FACULTY OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT

MATERIAL MANAGEMENT
(MGMT 3016)

CREDIT HOURS - 3

Addis Ababa, Ethiopia

November, 2023

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 COURSE OUTLINE:
CHAPTER I - INTRODUCTION
1.1. Definition and scope of materials management
1.2. Origin and transition
1.3. Importance of materials management in corporate policy
CHAPTER II - FORECASTING

2.1. Why Forecasting

2.2. Features of Good Forecasting
2.3. Steps in Forecasting Process
2.4. Types of Forecasting
2.4.1. Qualitative Methods
2.4.2. Quantitative Methods
CHAPTER III - PURCHASING
3.1. Meaning and Role
3.2. Objective of good purchasing
3.3. Purchasing polices
3.4. Purchasing procedures Global sourcing
3.5. Computer based purchasing system
3.6. Selection and motivation of supplies
3.7. Make or buy decisions
3.8. Value analysis
3.9. Global sourcing
3.10. Procurement and procedures in Ethiopia
CHAPTER IV - INVENTORY MANAGEMENT
4.1. Introduction
4.2. Functions and types of inventory
4.3. Independent vs. dependent demand
4.4. Inventory Costs
4.5. Economic Order Quantity (EOQ)
4.6. Economic Production Quantity (EPQ)
4.7. Materials Requirements Planning (MRP)
4.8. Inventory systems
4.9. Just in time (JIT)
CHAPTER V – STORAGE
5.1. Storage functions and responsibilities
5.2. Location and layout
5.3. Stores system and procedures
5.4. Cost aspects and productivity
5.5. Stock receipt, issue and dispatch
5.6. Stores accounting and stock verification
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5.7. Sores security
CHAPTER IV – MATERIALS HEADLINING
6.1. Definition and scope
6.2. Benefits of proper materials handling
6.3. Influencing factors and control
6.4. Materials handling codes and specifications
6.5. Materials handling equipment and guidelines
6.6. Evaluation of materials handling
6.7. Materials disposal procedures and practice in Ethiopia
CHAPTER 7- LOGISTICS
7.1. Transportation and traffic management
7.2. In-bound logistics
7.3. Out-bound logistics

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 CHAPTER--ONE
INTRODUCTION TO MATERIALS MANAGEMENT
AFTER GOING THROUGH THIS CHAPTER, YOU SHOULD BE ABLE TO:

 Describe the meaning, importance, and functions of materials management.

 Explain the origin and transition of materials management
 State and explain the objectives of materials management.
 Illustrate the concept of an integrated materials management function.
 Explain the major functions of materials management
1.1 Overviews
Materials are the key resource in an industrial enterprise; no production is possible without them.
They form a major constituent of the cost of the product and, therefore, proper control over their
procurement, storage, issue, movement and consumption is necessary. Everyone is an inventory
controller, at home and at work. We all keep food, clothes, domestic items, paper, pens and many
other goods. We also have shortages and conduct emergency purchases. Inventory control is a
natural occupation that everyone undertakes it. Materials management includes all activities in the
flow of materials from the supplier to the consumers including physical supply, operations
planning and control, and physical distribution. If the materials management system is not well
design and managed, the distribution and manufacturing system will be ineffective and more costly.
Anyone working in manufacturing or distribution should have a good basic understanding of the
factors influencing materials flow. Because materials are the springboard for wealth of a country
which is measured by GNP—the output of goods and services produced by the nation in a given
time. Goods are the materials having physical objects that we can touch, feel, or see.
Clearly every organization either/or supply, transforms, distributes, sells or uses different
materials for different purposes having one or another kind. Materials are one of the vital resources
of an organization and if an organization is to function and operate successfully, it must have
proper and sufficient supply of necessary materials those may take different forms, such as raw
materials, machinery, tools, equipment, vehicles, furniture, stationary, fuel, oil and lubricants,
accessories etc. At a time when there is lack of availability of adequate materials, it disturbs the
normal operation/ production causing unnecessary delay of production or work stoppage.
This also results in additional cost such as cost of depreciation of fixed assets, salary of
permanent employees, opportunity costs, loss of sales, dissatisfaction of customers, etc.

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Traditionally, materials were thought to be cheap, readily available and abundant. Today, however,
the realities of the market proved that materials are scarce and costly. In many organizations,
materials form the largest single expenditure item. Studies indicate that materials account
about 60-80 percent of the total annual expenditure of organizations. Besides, materials
management has a tremendous influence on the ultimate cost of a product and efficiency
of an organization, because it is concerned with the total flow of materials in the
organization. The total flow can extend from suppliers to production and subsequently
through distribution to required place at the required time and by ensuring that these
resources are properly handled and utilized. Thus, the importance of materials management
relies in the fact that any significant contribution made by the materials manager in
reducing material cost will help to improve the profitability and rate of return on investment.
Although we may have rich natural resources in our economy such as mineral deposits,
farmland, and forests, these are only potential sources of wealth. A production function is
needed to transform our resources into useful goods. Production takes place in all forms
of transformation extracting minerals from the earth, farming, lumbering, fishing, and using
these resources to manufacture useful products. There are many stages between the
extraction of resource material and the final consumer product. At each stage in the
development of the final product, value is added, thus creating more wealth. If ore is extracted
from the earth and sold, wealth is gained from our efforts, but those who continue to
transform the raw material will gain more and usually far greater wealth. Manufacturing
companies are in the business of converting raw materials to a form that is of far more value
and use to the consumer than the original raw materials. This conversion process, called
manufacturing or production, makes a society wealthier and creates a better standard of living.
To get the most value out of our resources, we must design production processes that
make products most efficiently. Once the processes exist, we need to manage their operation so
they produce goods most economically. Managing the operation means planning for and
controlling the resources used in the process: labor, capital, and material. All are important, but
the major way in which management plans and controls is through the flow of materials.
The flow of materials controls influence the performance of the process. If the right
materials in the right quantities are not available at the right time, the process cannot produce

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what it should. Labor and machinery will be poorly utilized. The profitability, and even the
existence, of the company will be threatened.
Thus, the success of a venture depends on its ability to provide services to customers or users
and remain financially viable. For an organization which is supplying goods to its customers,
the major activity is to have suitable products available at an acceptable price within a
reasonable time-scale. Many parts of a business are involved in setting up this situation.
Inventory control is the activity which organizes the availability of items to the customers.
It coordinates the purchasing, manufacturing and distribution functions to meet the marketing
needs. This role includes the supply of current sales items, new products, consumables,
spare parts, obsolescent items and all other supplies. Inventory enables a company to support
the customer service, logistic or manufacturing activities in situations where purchase or
manufacture of the items is not able to satisfy the demand. Lack of satisfaction could
arise either because of the speed of purchasing or manufacturing is too protracted, or
because quantities cannot be provided without stocks.

1.2 Definition and Scope of Materials Management

1.2.1 Definitions of Materials Management
 Materials management is the planning, organizing and controlling of the flow of materials
from the initial purchase through internal operations to distribution of finished goods
(American production and Inventory Control Society
 Materials management is an organizational concept of the foster and total system approach to
plan, acquire, store, move and control materials (raw materials, supplies, work-in process,
and semi-finished goods) in order to optimize all company resources (includes materials,
people, money and facilities) and provide customer service consistent with company
policy (Magnd & Amos).
 Materials management is an organizational concept designed to enhance coordination and
control or the various materials activities including and activity to plan, purchase, store, handle,
distribute, use and control of materials in order to contribute to organizational success
and profitability.

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 Materials management is a process of coordinating all resources through the process of
planning, organizing, staffing, directing/ leading and controlling to achieve desired
objectives with the use of human beings (By Geroger Terry).
 Materials management is a body of knowledge which helps the manager to improve the
productivity of capital by reducing materials costs, preventing large amount of capital
being locked up for long periods and improving the capital turnover ratio.
 Materials managers must derive its objective by understanding of local environment and at
the same time, looking in to consideration the human factor, their attitude, sense and approach
to new ideas. [By Harold Koontz] Is a confederacy of traditional material activity bound by
a common idea-the idea of an integrated management approach to planning, acquisition,
conversion, flow and distribution of production materials from the raw material state to
the finished product state ([Link] and his colleagues).
 Materials management is a total concept having its definite organization to plan and control
all types of materials, its supply, and its flow from raw stage to finished stage so as to deliver
the product to customer as per his requirements in time (International Federation of Purchasing
and Materials Management).
 Materials management is the process of management which coordinates, supervises, and
execute the task associated with the flow of materials to, within and out of an organization in
an integrated fashion ( [Link])
When we sum up, it can be defined as an organizations concept which is designed to enhance
coordination and control of various materials activities including an activity to plan, purchase,
store, handle, distribute and use of them in order to contribute to organizational success
and profitability.

1.2.2 Scope of Material Managements

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Materials management covers all aspects of materials, costs, their supply and utilization. It also
covers the whole range of functions involved in converting raw materials and ancillary
supplies in to finished products. It is concerned with the planning & programming of
materials and equipment, market research for purchase; pre-design and value analysis,
procurements of all materials, packaging and packing materials stores control and inventory
control; transportation of raw materials and materials handling, disposal of scrap and
operation research for materials. On the other hand, it covers aspects of industrials management
concerned with the activities involved in the acquisition, storage and flow of all materials directly
and indirectly employed in the prediction and marketing of finished goods. Thus, the
following functions or activities are listed as a logical boundary of materials management:
1. Materials Forecasting, Planning, Budgeting and Programming: Short and long-term
predicting and planning strategies are vital to every company. The primary objective
is to maximize the use of company resources and provide for future customer demand.
Major activities include
 Translating the marketing department's sales forecast into long-term production
requirements for the next periods that generally range more than one year.
 Projecting requirements for materials, manpower, money, and facilities.
 Providing basic control information for planning company budgets, personnel, cash
flow, inventory, equipment, and so forth.
 Performing strategic planning for materials operations to provide rational solutions
for future what if ‘questions.
2. Scheduling and Purchasing: Purchasing is responsible for procurement of materials
from outside suppliers, in accordance with purchase requisition requirements. Major
activities include:
 Selecting acceptable suppliers while negotiating to secure the lowest total acquisition
costs.
 Issuing purchase orders & expediting on-time receipt of materials, when and
where required.
 Acting as liaison between company departments and suppliers to solve problems.

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  Maintaining an ongoing knowledge of current market conditions, new materials,
new processes, and other procurement factors that can affect company operations and
costs.
3. Receiving and Receiving Inspection: Receiving is linked and is responsible for
activities related to receiving, storing and handling, issuing controlling materials. Major
activities include;
 Receiving materials, which includes verification that the order was made and that
the quantity received is correct, and preparation of a receiving report.
4. Inventory Control, Storage and Warehousing: Inventory control includes activities
and techniques required to maintain materials at desired levels. These materials generally
include raw materials, work-in-process, and finished products. Major activities include:
 Storing received and inspected materials in accordance with efficient operating
procedures that optimize use of space, equipment, personnel, and control of locations.
 Issuing materials with authorized requisitions and accepting returned materials.
 Maintaining control of physical counts to assure materials availability and
performing periodic and annual physical inventories.
 Determining how much material will be required to satisfy company operational
demands.
 Maintaining detailed records of all materials available, ordered, and consumed.
 Determining optimum order quantities; issuing requisitions.
 Providing appropriate reports to aid in decision making with regard to inventories.
5. Materials handling and Movement Control: Materials handling involves both design
and physical movement. It is the function of developing and implementing appropriate
manual, mechanized, and automated systems to provide movement of materials
throughout the company. Major activities include:
 Analysing company operations to determine the need for improved materials handling.
 Designing and justifying new materials handling systems that will provide
increased production capacity, improved materials flow, reduced costs, improved
working conditions, and reduced waste.
 Providing user-oriented materials handling systems.
 Transporting materials to and from storage areas and the point where they will be used.

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6. Dispatch, Shipping and Disposal (Including Wastes, Scraps and Surplus Materials):
Physical distribution encompasses all the operations involved in the movement and
flow of finished products, from the time they are received to the time they are shipped
to the customer. Major activities include:
 Receiving finished goods from manufacturing departments or outside suppliers,
verifying quantity, and identifying and moving materials to the warehouse. The
warehouse could adjoin a manufacturing facility or be a separate building (distribution
center).
 Storing finished products in accordance with efficient warehousing procedures.
 Performing order assembly/picking and packaging while using techniques that provide
for high productivity, elimination of errors, and minimum damage.
 Determining and arranging for the most economical method to transport incoming and
outgoing materials and products.
 Loading trucks, freight cars, and so on for shipment to customers.
1.3 Origin and Transition of Materials Management
1.3.1 Origin/ Evolutions of Materials Management
Since prehistoric times, humans have been concerned with obtaining, moving, and controlling
materials. Materials management is the result of a natural evolution; it did not develop quickly but
instead grew as an obvious business solution to the need to achieve optimum effectiveness in the
various materials functions. For decades the materials sector of an enterprise has been
relatively unimportant, compared with the production and sales side, but it has gained in
importance during the last 25-30 years.
This is clearly indicated by the increasing attachment of this sector to the commercial side of
an enterprise, the delegation of materials-oriented tasks to highly qualified people, and -closely
correlated - the integration of the materials sector with the key positions of a company's
organizational hierarchy. In an ever-changing world where every operation is affected by
some other operation, which may even be in another part of the world, everyone is
becoming more specialized.
Materials management is faced with an even more demanding business environment,
requiring the function to respond and provide services never before realized. Today, and in
the future, materials management is a vital part of every company organization. But it has

