materials management : a supply chain perspective : text
TRANSCRIPT
MATERIALS MANAGEMENT
A Supply Chain Perspective
(Text and Cases)
Third Edition
A.K. CHITALE
Academic Advisor
Govindram Seksaria Institute of Management and Research
Indore
R.C. GUPTA
Professor and Head
Department of Industrial and Production EngineeringShri Govindram Seksaria Institute of Technology and Science
Indore
PHI Learning Pfcte MomBte^Delhi-110092
2014
CONTENTS
Preface xvii
Preface to the Second Edition xix
Preface to the First Edition xxi
Chapter 1: MATERIALS MANAGEMENT 1-13
1.1 Introduction 1
1.2 Management in Relation to Materials Function 1
1.3 Functions of Management as Applied to Materials 2
1.4 Management of Material Resources 4
1.5 Objectives of Material Management 5
1.5.1 Primary Objectives 6
1.5.2 Secondary Objectives 8
1.6 Achieving Objectives 10
1.7 Effects of Business Changes 11
1.8 Balancing of Objectives 12
1.9 Limitations to Meeting Objectives 12
Review Questions 13
Chapter 2: INTEGRATED MATERIALS MANAGEMENT 14-27
2.1 Introduction 14
2.2 Activities of Materials Management 13
2.3 Importance of Materials Department 17
2.4 Costs Involved in the Management of Materials 19
2.5 Need for Integrated Concept 2j32.6 Areas of Materials Management 20
2.7 Materials Management and Production Control 21
v
vi Contents
2.8 Inspection of Purchased Items 21
2.9 Relative Status of the Materials Manager 22
2.10 Desirable Qualities of Purchasing and Materials Manager 22
2.11 Interdepartmental Relationship 23
2.12 Advantages of Integrated Materials Management 24
2.13 Summary 26
Review Questions 27
Chapter 3: CLASSIFICATION AND CODIFICATION OF MATERIALS 28-48
3.1 Need for Classification and Identification of Materials 28
3.2 Classification of Materials—General Classification 28
3.3 Classification According to Condition of Materials 30
3.4 Nature of Codification 30
3.5 Process of Codification 31
3.6 Merits of Codification 31
3.7 Demerits of Codification 34
3.8 Codification Systems 35
3.8.1 Alphabetical System 35
3.8.2 Numerical System 36
3.8.3 Decimal System 37
3.8.4 Combined Alphabetical and Numerical System 39
3.8.5 Brisch System 40
3.8.6 Kodak System 41
3.9 Stores Vocabulary 44
3.10 Marking of Stores 44
3.10.1 Colour Marking 45
3.10.2 Secret Marking 46
3.11 Summary 46
Review Questions 48
Chapter 4: SPECIFICATIONS IN MATERIALS MANAGEMENT 49-58
4.1 Objective of Specifications 49
4.2 Collaborative Development 50
4.3 Categories of Specifications 50
4.3.1 Simple Specifications 50
4.3.2 Complex Specifications •••53
4.4 Development of Specifications 54
4.41 Organizational Approaches 55
4.5 Purchase Management Research 56
4.6 Writing Specifications 56
4.7 Common Problems in Specifications 57
4.8 Summary 57
Review Questions 58
Contents vii
Chapter 5: STANDARDIZATION AND VARIETY REDUCTION 59-75
5.1 Definition of Standard 59
5.2 Historical Review 59
5.3 Three Dimensions of Standards 59
5.4 Different Levels of Standards 60
5.5 Various Foreign Standards in Use in India 61
5.6 Procedure for Evolving Indian Standard 62
5.7 Benefits of Standardization 63
5.8 Standardization and Variety Reduction in Products 63
5.8.1 Advantages of Variety Reduction 63
5.9 Scope of Variety Reduction and Standardization 67
5.10 Techniques of Variety Reduction 67
5.10.1 Sales Contribution Analysis 67
5.10.2 Consumption Analysis 67
5.10.3 Renard Series (Preferred Numbers) 69
5.11 The Three S's—Standardization, Simplification and Specialization 71
