material management chapter 1

7/30/2019 Material Management Chapter 1

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MATERIALS MANAGEMENT

WEALTH of a country is measured by itsGross National Product ( GNP) - the output

of goods and services produced by thecountry in a given time.

We may have rich natural resources in oureconomy such as mineral deposits, forests,etc. but these are only potential sources ofwealth.


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A production or manufacturing function isrequired to transform the naturalresources into useful products.

Production takes place in all forms oftransformation - extracting minerals from

earth, farming, lumbering, fishing andusing these resources to manufactureuseful products.


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Value is added at each stage in the developmentof the final product.

Manufacturing firms are in the business ofconverting raw material to a form that is of farmore value and use to the consumer than theoriginal raw material.

In order to obtain most value out of ourresources, we must design production processesthat make products more efficiently.


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Once the production processes are in place, weneed to manage their operations so that theycan produce the goods most economically.

Managing the operations entails planning forand controlling the resources used in theprocess: labor, capital and material

The major ways in which a firm plans andcontrols is through the flow of MATERIALS.


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The flow of materials controls theperformance of the process.

If the right materials in the right quantitiesare not available at the right place at theright times at the right price the process willnot produce what it should. Labor andmachinery will be poorly utilized.


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Materials are any commodities used directly orindirectly in producing a product such as rawmaterials, component parts or assemblies.

Materials management is the grouping ofmanagement functions supporting the completecycle of material flow, from the purchase andinternal control of production materials to the

planning and control of work in process to thewarehousing, shipping, and distribution of thefinished product.

Thomas F. Wallace & John R. Dougherty


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Materials management involves planning,programming, organizing, directing,controlling, and coordinating the various

activities concerning the materials.

The production managers found it necessary

to develop an organized body of knowledgeon this subject. The resulting set of relateddisciplines is known as materialsmanagement.


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Materials management is themanagement of the flow of materials

into an organization to the point,where, those materials are converted

into the firms end product(s) Bailey & Farmer


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SIGNIFICANCE OF MATERIALS

The amount spent on materials is higher thanother inputs

Materials offer considerable scope for reducingcost and improving profit

Improving return on investment depends on theeffective utilization of materials.

Materials add value to product

Quality of end product depends on materials

Increasing demand for ensuring environmentalsafety


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SIGNIFICANCE OF MATERIALS

Materials management assumes responsibility forwhatever happens in purchasing, storing, inventory orany other area connected with materials.

Need for preservation of scarce resources for posterity

The efficiency of any organization depends upon theavailability of right materials, in right quantity, at righttime and at right price.

Materials are life-blood ofmans development


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OBJECTIVES OF MATERIALS MANAGEMENT

Maximize the use of the firms resources

Provide the required level of customerservice


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We need to plan the flow of materials into,

through and out of production process.

Three basic elements in a material flow system:

Supply

Manufacturing

Distribution


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Materials Management and Profits

Income = Revenue - Expense

Need to increase income with:

Best customer service

Lowest production costs

Lowest inventory investment

Lowest distribution costs


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Direct labor

Direct material Varies with volume sold

Overhead Does not vary with volume sold


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Dollars % of Sales

Sales Revenue $1,000,000 100

Cost of Goods Sold

Direct Material $500,000 50

Direct Labour $200,000 20

Overhead $200,000 20

Total Cost of Goods Sold $ 900,000 90

Gross Profit $100,000 10


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Reduce materials by 10% and labor by 5%

Dollars % of Sales

Sales Revenue $ 1,000,000 100

Cost of Goods Sold

Direct Material $ 450,000 45

Direct Labour $ 190,000 19

Overhead $ 200,000 20

Total cost of goods sold $ 840,000 84


Profit has increased by 60%


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To get the same result (+ 60% profit) through sales

Dollars % of Sales

Sales revenue $ 1,200,000 100

Cost of goods sold

Direct Material $ 600,000 50

Direct Labour $ 240,000 20

Overhead $ 200,000 20

Total cost of goods sold $ 1,040,000 87


Sales must increase by 20 %


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Manufacturing Planning and Control

Planning and controlling the flow of materialsthrough the manufacturing process with:

Production Planning

Implementation and Control

Inventory Management


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Production Planning

To meet the demands of the marketplace

Establish priorities

Ensure capacity

Activities

Forecasting Master Planning

Materials Requirements Planning

Capacity Planning


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Implementation and Control

Putting into action and achieving the plans

(made by production planning)

Production Activity Control

Procurement / Purchasing


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Inputs to the Manufacturing

Planning and Control System

1. Product description

2. Process specifications

3. Time needed

4. Available facilities5. Quantity required


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Product Description

Engineering Drawings

Specifications

Bill of Material

Components used to make the product

Sub-assemblies at stages of production


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Process Specifications

Recorded on a Route Sheet

Describes how the product is made

Operations required to make theproduct

Sequence of operations

Equipment and accessories required Time to perform each operation


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Time Needed to Perform Operations

Expressed as standard time

An average operator, working at a

normal pace Obtained from the routing file


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Available Facilities

What equipment is available

What labor is available

Obtained from the Work Center File


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Quantities Required

Information from

Forecasts

Customer Orders Production Planning

Expressed in the Shop Order


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Physical Supply / Distribution

All the activities involved in moving goods

From the supplier to the beginning ofthe production process

From the end of the production processto the customer


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Receiving & inspection

Material handling

Inventory management & control

Store keeping and warehousing


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Packaging, marking and labeling

Transportation

Distribution

Reverse logistics / disposal of scrap / surplus


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Materials Management

A Balancing Act

CustomerService

Costof the

Service

Inventory Transportation


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The role of TQM & JIT in

Material Management

The JIT & TQM philosophy

Continuously improve process & systems Maintain respect for all workers

Minimize waste in all forms


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The integrated approach in

Material ManagementIntegration of the material managementfunctions under one roof has numerousadvantages

Better accountability

Better coordination

Better performance

Adaptability to EDP

Team spirit / teamwork

material management chapter 1

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