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received minor attention in the past, such as in the service sector of economy. Service industries
are now recognizing the importance and contribution of materials to their "bottom line" profits
and materials management area has become an interesting part of business life.
Organizations in which materials management play its roles have rarely been created with
a single stroke of the organization builders. They have evolved gradually and, in many
cases, have not yet matured. The scarcity of materials, which was felt during World War I in USA
to a very large extent and it, has become difficult for production managers to supply the
War goods. This has created it necessary to organize the Materials Management department
for managing large inventories in stores and to analyze the problems arising to control and
economize inventory cost problems and shortage elimination.
With the development of principles of scientific management by F.W. Taylor in 20th
century, the economic use of materials in all the organizations was critically felt to reduce
the cost of production. The early years of developments in the field of materials purchase
and supply systematically begins from 1850. Charles Babbage‘s book on the economy of
machinery and manufacturing published in 1832 refers to the importance of purchasing
function. Babbage is also known as Materials Man.
The growth of Rail Road industries by 1866 started in America. The Book on ‗The Handling of
Railway Supplies and their Purchase and Disposition ‘in 1887 discussed the purchasing issues.
The concept of materials management was widely spread during World War II. Professor
Howard T. Lewis of the Harvard Business School made the extensive studies in Industrial
Purchasing Practice. W.N. Michelle, N.F. Harriman, L.F. Buffy, Donald G. Clark, Edward
T. Gushee, Russell Forbes, Stuart F. Hewritz and George A. Reward had contributed largely
to purchasing and materials management in procuring, receiving, inventory control and
supply. World War II introduced a new period in purchasing history. The emphasis on
obtaining required and scarce materials influenced a growth in purchasing interest. In 1933, nine
colleges offered courses related to purchasing which was increased to forty-nine colleges in
1945 in America. The membership of the National Association of Purchasing Agents
increased from 3400 in 1934 to 5500 in 1940.
Widespread agreement between countries taken place with the overall objective to solve
materials problems including materials planning, inventory control, purchasing, quality control,
stores control, materials movement and surplus disposal. The purchasing strategies and

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behaviours that evolved over in 1980 gave rise to foreign global competition. Purchasing
approaches beyond 2000 reflects a changing emphasis towards the improvement of quality of
materials, supplier relationship, more co-operative approach, long-term strategies of cost
management and database materials management systems for materials planning and
utilization in industries to bring about overall improvement in production systems, in-cost
reduction through economy and increased sales.
1.3.2 Transition of Materials Management
The transition of materials management has followed the following pattern in phased manner.
First phase: Executives who are primarily concerned with other functions have carried on
almost unconsciously all materials mgt. functions as sidelines.
Second phase: The major materials management functions are recognized formally, but
these activities report to variety of executives and are not centralized organizationally.
Third phase: Materials management functions concerned with purchased materials are
grouped together under a senior executive, who behave like a line manager.
Fourth phase: Materials management functions become a genuine value adding activity
for purchased materials.
1.3 Importance of Materials Management in Corporate Policy
It is necessary to have an integrated approach to materials management of various functions
such as materials planning, purchasing, receiving stores, inventory control, scrap and surplus
disposal. In case some of the functions were to be separately handled, conflict of interests
would occur. Purchase department if allowed to operate independently, may take decisions,
which result in sub-optimization such as discount in buying as important factor without taking
into account of the impact of inventory carrying cost. Therefore, to balance the conflicting
objectives from the total organizational point of view, an integrated system, which results
in economy, is essential. Also, it enables the inter-related functions to exercise better control and
co-ordination.
Lack of availability of adequate materials disturbs the normal operation or production and
causing unnecessary delay of production or work stoppage. The stoppage of work in turn
causing additional costs such as; cost of depreciation of fixed assets, salary of permanent
employee, loss of sales, dissatisfaction of customer…etc. Thus, effective management of
material is crucial for the performance of any organization.

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 1.4 Benefits of Integrated Materials Management Approach
A number of expectations may be formulated for operational function from integrated
materials management approach. These are;
1. Reliable and accurate performance for required result: This will be depending on reliable
and accurate information up on which decisions are made and actions are based. In all aspect
of management supervision and control, the base for good performance is timely information and
up-to-date records. A good system of feedback reports must be established before optimum result
can be expected.
2. Strict adherence to plan and schedule: Careful planning ensures effective uses of men,
machinery, materials, facilities, and finance.
3. Timely and optimum materials procurement: Procurement policy must ensure that
materials of right quality, in the right quantity, available in the right price within a given condition
of delivery.
4. Optimum inventory turnover: Inventory turnover rate is defined as annual sales divided by
the average monthly stock. This indicates as well as determines the speed at which materials
come in and goes out from stock. Ideally, there should be a high turnover rate of inventory, which
equates the rapid movement of materials and low stoking costs.
5. Good vendor vended relationship: Closely related to improved materials acquisition and
delivery performance is the necessity to maintain good supplier relationship, since this has a direct
influence on the ability to get materials in acceptable manner.
6. Optimum materials logistics and product distribution: According to customer needs,
transporting required materials in the required qualities and in a good condition so as to be made
available at the correct location and time at the minimum cost in order to satisfy the market needs
and company objectives.
7. Control over all material cost: Materials management is expected to coordinate all
activities keeping in view low purchasing cost, making way for optimum use of facilities and
equipment’s with high usage rate and minimum of wastes. This will directly contribute towards
corporate profit and increase productivity of materials.
8. Coordination, elimination/minimization of duplication of functions: These objectives are
easier to achieve under an integrated system of materials management.

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9. Conflict resolution: This is made easier under overall supervision of an executive
authority. 1.6 Objectives of Materials Management
 The objectives of materials management as such should be supported in every way by:
 Maintaining continuity of productive operations by ensuring a uniform flow of materials.
 Reducing materials costs by systematic use of scientific techniques.
 Releasing working capital for productive purpose by efficient control of inventories.
 Increasing the competitiveness of end products by ensuring right quality at the right price
especially in foreign market.
 Saving foreign exchange through economic use of foreign purchases and import
substitution.
 Establishing good buyer seller relation.
 Ensuring low departmental cost and high efficiency
 Setting high ethical standards. In this way it is clear that materials management covers
all aspects of materials, including flow of materials cost, quality, supply,
conservation and utilization.
The prime objective is to supply the user department with the required quantity at a
constant rate with uniform quality so that production or service rendered is not held up.
At the same time materials manager has to ensure the optimum usage of facilities like capital,
storage space and other aspects of company’s resources related to materials management.
Increased production and sales are necessary to bring about the same increase in profit,
which result in reducing material costs or increasing production and sales. The primary
task of modern materials management with an integrated view in purchasing is getting the
materials with all Rights i.e., quality, quantity, price from source, time, using right made of
transport.
1.7 Relationship between Materials Management and Other Functional Units
Generally, the materials management unit is related to other functional units in a number
of ways. In order to use the synergic effect all organizational units have to work together.
A. Materials Management and Finance: The finance section is responsible for maintaining
cash flow and providing advice in preparing operating budgets. It also supplies the finance
to buy the materials & control how well the money is used. To have smooth relationship

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between finance and materials management, the later should spend only reasonable costs
for ordering, handling & inventory.
B. Materials Management & Manufacturing: In this case the material management section
supplies all the necessary materials to manufacturing section. So, there is a need to have
smooth relationship between them. The materials management section should supply the
right quantity materials/part with the right of quality at the right time and at a reasonable price.
The materials management section fails to accomplish its task the overall production of
the organization will be collapsed. So, this section should develop its plan based on the
plans of the manufacturing section plan.
C. Marketing and Materials Management: The marketing section is the key section for
the overall operation of the organization. In- order to meet customer needs /wants we
should have close cooperation between them. The basis for manufacturing section work is
the sales forecast. In sum, the services of the materials management section are essential
for all functional units of the organization. So it is a dynamic activity that ensures the
small flow of supplies through the entire organizational activities.
1.8 Key Contributions of Materials Management
Increasing company profits by reducing costs such as decreasing parts shortages (resulting
in more efficient use of labor, machines, and materials), reducing inventory levels through
improved controls, lowering transportation costs as a result of using minimum-cost shipping
methods, reducing materials obsolescence through greater control of inventory and timely
processing of engineering change orders and lowering purchasing prices and total
acquisition costs through the use of quantity buying and other techniques.
Improved customer service is also one philosophy that integrates and manages all elements
of customer relations within a predetermined optimum cost-service mix and materials
management provide with information about trade-off considerations inherent in decision
making. Since poor customer service is a symptom of a poor materials organization these
factors should be improved through proper materials management by correcting: shortages
of materials that can delay shipments, missed production dates due to poor scheduling,
order processing errors, order assembly discrepancies, damaged products and incorrect
shipments to customers.

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An integrated materials management increases unification; awareness and improved
communication among units working under one umbrella and through reducing conflict
and encourage complementary groups to work together as a team.
1.9 Problems of Material Management
 Lack of qualified managers: Lack of capable managers with broad experience and
knowledge of various sub-functions. This problem is alleviated through improved
education and cross training of personnel within the materials organization.
 Insufficient upper management support: Upper managements understanding and
continuous support is vital.
 Improper planning and implementation
 Lack of credibility: Due to inadequate service or information, delay of delivery and
shortage of materials.

CHAPTER TWO FORECASTING

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After completing this unit, students will be able to:
 Know Why Forecasting?
 Identify Features of Good Forecasting
 Discuss Steps in Forecasting Process
 Discuss Types of Forecasting
INTRODUCTION
The success of an organization depends on how well the organization sees the future environment
which is full of risks and uncertainties. In order to make prediction about the future, we must use
the past and present [Link] data helps in minimizing risk and/or uncertainties about the future.
Forecasting is a prelude to planning. Before making plans, an estimate must be made of what
conditions will exist over some future period. How estimates are made, and with what accuracy,
is another matter, but little can be done without some form of estimation. Every day managers
make decisions without knowing what will happen in the future. They order inventory without
knowing what sales will be, purchase new equipment’s despite uncertainty about demands for
product, and make investments without knowing what profit will be. Managers are always trying
to make better estimate of what will happen in the future in the face of uncertainty. Making good
estimates is the main purpose of forecasting.

2.1. What forecasting is?

Forecasting is the art and science of predicting future events. It involves estimation of the
occurrence, timing, and magnitude of uncertain future events or levels of activities. Forecasting
may involves taking historical data and projecting them into the future with some sort of
mathematical model. It may be a subjective or intuitive prediction. In some conditions it may
involves the combination of both mathematical data and manager’s perception. Successful
forecasting requires blending art and science. Experience, judgement, and technical expertise will all
play a role in a successful forecasting. The purpose of forecasting activities is to make use of the
best available present information to guide future activities towards systems goal.

2.2. Why Forecasting?

There are many circumstances and reasons, but forecasting is inevitable in developing plans to
satisfy future demand. Most firms cannot wait until orders are actually received before they start to

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plan what to produce. Customers usually demand delivery in reasonable time, and manufacturers
must anticipate future demand for products or services and plan to provide the capacity and
resources to meet that demand. Firms that make standard products need to have saleable goods
immediately available or at least to have materials and sub assemblies available to shorten the
delivery time. Firms that make-to-order cannot begin making a product before a customer places an
order but must have the resources of labour and equipment available to meet demand Many factors
influence the demand for a firm’s products and services. Although it is not possible to identify all of
them, or their effect on demand, it is helpful to consider some major factors:

• General business and economic conditions.

• Competitive factors.
• Market trends such as changing demand.
• The firm’s own plans for advertising, promotion, pricing, and product changes.

2.3. Features of Good Forecasting

To be a good forecast; one organization’s forecast system should be:
 Timely
 Accurate and the degree of accuracy should be stated clearly
 Reliable (consistent)
 Expressed in a meaningful term in a written form
 Simple to understand and use
Principles of Forecasting
Forecasts have four major characteristics or principles. An understanding of these
will allow us to make more effective use of forecasts. They are simple and, to some
extent, common sense.
1. Forecasts are rarely perfect, actual results usually differ from predicted values.
Forecasts attempt to look into the unknown future and, except by sheer luck,
will be wrong to some degree. Errors are inevitable and must be expected.
2. Forecasts are more accurate for families or groups. The behavior of individual
items in a group is random even when the group has very stable
characteristics. For example, the marks for individual students in a class are
more difficult to forecast accurately than the class average. High marks average

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 out with low marks. This means that forecasts are more accurate for large groups
of items than for individual items in a group.
3. Forecasts are more accurate for nearer time periods. The near future holds less
uncertainty than the far future. Most people are more confident in forecasting
what they will be doing over the next week than a year from now. As someone
once said, tomorrow is expected to be pretty much like today.
4. Forecasting techniques generally assume that the same underlying causal systems
that existed in the past will continue to exist in the future.

Advantages of Good Forecast

 it assures improved materials management system in a given organization
 better use of capital and finance may be created
 assures improved customer service
 enhances improved employee relation
 it may also serve as starting point for budgeting

2.4. Steps in Forecasting Process

1. Determine the purpose of forecast
2. Establish a time horizon
3. Select a forecasting technique
4. Prepare a forecast
5. Monitor the forecast

2.5. Types of Forecasting/Forecasting Techniques

There are many forecasting methods, but they can usually be classified into two categories:Qualitative
, Quantitative

1. Qualitative Forecasting

Qualitative techniques are projections based on judgement, intuition, and informed opinions. By
their nature, they are subjective. Such techniques are used to forecast general business trends and
the potential demand for large families of products over an extended period of time. As such, they

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are used mainly by senior management. Production and inventory forecasting is usually concerned
with the demand for particular end items, and qualitative techniques are seldom appropriate. These
methods are used primarily when there is no available. Some of the common qualitative methods of
forecasting are:
i. Delphi method

This method involves judgement. It is an interactive group process and employs a group of experts,
not an oracle to obtain forecasts. The experts are usually not known to each other and their
interaction takes place through a coordinator. The other participants in the Delphi process are the
staffs who are involved in collecting and analysing data. The respondents are the subjects whose
judgement is being sought.
ii. Sales force composite

In this method sales force members will be asked to estimate the likely sales in their respective
areas. The estimates are then received to ensure that they are realistic. Finally, the estimates are
combined at the district, regional and national level to obtain the overall forecast.
iii. Consumer Panel Survey

Under this method consumers are questioned about their purchase plan in a consumer panel. The
aim of this method is to forecast product and service demand on the basis of subjective judgement
of consumer purchase. These are typically used to forecast long rage and new product sales. It
can help not only in preparing a forecast but also in improving the design and planning for new
product. There is one basic assumption to this model. i.e. the consumer in the panel are the
representatives of the ultimate/final purchasers.

