Integrated

Materials
Management
Dr. [Link]
B.E(Mech), M.B.A(Finance), Ph.D(Finance)

Professor & Head

Management

Management refers to the establishment and attainment of

objectives. The basic resources six Ms Men, Materials
Machine, Methods, Money and Market are brought together
and [Link] they are planned, organized ,
coordinated, processed harmoniously and controlled with a
view to achieve the end results.

Basic Resources
MEN
Planning
MATERIALS
M/Cs

METHODS
MONEY
MARKET

Staffing

&
Communicating

ER

Organising
6 Ms

Coordinating

Directing

Controlling

Materials Management

It is a distinct process of management covering all

aspects pertaining to

Cost of Materials
Timely supply of quality material.
Materials utilization

For a balanced growth and efficient running of the

enterprise , the above aspects are so controlled that
they lead to

Maximisation of production
Reduction in the cost of production
Maximisation of the margin of profit.

Materials Management is both science as well as an

art of managing materials.

Functions of Integrated Materials

Management

Planning & Sourcing

Budgeting
Researching & Analysing
Indenting & Procuring
Receiving, Moving, storing & preserving
Accounting & controlling
Issuing & Dispatching
Disposing.

FINANCE
PAYS
THE BILLS

ENGINEERING
SPECIFIES

MATERIAL
MANAGEMENT
MARKETING
SELLS

PRODUCTION
TRANSFORMS
INTO
PRODUCT

INTERGRATED MATERIALS MANAGEMENT

OBJECTIVES
MINIMISATION OF COST
MAXIMISATION OF PROFIT

ATTAINMENT OF THE OBJECTIVES

OF THE ENTERPRISE

PRIMARY

PROVISION OF
MATERIALS

1. Economic
Procurement

2. Proper storage
3. Proper issue &
distribution

SECONDARY

MINIMISATION
OF INVENTORIES
1. Inventory Control
2. Movement, storage
accounting
3. Assuring High
capital turnover
ratio

1. Location of New
sources of supply
2. Variety reduction &
simplification
3. Standardisation &
Quality control
4. Value Analysis
5. Coordination
6. Development of skill &
Knowledge.

IMPORTANCE OF MATERIALS MANAGEMENT

Materials form the largest single expenditure in most of the manufacturing

organizations. They usually represent 40-70% of the total cost of the final
product.

Maximisation of Wealth of Share holders

Maximise Earning per Share

Maximise Profit after Tax

Maximise Earnings
before Interest & Taxes
Maximising Operating
Profit

Optimal capital structure

Minimise interest Burden

long Term
Loan

Working
Capital

Minimise cost of
Products
Minimise Cost of materials

Minimise Inventories

M.M. integrates, coordinates &

entwines functions of Management

Dimensions of Materials Management are

wide & large. Though historically it has
emerged from the purchasing function yet
it has acquired the full role of the whole
management process or a separate
branch though quite interdependent and
interwoven with others.

Benefit of Integrated Materials Management

Centralised Authority & Responsibility

Well coordinated Efforts resulting in

Better inventory planning

Faster inventory turnover

Assured Material availability

Efficient coordination

Better communication

Better Buyer- Supplier relations

Reduced materials handing costs.

Smooth flow of materials

Improved productivity

Increased profitability

Objective Evaluation of Performance The performance of

materials department is judged by

A better inventory turnover

Reduced stock outs

A reduced lead time

Reduced paper work

A minimum handling of materials.

Reduced storage & preservation costs.

A better materials planning.

A better result oriented communication, judicious

inventory control & speedy solutions to materials
problems.
Team spirit Integrated Materials Management offers better
scope for active coordination.
Economic use of data processing systems. Integrated
Materials Management facilitates the collection, processing
retention, analysis & distribution of data for use in
management decisions.
Computerised integrated Materials Management Systems
are being utilized by the companies to obtain the gains .

