developed a Lot Quality Index (LQI), which give an assessment of all lots received against lots rejected, by disposition and category, as the company attaches greater importance to quality. The LQI is given by: LQ1 – X/L, where L = total number of lots received during the period, x = (L1 x 1.00) + (L2 x 2.10) + (L3 x 2.90) + (L4 x 3.10) + (L5 x 3.90) L1 = Number of lots acceptable as received L2 = Number of lots rejected by sampling inspection but labelled.

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L3 = Number of lots rejected and dispositioned, rework at supplier’s end. L4 = Number of lots rejected and dispositioned, returned not usable and L5 = Number of lots rejected and dispositioned rework at Bell helicopter company. The weights 1.00, 2.10 etc. were determined at the company after a careful study of the complexity and number of operations required to have a usable lot from a particular dispositioned lot. It is clear from the above equation, that the best lot quality index figure rates is 1.0, the worst is 3.90. The formula can be modified easily to suit the needs of a particular firm. The quality rating can be combined with rating for other parameters, to develop suitable vendor rating schemes.

(h) IBM Quality Rating System: The IBM rating system uses quality costs as the basis for rating suppliers. The formula for the vendor quality rating is:

VGR = Desired cost of inspection / Actual cost of inspection x 100

The cost incurred in inspecting acceptable material is the desired cost, the cost of inspecting rejected material being excluded from it. The actual cost of inspection includes cost incurred in inspecting acceptable as well as rejected material plus cost associated with extra handling of rejected material.

Inspection cost is obtained by multiplying the actual time spent on inspection by the standard rate. The material handling cost is found by multiplying the number of documents to process the rejected material by a standard cost.

Advantages: The IBM quality rating system the following advantages:

(a) Factors of cost used are well understood by the suppliers,

(b) All rating factors are brought down to common basic costs and can therefore be combined even if the factors themselves are different.

(c) Some minor defects are allowed, so long as the quality requirements are clearly met.

(d) It establishes a long range goal of what a good supplier should supply.

(e) No complicated weighting factors are required.

(f) When cent percent inspection is required, it provides for equitable rating.

(g) When cent percent inspection is required, it considers the inspection cost.

(h) The same data can be used to find out which suppliers, cost the company more and which items require more inspection time. Based on the information, inspection methods may be improved and attention can be directed towards the costly suppliers.

The IBM system on quality rating is useful, when there are a large number of suppliers vending several products. The inspection information is fed directly into the computer (or accounting machine), which computes the ratings and summarizes the information in various ways, like type of defects, part number, supplier code, final product etc. for further analysis.

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Q.2. Discuss in detail type of buying method.

Ans. Introduction:-

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.

Some of the methods of purchasing are discussed as follows: 1. Purchasing by Requirement: This method refers to those goods which are purchased only when needed and in required quantity. The goods which are not regularly required are purchased in this way. On the other hand it refers to the purchase of emergency goods. These goods are not kept in store. Purchasing department must be in knowledge of the suppliers of such goods so that these are purchased without loss of time.

2. Market Purchasing: Market purchasing refers to buying goods for taking advantages of favourable market situations. Purchases are not made to meet immediate needs but are acquired as per the future requirements. This method will be useful if future needs are estimated accurately and purchases are made whenever favourable market situations arise. The market situation is constantly studied for forecasting price trends. The advantages of this method are: lower purchase prices, more margin on finished products due to lower material cost and saving in purchase expenses. This method suffers from some limitations: losses in case of wrong judgment, fear of obsolescence, higher storing expenses due to more purchases.

3. Speculative Purchasing: Speculative purchasing refers to purchases at lower prices with a view to sell them at higher prices in future. The attention in this method is to earn profits out of price rises later on. The purchases are not made as per the production needs of the plant rather these are far in excess of such requirements. A cloth mill may purchase cotton in the

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market when prices are low with the attention of earning profits out of its sales when prices go up.

Speculative purchasing should not be confused with market purchasing. The former is done to earn profits out of future price rises where as the latter is concerned with purchasing for own needs when favourable market situations exist. Though speculative purchasing may result in profits but there are chances of prices going down in future, fear of obsolescence and incurring higher storage costs.