2. Quantitative Forecasting

In opposite to qualitative approach, quantitative models are objective in their very nature and they
employ numerical information. This model includes time series model and causal models.
A. Time series models.

The time series models attempt to predict the future values using the historical data. Here the
demand forecast is done on the basis of the past demand value. This prediction is based on the
premise that the future is a function of what has happen in the past. In other words, they look at

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what has happened over a period of time and use a series of past data to make a forecast. If we are
predicting weekly sales of an auto mobile, we use the past weekly sales for auto mobile in making
forecast.

Decomposition of time series

Time series analysis involves decomposing the past data in to components and then projecting them
forward. A time series has four components.
Trend: - Over a long period, time series will have an overall tendency either to
move upwards or downwards, though the actual movement will not be regular.
Seasonality :- The fluctuation occurs periodically, the movements recurring
within a definite period may be every month or every Week
Cyclical movement:- The cyclic variations as an index in decomposition method
occur as short-period changes and periodic variations. These variations may be regular
or [Link] are caused by business cycles. For example, the sales of
company may be high because the level of economic performance may be high.
Random Variation:- These variations are erratic and irregular and are usually
caused by some unpredictable reason. They follow no discernible pattern, so they
cannot be predictable.

The most commonly used time series models are:

a. Naive forecast: the simplest way to forecast is to assume that the forecast in the
next period will be equal to demand in the most recent period. Eg. If the actual demand
for October is 45 unit, the foretasted demand for Non-member will be 45 unit.

b. Simple Moving Averages

The simple moving average method uses the average of the most recent n data values
in the time series as the forecast for the next period. Mathematically, the simple
moving average is expressed as:

∑ demands in the previous n period

Simple Moving Average = n

Example:

The demand for product A is observed for 10 months & it is given below:

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 Month Demand ( in unit)

1 420
2 380
3 456
4 412
5 429
6 366
7 392
8 440
9 452
10 396
Question:
What is the forecast for month 11 using a 3 month forecast & a 4 month Forecast?
Solution:
A three month moving average can be obtained by adding the demand during the past
three months & dividing the sum by three, with each passing month the recent month
data is added by dropping the old to get new forecast. By using three months moving
average, the demand in month 11 will be 492 units.
396 + 452 +440 = 429 units
3
when a four months moving average is used, the forecast of month 11 will be 420 units.
Which can be obtained as follows:
392 + 440 + 452 + 396 = 420 units
4
[Link] moving average
A careful analysis of the moving average method reveals the moving average with a base
of n periods is in fact an equal weighted average of 1/n to each of the preceding n values
and a zero weighted to all the previous values. Thus in a three month forecast, the
immediately last three months’ values are given a weight of 1/3 each & the reaming
values a weight of zero.

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Here it is possible to assign a differential weight to the values entering in to a moving
average calculation.
Assume that the weight of the three months forecast given above is 3:2:1 then,

Weighted moving average = 3x(440)+2x(452)+1x(396) =436.6 units

6

CHAPTER III: PURCHASING

3.1. MEANING AND ROLE
a. Meaning of Purchasing
Many authors have defined purchasing in different ways and there is no single definition accepted
by everyone. Some of these definitions are:

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1. Purchasing is the process of acquiring goods or services in exchange for funds.
2. The term purchasing most often refers to the day-to-day management of material flows and
information.
3. Purchasing is obtaining from external sources all goods, services, capabilities and knowledge
which are necessary for running, maintaining and managing the company's primary and
support activities at the most favorable conditions
4. The purchasing function comprises the essential activities associated with the acquisition of
materials, services, and equipment used in the operation of an organization.
5. Purchasing is the function of buying machinery, tools, general supplies, raw materials etc
required by an organization.
From the above definitions it can concluded that purchasing is the process of obtaining material
input, machineries, tools, supplies and services for the smooth running of any organization be it
business, non for profit, large or small from outside sources. In other words, purchasing is a
common function in almost all organizations.
b. Role of Purchasing In Business
To see the role of purchasing, the function will be observed from three points of view.
i. As A Function of Business
Purchasing is one of the basic functions common to all type of business enterprise. These functions
are basic because no business can operate without them. All businesses are managed by
coordinating and integrating six functions namely:
 Creation : the idea or design function usually based on research
 Finance : the capital acquisition and financial planning and control function
 Personnel : the human resource and labor relation function
 Purchasing : the acquisition of required materials, service and equipment
 Conversion : the transformation of material in to economic goods and services
 Distribution : the marketing and selling of goods and services produced
Depending on the company’s size, these six basic functions may be supervised by a single manager
or individual managers for each function. By its very nature, purchasing is a basic and integral part
of business management. For a business to be successful, all its individual parts must be successful.
ii. As Elements Required For Productive Work

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The basic goal of any individual activity is the development and manufacturer of products that can
be marketed at a profit. This goal is accomplished by the appropriate blending of what management
authorities historically have called the five M ‘S:
 Machine
 Manpower
 Materials
 Money and
 Management
Materials today are the life blood of industry. Materials of the appropriate quality must be available
at the right time, in the proper quantity, at the needed location and at an acceptable total cost.
Failure to fulfill any of these responsibilities concerning materials management adds to company‘s
cost and decrease company profit just as surely do out mode production methods, inefficient
personnel and ineffective marketing activity.
iii. As the Manager for Outside Manufacturing
The materials that go in to a typical company’s product can originate from either of two sources.
The company‘s production department is the first source. This department converts raw material
in to processed parts; the company‘s purchasing department is the second source. This department
not only purchase raw material which the production department converts in to processed parts but
also purchases finished parts and components. The parts made by the production department are
combined in assembly with the items bought by the purchasing department to make the company‘s
final product. The percentage of industrial components being purchased externally is constantly
increasing compared with the percentage being manufactured internally. This is because of the
increasing cost of high volume specialty machines.
3.2. Objectives of Good Purchasing
The objectives of purchasing can be viewed from three levels: (1) a very general managerial level,
(2) a more specific functional or operational level, and (3) a detailed level at which precise strategic
buying plans are formulated.
1. From a top managerial perspective, the general objectives have traditionally been expressed as
the five rights which management expects the department to achieve the acquisition of materials:
1. Of the right quality
2. In the right quantity

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 3. At the right time
4. From the right supplier
5. At the right price
Right Quality Cost and quality are critical dimensions. The interaction between the two is very
complex. A right quality is not necessarily best quality. To a large degree manufactures determine
the quality of goods by the desired quality of a product to make. The considerations are basic
materials, grades, size, design, colors, patterns and durability. The quality must be described
precisely so that vendors should understand what is exactly needed. The exact specification of item
should to be given, preferably in terms of market grades, brand or trade names, commercial
standards, on blue prints or physical characteristics, materials and method of manufacture.
The quality of a product is measured in terms of its design, materials, chemical composition, heat
treatment, surface treatment, manufacturing processes, mechanical and electrical properties,
workmanship, etc. Two distinct but closely inter-related aspects of quality are 'Quality of design'
and 'Quality of conformance. 'In the case of, purchased items, quality of design refers to the quality
specified by the company's design department, in the form of specifications while quality of
conformance refers to the extent to which the goods and services purchased complies with the laid
down specifications. To determine the quality of conformance of purchased items, sampling plans
may be used.
Right Quantity - Quantity to be purchased varies with the production strategy and planning. Right
quantity is the level of quantity which is not too much or too few. This can be made possible
through the techniques of E.O.Q (Economic Order Quantity), which saves the producer from the
danger of stock outs as well as carrying cost of surplus inventory. Other strategical considerations
in determining quantities are combination of items to reduce transportation costs, anticipation of
market conditions both of raw materials/spares as well as the minimum quantity of finished goods.
Right Source The source of supplier is determined normally by calling quotations and the lowest
bidder is selected provided he has quoted as per the requirement of producer interms of quality
and period of delivery. But such ideal situations do not appear in all cases and selection of supplier
involves a strategic consideration of various factors. It is always prudent to select a manufacturer
in case of patented standard products even if it means a little extra transportation. Secondly, the
past records, financial capacity, technical ability and other resources play important role in
selection of supplier. The purchasing department has to maintain a vocabulary of suppliers of

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different goods and develop it further from the knowledge or data collection through journals,
bulletins and newspapers, trade directory, and exchange of information through buying
associations. Only the right source can give goods of the right quality, in the right quantities, at the
right price and at the right time. Right source aspect requires decisions regarding the classification
items to be purchased directly from the manufacturers, items to be brought from dealers and items
to be purchased in the open market. Right source also requires the analysis of transportation costs,
along with the basic price, to make the choice between a distant supplier and local supplier.
Right Price The right price is the worth in terms of quality, time and adequacy of supply of an
item obtained. It is no doubt easy and safe to go for standard products at a higher price but one has
to keep in mind the utility of item in the ultimate worth of product
One of the primary functions of purchasing is to buy goods at the 'right' price. But what is
the 'right price'?
Is it market price, competitive price, standard cost price, negotiated price, fair price, lowest of the
bid prices or lower-than-last price! Price is a dynamic factor. Price varies from vendor to vendor,
at one time to another time and at the same time. The right price assumes greater importance, as it
has a significant effect on the cost of the final product.
Two distinct but closely related aspects of right price are right quality and right time. For example
• Delayed purchases-effecting delivery date and utilization of plant, loss of production. idle men
and machines, etc. made at a very low price after long negotiations are deemed to be made at a
poor price. Right price must enable purchase of goods at the right time.
• A cutting tool purchased from a new source at too low a price compared to the historical prices
may not represent a good purchase if the tool does not give adequate life. Right price must result
in purchase of goods of the right quality. ,
Therefore, right price is the price that must be paid to the supplier to obtain the goods of the right
quality at the right time.
 Factors Influencing Price
A number of factors have a bearing on the determination of the right price of an item they are:
A. Quantity requirements
A higher price is usually charged when the quantity required is small. Bigger quantities, on the
other hand, give the buyer a leverage to negotiate for a better price.
B. Job life

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A higher price is normally charged for one time requirement since development, engineering and
tool cost are recovered from one batch. However, if the item is repetitive, it can be obtained at a
lower price.
C. Delivery time
Time available to the buyer has a major influence on the price charged by the supplier. A higher
price is generally charged/paid when a buyer has limited time to wait and he has to create an urge
in the supplier to supply or when the buyer has no time to locate other sources who can supply at
a lower price.
D. Demand and supply condition
The price of a commodity is conditioned by the forces of supply and demand. The
price charged by the supplier is generally competitive when supply of the
commodity is more than its demand. On the other hand, higher price is required to
be paid if the item is in short supply.
E. Extent of competition
Limited competition is associated with higher price, while wider competition enables buying at
competitive rates.
F. Standard or non-standard materials
Standard parts - those produced to commercial standards - cost less to buy than those produced to
buyer's design.
G. Buyer-seller relationships
Good buyer-seller relations provide a good ground for negotiation, while strained t relations make
the supplier quote higher.
H. Government restrictions
Prices of certain commodities may be fixed by the Government, thereby putting a restriction on
both the buyer and the seller. Local taxes in different geographical locations may be different.
I. Terms of purchase
Some suppliers may ask for a higher unit price but give longer credit period, while others may
quote lower unit price but demand payment against delivery or through the bank. Cost of special
tools may be included in the rate by some suppliers, while others may ask the buyer to supply the
tooling free of cost. Some suppliers may quote F.O.R./F.O.B. while others may quote Ex-work
Right Time

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The ideal time of purchase period would be the minimum time for which the goods remain
unconsumed. This could be achieved if the stockiest or manufacturer of raw materials supplies the
day-to-day requirements in regular instalments. This would save the storage. But the geographical
and market conditions do not permit and it is where the ordering system comes into existence. The
timing policies will depend up on fluctuating prices as well as problems arising out of monopolistic
trade and sellers ‘maturity. Right time and lead time are closely related. Right implies the time at
which the goods requested should be received while lead time refers the time that elapses between
the communication of the need for the item by user to purchase till the time the item is actually
received and made available for consumption. The buying department has the sole responsibility
of developing lead time information for all items and make it available to those concerned - mainly
Planning and Stores - so that they indent requirements well in advance and avoid the need for rush
purchases.
Basic elements of lead time are:
 Time required by the vendor to communicate requirement to purchase.
 Time required by the purchaser to locate, select and develop qualified sources of (supply
including agreement on contractual terms).
 Transit time for the purchase order to reach supplier.
 Time required by the supplier to route the buyer's order through administrative
channels.
 Time required by the supplier to fill the buyer's order (i.e. time required by the
supplier to manufacture goods).
 Transportation time for the goods to reach the buyer's destination.
 Time required by the buyer's receiving department to collect materials from the
transporter's go downs, verify received quantities and prepare necessary documents.
 Time required by the buyer's inward inspection to verify the quality of goods.
 Time required by the main stores to take possession of the goods, deposit them in
appropriate bins and update stock cards.
2. From an operating or functional perspective, then, it is necessary to probe more deeply to
develop a set of statements that provide practical and useful targets for decision-making purposes.
In this sense, the eight basic objectives of purchasing and materials management are identified and
discussed briefly below.