PURCHASING (6 Rs)

Purchasing in modern industrial environment

does not refer to mere buying or procurement of
[Link] is the procurement of
right quantity of material,
of right quality,
at right price,
to be supplied at right time ,
at right place,
from right source

Historically purchasing focus has been on price and

continuity of supply, but modern trends have added
following strategic actions :Integration The firms supply strategy must be integrated
with the organizations marketing, conversion & finance
strategy and that of the company or SBU(Strategic Business
Unit)
Business Environment Supply Management must
address the identification of threats & opportunities in the
firms supply environment.
Technology Supply management must address issues of
technology access and control.
Component & commodity strategies Supply management
must develop formalized market driven supply plans for
critical purchased materials & sources.
Management Information System
Supply base strategy Suppliers and the resulting supply
base must be carefully developed.

Purchasing Activities
National Association of Purchasing Management USA has
identified following activities related to purchasing

Materials requirement review

Specifications Development
Make or buy analysis
Materials standardization
Determination of inventory
levels
Quality requirement
determinations
Negotiation of price & terms
Supplier selection
Joint problem solving with
suppliers .
Supplier monitoring & analysis.

Communication and
specification changes
Productivity/cost improvements
Development of sourcing
strategy
Market Analysis
Price forecasting
Large range purchasing
planning
Determination of purchasing
policy
Value Analysis

BAR CODING

Bar Codes are patterns of alternating wide and narrow

black lines and white spaces and numbers and symbols
that are seen on everyday products at super markets
and retail stores.
The bar codes are read by scanning devices that use the
information for a variety of purposes, such as recording
prices and quantities, printing sales receipts and
updating inventory records.
Bar codes are also useful in manufacturing and
distribution. In manufacturing, bar codes track the
progress of the jobs just before each operation and
specific processing instructions for each job can be
provided to operations.

BAR CODING- Contd

They are also used to update in, company inventory

records, monitor quality losses and monitor productivity.
In distribution, companies can keep track of items in
ware houses and reroute to customers. Managers can
instantaneously determine the location of any item in the
system and its status.
Employee bar codes can be used to track employee
attendance and location.

BAR CODING(Contd..)

Bar codes provide companies with high ability to monitor

and control items in manufacturing and distribution by
providing accurate , up to date information on quantity ,
quality, location and other data. This enables managers
to realize significant improvements in productivity and
effectiveness and to provide outstanding levels of
customer service.

Value Analysis (VA)

History

VA had its genesis during the war years of the early 1940s. By the mid
1960s Values analysis was established as the corner stone of most
purchasing research and cost reduction programs in major manufacturing
firms.

During World War II many critical materials and components were difficult
to obtain, and most manufacturers were required to specify numerous
substitutes in their design and production activities.

Harry Erlicher, the Vice President of Purchasing for the General Electric
Company, observed that many of the required substitutions during this
period resulted not only in reduced costs but also product improvement.
Consequently, Mr. Erlicher assigned to L.D. Miles, the task of developing
a systematic approach to the investigation of the function/cost aspect of
existing material specifications. Larry Miles not only met this challenge
successfully, but subsequently pioneered the scientific procurement
concept, General Electric called Value Analysis.

Value Analysis (Contd)

In 1954, the U.S. Navys Bureau of Ships adopted a modified

version of General Electrics Value analysis concept in an attempt to
reduce the cost of Ships and related equipment. In applying the
concept, the Navy directed its efforts primarily at cost guidance
during the initial engineering design. Stage and called the Value
Engineering program.

Value Engineering (VE), even though it embodied the same

concepts and techniques as GEs value analysis (VA) program, In

an operational sense however, the two terms typically are used
synonymously in industry today only the timings differ.

Concept

The technique of V.A. represent a potentially powerful

set of tools which can be used by management in
controlling materials costs. The fundamental objective of
all V.A. activities is the procurement (or manufacture) of
materials representing the Best Buy in terms of the
function to be performed. V.A is the systematic and
thorough approach used in attaining this objective.
Function (f)
Value
=
..
Cost (c)

V.E vis -a- vis V.A

As practiced in [Link] for many years, V.A

techniques were most widely used in programs
designed to engineer unnecessary costs out of
existing products.

