materials control

8/3/2019 Materials Control

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Material Control

Concepts and objectives


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Materials include: raw materials used for

production, sub-assemblies and

fabricated parts.

Stores is wider in meaning and includes:

tools, equipments, maintenance and

repair items, factory supplies,components, jigs, fixtures etc.


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Material control consists of controls at

two levels:

1. Quantity Controls lesser and lesser

units should be used in production

process.

2. Financial Controls frequentpurchase of material increase costs.


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Economic Order Quantity (EOQ)

The EOQ is the optimum or the most

favourable quantity which should be

purchased each time the purchase are tobe made.

At EOQ level, the cost of carrying

inventory is equal or almost equal to thecost of not carrying inventory (cost of

placing orders)


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EOQ = 2 xUx O

IC where U = Annual Usage in units

O = Cost of placing an order

I = Cost of carrying inventory (%)

C = Cost per unit of material


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Example

Annual usage units (U) = 6,000

Cost of placing an order (O) = Rs.30

Carrying cost of inventory (c) = 20%

Cost per unit of material (I ) = Rs.5

EOQ = 2 x 6,000 x 30

-------------------- = 600 units

5 x 20%


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Behaviour of Carrying cost, Ordering

cost, Minimum Total Cost & EOQ

Cost

Minimum

Total costTotal holding ( carrying) cost

Total Ordering cost

0 EOQ Order Quantity


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When to Order (Re-order Level)

The EOQ determines how much to buy at a

particular time. But it does not reveal When to

buy. Three factors that determine this level are:

1. The expected usage

2. The time interval between initiating an order

and its receipt ( lead time)

3. The minimum inventory ( safety stock)


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Formulae

1. Re-order level = Safety stock +

(Average re-order point or lead time)

2. Re-order level = Minimum re-orderperiod x Maximum usage.


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Pareto or ABC Analysis

Inventory items are ranked according to

investments in each item in the

inventory. The large value items aregrouped together into one class. The

lowest value are grouped into another

class and those items which are of

intermediate value are grouped into a

middle classification.


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ABC Method Graphical

representation 100

v 90

A 80

L 70 U 60

E 50 Class A

40

30 Class B

20 Class C 10

0 20 40 60 80 100

Number of items (cumulative)


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KANBAN DISPLAY ON

INSTRUCTION CARD

It is a system of markers which authorizes

production and movement to the process

which requires the parts. It contains: Reorder point, lead time, delivery

location, source of supply, part number,

quantity of parts that should be processed etc.

Reduces inventory, decreases lead time,increases productivity through integrating

different processes


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Just-in-time Method Materials are obtained just in time for

production to provide finished goods just intime for sale.

JIT Production & JIT Purchasing. Producing what is needed, when it is needed,

in the quantity just needed.

Requires better coordination with suppliers.

Long term contracts is best suited for JIT

. Zero inventory, Zero breakdown, 100% on time

delivery service, elimination of non-valueadded activities, Zero defects.

materials control

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