4. Purchasing for Specific Future Period: This method is used for the purchase of those goods which are regularly required. These goods are needed in small quantity and chances of price fluctuations are negligible. The needs for specific period are assessed and purchases made accordingly. The requirements for such purchases may be assessed on the basis of past experience, period for which supplies are needed, carrying cost of inventory etc.

5. Contract Purchasing: In the words of Spriegel it is “the purchasing under contract, usually formal, of needed materials, delivery of which is frequently spread over a period of time.” Under this method a specific quantity of materials is contracted to be purchased and delivery is taken in future. Even though the goods are procured in future but the price and other terms and conditions are fixed at the time of contract. This method may be useful when price rises in future may be expected and material requirements for future may be accurately estimated.

6. Scheduled Purchasing: Under this method the suppliers are supplied a probable time schedule for material requirements so that they are in a position to arrange these in time. An accurate production schedule is prepared for estimating future material needs. The suppliers are informed of probable needs and orders are sent accordingly. The schedule provided by the purchaser to the vendor is not a contract. This is only a gentleman’s agreement for terms and conditions of purchases. The main objectives of this method are: minimum inventory, prompt service. low prices, quality goods etc.

7. Group Purchasing of Small Items: Sometimes a number of small items are required to be purchased. The prices of these items are so small that costs of placing orders may be more than prices. In such situations the buyer places order with a vendor for all these items. The purchase price is agreed to be by adding some percentage of profit in the dealer’s cost. This method will be used only when dealer’s records are open to inspection for determining his cost. This type of purchasing reduces the cost of the buyer by eliminating much clerical work.

8. Co-operative Purchasing: Small industrial units may join to pool their requirements and then place bulk orders with dealers. This will help them in availing rebates on large quantity purchases, cash discounts and savings in transportation costs. After receiving the materials these are divided among the member units. Co-operative purchasing helps small units in availing the benefits of bulk purchasing.

Q.3. Explain in detail methods of store verification.

Ans. Introduction:-

Stock-taking or "inventory checking" is the physical verification of the quantities and condition of items held in an inventory or warehouse. This may be done to provide an audit of existing stock. It is also the source of stock discrepancy information.

Stock-taking may be performed as an intensive annual, end of fiscal year, procedure or may be done continuously by means of a cycle count.[1] An annual end of fiscal year stock-taking is typically undertaken for use in a company's financial statements. It is often done in the presence of the external auditors who are auditing the financial statements.

Periodic counting is usually undertaken for regular, inexpensive items. The term "periodic" may refer to annual stock count. However, "periodic" may also refer to half yearly, seasonal, quarterly, monthly, bi-monthly or daily.[2] For expensive items a shorter period of stock-taking is preferred.[citation needed]

A stock-take sale is a sale with reduced prices in a shop designed to sell off stock from previous seasons. This makes the task of stock-taking easier.

Another purpose of stock take is determination of a cutoff point i.e. what was the stock position of the company/organization at a specific point of time.

Stock verification is necessary because: (a) It minimizes pilferage and fraudulent practices,

(b) It ensures accuracy and usefulness of documents,

(c) It brings about a reconciliation of the stock records and documents.

(d) It identifies areas for more disciplined document control and

(e) It backs up the balance sheet stock figures Stock verification is the task of the materials audit department. Verification may be continuous or periodical.

Generally, the following two methods are used for physical verification of stock: 1. Annual Physical Verification 2. Perpetual Inventory Control.

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Method # 1. Annual Physical Verification: In this an independent person of a high rank known as verifying officer checks the stock lying in store once in a year, so as to see that the quantities as shown in store-ledger, bin cards and actually available in bins tally each other. After verification, verifying officer submits a list of shortages, excess and comments about damaged, surplus, obsolete and unserviceable stores.

In this method checking is started from one part of the store-room and make the round of all the stores, checking all the items in a certain number of bins each day and comparing them with the balance shown on the bin cards and in the stores ledger. In the larger companies one or two men or as many as may be required by the particular business may be engaged continuously in counting materials on hand.

