materialcontrol-090601114410-phpapp02

8/4/2019 materialcontrol-090601114410-phpapp02

1/54

labor

materials

overheads

Increase

in profits

by 30%

Monika kansal


2/54

Techniques of materialcontrol


3/54

Learning Objectives

After going through this module you shall be

able to

Know meaning of inventories and their need

Get a feel of various techniques of material

control

Judge their applicability in various situations Know their respective advantages and

disadvantages


4/54

What are inventories?

Inventory are stocks of material. It can stored

for future use of production .

Todays inventory is tomorrow production. Semi-finished goods waiting in the line for use

in the next process of for that matter finished

goods waiting for shipment is form ofinventory.

Inventory includes TOOLS, RAW

MATERIAL,WORK IN PROCESS & FINISHED GOODS.


5/54

No production is possible without the inventories.

Companies have to make the buffer stocks for

production.

Why inventories


6/54

Inventory speaks of stocks means investment,

expenses, material losses.


7/54

What is inventory control ?

Inventory control is planning , ordering and

scheduling of material used in manufacturing.

It means right quantity of material is available

in right time.

It means systematic control over the

purchasing, storing and using of material.so as

to minimize possible cost.


8/54


9/54

Inventories are necessary evil.


10/54

Why selective inventory control`

Extremely large variety of items


11/54


12/54

so

Neither desirable nor feasible to exercise rigorous

control over all items.

Put limited control efforts more judicially over

significant items


13/54

Main techniques in selective

inventory control

ABC Analysis

VED Analysis

FSDN Analysis

JIT Analysis

HML analysis


14/54

ABC-Always

better control


15/54

Basis of classification

1. Value of usage

Or

2. % number of items contributing to proportionof total value of inventories


16/54

Let us define ABC

A- significant few,items few in number contributing high

proportion of value of inventories

B- not few, not too many

neither very cheap nor very costly

C- Insignificant manyrelatively large no. of items

normally inexpensive


17/54

2. Mechanism of ABC

Group % of items (number) % of costs

A 8%(160) 75%(7,50,000)

B 25%(500) 20%(2,00,000)

C 67%(1340) 5%(50,000)

TOTAL 2,000 items Rs. 10,00,000


18/54

Graphical presentation


19/54

Control mechanism of ABC

ITEM A B C

Safety stock No or very

low

Low high

Follow up Maximum periodic Expediting

exceptionally

Valueanalysis

Rigorous moderate minimum

Handled by Senior

officials

Middle

level

managers

Fully

deleagted


20/54

Advantages of ABC Analysis

1. Strict control is exercised

2.Investment in inventory is

reduced

3. Storage cost is reduced

4. Management time is saved


21/54

Just in time inventory:

Because of larger

carrying cost of inventory

in the stores & godowns,

manufacturers now

interested in Just in time

purchasing.

JIT purchasing is the

purchase of material or

goods in such a way thatdelivery of purchased

items is assured before

their use or demand.


22/54

Advantages of JIT

1. Investment in inventory is reduced.

2.Carrying cost is reduced.

3. A reduction in number of suppliers to dealt with is

possible.

4. Minimum possible wastage


23/54

Perpetual Inventory System:

It is a system of records.

It reflects the physical movements of stocks &

their current balance.

Bin cards & the stock ledger help the

management in maintaining this system.

Records of all issues and balances.


24/54

Also includes

Continuous stock taking

Surprise checks


25/54

Merits:

Provides better control Acts as an internal check

mechanism

Assures minimum ofinvestment at least cost


26/54

Timely detection of errors &

discrepancies.Preparation of final accounts at any

time is possible.


27/54

Demerits:

Not suitable for small units

More paper work

Actual stock taking may not be

possible in true sense


28/54


29/54

VED Analysis:

VED- vital, essential &

desirable- analysis is usedprimarily for control of spareparts. The spare parts can bedivided into 3 categories-

1-Vital

2-Essential

3-Desirable

Depending upon theircriticality for production.


30/54

The spares, the stock-out of which even for a

short time will stop production for quite

sometime are vital spares.The spares, the absence of which cannot

be tolerated for more than few hours or a day

& which are essential for the production tocontinue, are essential spares.

The desirable spares are those spares

which are needed but their absence for even aweek or so will not lead to stoppage of

production.


31/54

FNSD Analysis:

FNSD analysis divides the items of stores into 4categories in the descending order ofimportance of their usage rate.

F stands for fast moving items that areconsumed in a short span of time.

N stands for normal moving items whichare exhausted over a period of a year or so.

S indicates slow moving items which arenot issued at frequent intervals & are expectedto be exhausted over a period.


32/54

D. means dead items & the consumption of such

items is almost nil.


33/54

HML Classification:

The HML classification is similar to the ABC

classification, except for the fact that instead of

consumption values of items, their units values areconsidered.Items are classified on the basis of their unit

value into:

H= High value items

M= Medium value items

L=Low value items


34/54

XYZ Classification:

Based on the closing inventory value of differentitems.

Such classification is done every year at the time ofannual stock taking .

Items having highest inventory valuation areclassified as X, while with low investment are termed

as z. Other items are the y items whose inventoryvalue is neither too high not too low.