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1. To support company operations with an uninterrupted flow of materials and services.
This is the most fundamental of all purchasing and materials management objectives. In a logistical
sense this is a key reason for the existence of the department. Responsibility for performance of
the function is located in a single operating unit, there by facilitating coordination and control of
the supply activities.
2. To buy competitively: Buying competitively involves keeping abreast of the forces of supply
and demand that regulate prices and availability of materials in the market place. At times; it also
involves an understanding of a supplier‘s cost structure, coupled with ability to minimize the
supplier‘s costs within reason-then to negotiate price and service arrangements that are fair relative
to the supplier‘s costs. A buyer who pays significantly more than his or her competitor does for a
given material or service generally is not buying competitively.
3. To buy wisely: Buying wisely involves a continual search for better values that yield the best
combination of price, quality, and service, relative to the buyer ‘s needs. This frequently involves
coordination with users in defining the need. It may also involve co-coordinating and reconciling
users ‘needs with suppliers ‘capabilities to achieve optimal value considering both issues. A firm
that purchases a silver-plated part when a copper plated part could perform the function just as
well usually is not buying wisely. It is the combination of buying competitively and buying wisely
that typically contributes most to the profitability of the firm.
4. To keep inventory investment and inventory losses at a practical minimum. Although
maintaining a large inventory is one way to achieve objective number one, it is also costly.
Generally, speaking, most firms today pay in indirect costs between 25 and 35 percent of the
average inventory value per year for the convenience of having the inventory available. Hence, the
materials management job is to achieve a reasonable balance between the level of inventory
required to support operation and the cost of carrying the inventory.
Through proper packaging, and storing, it is also the department‘s objective to minimize losses
that occur as a result of deterioration, obsolescence, theft, and so on.
5. To develop reliable and effective sources of supply. Cooperative suppliers that are willing to
work with a buyer to help solve the buying firm are problems and to minimize its materials-related
costs are an invaluable resource. Progressive buyers today tend increasingly to ―buy suppliers‖,
as opposed simply ―buying products‖. The identification, investigation, selection, and in some

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cases development of competent and responsive suppliers is a buyer‘s paramount responsibility. It
is difficult indeed for a firm to perform optimally if it cannot depend on the planned performance
of a reliable contingent of suppliers.
6. To develop good relationships with the vendor community and good continuing
relationships with suppliers.
Good relationships with suppliers are imperative, and good relationships with potential suppliers
are invaluable. The achievement of the preceding objective on a continuing basis is virtually
impossible if mutually satisfactory continuing relationships are not maintained. Potential suppliers
are much more interested and eager to acquire a firm‘s business if the buying firm is likely to be a
―good customer‖. And, when a contractual relationship has been formed with a supplier, the
myriad operating problems that inevitably arise throughout the life of the contract are much more
easily and effectively solved when the relationship is sound and mutually beneficial. Suppliers
naturally direct their research, provide advance information on new products and prices, and in
general give better service to such customers.
7. To achieve maximum integration with the other departments of the firm. It is essential for
buyers to understand the major needs of their using departments, so that these needs can be
translated into materials support actions. While these actions vary from firm to firm, they normally
require the purchasing and materials operation to support a using department in one or more of its
major responsibilities. The most common types of support involve actions such as developing
materials standardization programs (in Coordination with ongoing design programs), forecasting
future prices and general business conditions, performing economic make-or buy analyses, and
serving as a repository of information and data from suppliers regarding new materials, processes,
prices, and materials availability. Specially
8. To administer the purchasing and materials management function in a professional,&
cost-effective manner.
Management should expect the preceding seven objectives to be achieved in a professional manner
at a cost that is commensurate with their value to the total organization. This involves the
acquisition and development of highly competent personnel who are motivated to perform their
responsibilities effectively, with the overall goal of helping the firm maintain a competitive
position in its industry. Such personnel also serve as a reservoir of talent from which future
executives of the firm can be drawn.

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A part of this composite effort also involves the development of operating policies and procedures
that facilitate accomplishment of departmental objectives at the lowest reasonable operating costs.
All these objectives apply in principle to all categories of industrial buying activities:
manufacturing concern, governmental units, schools, hospitals, and all other types of buying units
that buy for consumption or conversion. A nonprofit activity, of course, cannot seek to ―maximize
its profit. It can, however, seek to maximize the benefits the organization receives from its
appropriated or endowed birr. A principle common to all types of purchasing activities is to obtain
the greatest value from each birr the purchasing department spends.
3. Detailed objectives that are developed when precise buying plans are made (usually annually)
for each of the major categories of materials the firm uses in its operations. These objectives are
spawned from the functional-level objectives just discussed, and are applied to fulfill the specific
needs associated with each type of purchase. The precise set of objective for each material typically
varies because the usage requirements, the operating conditions, and the markets in which each
material is purchased usually are different.
3.3. Purchasing policies
The term policy includes ―all the directives, both explicit and implied, that designate the aims
and ends of an organization and the appropriate means used in their accomplishment. In brief,
policy refers to the set of purposes, principles, and rules of action that guide an organization in
realizing its objectives‖. Policy is an instrument of guiding employee behaviors by showing
direction or conditions in performing tasks and discharging responsibilities
Policies are developed to serve as general guidelines in making operating decision that channel
action towards achievement of objectives. They are one of the administrative tools of the executing
unit and reflection of top management philosophy. They can be used by auditors who check
purchasing adherence to corporate policies. The following are major policy examples:
1. Centralized/Decentralized Purchasing Policy
Centralized purchasing policy
Centralization exists when the entire purchasing function is made the responsibility of a single
person. This person is held accountable by top management for the proper performance of
purchasing activity.
If it functions properly, centralized purchasing has the following benefits:
- uniform policy and procedure at all level and company wide uniform quality standards

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- minimize duplication of efforts in purchasing
- volume discounts from bulk purchase of the same and similar materials
- transportation saving by consolidating orders and delivery schedule
- centralization develops purchase specialists whose primary concern is purchasing
- minimizes ordering costs
Decentralized purchasing policy
Decentralization of purchasing occurs when personnel from other functional area decide on source
of supply or negotiate with suppliers directly for major purchase. Complete centralized purchasing
policy is neither possible nor always desirable. Thus, decentralized purchasing policy is necessary.
Under decentralized purchasing majority of purchasing decision are made at the plant or
operational level. The plant or operational manager who is responsible for the profitable operation
should have jurisdiction over purchasing because the cost of purchasing may affect the cost and
efficiency of production. Each plant or operational level may have some unique requirements and
differences in operations condition that affect materials needs. When the public relation aspect of
purchase locally may be significant, good will can be fostered by purchasing from nearby source
or through local distributors.
Plant purchasing operation can provide quicker and more efficient service in meeting user needs.
2. Policies affecting external relationship and image
Good supplier relations contribute to the formation of good public image. The business
organization may need to establish policies that promote relationship with suppliers to receive
good treatment and service.
3. Policies on pricing and supply source
Competitive bidding and the use of negotiation, the size of sourcing firms, local firms, international
firms, distributors and manufacturers selection criteria etc
4. policies on purchase orders and contracts
Identifies person authorized to sign purchase order and contracts, specifying the dollar amount that
a person is authorized to sign.
5. policies on internal relationship
Policies should define the scope and responsibility of the purchasing function. These are related to
line of authorities, channel or procedure, and department‘s relationship.
6. policies on rush order

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Rush orders are made under emergency situation. These orders should be received only when the
user departments have justifiable reason to make the request because the rush orders cost more
than if they were handled through the normal purchasing system. Higher price may be paid and
thorough investigation may not be made on purchases. Rush orders result from poor planning by
user department so that it should be discouraged.
7. Policies on small orders
Small orders are permanent problems in most organizations. They are costly to the buyer and the
seller [Link] following methods can minimize small order problems:
a. Centralized store system: when the same supplies are ordered in small quantity repeatedly, the
solution is to order these items in large quantity and place them in a centralized inventory for with
drawl as needed. However carrying cost and inventory investment cost should be considered.
b. Blanket order system: a blanket order system helps solve the problem for the thousands of
items a firm can‘t carry inventory or can carry it. Base on the analysis of the past purchase a buyer
determines which materials should be handled in a blanket order. After bidding or negotiation, a
buyer selects a supplier for each items or family of items and issue a blanket order to each supplier
the order include the description of each item, a unit price for each item, when possible and other
customary contract provision. The blanket order indicates the specific order quantities or only an
estimated usage during the period of coverage. It also states that all requirements to be delivered
upon receipt of a release form of the buyer or other authorized person. At the end of the period,
the order may be renewed or placed with another firm depending on the suppliers ‘performance
record.
Benefits of blanket order
i. Minimize the number of purchase orders and reduce clerical work in purchasing,
accounting and receiving
ii. Release buyers form routine works
iii. Permit volume pricing by consolidating and grouping requirements
iv. Improves the flow of feedback information because of the grouping of
materials and suppliers
v. Because some suppliers will stock materials for prompt delivery, this system
can reduce the buyer‘s lead time and inventory level
vi. Develop long term and improved buyer seller relationship.

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Blanket order needs tight control. Absence of control encourages petty fraud and poor supplier
performance. Thus the following effective controlling elements are important
1. A numbered purchase order: including proper internal accounting charges
2. A record of authorized delivery releases
3. Bona fide evidence of receipt of the material
In general policies should establish clearly the centralized or decentralized purchasing needs:
specify the purchasing function, responsibilities with respect to the development of material
specification, supplier selection and price determination. Policies should also provide guidance for
departmental personnel in conducting activities that influence the company‘s relationship with
external individuals and external organizations.
What Are the Advantages and Disadvantages of Policies?
Advantages:-
 Having written and implied policies is an opportunity to define and clarify top management
objectives.
 Policy statements are a means for executive management to communicate its leadership and
views. Executive management should develop a series of high-level policy statements that
provide guidance to employees at all levels.
 Policies provide a framework for consistent decision making and action. In fact, one of the
primary objectives of a policy is to ensure that personnel act in a manner consistent with
executive or functional management‘s expectations.
 Finally, an effective policy provides an additional advantage by defining the rules and
procedures that apply to all employees.
Disadvantages:-
 A policy is often difficult to communicate throughout large organizations.
 Employees might view policies as a substitute for effective management. Policy statements are
guidelines that outline management‘s belief or position on a topic. They are not a set of how-
to instructions designed to provide specific answers for every business decision.
 Policy development can also restrict innovation and flexibility. Too many policies
accompanied by cumbersome procedures can become an organization’s worst enemy.
What Makes for an Effective Policy?
Several characteristics of a policy render it effective.

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i. Effective policies are action-oriented guidelines that provide guidance. They provide
enough detail to direct behaviour toward a specific goal or objective but are not so detailed that
they discourage personnel from following the policy.
ii. An effective policy is relevant (avoiding trivial or unimportant issues) and concise (stating a
position with a minimum number of words).
iii. An effective policy is unambiguous, allowing personnel little doubt as to how to interpret
the policy‘s intent and direction.
ii. Another characteristic of effective policies is that they are timely and current, which
assumes that they are periodically reviewed for clarity and conformance. A policy is
ineffective or counter productive if it is confusing, ignored, or outdated. Policy formation
and review should be a dynamic activity undertaken at least once every year or so. A policy
may be timely and correct but not properly enforced by management. In this case, it is
management‘s responsibility to re-educate the workforce about the policy‘s intent.

3.4. General Purchasing Producers

A purchasing department buys many different types of materials and service and the procedures
used in completing a total transaction normally vary among the different types of purchasing.
However, the general procedures followed in a sound purchasing system are:
1. Recognition of need 5. Preparation and placement of
2. Description of the need purchase order
3. Flow of purchasing requisition / need 6. Follow up and expediting of the order
transmition 7. Receipt and inspection of the material
4. Determination and analysis of 8. Clearance of the invoice and payment
possible source of supply for supplier
9. Maintenance of purchase records
1. Recognition of needs:- any purchase originates with the recognition of a need by someone
/department/ in the organization.

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 - The recognitions of needs refers to the means by which the needed materials are formally
accepted by requesting individual/ department
- The person who is responsible for a particular activity of need recognitions should know
what, how much when materials are needed for the unit.
- The purchasing department is responsible for helping to anticipate the needs of using
department.
2. Description of needs
 No purchase can be expected to buy without knowing exactly what the using department
wants. For this reason, it is essential to have an accurate description of requested goods and
service.
 Inaccurate description may result in some loss of time, serious financial loss consequences
and loss of suppliers respect and truest
 Any question regarding the accuracy of the requisition should be referred back to the
requisitioner
 The basic document on which needing department can describe their need is purchase
requisition. Purchase requisition is an internal document which is prepared by needing
department and sent to purchasing department.
3. Flow of purchase requisition/ need transmition
 Purchase requisition should have prepared in two copies; the original to be sent for
purchasing department and the duplicate retained by requester.
 Purchase requisition (PR) formats vary widely because each company design its own format
to simplify its own particular communication problems Under no circumstance should the
purchasing department accept requisition from anyone other than those specifically authorized
and all requisitions should be checked carefully before any action is taken.
 The requested quantity should be based on the anticipated needs and should be compared to
economic purchasing quantity. The delivery date should allow sufficient time to secure
quotation and sample, if necessary, and to execute the purchaser order and obtain delivery.
 The information that should be include in purchase requisition are date, Identification
number, originating department, account to be charged, complete description of materials and
quantity, date at which materials needed, any special shipping instruction, signature of

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 authorized requisitioner.

ABC COMPANY LTD.

Purchase requisition
Please supply the following materials to the -------------dept No.___________
Classification of Goods Date:_________
Consumable __________ Spare parts ____________ S.R. No. ____________
Fixed assets _________________________________

Prepared by __________ Checked & Received by_________ Approved by ___________

4. Determination and analysis of possible source of supply
 Supplier selection constitutes an important part of the purchasing function, and involves
the location of qualified vendors and assessing the probability that a purchase agreement
would result in one time delivery of satisfactory product and needed service before and
after the sales
 Selecting the source is the process of narrowing down a large list of potential supplier to
a relatively a few and the final choice is made from this short list
 The purchase of a new or high value item may require a length investigation of potential
suppliers. After selecting a preliminary group of potential source, the buyer may employee
the technique of competitive bidding or negotiation.
 Bidding is one of the basic methods b which price can be determined. It is more often
used by government organizations. Under competitive bidding, industrial buyers, but not
always, give the order to the lowest bidder. By law, government buyers are routinely
required to give the order to the lowest bidder.
 The proper use of competitive bidding, as the best method, is subject to the following
five basic criteria:
a. The money value of specific purchase is large enough to justify the expense

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 b. The market consists of an adequate number of sellers
c. The market consists of sellers that are technically qualified and actively want the
contract
d. The time available is sufficient for using this method of pricing i.e the time required for
preparing mailing, opening, and evaluating bids and obtaining the best price
e. The specification of the materials or services to be purchased is explicitly clear to both
buyer and seller so that the seller knows the cost of producing the items or rendering the
service
5. Preparation and placement of purchase order
 The placing of an order usually involves preparation of a purchase order form and it is
done after selection of the right supplier.
 Purchase order becomes a legal binding contract once accepted by the seller, it become a
legal contract for the delivery of the goods according to the terms and conditions specified
in a purchase agreement
 The order should include all data required to insure a satisfactory contract and it should be
worded in a manner which minimize the miss interpretation by either party
 Quantity requirement, price, delivery requirement and quality specifications must be
described accurately in the purchase order
 It is prepared from the purchase requisition or quotation and from any other additional
information needed
 The minimum number of copies most commonly used are five
a. Original copy is sent to the supplier
b. Second copy inform the accounting department for use in checking and issuing
payment for the seller invoices
c. The third copy advice the receiving department that can expect receipt of shipment
at a particular date
d. The fourth copy informs the user department of the details of the order so it can plan
its work and budget accordingly
e. The fifth copy remains in the purchasing department open order file and it is often
used for the purpose of order follow up and expediting.