5.11.1 Standardization 72
5.11.2 Simplification 73
Review Questions 75
Chapter 6: MATERIALS PLANNING 76-87
6.1 Importance of Materials Planning 76
6.2 Definition of Materials Planning 77
6.3 Flowchart for Materials Planning 80
6.4 Techniques of Materials Planning 80
6.4.1 Past Consumption Analysis 81
6.4.2 Material Requirements Planning 82
6.5 Summary 87
Review Questions 87
Chapter 7: BUDGETING AND MATERIAL PLANNING 88-95
7.1 Introduction • •8 8
7.2 Master Budget 89
7.2.1 Sales Budget 90
7.2.2 Production Budget 90
7.2.3 Materials Budget 90
7.2.4 Labour Budget 91
7.2.5 Maintenance Budget 91
7.2.6 Overheads Budget 92
7.2.7 Administrative Budget 92
7.2.8 Capital Expenditure Budget 92
viii Contents
7.2.9 Research and Development Budget 92
7.2.10 Cash Budget 93
7.3 Flexible Budgeting 93
7.4 Summary 94
Review Questions 95
Chapter 8: STORES AND STORE KEEPING 96-110
8.1 Objectives of Store Keeping 96
8.2 Functions of Storekeeper 97
8.3 Features of Successful Store Keeping 99
8.4 Relationship of Store Department with Other Departments 100
8.5 Benefits of Store Keeping 101
8.6 Stores Organization 103
8.7 Location of Stores 104
8.8 Layout of Stores 105
8.9 Receipt Section 106
8.10 Types of Stores 106
8.11 Preservation of Stores 107
8.12 Stock Taking 108
8.12.1 Methods of Physical Stock Verification 108
8.13 Summary 109
Review Questions 109
Chapter 9: STORAGE EQUIPMENT 111-120
9.1 Types of Equipment Ill
9.2 Selection of Equipment 115
Review Questions 120
Chapter 10: PRINCIPLES OF MATERIALS HANDLING 121-132
10.1 Introduction 121
10.1.1 Planning Principles 121
10.1.2 Operating Principles 123
10.1.3 Principles Related with Equipment 123
10.1.4 Principles of Cost Reduction 124
10.1.5 General Principles 125
10.2 Classification of Material Handling Equipment 125
10.3 Material Handling Equipment 126
10.4 Summary 132
Review Questions 132
Chapter 11: INVENTORY CONTROL 133-181
11.1 Introduction 133
11.2 Importance and Scope 134
Contents ix
11.3 Cost Concepts 135
11.4 Inventory Models 137
11.4.1 Economic Order Quantity (EOQ) Model 137
11.4.2 Economic Production Order (EPQ) Model 142
11.4.3 Inventory Model Allowing for Shortages 147
11.4.4 General Model 153
11.4.5 Multi-Item Deterministic Model 158
11.4.6 Inventory Model with Price Breaks 167
11.4.7 Probabilistic Inventory Models 175
11.5 Summary 177
Problems 178
Review Questions 181
Chapter 12: INVENTORY MANAGEMENT MODELS 182-194
12.1 Introduction•
182
12.2 Deterministic Models of Inventory Management 183
12.2.1 The Q System (Deterministic Case) 183
12.2.2 The P System (Deterministic Case) 184
12.3 Probabilistic Models of Inventory Management 186
12.3.1 Q System (Probabilistic Case) 186
12.3.2 P System (Probabilistic Case) 190
12.4 Using P and Q Systems in Practice 192
12.5 Independent Versus Dependent Demand 193
Review Questions 194
Chapter 13: SELECTIVE INVENTORY CONTROL 195-210
13.1 Introduction 195
13.2 Selective Treatment 195
13.3 ABC Categorization 196
13.3.1 Conducting ABC Analysis 197
13.3.2 Benefits of ABC Classification 202
13.4 High-Medium and Low Price (HML) Analysis 203
13.5 VED Analysis 204
13.6 SDE Analysis 206
13.7 GOLF Analysis 206
13.8 SOS Analysis •206
13.9 FSN Analysis 207
13.10 XYZ Analysis 207
13.11 Three-dimensional Approach for Selective Control of Inventory 207
13.12 Summary 209
Review Questions 210
X Contents
Chapter 14: THE PURCHASING CYCLE 211-219
14.1 Introduction 211
14.2 Purchasing Process 211