35/54

Let us recaptualise

ABC - emphasizes % value of consumption

JIT - purchase only when demanded

VED - criticality for production

FSDN - frequency of use

HMLunit value of stock

XYZclosing value of different items


36/54

Perpetual Inventory system

Maintenance of records of all physical

movements of stock

Continuous stock -taking

Surprise checks


37/54

An automobile assembling company(requires 20,000 to 22,000 components)

A case study


38/54

Bibliography:

COST ACCOUNTING

OPERATION RESEARCH

PRODUCTION MANAGEMENT


39/54


40/54

Types of inventory

Anticipation inventory:when firm anticipates rise in pricesIt may purchase bulk quantity & hold it until price rise.

Fluctuation inventories:Business organization maintainreserve capacity to meet unexpected demand and avoid the

risk of losing customers.

Lot size inventories: Large amount of goods are purchased

to avail the benefit of discount.the goods are purchased and

stocked until sold.

Transportation Inventories:Raw material & finished goods

are sent from one place to another.some amount of

inventory are always in transit.so longer the transportation

period greater the transportation inventories.


41/54

Functions of Inventorycontrol Effective use of financial resources: Effective inventory

control system and its use lessens the investment ininventories, inventory carrying cost.

Protection against all material losses:A firm might have

obtain the sufficient amount of material but there is a fear

of losses also so there is a good inventory control policy to

get safety from losses.

Proper calculation of cost of production:Inventory mgt.

has to do with the material at the stage of the acquisition to

the stage of the shipment .it makes possible for the

calculation of thematerial cost.

Ascertainment of results: Ready valuation of stock is there

as perpetual inventory system this help in taking many

important decisions which could have been taken

otherwise post mortem decisions.


42/54

Economies in purchasing: Any Tom Dick and

Harry cannot be the scientific purchaser. it is an art and

science needs negotiation skills to buy at least effective

cost by using the techniques of inventory control.

Keep the ball of production bouncing:Inventory control, like a balancing wheel in a watch or a

clock with springs acts as an agent to supply adequate

materials, stores spares,supplies,cutting of stock outs and

shortages and avoiding costly hurdles in operations

Lesser amount and rate of deterioration: inventorycontrol system has it techniques like STR-Stockturn

over ratioand ABC analysis that help in derating the rate

movement of input items as to whether they are fast

moving or slow moving or not at all moving.


43/54

Keeping prompt delivery to customers:In the presentworld firm cannot afford to lose customers because of lack

of supply.so there is need of proper system to keep

delivery in time.

Eliminates redundant inventory:Every organization has a

dead inventory which is not used by it again so money is

blocked in it.Firm should try to eliminates it.

Records for future references:Each shrewd management

can use information for taking decisions. A well inventory

system provide mgt. a detail and up to date information

which helps in taking decisions.


44/54


45/54


46/54


47/54

Why business units have

inventories?

To enjoy economies in buying: It is impossible to buy and

manufacture on the day to day basis. so firm orders beyond

its immediate needs.it gives a benefit of discount.

To move in tune with the changing shades of marketconditions:There is uncertainty about the future. So firm

purchased in bulk quantity.stock in for the future.

To meet the demand during the period of replenishment:

There is always a time gap between placing order andreceiving goods.so company can make the inventories for

smooth running of business.


48/54

To carry buffer stocks to do away with danger of stocks-

outs:there is a danger of stock outs so company can

maintain some safety stock to eliminate the danger.

To stabilize the production and production

process:Hardly a company has a continuos orders they are

subject to the fluctuations in case of seasonable goods but

company can produce it on a uniform basis.the inventoriesreach at the peak before the season and finally sells in

market

To curb loss of sale: inventories are maintained to curb the

loss of sale and the goods are available to customers whenneeded.


49/54

To meet other requirement:

Seasonal availability such as oil seeds , coconut ,

mangoes , tomatoes which are seasonable goods and

not available in market during off season Government regulation


50/54

Scope of inventory

control Formulation of relevant policies:there are certain policies are

framed by the company.I.e what , when, how,,how much, from

whom at what price it should be bought and fixation of stock

levels.

Determining economic order quantity: In this economic lotsize buying is done .In this how many orders is placed in a

year is decided to minimized the cost.

Determining lead time: lead time is the time span between

planning an order and actual receipt of material so ordered.


51/54

Minimization of material-handling andstorage cost:The activities of the stores are to be so arranged to bring the

cost reduction that relates to bringing the material to stores and

issues to production department.

Ascertaining Safety Stock :-Safety Stock is provided togrant protection against depletion. In case of demand remain

constant and lead time in variable there is no fear or danger of

stock-outs.

F t d t i i th


52/54

Factors determining the

optimum level of inventory The rate of inventory turnover: The time period within which

inventory completes the cycle of production. Cost : there are certain cost which effects the level of

inventory.

Financial position of the firm: a financial sound company

has bulk quantity of materials.

Inventory policy and attitude of the management: the

inventory policy and attitude of the management also

influences the level of inventory.


53/54

Type of product:Type of product also

determine the level of inventory.


54/54

Date post:	07-Apr-2018
Category:	Documents
Upload:	pravsagar
View:	216 times
Download:	0 times

materialcontrol-090601114410-phpapp02

Documents