In this method at the end of the year, the store is closed and in a few days complete checking is done. The advantage of this method is that a thorough check of all the items is performed at a time and all the discrepancies are known collectively.

Method # 2. Perpetual Inventory Control: This is a perpetual or continuous check throughout the year in such a way that each item is checked at least once. In this system, the material is checked as it reaches to its minimum level.

This can be performed by the store-keeper or somebody else specially engaged for this task as he notices, that the balance on the bin card has reached the minimum. Special provision is made for checking items which have not reached their minimum during a period.

The advantage of this method is that the store not to be shut down for some time. Only minimum quantities are counted, weighed etc., therefore, less labour and time is taken. This method is comparatively more accurate.

This method is very suitable for large firms having huge quantities of different materials. If annual physical verification is done in such plants, complete shut-down of the stores may produce large losses to the owner.

Therefore, for small plants which takes hardly few days for complete checking, “Annual Physical Verification” is done. In such plants necessity of shutting down the plant also does not arise, as daily issues and receipts are not much.

Example: Following differences are noticed in the Physical Verification of stores, state how you would adjust in the stores ledgers.

There are certain differences which are normal and it is difficult to avoid. Wastage occurring from these differences arises from the handling of such material. Such expenses should be included in production cost and are added to the factory overheads.

But the abnormal wastage arising due to theft, carelessness, obsolescence etc., cannot be included in the cost of production. Such differences are debited or credited to Profit and Loss Account.

On these principles the decisions on these cases is taken as mentioned below: 1. 50 units of material A at the rate of Rs.15 will be shown as issued in stores ledger and Rs.750 debited to Profit and Loss account.

2. (a) Entry for 100 units of material B be made in receipt columns of Stores ledgers and Rs.800 be credited to stores ledger account.

(b) Balance 50 units of material B will again be credited for value Rs.400 and item is credited in Store Ledger.

3. There are two ways for adjusting such differences. In one theory no entry or adjust-ment is made and we should wait till next stock taking is done and confirm whether there is actually carelessness or not.

In second theory we should not question the accuracy of stock-taking because it will lift the belief from stock taking. According to this theory differences in Material C is adjusted by showing 30 items issued and expenditure of Rs.120 is booked in factory overheads.

4. The loss will be written off and hence Rs.300 is debited to Profit and Loss Account and the account of material disclosed in Stores Ledger.

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5. The loss being normal, it shall be entered as issue of 110 units of material E in Stores Ledger. The loss of Rs.220 shall be booked in factory overheads.

6. Material F for 10 units shall be issued to supplier and Rs.50 shall be debited to supplier and Rs.8 shall be written off and shall be added to factory overheads.

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Q.3. Describe codification system with its method.

Ans. Introduction

Codification of goods: One of the basic requirements of an efficient stocking and logistics management system is an effective and scientific system of coding the items, to ensure quick tracing & retrieval and early identification of dead / duplicate stocks. In a health care setting, this task is more complicated since detailed characteristics and nature of large number of drugs available are required to be known for their coding and classification. Ideally, all health care stores should be classified in broad categories (such as pharmacy, X-rays, chemicals, laboratory items, waste disposal, ancillary items etc) and then grouped and sub-grouped logically according to functions and usage.

Methods of codification:-

(i) Alphabetical or Letter Code System and Mnemonic System: Each class of item is designated by a specific letter. Assignment of letters are generally done either haphazardly or in a manner conducive to easy memorisation (latter one is also known as Mnemonic System) e.g. Brass Screw by B.S. and Steel Screw by S.S.

(ii) Numerical System: Under this system, specific number is assigned to denote a particular class of material.

(iii) Decimal System: Under this system, the digits of the integral part represent a basic unit and the decimal part represents a sub-group of the basic unit. Each digit of the decimal represents further classifications of the materials.

(iv) Block System: Under this system, a block of numbers is earmarked for particular type of materials e.g., the numbers from 1000 to 1099 may be reserved for lubricants and greases.

(v) Combination System: Alphabetic, numerical, Mnemonic or Decimal systems are combined in this system.