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 PURCHASE ORDER
XYZ CO.
ADDRESS
To: ABC Co.
Address:
Ref: Our Tender NO XYZ/ 10/ 04 Dtd
Your quotation No. ABC / 01/ 04 Dtd
Dear Sir,
We kindly request you to supply the following items as per the following terms and
conditions:

Thank you,
Yours faithfully,
Terms and conditions
Summary of information contained in purchase order
i. Buying firms and document identification i. Shipping instructions
ii. Internal identification ii. Summary totals
iii. Purchase order identification iii. Purchase order item number
iv. Supplier identification iv. Item identification number
v. Specific shipping destination v. Item description
vi. Internal information vi. Delivery quantity
vii. Accounting change vii. Shipping / delivery dates
viii. Payment terms viii. Unit price and measures
ix. Additional contract inclusions ix. Extended price x quantity
x. Point of title transfer x. Buyer identification and date

6. Follow up and expediting

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- After purchase order has been prepared and issued to a winner supplier, the responsibility of
purchasing does not terminate with making a satisfactory contract.
- Purchasing bears full responsibility for an order until the material is received, inspected and
accepted.
- Follow up:- is the routine tracking of an order to assure that the vendor will be able to meet
delivery promises. Or it is process of remind the sellers about date of delivery in order to get
materials at normal garment time.
- Expediting:- is the application of pressure on vendors to get materials on the original delivery
promise or delivery ahead of the schedule. It may involve the threat of order cancellation or
withdrawal of future business, if the supplier cannot meet the agreement
-At the time order is placed, an appropriate follow up date is often specified simultaneously with
the help of the follow up cope up the purchase order. In some firms, purchasing has full time follow
up and expediting personnel is assigned.
-Follow up and expediting can be implemented through;
• Writing letter / Fax • Email
• Calling the phone • Physical supervision
6. Receipt and inspection of goods
The next step in the traditional purchasing cycle is receipt and inspection of the order. When a
supplier ships material, it includes in the shipping container a packing ship, which itemizes and
describes the contents of the shipment. The receiving clerk uses this packing slip in conjunction
with his or her copy of the purchase order to verify that the correct material has been received.
After a shipment has been inspected for quality and for general condition of the material, the
receiving clerk issues a receiving report. In some cases, the report is prepared on separate receiving
department forms. However, the trend in most companies today is to reduce the clerical work by
using an online computer-based system, coupled with bar code order identification or by preparing
a receiving report form during the same typing or printing operation that prepares the purchase
order.
ABC COMPANY LTD.
INSPECTION NOTE

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Supplier Name: _________________________________ No.____________________
Invoice No.: Date:___________________
P.O. No. ________________

Distribution: -
Original - General Accounts
 1 St. Copy - Costs & stock Accounts
 2nd copy – Purchasing
 3rd copy - Stores recording and control
 4th copy – Storekeeper
 5th-copy-Pad
7. The invoice audit and completion of the order
Occasionally, a supplier‘s billing department makes an error in preparing an invoice or its shipping
department makes an incorrect or incomplete shipment. To ensure that the purchased makes proper
payment for the materials actually received, sound accounting practice dictates that some types of
review procedure precede payment to the supplier.
8. Maintaining Purchasing related Records
In the purchasing process, large number of files and documents are produced to facilitate the
purchasing activity. This documents and files contain a large volume of data that flows among the
participants in the purchasing process. Despite its huge volume, much of this information can be
useless in daily operations unless it is organized in a manner which makes it readily accessible.
Although the unique needs of each purchasing department dictate the specific structure of its
records system, the following basic records are essential for the effective operation of most
purchasing departments:
• A record of open orders • Supplier record
• A record of closed orders • Contract record
• Purchase log • Special tool record
• Commodity record

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 a) Record of Open Orders
All buyers need immediate access to information concerning the status of their outstanding orders.
The record system can be maintained on a computer, in hard-copy form, or as a combination of
the two. Because reference to these orders most frequently requires identification by supplier's
name, the record system customarily is indexed alphabetically by suppliers' names. Within each
supplier's sub file, orders are arranged in ascending numerical sequence. Although practice varies
widely, each order commonly contains the purchase requisition, the working copy of the order,
the returned acknowledgement information, follow-up data, and all notes and correspondence that
pertain to the order. Some companies also include competitive bids in the order file. Others prefer
to keep bids in a separate price file or with the commodity record. When the bid is not included in
the order file, the order record must contain a cross-indexing reference. Some firms also maintain
a separate numerical file or log of all completed purchases. It frequently serves as a useful
reference when questions arise concerning past orders and when certain historical data are
needed to guide future decisions. Specific inclusions of the file were discussed previously. It is
difficult to generalize about the length of time such records should be kept. While government
contract records should be kept indefinitely, most firms retain their other closed orders from three
to seven years. Normally, any order files kept longer than this should be retained only on a high
selective basis. In a large firm, record retention is costly. Therefore, if commodity and supplier
records are properly maintained, only unique and high-value orders are generally worth keeping
longer than the four-year period required for legal purposes.

b) Purchase Log
Every purchasing department should maintain an ongoing record, in numerical sequence, of all
purchase orders issued. The record need not be elaborate, but it should contain the purchase order
number, the status of the order, the supplier's name a brief description of the material purchased,
and the total value of the order. Such a record summarizes the commitments for which the
purchasing executive is responsible. In the event that the working copy of an order is lost, basic
data concerning the purchase can be in the log. The log further serves as a convenient record from
which summary administrative data can be extracted concerning such matters as the number of
small orders, rush orders, and total orders issued; the volume of purchases from various suppliers;
the value of outstanding commitments; and so forth. The purchase logs of some firms consist of a
sequential list of purchase orders recorded in journal or in the computer data base. Other firms

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accomplish the same objective simply by filing in numerical sequence, the follow-up copy or an
additional copy of the order.

c) Commodity Record
The file of commodity records constitutes a vast reservoir of materials data that makes efficient
"mass production purchasing" possible. A commodity record card or computer file should be
maintained for each major material and service that is purchased repetitively. Typically included
in the record is a complete description of the material or service, with full reference to necessary
engineering drawings and specifications which might be field elsewhere. Also included should be
a list of approved suppliers and their price schedules. Competitive quotations may be included in
the file, although it is more common to summarize bid data in the record, note a cross reference to
the original quotation, and place all quotations in a separate file.
The preceding data provide a buyer with the basic information initially required in a repetitive
purchase investigation. In making the purchase decision, the buyer supplements this information
with numerous qualitative considerations concerning individual suppliers, such as their current
workloads, internal problems, quality performance, and so on. Some companies, however, also
include in the record a complete purchase history for the item. For every purchase, the purchase
order number, purchase quantity, price, delivery performance, and quality performance are
recoded. In deciding how much detailed information to keep in its commodity record, each firm
must weigh the value of the information against the cost of transcribing it.
d) Supplier Record
To provide quick access to information about suppliers, most companies centralize such
information in a single record file. A separate card or computer record is maintained for each major
supplier. In this record is recorded the address, telephone number, and the names of personnel to
contract on specific matters of inquiry. Selling terms and routing instructions for shipping purpose
also usually are included. Although the practice varies, many firms additionally summarize in this
record the supplier's delivery and quality performance, as well as the annual volume of materials
purchased from the supplier. In a matter of seconds, these records enable a buyer to obtain a wealth
of summary information about any important supplier.

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 e) Contract Record
Today most firms are purchasing in increasing number of items on a long term contractual basis.
In such cases, it is usually convenient to consolidate all contracts in a separate file. In addition to
providing immediate access to all contract documents, this file also apprises all buying personnel
of the materials that are purchased in this manner. If the number of contracts is large, it is desirable
also to list them in summary form to provide a bird's-eye view of all contract purchases and their
expiration dates.
f) Special Tool Record
Many companies have no need for this record. However, such a record is essential to those firms
that purchase many items requiring special tooling for their manufacture. On some orders the
suppliers owns them. By maintaining a record of special tools, the buyer can summarize for quick
reference the special tools owned, the age and location of each, and the essential mounting and
operating characteristics of each.
The above mentioned records along with all the other records that are believed to be useful in
making purchase related decisions are to be kept systematically so that they can be accessible
easily and quickly.
Through following the above mentioned procedures, the purchasing department tries to provide
the service required by all functional units in the organization. However, these procedures may not
be rigidly employed in every type of purchases.
3.5. Make or Buy decision
How a make or buy decision originates?
 This decision may originate in any one of the following events. When we are planning to
produce a new product or modifying the existing product.
 When the current performance of supplier is unsatisfactory Changing demand in the external
environment (increase or decrease of demand).
 Now before buying or making the parts the costs should be evaluated. The relevant costs of
buying are; purchase cost of the parts, transportation costs and receiving and inspection costs.
The cost of making includes; In general,
• Delivered raw material costs • Direct labor costs

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 • Incremental managerial costs
• Inventory Carrying costs
• Costs of Capital and
• Opportunity Costs.

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In order to make a sound managerial decision, we should have to consider the factors
specifically favouring the making or buying decisions.
 Factors that specifically favour the making decisions
1. When the cost to make is substantially lower or less than the cost to buy.
2. When the demand for the product is stable & at a higher value, so that the
investment in equipment can be returned.
3. When the companies manufacturing experience & equipment are well suited to the
manufacturing of the product.
4. When the suppliers are unable to meet specifications in terms of quality &
performance.
5. When the company has idle capacity like, idle space, skilled human resource,
equipment to be utilized in manufacturing the product.
6. When transportation costs can be saved by gathering local materials to make the
products rather than having made at a distant plant.
7. When research break through occurs & the company wants to maintain trade secrets
concerning the product, materials in it & the process involved.
 Considerations that favour buying than making.
i. When the cost to buy is substantially lower or less than the cost to make the item.
ii. When the demand for the product is fluctuating, creating production problem.
iii. When the quantities of item required is small.
iv. When other companies hold trade secret or patents on a required product so that it
is not possible to make it.
v. When obsolescence makes machine worthless or substantially reduce their value.
vi. When high scrap or spoilage rates are inherent in the manufacture of the product
and when the company is assured of getting the same from suppliers.
Illustration on Buying & Making decision
ABC metal work company produces parts that are shipped nationwide. It has an
opportunity to produce plastic packing cases which are currently purchase at 0.70 Br.
each. Annual demand for the product depends largely on economic conditions & this
has been estimated at 45,000 units. If the company produces the cases itself, it must re-
innovate on existing area & should purchase a moulding machine which will result in
an annual fixed cost of 12,000 Br. Variable costs for labor, material & factory overhead
are estimated at 0.65 Br./case.

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Required: a) Should the company Make or Buy the cases. b) At what volume, it is more
profitable to produce in house rather than purchase from an outside suppliers.
Solution:
a) Expected cost of making = Total variable costs + Fixed Cost = 0.65(45,000) + 12,000
= 41,250.00 Birr
Expected Cost of buying = Unit Price x Annual Demand
0.70 x 45,000
= 31,500.00 Birr
Since the cost of buying is less than cost of making the company should buy the cases
because there is a cost saving of 9,750 Birr. Note that the fixed cost is avoidable i.e.
when we buy the item from the external supplier there will be no fixed cost of 12,000
Birr. b) In order to calculate the quantity level that favors making we need to first
compute the break even point. The break even point is the point where total revenue
equals total cost. i.e. TR = TC P x Q = VC(Q) + FC P x Q - VC(Q) = FC Q = FC P -
VC Q = 12,000 = 240,000 units 0.70-.065 At this level of quantity cost of making is
equivalent to cost of buying 0.65(240,000) + 12,000 = 0.70(240,000) 168,000 =
168,000 Therefore, it is more profitable to produce the items in house rather than
purchase at any volume of greater than 240,000 units. Here you can check the answer
by taking a quantity level that exceeds 240,000 units. For example the cost of making
245,000 units is 171500 but the cost of making these units is 171250 Birr.
Value Analysis
This is an attempt to see any material or any component can be substituted or eliminated
so as to achieve the proper function at a lower cost. Value analysis is concerned with
scrutiny of the design function and cost of any product, material or service with the
object of reducing cost by modification of design material specification, more efficient
process, change in source of supply or possibly the elimination of an item or its
incorporation in to a related item without sacrificing reliability and quality. The two
basic conceptual tools in the operation of value analysis are:
o Design analysis of the required material design analysis in tails a methodical step
by step study of all phases of the design of a given item in relation to the function
it performs.
o Decomposing on item to its parts so as to see and examine each part in relation to
their function avoids or eliminates redundant or idle ones. This can be examined
by:
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o Can any part be eliminated without impairing the operation of the other unit?
o Can the design of the part be simplified to reduce its basic cost?
o Can design of the parts be changed to permit the use of simplified and less costly
production method?
o Can less expensive, but equally satisfactory materials be used in the part?
o Cost analysis of the required material cost analysis involves the investigation of the
supplier‘s probable cost of producing a given materials. To get actual selling price
of a suppler
 Construct estimated elemental cost for labor, material, manufacturing overhead
and general overhead
 Total these cost, to arrive at approximate actual costs of producing for an
efficient producer
 Make-up reasonable profit and arrive at selling price.
Possible procedure in value analysis
1. Select the material that is right for value analysis.
2. Gather information about the material which includes, drawings, costs, scrap rate
etc.
3. Define the prime functions; prime function of a material can be defined using two
words; verb and noun.
4. Estimate the present cost of each function.
5. Generate alternatives, using brain storming-insist people to give new ideas.
6. Evaluate alternatives in terms of cost, feasibility, undesirable consequence, etc…
7. Present proposals.
8. IF approval is secured implement the plan; translate the approved proposal to
engineering change order.
In sum, the purpose of value analysis is to bring together the combined talents of
purchasers and its vendors as well as engineers and other operating personnel to review
the components of materials used in the making of the product with the view to improve
its function and lower its cost.