14.3 Purchasing Terms and Conditions 215
14.3.1 The Tender System 216
14.4 Payment Terms 218
14.5 Summary 218
Review Questions 219
Chapter 15: PRINCIPLES OF PURCHASING 220-233
15.1 Introduction 220
15.2 Definition of Purchasing 220
15.3 Objectives of Purchasing 221
15.4 Duties and Responsibilities of Purchase Department 222
15.5 Principles of Purchasing 224
15.6 Special Methods of Purchasing 226
15.7 Centralized and Decentralized Purchasing 229
15.8 Organizing for Purchase 230
Review Questions 232
Chapter 16: THE NATURE OF PURCHASING PROCESS
AND VENDOR RATING 234-248
16.1 Introduction 234
16.2 Activities in Organizational Buying 234
16.3 The Buygrid Analytic Framework 235
16.4 Phases in the Purchasing Decision Process 236
16.5 Buying Centres and Multiple Buying Influences 239
16.6 Primary Roles 240
16.7 Secondary Roles 241
16.8 Supplier Rating 241
16.9 Evaluating Supplier Performance 242
16.10 Summary 247
Review Questions 247
Chapter 17: VALUE ANALYSIS 249-284
17.1 Introduction 249
17.2 What is Value? 250
17.3 Maximum Value 251
17.4 Normal Degree of Value 251
17.5 Importance of Value 251
17.6 Value Analysis Applied to Purchase 251
17.7 Organizing for Value Analysis 252
Contents xi
17.8 Value Analysis Techniques 254
17.9 Selling Value Analysis 257
17.10 Cost Analysis and Value Analysis Aid Purchase Research 258
17.11 The Value Analysis Job Plan 259
17.12 Case Study on Value Analysis Job Plan 261
17.13 Function Analysis System Technique (FAST) 269
17.14 Material and Process Selection in Value Engineering 273
17.14.1 Design, Material, Process and Supplier Decisions 273
17.15 Product Parameters 275
17.16 Process Selection 275
17.17 Material Selection 276
17.17.1 Material Selection Parameters 276
17.18 Creativity 277
17.19 Creative Techniques 279
Review Questions 283
Chapter 18: QUALITY CONTROL IN MATERIALS MANAGEMENT 285-327
18.1 Introduction 285
18.2 Evolution of Quality Concepts and Applications 285
18.3 Quality and Design Spiral 286
18.4 Theory of Sampling Inspection 288
18.4.1 Single Sampling Plans 288
18 4.2 The Operating Characteristic Curve 288
18.4.3 The AQL (Acceptable Quality Level) and LTPD
(Lot Tolerance Proportion Defective) 289
18.4.4 The AOQ Curve and the AOQL 290
18.4.5 Average Total Inspection (ATI) 292
18.4.6 Double Sampling Plan 292
18.4.7 Multiple Sample Plans 295
18.4.8 Sequential Sampling Plans 297
18.4.9 Practical Method of Selecting a Sampling Plan 299
18.4.10 Sampling Plan for Variables 301
18.5 Control Charts and In-Process Monitoring of Quality 303
18.5.1 Introduction 303
18.5.2 Control Charts 304
18.5.3 Discussion on Variability in a Constant Cause System 306
18.5.4 Procedure in Quality Control 307
18.5.5 Theory of Control Charts 307
18.5.6 Significance of X and R Charts 311
18.5.7 Control Chart for Defective: np Chart: Comparison with
X and R Charts 311
18.5.8 Control Chart for Number of Defectives c Per Unit:
Areas of Application 313
18.5.9 Control Chart for p (a special case of np chart when n varies) 313
xi i Contents
18.6 Six Sigma Quality Concepts 315
18.6.1 Statistical Background 315
18.6.2 Six Sigma Relationships 316
18.6.3 Procedure to Work Out Operating Sigma Level of a Process 317
18.6.4 Rolled throughput Yield 319
18.6.5 Advantage of Yield and Allied Calculations 319
18.6.6 Normalized Yield and Z-Value for Benchmarking 319
18.6.7 Design for Six Sigma (DFSS) 320
18.6.8 Cost Benefits and Leveraging through Better Design 320
18.6.9 Relationship between CP and CPK Values ..321