Codification is used to properly classify equipment’s, raw materials, components and spares to suit the particular needs of any organisation. Codification is helpful to prevent

duplication and multiplicity of stores and the mistakes which are caused by the normal practice of describing the material.

The main features of rationalised code are: (i) It describes an article objectively,

(ii) It is an all-numeric 8-digit code, and

(iii) It describes an article progressively from general to particular.

For example: (1) 03 01 15 15 – Radian 12 SWg (size)

First two digits 03 indicates — Arc Welding electrodes

Second two digits 01 indicates — Manual electrodes (local – M.S.)

Third two digits 15 indicates — Radian

Last two digits 15 indicates — 12 SWg (size)

The code has got enough flexibility to absorb all the materials of the concern and has the provisions for unforeseen contingencies also.

First two digits indicate the main group that is all the materials are divided into 100 main groups, say for instance 10 gases, 20 chemicals, 42 screws, 64 hand tools etc.

Third and fourth digit indicates the type of article.

For example:

Fifth and sixth digits indicates the shape and metallurgical conditions.

For example:

Thus, last two digits indicate the size.

In this way with the help of codification materials are specified at every stage that is in the main groups, types, shapes and metallurgical conditions and sizes. For all the materials, the code length is constant and is useful for the use of punched cards and computers.

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Now codification is applied to all purchased items, i.e., raw materials, semi-finished and finished products, saleable products and components.

Advantages of Codification To identify correctly, to avoid multiplication of items, to save time and labour, to facilitate easy location and proper functioning of the storehouse, a proper codification is to be evolved so as to obtain the following benefits:

1. To avoid long and unwieldy description. 2. To have accurate and logical identification. 3: To prevent duplication. 4. To standardize items. 5. To reduce varieties. 6. To have an efficient purchasing department. 7. To obtain efficiency in recording and accounting. 8. To simplify and facilitate mechanical recording. 9. To simplify and facilitate pricing. 10. To have proper system of location and indexing. 11. To assure correct and efficient inspection; and 12. To implement production as planned. Q.4. what is inventory? Discuss ABC analysis and EOQ methods. Ans. Introduction:-

The scope of inventory management concerns the balance between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space, quality management, replenishment, returns and defective goods, and demand forecasting. Balancing these competing requirements leads to optimal inventory levels, which is an ongoing process as the business needs shift and react to the wider environment.

Inventory management involves a retailer seeking to acquire and maintain a proper merchandise assortment while ordering, shipping, handling and related costs are kept in check. It also involves systems and processes that identify inventory requirements, set targets, provide replenishment techniques, report actual and projected inventory status and handle all functions related to the tracking and management of material. This would include the monitoring of material moved into and out of stockroom locations and the reconciling of the inventory balances. It also may include ABC analysis, lot tracking, cycle counting support, etc. Management of the inventories, with the primary objective of determining/controlling stock levels within the physical distribution system, functions to balance the need for product availability against the need for minimizing stock holding and handling costs.

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Defining Inventory

Inventory is an idle stock of physical goods that contain economic value, and are held in various forms by an organization in its custody awaiting packing, processing, transformation, use or sale in a future point of time.

Any organization which is into production, trading, sale and service of a product will necessarily hold stock of various physical resources to aid in future consumption and sale. While inventory is a necessary evil of any such business, it may be noted that the organizations hold inventories for various reasons, which include speculative purposes, functional purposes, physical necessities etc.

From the above definition the following points stand out with reference to inventory:

▪ All organizations engaged in production or sale of products hold inventory in one form or other.

▪ Inventory can be in complete state or incomplete state. ▪ Inventory is held to facilitate future consumption, sale or further processing/value

addition. ▪ All inventoried resources have economic value and can be considered as assets of the

organization.

ABC ANALYSIS:-

The ABC approach states that, when reviewing inventory, a company should rate items from A to C, basing its ratings on the following rules:

• A-items are goods which annual consumption value is the highest. The top 70-80% of the annual consumption value of the company typically accounts for only 10-20% of total inventory items.

• C-items are, on the contrary, items with the lowest consumption value. The lower 5% of the annual consumption value typically accounts for 50% of total inventory items.