CHAPTER V – STORAGE

INTRODUCTION

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Store keeping is a function of receiving, storing and issuing of materials. In almost all
industries, the materials represent a very large investment. It is therefore, important that
strict orderliness and method are employ to ensure accuracy, preservation, and safety
at all stages of materials movement and custody.

Meaning of store;

Store is the space, room, and the building where various types of materials, semi-
finished goods, and items purchased and manufactured in the organization are kept
temporarily till they are removed to supply for production and sales or used for
consumption.

Storage Function and Responsibilities

1) receive all incoming materials and see that the quantities are correct according
to challan/invoice.
2) see that the Daily Goods Receipt is properly maintained
3) arrange for inspection of the material received
4) ensure that Goods Inward Notes are raised and distributed without delay
5) see that materials are properly stored against deterioration, theft, etc,… and that
they are readily available for use
6) issue materials against authorized requisitions to production and other
departments
7) maintain accurate records of materials received, issued and in storage.
8) carry out stock verification in accordance with the procedure laid down by the
management
9) ensure that all documents relating to receipts and issues are sent to Stock
Control, Accounting and other departments without delay.

Location and Layout

All materials shall be stocked in a systematic way so that minimum time is spent in
picking out the materials for day-to-day issues. Thus, each rack and bin in the Stores

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will be identified with a location number, which shall be indicated on the respective
stock cards/Bin cards. When dealing with the store’s layout, there are two basic aspects
to be considered. One is the layout of storage areas or store-rooms and the other is the
layout of bins and ranks in each store.

I. Layout of storage area

The following factors should be considered when stockroom layout is being planned:

 Commodity factors - the characteristics of the items to be stored.

 Capacity factors - the characteristics of the available storage area.
 Activity factors - the activities that must be accommodated.
1. Commodity Factors

A. Nature of the Material

B. Size, Weight, and Shape
C. Turnover
D. Quantity
3. Capacity Factors

A. Floor Loads
B. Doors
C. Loading Facilities
D. Upright Columns
4. Stack-Clearance Safety Regulations

2. Activity Factors When stockroom or warehouse layout is planned, the

activities that the space must accommodate need to be considered. Those
activities include storing, receiving, picking, packing, shipping, over the-
counter issuing and handling of material, maintaining equipment, filing records,
and so on. In a space in which ceiling height varies, areas with lower ceilings
must be used for receiving and issuing, whereas areas with higher ceilings must
be used for actually storing supplies.

II. Layout of bins and ranks

A uniform rule cannot be applied to the layout of bins and ranks. It will vary from store
to store and should take in to account the following;

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 - The size and shape of the stores and the position of the main entrance door,
- Kind of material to be stored,
- The type of bins and ranks proposed to be used
- The type of material- handling equipment proposed to be used .
- Convenience for taking materials in and out of the bin
- Maximum utilization of floor and overhead space etc…..
Storage system and procedure

Procedures:

The procedures' document defines step by step how the activities in the warehouse
should be carried out and clearly defines the processes to be adopted. These can be
adopted as ‗best practice ‘. The procedures provide visibility of the operations for
managers and donors.

However, in creating such procedures, care must be taken to avoid constraining the use
of local initiative which might be required to deal with local conditions. Procedures
should be considered as streamlining the business processes and providing checks and
balances. They provide guidance to warehouse managers and must have some level of
flexibility to cater for unique situations, then to be rigidly adhered to. This can be
achieved by limiting the level of detail that the procedures document defines, allowing
more flexibility and/or by arranging ‗dispensations ‘to allow departure from the
procedures in order to optimize local performance, especially in emergencies.
 receiving and issuing of supplies
 quality control or verification
 storage of goods
 how to control stock movement (stock control)
 Documentation flow
 how to detect and deal with stock losses
 how rejected material will be managed; and
 How to deal with unwanted material, obsolete and scrap, disposal.
Storage Systems
The two main storage systems are; Centralized and Decentralized Stores. In small
privatizations, one store will be sufficient to store all the materials which can be
supplied by this centralized place to the other places or requirements. But, in large

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industrial organization since the production shop floors or workshops are lying at
different place and sometimes located far away. So, the decentralization of stores is
necessary in such organizations.
 Advantages of centralized store
1. The Varity of goods can be supplied to all users from one small locations
2. Minimum inventory will be there as store will have limited capacity specially the
tools, fixtures, large parts and spare parts.
3. Less manpower will be required
4. Better control of materials is possible
5. Materials located in small available space ensures economy in storage
6. Receipt and inspection of materials can be efficiently organized
7. Materials handling will be easy
 Disadvantage of centralized storing
- It may not be suitable for large manufacturing concerns
- More staff will be required for shifting and transportation of the materials to
various production unit
- Wastage and shortage of materials may be there
- Safety and maintenance of large amount of materials is difficult in large stores
- Record keeping is difficult
Note: -the disadvantages of centralized storing are advantage of decentralized storing
and vise-versa.
Decentralized storing needs efficient planning of materials as well as location of storing
them. However, it is the convenience of the organization to select any one type of
storing system. But, the type of materials like small parts as nut, bolts, screw, fixtures,
chemicals, paints, etc… have to be stored at separate places, whose requirements may
be at many places.
The type of store will be definitely depends up on the type of materials stored. Such as;

i. Consumable materials
ii. Raw materials entering the production
iii. Chemicals, acids etc
iv. Inflammable and toxic materials like kerosene, petrol, diesel, lubricants,
flammable liquid and gases

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 v. Small parts like nut, bolts, screws, nails, fixture vi. Hand tools and tools
used for cutting machine
vi. vii. Machinery and equipment’s viii. Furniture ix. Office materials and
stationery etc.
Stoke Receipt, Issue and Dispatch

Stoke Receipt the Receiving section is a central place where all incoming supplies are
received, checked, and inspected before storage or use. It also called Goods Inward
Section. The function sections are

 Receive income materials

 Check materials received
 Arrange for inspection
 Raise Goods inward Notes (GIN)
 Inform purchase section regarding excess of supply, shortage or defective
supply
 Deliver materials to the appropriate stores for storage
Types of receiving section the receiving section is of three types:

1. Centralized Receipt:- in organization having centralized types of receiving section,

all materials are first received there, checked, inspected and distributed to various stores
along with the goods inward notes.

2. Semi-centralized Receipt: - in organization having semi-centralized receipts, the

records are centralized and only light materials received in receiving section. Heavy
materials are received and checked at the respective stores. The objective is to save the
work of transporting heavy materials from receiving section to respective stores.

3. Decentralized Receipt:-in organization having decentralized receipts, a receiving

section is attached to each store.

Stock Issue The “issue” function of stores management is the process of reacting to
demands of the user for goods held within the store. The success of these functions is
often taken as a measure of the efficiency of the whole stores operation.

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Requisition: - a requisition is a written authority for the stores to issue materials to any
person or department of the organization entitled to draw materials from the stores. No
issue shall be made from the store without a proper requisition.

Issue procedures There is a definite series of events that occur between the original
need for a particular item of stock and its final issue to the requisitioner.

1. Need determination (by user):-The user has to decide what the needs and the types,
quality specification and amount involved

2. Completion of Issue Note.:-The issue document has to be properly completed, giving

fullest possible details of the goods required.

3. Authorization (approval):- the requisitioned must locate the appropriate member of

staff designed to authorize issues from stock and seek his approval and signature. The
person designed to authorize the given issue of stock will be obligated to study very
carefully the type and details of the issue to ensure that demands are ―real‖ and that
the limits imposed by the organization are kept.

4. Presentation to stores:- once the issue note has been checked and authorized it will
be presented to the store for delivery. A store is obligated to check all the data contained
and verif the reliability of the authorization given.

5. Identification:-store will then identify the items usually by the code number or
reference by which the item has been classified.

6. Selection:-once the item required has been identified: it can be selected from the
store. The method of selection employed will depend up on the form of stores
organization and the type of goods required.

7. Issue of stock requisitioner:- once the item has been selected, delivery or collection
of materials can be takes place.

8. Cost Allocation:- every item used in the running of the operation has to be cosseted
against a certain batch of production or against a departments budget to ensure that
costing department will be able to the true cost of production.

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9. Notification of stock records and stock control :- it is very important that once
materials have been issued, both stock records and record cards are updated and that an
accurate picture of the total stock situation can be maintained.

5.6. Stock Taking and Stock Verification Store verification means, testing or
checking the stores record with the actual items stoked in the store. The store record at
any time should show the exact physical quantity of raw materials and parts which are
available for use. Store verification also referred as to stock taking is meant to ascertain
any discrepancy of actual store when comparing with record. Store verification or
stocktaking is also sometimes called internal audit of store. Discrepancy revealed by
physical verification may be one of the two types:

1. Store materials (stores) short of what the record shows

2. They are in excess of what the record shows Store verification revels if there is any
discrepancy of stored materials with the stores record; discrepancy may arise due to:

 Clerical error
 Wrong description
 Incorrect counting
 Omission in issue of material
 Omission in recording issued material
 Loss due to damage, breakage or deterioration and Small thefts

CHAPTER SIX

MATERIALS HANDLING

6.1. Introduction

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Handling and storing materials involve diverse operations such as hoisting tons of steel
with a crane; driving a truck loaded with concrete blocks; carrying bags or materials
manually; and stacking palletized bricks or other materials such as drums, barrels, kegs,
and lumber. The efficient handling and storing of materials are vital to industry. In
addition to raw materials, these operations provide a continuous flow of parts and
assemblies through the workplace and ensure that materials are available when needed.
Unfortunately, the improper handling and storing of materials often result in costly
injuries. Materials handling involves the moving, packing and storing of substances in
any form. It is the process of preparation, placing and position of materials to facilitate
their movement or storage. It is also the moving of materials from the raw materials
storage through production to ultimate consumer with the least expenditure of time and
effort, so as to produce maximum productive efficiency at the lowest handling cost.
Thus, it is the science and art of moving materials from one place to another.

6.2. Benefits / Objectives of Proper Materials Handling

 Reduction in wastage of machine time- it would ensure regular supply and

distribution of raw materials and finished product. It will not create the problem of
idling machine and eliminate problem of wastage of machine time.
 Reduction in manufacture cycle time- keeping the loading and unloading time of
machine at minimum enable the completion of manufacturing cycle at reasonably
short time.
 Avoiding disruption in production schedule- in mass production system, all parts
or materials must come in the assembly line in correct quantity and precisely the
right time to avoid risk of shut down.
 Bring safety to workers and provide for safer working conditions- correctly
designed material handling system enables utilization of proper material handling
devices and training workers in safe material handling practices and it is tangible
saving in reducing insurance rates , payments of compensation and boost to
worker‘s moral.
 Bring customer satisfaction- regular market supplies by avoiding disruption in
production schedule, shortening manufacturing cycle time, timely deliveries lead to
customer satisfaction as a key to business success.

57 | P a g e
 Enhances productivity and avoid high costs-efficient material handling system
results in reduction in cost through various steps which results in higher
productivity.
6.3. Principles of Materials Handling

 Materials should be moved over the shortest distance possible in which short
movements require less time and cost than long movements.
 Do not retrace your path. The aim of material handling system should be to move
in forward direction or clock wise direction.
 Terminal time should be kept as short as possible. It is time taken for picking up the
finished product.
 Loads should be carried both ways on materials handling trips whenever possible.
 Partial loads and manual handling should be avoided.
 Utilize gravity as moving force as far as possible.
 Utilize containers and unit loads. The unit load means the product to be moved
should be grouped in to units of a large and constant size.
6.4. Plant Layout

The layout of a factory, workshops or working area means the position of the
departments or shops in the factory and of the machines, work places and storage points
in the working areas, including offices and staff facilities relative to another. A bad
layout can add a good deal of time to the total work.

Objectives of Layout

 Facilitate the manufacturing process

 Minimizing the materials handling
 Maintain flexibility of arrangement of operations
 Maintain high turnover of works in process
 Hold down investment in equipment
 Promote effective utilization of labor
 Provide employee convenience and comfort in doing the work

6.5. Minimizing Materials Handling

58 | P a g e
The materials should travel from one machine to the other as little as possible;
especially the heavy components should flow in line only because excess flow of
materials requires manpower as well as equipment’s for lifting and carrying the
materials.

1. Flexible layout because it is required for design change, increased production, adding
a new product and maintaining high turnover.

2. Economic use of area because each square feet area costs money. Unaccepted waste
or idle floor is burden on rest of the plant spacing between machines after necessary
spacing for movement of men and materials.
3. Efficient use of labor. Labor may be wasted through poor layout. Following factors
should be considered for effective use of labor utilization:

 Reduce manual handling

 Minimizing walking
 Balance machine cycles so that man and machine are not idle
 Laying the machine in such a way that supervision is simplified.
4. Employees comfort. The layout should be such that the worker is not affected by
heat, moisture or dirt. Direction of high should also be considered for laying for laying
the machines. Equipment causing more noise, vibrates should be isolated as far as it is
possible.

How to Eliminate Unnecessary Handling?

1. Arrange with supplier to deliver materials in standardized size containers suitable

for loading, storing and issuing.
2. Hard ware items like nuts, bolts can be obtained in cartons of standard quantities.
These could be stored and issued in the original containers.
3. Instead of counting small- size purchased or manufactured parts received in loose
condition, the quantity may be ascertained by weight.
4. Items like casting on arrival can be made into standard skid or pallet loads.
5. Items may be put into containers of standard quantities as and when the goods are
unpacked and checked in the receiving section.