Finally the most progressive firms began to follow the

Navys V.E programs, that applied the V.A concept
during the early states of the new product design
process to obtain the greatest benefits.

The V.E concept finds its most unique use in two

types of companies

Those companies that produce a limited number of units

of a very expensive product.
Those companies that produce mass products requiring
expensive tooling.
The Federal Acquisitions Regulations U.S stipulate that
most defense procurement contracts must be subjected
to V.E studies prior to initial productions.

VA/VE Tools
Design Analysis of the required produce part or material.
Cost Analysis of the required produce, part or material.

Design Analysis

It entails a methodical step by step study of all

phases of the design of a given item in relation
to the functions it performs. Approach is
designed to lead the analyst away from a
traditional perspective which views a part as
having certain accepted characteristics and
configuration. It encourages the analyst to adopt
a broader point of view and to consider whether
the part performs the required functions both as
effectively and as efficiently as possible. Both
quality and cost are the objects of the analysis.

Analysis of each component attempts to

answer four specific questions :

Can any part be eliminated without impairing the

operation of the complete unit ?
Can the design of the part be simplified to reduce its
basic cost?
Can the design of the part be changed to permit the
use of simplified or less costly production methods
Can less expensive but equally satisfactory
materials be used in this part ?

When viewed in this manner from the stand point of

composite operation and cost possibilities for making
component design, simplifications frequently are
more apparent than is possible under the original
design conditions.

An organized VA/VE study usually utilizes a number

of individuals with different types of backgrounds,
experience and skill impossible to combine in the
person of a single designer. Resulting design
changes often permit the substitution of standardized
producing operations for more experience operations
requiring special set up work. In some cases,
considering the volume of parts to be produced, an
entirely different material or production process
turns out to be more efficient than the one originally
specified.

The Values Analysis Check List National Association of Purchasing Management suggests first
determine the functions of the item & then determine the following

Can the item be eliminated

If the item is not standard, can a standard item be used?

If it is a standard item, does it completely fit the application, or is it a misfit ?

Does the item has greater capacity than required ?

Can the weight be reduced ?

Is there a similar item in inventory that could be substituted ?

Are closer tolerances specified than are necessary ?

The Values Analysis Check List(Contd)

Is unnecessary machining performed on the item

Are unnecessarily fine finishes specified ?

Is Commercial quality specified ? (Commercial quality is usually

most economical.)

Can you make the item less expensively in your plant ? If you are
making it now, can you buy it for less?

Is the item properly classified for shipping purposes to obtain lowest

transportation rates ?

Can cost of packaging be reduced ?

Are suppliers being asked for suggestions to reduce cost ?

Cost Analysis

It involves the investigation of a suppliers probable cost

of producing a given product. The analyst constructs
estimated elemental costs for materials, labour,
manufacturing, overhead & general overhead.
An experienced analyst, with the use of wage data,
material price lists and various industry time standards
can determine a total theoretical cost which reasonably
approximates the actual cost. To this figure is added a
reasonable point of margin.

Cost Analysis(contd)

Though cost analysis is used in negotiating an original

procurement, it has become useful in V.A. in two ways
Cost

analysis is conducted for currently purchased

items whose costs appear excessive.

It

serves as a means of locating high cost parts

which should be subject to design analysis.

Generalized procedure model of the value analysis :-

VENDOR ANALYSIS
Vendor Analysis is the process of
evaluating the sources of supply.
The main factors for selecting a vendor are:
Price, Quality, Services, location, Inventory
policy of supplier & flexibility

Supplier Certification
It is a detailed examination of the policies
and capabilities of a supplier. ISO 9000
QMS is most widely used international
certification.

Suppliers Audit
Periodic Audits of supplier are helpful in
getting current information on suppliers
production capabilities, quality and
delivery problems etc. Supplier audits are
also important first step in the supplier
certification program.

Simplification
Most frequently, simplification means
reducing the number of standard items a
firm uses in its product design and carries
in its inventory.
For example, no of types of grease were
reduced to Six from earlier twenty seven
types. Number of bearings and fasteners
reduced by 50%

Thank You