• B-items are the interclass items, with a medium consumption value. Those 15-25% of annual consumption value typically accounts for 30% of total inventory items. The annual consumption value is calculated with the formula: (Annual demand) x (item cost per unit). Through this categorization, the supply manager can identify inventory hot spots, and separate them from the rest of the items, especially those that are numerous but not that profitable. eCommerce example

The graph above illustrates the yearly sales distribution of a US eCommerce in 2011 for all products that have been sold at least one. Products are ranked starting with the highest sales volumes. Out of 17000 references:

• Top 2500 products (Top 15%) represent 70% of the sales.

• Next 4000 products (Next 25%) represent 20% of the sales.

• Bottom 10500 products (Bottom 60%) represents 10% of the sales.

Inventory management policies

Policies based on ABC analysis leverage the sales imbalance outlined by the Pareto principle. This implies that each item should receive a weighed treatment corresponding to its class:

• A-items should have tight inventory control, more secured storage areas and better sales forecasts. Reorders should be frequent, with weekly or even daily reorder. Avoiding stock-outs on A-items is a priority.

• Reordering C-items is made less frequently. A typically inventory policy for C-items consist of having only 1 unit on hand, and of reordering only when an actual purchase is made. This approach leads to stock-out situation after each purchase which can

be an acceptable situation, as the C-items present both low demand and higher risk of excessive inventory costs. For C-items, the question is not so much how many units do we store? but rather do we even keep this item in store?

• B-items benefit from an intermediate status between A and C. An important aspect of class B is the monitoring of potential evolution toward class A or, in the contrary, toward the class C.

Splitting items in A, B and C classes is relatively arbitrary. This grouping only represents a rather straightforward interpretation of the Pareto principle. In practice, sales volume is not the only metric that weighs the importance of an item. Margin but also the impact of a stock-out on the business of the client should also influence the inventory strategy.

Q.4. Write in detail strategies of supply chain management.

Introduction to Logistics and Supply Chain Management (SCM)

Logistics is generally seen as a differentiator in terms of the final bottom line of a typical “hard and tangible goods” organization; enabling either a lower cost or providing higher value.

While a lower cost is mostly a one-time feel good factor and has been the traditional focus area in logistics, high value comes into the picture much later and may be tangible or intangible in a good’s initial stages.

So while an organization like Zappos may look costly at a first glance, the extraordinary customer service due to robust policies is a value which more than offsets the slightly higher cost. Logistics is concerned with both materials flow and information flow. While the materials flow from the supplier to consumer, the information flows the other way round. It is not only concerned with inventory and resource utilization, customer response also falls under the ambit of logistics.

In simple terms, logistics can be seen as a link between the manufacturing and marketing operations of a company. The traditional organizations used to think of them separately, but there is a definite value addition in integrating the two due to the interdependence and feedback channel between the two.

The level of coordination required to minimize the overall cost for the end consumer gets tougher to achieve as the number of participants in a supply chain increase, as an extremely efficient flow of material and information is required for optimization.

Logistics cover the following broad functional areas: network design, transportation and inventory management.

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Manufacturing plants, warehouses, stores etc. are all facilities which form key components in the network design. Transportation: the cost and consistency (reliability) required out of the transportation network determines the type and mode of the movement of goods and also affects the inventory.

Buffer (or safety) stock is the reserve stock held to safeguard against shortages or unexpected surge in demand, to avoid “stock-outs”. Fewer inventories with negligible stock-outs — the hallmark of an efficient logistical system.

Basic concepts of Logistics and SCM

Inventory Planning Organizations want to minimize the inventory levels due to its almost linear relationship with the cost. Yet if the demand is forecasted accurately, there would ideally be no need for inventory and the goods will move seamlessly from warehouses to customers.

o That would have been awesome, but it is deep into the ideal world zone. In the real world, the forecasted numbers can only take you so far and some inventory has to be maintained to satiate any surges in demand; the cost of unhappy consumers who are not serviced is often huge, and is immeasurable in most cases.

o Yet overstocks lead to increase in working capital requirements, insurance costs and blocked resources which could have been productive someplace else.

o Making a business forecast has largely been a gut-based process, but is changing rapidly in the era of data-based decision making. The forecast depends on the historical baseline for sales, seasonality (soft drinks have higher sales volume in May), recent trends (Samsung is losing out to competitors when it comes to phones, a declining trend), business cycles (economies go through expansion and contraction every few years), promotional offers (up to 50% off can drive the average fashionista mad) etc.