59 | P a g e
6. Arrange with supplier to dispatch the goods on skids or pallet in standard unit of
issue. Unloading, checking, storing and delivering to work point will be done with
the aid of the forklift without manual handling.
7. Storing and handling may be combined by using shelf trolleys.
6.6. Material Handling Equipment’s

Factors for selection of equipment ‘s depends on:

 The nature of the material to be handled i.e. whether casting, steel, bolts and
nuts, oils and liquids;
 whether they are in loose condition, in cases, drums, bottles and cartons;
 quantity involved, distance to be covered, facilities available for the use of the
equipment’s, frequency of movement.
Types of material handling equipment’s

Mainly they can be classified as manual and mechanical.

 Two-wheel hand truck or sack truck- are suitable for lifting and transporting small
cases, bags and barrels.
 Three or four wheel hand trolley- is suitable for transporting loose parts, bags with
in limited area.
 Shelf trolley- have swivel wheels and can be used for feeding the assembly line
from finished part stores if forklift and pallet boxes cannot be used or ifthe quantity
involved is small.
 Lift trucks - suitable for transporting materials on skid platform or in pallet box
within the work shop. The truck is pushed below the platform or pallet and box by
operating a lever the upper portion of the truck is raised to a height of 3-4cm and
the plat form or pallet box gets mounted on the truck which can be then wheeled
away to the desired place.
 Trolleys on rails- narrow or wide rails may be laid according to the type of load to
be carried and the space available. Loaded pallets can be placed on trolleys and
taken almost too any point. This method is particularly useful where forklifts cannot
operate.
 Small mobile jib cranes-are suitable for lifting and unloading materials of medium
weight within workshops.

60 | P a g e
 Large mobile jib cranes- are available with pneumatic tires or caterpillar wheels
and are suitable for unloading open wagons, Lorries and transporting heavy items
within the factory compound. The length of the jib and the capacity are factors to
be considered in selecting the crane.
 Gantry cranes- operated from a fixed position and used only for loading and
unloading. The height the steel section to be used, foundation work, capacity of the
block and tackle will depend up on the requirements of each plant.
 Ramp- is used for loading and unloading having three types i.e fixed, movable and
detachable.
o Fixed ramp-made of concrete or brick work and are used for unloading heavy cases
from open wagons, Lorries etc and bringing them to the ground level by sliding.
o Movable ramps- made of angles iron and wooden planks. They are more or less like
trestles and are used for loading and unloading medium-weight cases.
o Detachable ramps- made of either steel section or good quality hard wood with a
steel clamp to hook to the rear of the lorry and are used for rolling down drums, gas
cylinders etc.
 Tripod stand - where crane facility is not available, a tripod stand with block and
tackle is used for unloading and loading heavy equipment. The poles used should
be of adequate height and strength.
 Chute- used in stores for movement of goods / preferably in packages from a higher
position to a lower position say, from first floor to ground floor.
 Roller conveys- used along with tote pans for moving light components; and with
flat pallets for moving heavy components between the shop and the store, the use,
however, depends up on specific circumstances.
 Forklift Of all the equipment’s designed so far for handling materials, the forklift
stand out as the most ingenious and versatile. Forklift can move up and down and
can lift, carry and stack loads. These are available in varying capacities and within
their range they are of extensive use.

What Should Your Employees Know Before Moving or Handling Materials?

61 | P a g e
In addition to training and education, applying general safety principles—such as
proper work practices equipment, and controls—can help reduce workplace accidents
involving the moving, handling, and storing of materials. Whether moving materials
manually or mechanically, employees should know and understand the potential
hazards associated with the task at hand and how to control their workplaces to
minimize the danger. Because numerous injuries can result from improperly handling
and storing materials, workers should also be aware of accidents that may result from
the unsafe or improper handling of equipment as well as from improper work practices.

In addition, workers should be able to recognize the methods for eliminating or at least
minimizing the occurrence of such accidents. Employers and employees should
examine their workplaces to detect any unsafe or unhealthy conditions, practices, or
equipment and take corrective action.

Potential hazards for workers

Workers frequently cite the weight and bulkiness of objects that they lift as major causal
factors to their injuries. Other hazards include falling objects, improperly stacked
materials, and various types of equipment. You should make your employees aware of
potential injuries that can occur when manually moving materials, including the
following:

strain and sprains from lifting loads improperly / from carrying loads that are either too
large/ heavy,

Fractures and bruises caused by being struck by materials or by being caught in pinch
points, and
Cuts and bruises caused by falling materials that have been improperly stored or by
incorrectly cutting ties or other securing devices.

Precautions to be taken when moving materials manually

When moving materials manually, workers should attach handles or holders to loads.
In addition, workers should always wear appropriate personal protective equipment and
use proper lifting techniques. To prevent injury from oversize loads, workers should
seek help in the following:
When a load is so bulky that employees cannot properly grasp or lift it, then employees

62 | P a g e
cannot see around or over a load, or When employees cannot safely handle a load.
Using the following personal protective equipment prevents needless injuries when
manually moving materials:

 Hand and forearm protection, such as gloves, for loads with sharp or rough edges.
 Eye protection.
 Steel-toed safety shoes or boots.
 Metal, fiber, or plastic metatarsal guards to protect the instep area from impact or
compression.
Employees should use blocking materials to manage loads safely. Workers should also
be cautious when placing blocks under a raised load to ensure that the load is not
released before removing their hands from under the load. Blocking materials and
timbers should be large and strong enough to support the load safely. In addition to
materials with cracks, workers should not use materials with rounded corners,
splintered pieces, or dry rot for blocking.

Precautions to be taken when moving materials mechanically

Using mechanical equipment to move and store materials increases the potential for
employee injuries. Workers must be aware of both manual handling safety concerns
and safe equipment operating techniques. Employees should avoid overloading
equipment when moving materials mechanically by letting the weight, size, and shape
of the material being moved dictate the type of equipment used. All materials handling
equipment has rated capacities that determine the maximum weight the equipment can
safely handle and the conditions under which it can handle that weight. Employers must
ensure that the equipment-rated capacity is displayed on each piece of equipment and
is not exceeded except for load testing. Although workers may be knowledgeable about
powered equipment, they should take precautions when stacking and storing material.

Important Safety Measures

To reduce the number of accidents associated with workplace equipment, employers

must train employees in the proper use and limitations of the equipment they operate.

63 | P a g e
In addition to powered industrial trucks, this includes knowing how to safely and
effective use equipment such as conveyors, cranes, and slings. Employers can reduce
injuries resulting from handling and storing materials by using some basic safety
procedures such as adopting sound ergonomics practices, taking general fire safety
precautions, and keeping aisles and passageways clear.

Ergonomics

Ergonomics is define as the study of work and based on the principle that the job should
be adapted to fit the person rather than forcing the person to fit the job. Ergonomics
focuses on the work environment, such as its design and function, as well as items—
such as the design and function of work stations, controls, displays, safety devices,
tools, and lighting to fit the employees ‘physical requirements and to ensure their health
and well-being.

Ergonomics includes restructuring or changing workplace conditions, to make the job

easier, and reducing stresses that cause musculature disorders. In the area of materials
handling and storing, ergonomic principles may require controls such as reducing the
size or weight of the objects lifted, installing a mechanical lifting aid, or changing the
height of a pallet or shelf. Although no approach eliminates back injuries resulting from
lifting materials, you can prevent a substantial number of lifting injuries by
implementing an effective ergonomics program and by training your employees in
appropriate lifting techniques.

When using aisles and passageways to move materials mechanically, workers must
allow sufficient clearance for aisles at loading docks, through doorways, wherever turns
must made, and in other parts of the workplace. Providing sufficient clearance for
mechanically moved materials will prevent workers from being pinned between the
equipment and fixtures in the workplace, such as walls, racks, posts, or other machines.

Sufficient clearance also will prevent the load from striking an obstruction and falling
on an employee. Employers must ensure that all passageways that workers use remain
clear of obstructions and tripping hazards.
Workers should not store materials in excess of supplies needed for immediate
operations in aisles or passageways, and employers must mark permanent aisles and
passageways appropriately.

64 | P a g e
Training and Education

The training should reduce workplace hazards by emphasizing the following factors:

 Dangers of lifting without proper training.

 Avoidance of unnecessary physical stress and strain.
 Awareness of what a worker can comfortably handle without undue strain.
 Use of equipment properly.
 Recognition of potential hazards and how to prevent or correct them.
Should the Prevention of Some Injuries Receive Special Emphasis?

Yes. Because of the high incidence of back injuries, both supervisors and employees
should demonstrate and practice safe manual lifting techniques. Training programs on
proper lifting techniques should cover the following topics:

 Health risks of improper lifting, citing organizational case histories vs the benefits
of proper lifting.
 Basic anatomy of the spine, muscles, and joints of the trunk and the contributions
of intra-abdominal pressure while lifting.
 Body strengths and weaknesses—determining one‘s own lifting capacity.
 Physical factors that might contribute to an accident and how to avoid the
unexpected.
 Safe postures for lifting and timing for smooth, easy lifting.
 Aids such as stages, platforms, or steps, trestles, shoulder pads, handles, and wheels.
 Body responses—warning signals—to be aware of when lifting.

CHAPTER SIX: MATERIALS HANDLING

6.1. Introduction

Handling and storing materials involve diverse operations such as hoisting tons of steel
with a crane; driving a truck loaded with concrete blocks; carrying bags or materials
manually; and stacking palletized bricks or other materials such as drums, barrels, kegs,

65 | P a g e
and lumber. The efficient handling and storing of materials are vital to industry. In
addition to raw materials, these operations provide a continuous flow of parts and
assemblies through the workplace and ensure that materials are available when needed.
Unfortunately, the improper handling and storing of materials often result in costly
injuries. Materials handling involves the moving, packing and storing of substances in
any form. It is the process of preparation, placing and position of materials to facilitate
their movement or storage. It is also the moving of materials from the raw materials
storage through production to ultimate consumer with the least expenditure of time and
effort, so as to produce maximum productive efficiency at the lowest handling cost.
Thus, it is the science and art of moving materials from one place to another.

6.2. Benefits / Objectives of Proper Materials Handling

 Reduction in wastage of machine time- it would ensure regular supply and

distribution of raw materials and finished product. It will not create the problem of
idling machine and eliminate problem of wastage of machine time.
 Reduction in manufacture cycle time- keeping the loading and unloading time of
machine at minimum enable the completion of manufacturing cycle at reasonably
short time.
 Avoiding disruption in production schedule- in mass production system, all parts
or materials must come in the assembly line in correct quantity and precisely the
right time to avoid risk of shut down.
 Bring safety to workers and provide for safer working conditions- correctly
designed material handling system enables utilization of proper material handling
devices and training workers in safe material handling practices and it is tangible
saving in reducing insurance rates , payments of compensation and boost to
worker‘s moral.
 Bring customer satisfaction- regular market supplies by avoiding disruption in
production schedule, shortening manufacturing cycle time, timely deliveries lead to
customer satisfaction as a key to business success.
 Enhances productivity and avoid high costs-efficient material handling system
results in reduction in cost through various steps, which results in higher
productivity.
6.3. Principles of Materials Handling

66 | P a g e
 Materials should be move over the shortest distance possible in which short
movements require less time and cost than long movements.
 Do not retrace your path. The aim of material handling system should be to move
in forward direction or clockwise direction.
 Terminal time should be keep as short as possible. It is time taken for picking up
the finished product.
 Loads should be carry both ways on materials handling trips whenever possible.
 Partial loads and manual handling should be avoid.
 Utilize gravity as moving force as far as possible.
 Utilize containers and unit loads. The unit load means the product to be move should
be group in to units of a large and constant size.
6.4. Plant Layout

The layout of a factory, workshops or working area means the position of the
departments or shops in the factory and of the machines, work places and storage points
in the working areas, including offices and staff facilities relative to another. A bad
layout can add a good deal of time to the total work.

Objectives of Layout

 Facilitate the manufacturing process

 Minimizing the materials handling
 Maintain flexibility of arrangement of operations
 Maintain high turnover of works in process
 Hold down investment in equipment
 Promote effective utilization of labor
 Provide employee convenience and comfort in doing the work

6.5. Minimizing Materials Handling

The materials should travel from one machine to the other as little as possible;
especially the heavy components should flow in line only because excess flow of
materials requires manpower as well as equipment’s for lifting and carrying the
materials.

67 | P a g e
1. Flexible layout because it is required for design change, increased production, adding
a new product and maintaining high turnover.

2. Economic use of area because each square feet area costs money. Unaccepted waste
or idle floor is burden on rest of the plant spacing between machines after necessary
spacing for movement of men and materials.
3. Efficient use of labor. Labor may be wasted through poor layout. Following factors
should be considered for effective use of labor utilization:

 Reduce manual handling

 Minimizing walking
 Balance machine cycles so that man and machine are not idle
 Laying the machine in such a way that supervision is simplified.
4. Employees comfort. The layout should be such that the worker is not affected by
heat, moisture or dirt. Direction of high should also be considered for laying for laying
the machines. Equipment causing more noise, vibrates should be isolated as far as it is
possible.

How to Eliminate Unnecessary Handling?

8. Arrange with supplier to deliver materials in standardized size containers suitable

for loading, storing and issuing.
9. Hard ware items like nuts, bolts can be obtained in cartons of standard quantities.
These could be stored and issued in the original containers.
10. Instead of counting small- size purchased or manufactured parts received in loose
condition, the quantity may be ascertained by weight.
11. Items like casting on arrival can be made into standard skid or pallet loads.
12. Items may be put into containers of standard quantities as and when the goods are
unpacked and checked in the receiving section.
13. Arrange with supplier to dispatch the goods on skids or pallet in standard unit of
issue. Unloading, checking, storing and delivering to work point will be done with
the aid of the forklift without manual handling.
14. Storing and handling may be combined by using shelf trolleys.
6.6. Material Handling Equipment

Factors for selection of equipment‘s depends on:

68 | P a g e
  The nature of the material to be handled i.e. whether casting, steel, bolts and
nuts, oils and liquids;
 whether they are in loose condition, in cases, drums, bottles and cartons;
 quantity involved, distance to be covered, facilities available for the use of the
equipment’s, frequency of movement.
Types of material handling equipment

Mainly they can be classify as manual and mechanical.

