16-1 Supply Chain Management

Materials Management - DefinitionIt is concerned with planning, organizing and

controlling the flow of materials from their initial purchase through internal operations to the service point through distribution.

OR

Material management is a scientific technique, concerned with Planning, Organizing &Control of flow of materials, from their initial purchase to destination.

16-2 Supply Chain Management

AIM OF MATERIAL MANAGEMENT

To get

1. The Right quality

2. Right quantity of supplies

3. At the Right time

4. At the Right place

5. For the Right cost

16-3 Supply Chain Management

PURPOSE OF MATERIAL MANAGEMENT

•To gain economy in purchasing

•To satisfy the demand during period of replenishment

•To carry reserve stock to avoid stock out

•To stabilize fluctuations in consumption

•To provide reasonable level of client services

16-4 Supply Chain Management

Primary•Right price•High turnover•Low procurement •& storage cost•Continuity of supply•Consistency in quality•Good supplier relations•Development of personnel•Good information system

Objective of material management

Secondary•Forecasting•Inter-departmental harmony•Product improvement•Standardization•Make or buy decision•New materials & products•Favorable reciprocal relationships

16-5 Supply Chain Management

Economy in material management

•Containing the costs

•Instilling efficiency in all activities

16-6 Supply Chain Management

Purchasing is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service.

PurchasingPurchasing

16-7 Supply Chain Management

Develop and implement purchasing plans for products and services that support operations strategies

Goal of PurchasingGoal of Purchasing

16-8 Supply Chain Management

Identifying sources of supply

Negotiating contracts

Maintaining a database of suppliers

Obtaining goods and services

Managing supplies

Duties of PurchasingDuties of Purchasing

16-9 Supply Chain Management

Purchasing InterfacesPurchasing Interfaces

Purchasing

Legal

AccountingOperations

Dataprocessing

Design

ReceivingSuppliers

Figure 16.5

16-10 Supply Chain Management

Purchasing CyclePurchasing Cycle

1. Requisition received

2. Supplier selected

3. Order is placed

4. Monitor orders

5. Receive orders

PurchasingPurchasing

LegalLegal

AccountingAccountingOperationsOperations

DataDataprocess-process-inging

DesignDesign

ReceivingReceiving

SuppliersSuppliers

16-11 Supply Chain Management

Value analysis Examination of the function of purchased

parts and materials in an effort to reduce cost and/or improve performance

Value Analysis vs. OutsourcingValue Analysis vs. Outsourcing

16-12 Supply Chain Management

Value Analysis Value Analysis (Value Engineering)(Value Engineering)

Ratio of value / costRatio of value / cost Assessment of value : Assessment of value :

1. Can we do without it?1. Can we do without it?2. Does it do more than is required?2. Does it do more than is required?3. Does it cost more than it is worth?3. Does it cost more than it is worth?4. Can something else do a better job4. Can something else do a better job5. Can it be made by less costly method, tools, 5. Can it be made by less costly method, tools,

material?material?

6. Can it be made cheaper, better or faster by someone 6. Can it be made cheaper, better or faster by someone else?else?

16-13 Supply Chain Management

Centralized purchasing

Purchasing is handled by one special department

Decentralized purchasing

Individual departments or separate locations handle their own purchasing requirements

Centralized vs Decentralized PurchasingCentralized vs Decentralized Purchasing

16-14 Supply Chain Management

Choosing suppliers

Evaluating sources of supply

Supplier audits

Supplier certification

Supplier relationships

Supplier partnerships

Suppliers’ / Vendors’ ManagementSuppliers’ / Vendors’ Management

16-15 Supply Chain Management

Quality and quality assurance Flexibility Location Price

Factors in Choosing a SupplierFactors in Choosing a Supplier

16-16 Supply Chain Management

Product or service changes Reputation and financial stability Lead times and on-time delivery Other accounts

Factors in Choosing a Supplier (cont’d)Factors in Choosing a Supplier (cont’d)

16-17 Supply Chain Management

Evaluating Sources of SupplyEvaluating Sources of Supply

Vendor analysis: Evaluating the sources of supply in terms of price, quality, reputation, and service

16-18 Supply Chain Management

Vendor analysis - evaluating the sources of supply in terms of Price Quality Services Location Inventory policy Flexibility

Evaluating Sources of SupplyEvaluating Sources of Supply

16-19 Supply Chain Management

Ideas from suppliers could lead to improved competitiveness

1. Reduce cost of making the purchase2. Reduce transportation costs3. Reduce production costs4. Improve product quality5. Improve product design6. Reduce time to market7. Improve customer satisfaction8. Reduce inventory costs9. Introduce new products or services

Supplier PartnershipsSupplier Partnerships

16-20 Supply Chain Management

Storage

•Store must be of adequate space

•Materials must be stored in an appropriate place

• in a correct way

•Group wise & alphabetical arrangement helps in

•identification & retrieval

•First-in, first-out principle to be followed

•Monitor expiry date

•Follow two bin or double shelf system, to avoid

•Stock outs

•Reserve bin should contain stock that will cover

•lead time and a small safety stock

Issue & useCan be centralized or decentralized