Transportation The kind of transportation employed by an organization is a strategic decision (it usually accounts for around 1/3rdof the total logistics cost) based on the required level of risk exposure, customer service profiles, geographic area covered etc. Truck shipments take more time for delivery compared to air transport (customers with relaxed turnaround times); is cheaper but necessitates maintenance of higher inventory levels.

o Transportation serves the purpose of not just product movement, but storage as well (not very intuitive). Time spent for delivery means saved time for warehousing, and many times the cost to offload and reload shipments can be greater than the cost of letting the goods stay in the transportation vehicles itself.

o Two basic thumb rules apply for transportation decisions: truck load (TL) shipments are better than less-than-truckload (LTL) shipments as storage space is a perishable commodity (just like a commercial airline does not want to fly with empty seats), and the cost per kilometer decreases as the distance increases (two 500 km shipments is usually more expensive than a single 1000 km shipment).

o The factors which determine the economies of transportation decisions include but are not limited to: distance between the starting and destination points, and density (higher density products take less space — space constraints outweigh weight constraints by a huge margin), stow ability (spherical packaging will lead to more empty spaces compared to cubical) and volume of the goods. Different modes of transport serve different strategic ends (rail, road, air, water etc).

o FlipKart has eKart for its logistical operations and warehousing, whereas smaller e-commerce players generally outsource their operations to specialized logistics players such BlueDart, DHL and now Delhivery.

Packaging The end goals differ: can either be done for end consumers or for logistical considerations. The packaging will then depend on the end goal; form factor plays the lead role when packaging goods for the end consumers, while function plays the lead role in packaging for logistical operations.

Warehousing It is the back-end building for storing goods. Based on the needs of the organization, it can be in-house or outsourced.

o Primary functions of a warehouse are product movement and storage. Activities such as offloading of the goods coming from the suppliers, the intermediate packaging (if required), and shipping to other destinations (retailers or end consumers) are handled in the warehouse. Similarly, they can also serve as a storage house for handing peak consumer demand to avoid stock out of items, and acts as a buffer between the starting point (usually manufacturing plant) and ending point (think about a typical retail outlet).

o Different distribution strategies can be adopted by an organization based on its needs and infrastructure in place, namely:

• Cross-Docking: Relies on minimal processing at the warehouse level and facilitate seamless connection between “incoming” and “outgoing” goods through technologies such as bar code scanners; becoming increasingly important due to established structured communication between retailers and manufacturers; best for high velocity goods with predictable demand patterns.

• Milk Runs: The delivery guy is out to deliver items from a single supplier to multiple retailers or to pick up items from multiple suppliers for a single retailer (An Indian Doodhwala can literally teach a thing or two about this, hence the naming we think).

• Direct Shipping: A supplier directly ships to a particular retailer without any intermediaries. Mostly happens with big-name stores with huge good volumes, and very frequent replenishments. Big savings on time.

• Hub and Spoke Model: Hub serves as the central node for nearby places, and the spokes depend on the hub for their needs (think of a metropolitan and various tier-2 cities in its proximity).

• Pooled Distribution: Region is the most important factor driving this strategy. Delivers to every destination point in a geographical area, smart for handling peak time loads and LTL shipments. Plus one for the planet as a bonus!

Human : Arteries :: Logistics : Information

Traditional paper-based information systems are increasingly on their way out, and electronic exchanges are making rapid inroads into the logistical process flow. The initial investment in electronic systems is recouped quickly by cost savings due to better operational efficiency and enhanced customer service. Advances in electronic data interchange (EDI), artificial intelligence and wireless communication is partly responsible for this intelligent shift.