18.6.10 Implementation of Six Sigma 322
18.6.11 The Twelve MAIC Objectives 323
18.6.12 Future Avenues 323
Review Questions 327
Chapter 19: MAKE OR BUY DECISIONS 328-338
19.1 Key Strategic Decisions 328
19.2 Strategic Issues 328
19.3 New Product Development and Outsourcing 329
19.4 Lean Manufacturing '. 330
19.5 Decisions at Tactical Level 330
19.6 Factors of Make or Buy Decision 332
19.7 Dangers of Outsourcing 336
19.8 Summary 338
Review Questions 338
Chapter 20: BUYER-SELLER RELATIONSHIP 339-345
20.1 Introduction 339
20.2 Evolution in Buyer-Seller Relations 339
20.3 Advantages and Limitation of Various Types of Buyer-Seller Relations 340
20.4 Choice of Type of Relationship 343
20.5 Suppliers Point of View 344
Review Questions 345
Chapter 21: NEGOTIATION 346-352
21.1 Introduction 346
21.2 Purchasing Negotiation for Consumer Products and Industrial Products 346
21.3 Factors Which May Weaken Negotiation 347
21.4 Pre-Planning for Negotiations 347
21.5 Planning of Negotiations 348
21.6 Tactics in Purchasing Negotiations 350
Contents xiii
21.7 Stages in Purchasing Negotiation 350
21.8 Code of Conduct 350
Review Questions 352
Chapter 22: DISPOSAL OF SURPLUS, OBSOLETE AND SCRAP 353-356
22.1 Introduction 353
22.2 Reasons for Creation of Surplus 353
22.3 Grouping of Items and Their Treatment 354
22.4 Obsolete Items 354
22.5 Scrap 355
22.6 Salvage 355
Review Questions 356
Chapter 23: PERFORMANCE APPRAISAL OF MATERIALS
DEPARTMENT 357-368
23.1 Introduction 357
23.2 Need for Performance Appraisal 358
23.3 Features of Performance Appraisal 358
23.4 Performance Appraisal Evaluation and Ratios 359
23.4.1 Performance Appraisal Receiving Stores 359
23.4.2 Evaluation of Purchasing Department 360
23.4.3 Evaluation of Inventory Control 361
23.4.4 Evaluation of Stores Department 362
23.5 Reporting of Evaluation Indices 365
Review Questions 368
Chapter 24: SOME LEGAL ASPECTS OF PURCHASING 369-376
24.1 Introduction 369
Review Questions 376
Chapter 25: PURCHASING OF CAPITAL EQUIPMENT 377-385
25.1 Introduction 377
25.2 Characteristic Differences between Capital Equipment and Consumable
Materials 377
25.3 Purchasing Procedure of Capital Equipment 378
25.4 Ten Commandments of Buying Capital Equipment 379
25.5 Economic Analysis of Capital Equipment Investment 380
25.5.1 Payback Period 380
25.5.2 Average Rate of Return 381
25.5.3 Net Present Value 381
25.5.4 Internal Rate of Return 382
xiv Contents
25.6 Purchase of Old Equipment 383
25.6.1 Sources of Old Equipment 383
25.6.2 Disadvantages of Buying Old Equipment 384
25.7 Purchasing vs Leasing of Capital Equipment 384
25.7.1 Benefits of Leasing 384
25.7.2 Disadvantages 384
Review Questions 385
Chapter 26: PUBLIC BUYING 386-390
26.1 The Directorate General of Supplies and Disposals 386
26.2 Domain of Working 386
26.3 Organization Structure 387
26.4 Registration of Suppliers with DGS&D 388
26.5 Processing Indent 389
26.6 Summary 389
Review Questions 390
Chapter 27: INTERNATIONAL PURCHASING 391-400
27.1 Introduction 391
27.2 Government and Other Enablers of Imports and Exports 391
27.2.1 Director General of Foreign Trade (DGFT) 391
27.3 Categories of Importers 392
27.4 Import Application 392
27.5 Criteria for Licensing 393
27.6 Negative List of Imports 393
27.7 Import Procedure•
393
27.8 Documents Used in International Trade 395
27.9 Clearing and Forwarding 399
27.10 Role of Government-owned Trading Organizations 399