 Two-wheel hand truck or sack truck- are suitable for lifting and transporting small
cases, bags and barrels.
 Three or four wheel hand trolley- is suitable for transporting loose parts, bags with
in limited area.
 Shelf trolley- have swivel wheels and can be used for feeding the assembly line
from finished part stores if forklift and pallet boxes cannot be used or ifthe quantity
involved is small.
 Lift trucks - suitable for transporting materials on skid platform or in pallet box
within the work shop. The truck is pushed below the platform or pallet and box by
operating a lever the upper portion of the truck is raised to a height of 3-4cm and
the plat form or pallet box gets mounted on the truck which can be then wheeled
away to the desired place.
 Trolleys on rails- narrow or wide rails may be laid according to the type of load to
be carried and the space available. Loaded pallets can be placed on trolleys and
taken almost too any point. This method is particularly useful where forklifts cannot
operate.
 Small mobile jib cranes-are suitable for lifting and unloading materials of medium
weight within workshops.
 Large mobile jib cranes- are available with pneumatic tires or caterpillar wheels
and are suitable for unloading open wagons, Lorries and transporting heavy items
within the factory compound. The length of the jib and the capacity are factors to
be considered in selecting the crane.
 Gantry cranes- operated from a fixed position and used only for loading and
unloading. The height the steel section to be used, foundation work, capacity of the
block and tackle will depend up on the requirements of each plant.

69 | P a g e
 Ramp- is used for loading and unloading having three types i.e fixed, movable and
detachable.
o Fixed ramp-made of concrete or brick work and are used for unloading heavy cases
from open wagons, Lorries etc and bringing them to the ground level by sliding.
o Movable ramps- made of angles iron and wooden planks. They are more or less like
trestles and are used for loading and unloading medium-weight cases.
o Detachable ramps- made of either steel section or good quality hard wood with a
steel clamp to hook to the rear of the lorry and are used for rolling down drums, gas
cylinders etc.
 Tripod stand - where crane facility is not available, a tripod stand with block and
tackle is used for unloading and loading heavy equipment. The poles used should
be of adequate height and strength.
 Chute- used in stores for movement of goods / preferably in packages from a higher
position to a lower position say, from first floor to ground floor.
 Roller conveys- used along with tote pans for moving light components; and with
flat pallets for moving heavy components between the shop and the store, the use,
however, depends up on specific circumstances.
 Forklift Of all the equipment’s designed so far for handling materials, the forklift
stand out as the most ingenious and versatile. Forklift can move up and down and
can lift, carry and stack loads. These are available in varying capacities and within
their range they are of extensive use.
What Should Your Employees Know Before Moving or Handling Materials?

In addition to training and education, applying general safety principles—such as

proper work practices equipment, and controls—can help reduce workplace accidents
involving the moving, handling, and storing of materials. Whether moving materials
manually or mechanically, employees should know and understand the potential
hazards associated with the task how to control their workplaces to minimize the
danger. Because numerous injuries can result from improperly handling and storing
materials, workers should also be aware of accidents that may result from the unsafe or
improper handling of equipment as well as from improper work practices.

In addition, workers should be able to recognize the methods for eliminating—or at

least minimizing—the occurrence of such accidents. Employers and employees should

70 | P a g e
examine their workplaces to detect any unsafe or unhealthy conditions, practices, or
equipment and take corrective action.

Potential hazards for workers

Workers frequently cite the weight and bulkiness of objects that they lift as major causal
factors to their injuries. Other hazards include falling objects, improperly stacked
materials, and various types of equipment. You should make your employees aware of
potential injuries that can occur when manually moving materials, including the
following:

strain and sprains from lifting loads improperly / from carrying loads that are either too
large/ heavy, Fractures and bruises caused by being struck by materials or by being
caught in pinch points, and Cuts and bruises caused by falling materials that have been
improperly stored or by incorrectly cutting ties or other securing devices.

Precautions to be taken when moving materials manually

When moving materials manually, workers should attach handles or holders to loads.
In addition, workers should always wear appropriate personal protective equipment and
use proper lifting techniques. To prevent injury from oversize loads, workers should
seek help in the following:
When a load is so bulky that employees cannot properly grasp or lift it, then employees
cannot see around or over a load, or When employees cannot safely handle a load.
Using the following personal protective equipment prevents needless injuries when
manually moving materials:

 Hand and forearm protection, such as gloves, for loads with sharp or rough edges.
 Eye protection.
 Steel-toed safety shoes or boots.
 Metal, fiber, or plastic metatarsal guards to protect the instep area from impact or
compression.
Employees should use blocking materials to manage loads safely. Workers should also
be cautious when placing blocks under a raised load to ensure that the load is not
released before removing their hands from under the load. Blocking materials and

71 | P a g e
timbers should be large and strong enough to support the load safely. In addition to
materials with cracks, workers should not use materials with rounded corners,
splintered pieces, or dry rot for blocking.

Precautions to be taken when moving materials mechanically

Using mechanical equipment to move and store materials increases the potential for
employee injuries. Workers must be aware of both manual handling safety concerns
and safe equipment operating techniques. Employees should avoid overloading
equipment when moving materials mechanically by letting the weight, size, and shape
of the material being moved dictate the type of equipment used. All materials handling
equipment has rated capacities that determine the maximum weight the equipment can
safely handle and the conditions under which it can handle that weight. Employers must
ensure that the equipment-rated capacity is displayed on each piece of equipment and
is not exceeded except for load testing. Although workers may be knowledgeable about
powered equipment, they should take precautions when stacking and storing material.

Important Safety Measures

To reduce the number of accidents associated with workplace equipment, employers

must train employees in the proper use and limitations of the equipment they operate.
In addition to powered industrial trucks, this includes knowing how to safely and
effectively use equipment such as conveyors, cranes, and slings. Employers can reduce
injuries resulting from handling and storing materials by using some basic safety
procedures such as adopting sound ergonomics practices, taking general fire safety
precautions, and keeping aisles and passageways clear.

Ergonomics

Ergonomics is define as the study of work and is based on the principle that the job
should be adapted to fit the person rather than forcing the person to fit the job.
Ergonomics focuses on the work environment, such as its design and function, as well
as items—such as the design and function of work stations, controls, displays, safety
devices, tools, and lighting to fit the employees ‘physical requirements and to ensure
their health and well-being.

72 | P a g e
Ergonomics includes restructuring or changing workplace conditions, to make the job
easier, and reducing stresses that cause musculature disorders. In the area of materials
handling and storing, ergonomic principles may require controls such as reducing the
size or weight of the objects lifted, installing a mechanical lifting aid, or changing the
height of a pallet or shelf. Although no approach eliminates back injuries resulting from
lifting materials, you can prevent a substantial number of lifting injuries by
implementing an effective ergonomics program and by training your employees in
appropriate lifting techniques.

When using aisles and passageways to move materials mechanically, workers must
allow sufficient clearance for aisles at loading docks, through doorways, wherever turns
must made, and in other parts of the workplace. Providing sufficient clearance for
mechanically moved materials will prevent workers from being pinned between the
equipment and fixtures in the workplace, such as walls, racks, posts, or other machines.

Sufficient clearance also will prevent the load from striking an obstruction and falling
on an employee. Employers must ensure that all passageways that workers use remain
clear of obstructions and tripping hazards.
Workers should not store materials in excess of supplies needed for immediate
operations in aisles or passageways, and employers must mark permanent aisles and
passageways appropriately.

Training and Education

The training should reduce workplace hazards by emphasizing the following factors:

 Dangers of lifting without proper training.

 Avoidance of unnecessary physical stress.
 Awareness of what a worker can comfortably handle without undue strain.
 Use of equipment properly.
 Recognition of potential hazard how to prevent or correct.
Should the Prevention of Some Injuries Receive Special Emphasis?

Yes. Because of the high incidence of back injuries, both supervisors and employees
should demonstrate and practice safe manual lifting techniques. Training programs on
proper lifting techniques should cover the following topics:

73 | P a g e
 Health risks of improper lifting, citing organizational case histories vs the benefits
of proper lifting.
 Basic anatomy of the spine, muscles, and joints of the trunk and the contributions
of intra-abdominal pressure while lifting.
 Body strengths and weaknesses—determining one‘s own lifting capacity.
 Physical factors that might contribute to an accident and how to avoid the
unexpected.
 Safe postures for lifting and timing for smooth, easy lifting.
 Aids such as stages, platforms, or steps, trestles, shoulder pads, handles, and wheels.
 Body responses—warning signals—to be aware of when lifting.

HAPTER SEVEN - LOGISTICS

7.1. Transportation
Transportation is one of the most visible elements of logistics operations. As
consumers, we are accustomed to seeing trucks and trains moving product or parked at
a distribution facility. While this experience provides a good visual understanding of
transportation elements, it does no tallow the necessary depth of knowledge to
understand transportation’s role in logistics [Link] Functionality
Transportation functionality provides two major functions: product movement
and product storage

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Product Movement– whether the product is in the form of materials,
components, assemblies, work-in-process, or finished goods, transportation is
necessary to move it to the next stage of manufacturing process or physically closer to
the ultimate customer. A primary transportation function is product movement
up and down the value. Since transportation utilizes temporal, financial, and
environmental resources, it is important that items be move only when it truly enhances

Product Storage– a less common transportation function is temporary storage.

Vehicles make rather expensive storage facilities. However, if the in-transit
product requires storage but will be moved again shortly (e.g., in a few days), the cost
of offloading and reloading the product in a warehouse may exceed the per diem (Daily)
charge of storage-in the transportation vehicle.
Principles of Transportation
There are two fundamental principles guiding transportation management and
operations. They are economy of scale and economy of distance.
 Economy of scale refers to a situation where transportation cost per unit of weight
decreases when the size of the shipment increases. Transportation economies of
scale exist because fixed expenses associated with moving a load can be spread
over the load’s weight. As such, a heavier load allows cost to be “spread out,”
thereby decreasing cost per unit of weight.
 Economy of distance refers to a situation where transportation cost per
unit of distance decreases as distance decreases. For example, a shipment of
1600 miles will cost less than two shipments (of the same combined weight) of 800
miles. Transportation economy of distance is also referred to as the tapering
principle since rates or charges taper with distance. The rationale for distance
economies is similar to that for economies of scale. Specifically, the relatively fixed
expense incurred to load and unload the vehicle must be spread over the variable
expense per unit of distance. Longer distances allow the fixed expense
to be spread over more miles,resulting in lower overall per mile charges.
Participants in Transportation Decisions
While government involvement is necessary for some commercial transactions,
it is not customary for most. However, unlike most commercial buying and
selling, transportation transactions are often used by five (5) parties: the shipper

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(originating party), the consignee(destination party or receiver), the carrier, the

Shippers and Consignees– the shipper and consignee have the common objective of
moving goods from origin to destination within a prescribed time at the lowest
[Link] include specified pick-up and delivery times, predictable transit time, zero
loss and damage, as well as accurate and timely exchange of information and

Carriers – the carrier, as the intermediary, takes a somewhat different

[Link] desire to maximize their revenue associated with the
transaction while minimizing the costs necessary to complete the transaction. The
perspective suggests that carrier wants to charge the highest rate that the shipper (or
consignee) will accept and minimize the lobar, fuel, and vehicle costs required to move
the goods. To achieve this objective, the carrier desires flexibility in pick-up and
delivery times to allow individual loads to be consolidated into economic moves.
Government – the government maintains a high interest level in transaction because
of transportation’s impact on the economy. Government desires a stable and
efficient transportation
The Public– the final participant, the public, is concerned with transportation
accessibility, expense, and effectiveness, as well as environmental and safety standards.
The public ultimately determines the need for transportation by demanding goods from
around the world at reasonable prices. While minimization cost is important to
customers, trade-offs associated with environmental and safety standards also require
consideration.

Modal Characteristics
The five (5) basic transportation modes are rail, highway, water, pipeline, and air. The
relative importance of each mode can be measured in terms of system mileage, traffic
volume, revenue,
Rail Network– historically, rail roads have handled the largest number of ton-miles.
As a result of the early establishment of a comprehensive rail network connecting
almost all major cities and towns, rail roads dominated intercity freight
tonnage. This early superiority resulted from the capability to transport large
shipments economically and to offer frequent service, which gave rail roads somewhat
a monopolistic position.
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Motor Carriers– highway transportation has expanded rapidly. To a significant degree
the rapid growth of motor carrier industry results from door-to-door operating
flexibility and
Water Transport – water is the oldest mode of transportation. A distinction usually
made between deep-water and navigable inland
Pipelines– pipelines are a significant part of the business operation. They used to
transport
Air Transport– the newest but least utilized mode of transport is airfreight.
Its significant advantage lies in the speed with which a shipment can transported. A
coast-to-coast shipment via air requires only a few hours contrasted to days with other
modes of transportation. One prohibitive aspect of air transportation is the high cost.
However, this can be tradeoff for high speed, which allows other elements of logistic
design, such as warehousing, or inventory, to be reduce or eliminated. Air transport
remains more of a potential opportunity than a reality.
Inbound-Outbound Logistics
Value chain analysis describes the activities within and around an organization, and
relates them to an analysis of the competitive strength of the organization. Therefore, it
evaluates which value each particular activity adds to the organizations products or
services. This idea built upon the insight that an organization is more than a random
compilation of machinery, equipment, people and money. Only if these things are
arrange into systems and systematic activates it will become possible to produce
something for which customers are willing to pay a price. Porter argues that the ability
to perform particular activities and to manage the linkages between these activities is a
source of competitive advantage.
Porter distinguishes between primary activities and support activities. Primary
activities are directly concerned with the creation or delivery of a product or service.
They can be group into five main areas: inbound logistics, operations, outbound
logistics, marketing and sales, and service. Each of these primary activities linked to
support activities, which help to improve their effectiveness or efficiency. There are
four main areas of support activities: procurement, technology development
(including R&D), human resource management, and infrastructure (systems for
planning, finance, quality, information management etc.)

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