• The principal information flow can be subdivided in two main streams: one for planning (looking into the future) and the other for operational flows (in the past and present). Plans are to be made for production, storage and movement of goods. Manufacturing constraints (internal) and expected sales (external) are the key areas focused upon. Operating flows refer to the information generated (or required) to serve the orders to the customer.

• Enterprise Resource Planning (ERP) is a fancy term used by IT people for one-stop, integrated packages to support multiple functions across an organization. It serves as a central destination to capture data which aids in making optimal decisions, while also serving as a repository to better understand the current business scenario and plan for any future needs.

Q.5. Define waste management. Also discuss types of waste in factory.

Ans. Waste has been a major environmental issue everywhere since the industrial revolution. Besides the waste we create at home, school and other public places, there are also those from hospitals, industries, farms and other sources. Humans rely so

much on material things and they all (almost) end up as waste. And hey — where does the waste end up?

What is waste (trash, garbage, rubbish, refuse) What is the difference between trash and garbage? -Trash: Solid waste form places like your atic, backyard or study. Trash items include paper and card boxes and the like. -Garbage: This is waste from kitchen and bathroom. They also include waste from cooking food and from food storage facilities. Waste are items we (individuals, offices, schools, industries, hospitals) don’t need and discard. Sometimes there are things we have that the law requires us to discard because they can be harmful. Waste comes in infinite sizes—some can be as small as an old toothbrush, or as large as the body of a school bus. Everyone creates waste, although some people are very environmentally conscious and create very little. Likewise, some countries do a very good job creating less waste and managing the rest. Others are pretty horrible and have created huge environmental problems for the people and animals living there.

Types of waste Generally, waste could be liquid or solid waste. Both of them could be hazardous. Liquid and solid waste types can also be grouped into organic, re-usable and recyclable waste. Let us see some details below:

Liquid type: Waste can come in non-solid form. Some solid waste can also be converted to a liquid waste form for disposal. It includes point source and non-point source discharges such as storm water and wastewater. Examples of liquid waste include wash water from homes, liquids used for cleaning in industries and waste detergents.

Solid type: Solid waste predominantly, is any garbage, refuse or rubbish that we make in our homes and other places. These include old car tires, old newspapers, broken furniture and even food waste. They may include any waste that is non-liquid. Hazardoustype: Hazardous or harmful waste are those that potentially threaten public health or the environment. Such waste could be inflammable (can easily catch fire), reactive (can easily explode), corrosive (can easily eat through metal) or toxic (poisonous to human and animals). In many countries, it is required by law to involve the appropriate authority to supervise the disposal of such hazardous waste. Examples include fire extinguishers, old propane tanks, pesticides, mercury-containing equipment (e.g,

thermostats) and lamps (e.g. fluorescent bulbs) andbatteries. (More on hazardous waste here) Organic type:-

Organic waste comes from plants or animals sources. Commonly, they include food waste, fruit and vegetable peels, flower trimmings and even dog poop can be classified as organic waste. They are biodegradable (this means they are easily broken down by other organisms over time and turned into manure). Many people turn their organic waste into compost and use them in their gardens.

Recyclable type:

Recycling is processing used materials (waste) into new, useful products. This is done to reduce the use of raw materials that would have been used. Waste that can be potentially recycled is termed "Recyclable waste". Aluminum products (like soda, milk and tomato cans), Plastics (grocery shopping bags, plastic bottles), Glass products (like wine and beer bottles, broken glass), Paper products (used envelopes, newspapers and magazines, cardboard boxes) can be recycled and fall into this category.

OR

Q.5. Write in detail advantages and disadvantages of M.R.P.

Ans. INTRODUCTION:-

Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, but it is possible to conduct MRP by hand as well.

An MRP system is intended to simultaneously meet three objectives:

• Ensure materials are available for production and products are available for delivery to customers.

• Maintain the lowest possible material and product levels in store

• Plan manufacturing activities, delivery schedules and purchasing activities.

ADVANTAGES OF MATERIAL REQUIRMENT PLANNING

• 1.Efficient planning tool

• The main benefit of using MRP is that it is a very efficient tool for planning. This is because it is designed specifically to provide solutions regarding what is required, the quantity of raw materials and also when they are needed. If it is implemented and properly used, the MRP can assist production manages to plan effectively for capacity requirements as well as allocating production time.