27.11 Benefits of India Becoming Member of World Trading Organization (WTO) 400
Review Questions 400
Chapter 28: IMPORT SUBSTITUTION 401-404
28.1 Introduction 401
28.2 Analysis of India's Foreign Trade 402
28.3 Problems of Import Substitution 402
28.4 Role of Management to Prepare for Import Substitution 403
28.5 Summary 403
Review Questions 404
Contents xv
Chapter 29: LOGISTICS, WAREHOUSING AND DISTRIBUTION
MANAGEMENT 405-414
29.1 Introduction 405
29.2 Components of a Logistics System 406
29.3 Role of Warehouses 406
29.3.1 Consolidation 407
29.3.2 Product Mixing 407
29.4 Cost Analysis in Logistics 408
29.5 Warehousing Management 410
29.6 Activities of Warehousing 410
29.7 Utilize Space, Including Height Effectively 410
29.8 Layout of Warehouse 411
29.9 Inventory Record Accuracy 411
29.10 Distribution Requirements Planning 412
29.11 Summary 413
Review Questions 414
Chapter 30: SUPPLY CHAIN MANAGEMENT 415-443
30.1 Need for Supply Chain Management 415
30.1.1 Customer Focus in Today's Scenario 416
30.2 Conceptual Model of Supply Chain Management 416
30.2.1 Definition of Supply Chain 417
30.3 SCM in the Modern Form as an Integration of Logistics and Manufacturing....41930.4 Developing Integrated Supply Chains 419
30.4.1 Conflicting Objectives 419
30.4.2 Integration Resulting in the Development of a Supply Chain 420
30.5 Supply Chain Strategy 422
30.5.1 Collaboration ...422
30.5.2 Demand Management 423
30.5.3 Customer Service 423
30.5.4 Technology Integration Strategy 424
30.6 Three Steps of Supply Chain Implementation 424
30.6.1 Purchasing Involving In-Bound-Logistics 424
30.6.2 Manufacturing Planning and Implementation within the Factory 425
30.6.3 Distribution Involving Outbound Logistics 426
30.7 Transportation 427
30.7.1 Scheduling, Routing and Carrier Selection 428
30.8 Design of Efficient and Responsive Supply Chains 430
30.8.1 Designing Efficient Supply Chains ...430
30.8.2 Designing Responsive Supply Chains 430
30.8.3 Efficient Versus Responsive Supply Chains 431
30.9 Bullwhip Effect in Supply Chains 432
30.9.1 Causes of Bullwhip Effect 432
xvi Contents
30.10 Various Initiatives in SCM for Performance Improvement 433
30.10.1 Vendor Managed Inventory (VMI) 433
30.10.2 Just-in-Time II (JIT II) 434
30.10.3 Collaborative Planning, Forecasting and Replenishment (CPFR) 435
30.10.4 KM Model of Supplier Partnership 436
30.11 Measures for Supply Chain Performance 436
30.11.1 Financial Indices for Supply Chain Performance Assessment 436
30.11.2 Process Indicators 440
30.12 Supply Chain Operations Reference (SCOR) Model 440
30.13 Role of E-Business in Supply Chain Management 441
30.13.1 Supply Chain in E-Business Scenario 441
30.14 Summary 442
Review Questions 442
Chapter 31: CUSTOMER RELATIONSHIP MANAGEMENT 444-451
31.1 Introduction 444
31.2 Customer Relationship Effect,
444
31.3 Difference between Traditional Marketing and Relationship Based Marketing44531.4 Managing the Customer of Today 446
31.5 Reasons for the Emergence of CRM 447
31.6 Functional Aspects of CRM Macro Processes 447
31.6.1 Marketing 448
31.6.2 Selling 448
31.6.3 Management of an Order 448
31.6.4 Call Centres 448
31.6.5 Alternative Points of Contact 449
31.6.6 Field Service 449
31.6.7 Customer Billing 449
31.7 Summary 450
Review Questions 451
Chapter 32: CASE STUDIES AND SOLVED PROBLEMS 452-484
32.1 Theory of Learning Curve 452
Review Questions 484
Appendix A 485-486
Appendix B 487-491
References..... 493-496
Index 497-501