• 2. Saves time

http://enviropol.com/index.php/toxic-wastehttp://www.eschooltoday.com/waste-recycling/what-is-composting.htmlhttps://en.wikipedia.org/wiki/Production_planninghttps://en.wikipedia.org/wiki/Schedulinghttps://en.wikipedia.org/wiki/Inventoryhttps://en.wikipedia.org/wiki/Managementhttps://en.wikipedia.org/wiki/Manufacturinghttps://en.wikipedia.org/wiki/Computer_softwarehttps://en.wikipedia.org/wiki/Manufacturinghttps://en.wikipedia.org/wiki/Product_(business)https://en.wikipedia.org/wiki/Delivery_(commerce)https://en.wikipedia.org/wiki/Purchasing

• Another advantage of making use of MRP systems is the fact that they usually break down the inventory requirements to planning periods. This helps the production managers in minimizing inventory levels as well as the linked carrying costs. For that reason, production is much faster since there is proper distribution of production time. MRP is also beneficial in computing quantities required as the safety stock and planning for future needs.

• 3.Enhances customer service

• If it is properly designed and controlled, the MRP enhances customer service through reducing late orders. This leads to increased production levels and it assists the company to respond quicker to any variations in demand.

• 4. Saves cost

• The MRP makes it much simpler to formulate a good production schedule. As a result, it saves the manufacturing company from spending labor time doing the same activity. It also assists in determining the cheapest lot sizes, particularly when it comes to placing orders. Aside from that, the MRP system provides essential information that can be used in other production sectors as well such as determining the work force for the entire production process.

• OTHER MERITS ARE:-

• Better manufacturing control

• Less inventory

• Improved manufacturing performance results.

• Less material obsolescence

• Improve business results

• More responsiveness to market demand

• High reliability

• However, an MRP system is expensive to implement and it is time consuming. This is not the best option for small businesses.

DISADVANTAGES OF MATERIAL REQUIREMENT PLANNING

• MRP systems also have several potential drawbacks. First, MRP relies upon

accurate input information. If a small business has not maintained good inventory

records or has not updated its bills of materials with all relevant changes, it may

encounter serious problems with the outputs of its MRP system. The problems

could range from missing parts and excessive order quantities to schedule

delays and missed delivery dates. At a minimum, an MRP system must have an

accurate master production schedule, good lead-time estimates, and current

inventory records in order to function effectively and produce useful information.

• Another potential drawback associated with MRP is that the systems can be

difficult, time consuming, and costly to implement. Many businesses encounter

resistance from employees when they try to implement MRP. For example,

employees who once got by with sloppy record keeping may resent the discipline

MRP requires. Or departments that became accustomed to hoarding parts in

case of inventory shortages might find it difficult to trust the system and let go of

that habit.

• MRP do not help to optimize material acquisition costs. Materials must be

purchased more frequently and in smaller quantities because inventory levels are

kept to a minimum. Thus, order cost is increased .

• Since the firm is less likely to qualify for large volume discounts, it leads to higher

transportation bills and higher unit cost. The company must weigh the anticipated

saving from reduced inventory costs against the greater acquisition cost resulting

from smaller and more frequent orders.

• The potential hazards of a production slowdown or shutdown that may arise

because of factors such as unforeseen delivery problems and materials

shortages. The availability of safety stock gives production some protection

against stock outs of essential material. As safety stocks are reduced , this level

of protection is lost.

• MRP is a complex process , and specialized expensive software may be required

for this, many small firms might not be able to afford the cost of the same.

The key to making MRP implementation work is to provide training and education

for all affected employees. It is important early on to identify the key personnel

whose power base will be affected by a new MRP system. These people must be

among the first to be convinced of the merits of the new system so that they may

buy into the plan. Key personnel must be convinced that they personally will be

better served by the new system than by any alternate system. One way to

improve employee acceptance of MRP systems is to adjust reward systems to

reflect production and inventory management goals.