material management and abc analysis

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Sonal Arshpre et Aman Hosp.2 nd yr UIAMS

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Page 1: Material Management and ABC analysis

SonalArshpreetAman Hosp.2nd yrUIAMS

Page 2: Material Management and ABC analysis

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.

Page 3: Material Management and ABC analysis

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

Page 4: Material Management and ABC analysis

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 provide reasonable level of client

services

Page 5: Material Management and ABC analysis

Objective of material management

PRIMARY OBJECTIVES

SECONDARY OBJECTIVES

Page 6: Material Management and ABC analysis

Buying the best item at the lowest cost Reduction in inventory cost and High inventory

turnover Maintaining the flow of production Maintaining the consistency of quality Optimisation of acquisition and possession,

resulting in lower cost Cordial relationship with suppliers Maintaining good records Contribution towards competitiveness

PRIMARY OBJECTIVES

Page 7: Material Management and ABC analysis

Promotion of standardisation with suppliers Committees to decide on economic make –

or- buy decisions Development of inter departmental

relationships Can undertake acquisitions

Page 8: Material Management and ABC analysis

Four basic needs of Material management

1. To have adequate materials on hand when needed

2. To pay the lowest possible prices, consistent with

quality and value requirement for purchases

materials

3. To minimize the inventory investment

4. To operate efficiently

Page 9: Material Management and ABC analysis

Cost can be lowered Controlling of indirect cost (such as materials

movement) Risk of inventory loss minimised (theft, pilferage ) Control of manufacturing cycle Material congestion in storage places avoided Improvement in delivery of the product

Page 10: Material Management and ABC analysis

PLANNING (Plans for capacity or production levels and required inventory levels

MATERIAL UTILISATION (efficiency of the flow of materials through the plant)

PHYSICAL (storing, receiving and issuing of materials and physical checking of inventory of raw materials, work in process, finished goods, record keeping)

CONTROL OR FOLLOW UP (feedback and corrective action involved)

Page 11: Material Management and ABC analysis

Selection of appropriate vendors Land and storage cost increase Difficulty in forecasting demand accurately

Scarce capital for investment in materials inventory

Diversification of product lines Optimising time and quantity for products

Management of information

Page 12: Material Management and ABC analysis

Functional areas of material management

1. Purchasing

2. Central service supply

3. Central stores

4. The print shops

5. The pharmacy

6. Dietary

& Linen services

Page 13: Material Management and ABC analysis
Page 14: Material Management and ABC analysis

(ABC = Always Better Control)This is based on cost criteria.

It helps to exercise selective control when confronted with large number of items it rationalizes the number of orders, number of items & reduce the inventory.

Page 15: Material Management and ABC analysis

Small in number, but consume large amount of resources About 10 % of materials consume 70 % of resources Must have:

Tight control

Rigid estimate of requirements

Strict & closer watch

Low safety stocks

Managed by top management

Page 16: Material Management and ABC analysis

Intermediate.About 20 % of materials consume 20 % of resources

Must have:

Moderate control

Purchase based on rigid requirements

Reasonably strict watch & control

Moderate safety stocks

Managed by middle level management

Page 17: Material Management and ABC analysis

Larger in number, but consume lesser amount of resourcesAbout 70 % of materials consume 10 % of resources

Must have:

Ordinary control measures

Purchase based on usage estimates

High safety stocks

ABC analysis does not stress on items those are less costly but may be vital

Page 18: Material Management and ABC analysis

This approach helps the materials manager to exercise selective control and focus his attention only on a few items when he is confronted with lakhs of stores items.

By concerning on ‘A’ category the materials manager is able to control inventories and show visible results in a short span of time

By controlling the ‘A’ its and doing a proper inventory analysis, obsolete stocks are automatically pinpointed.

Many organizations have claimed that the ABC analysis has helped in reducing the clerical costs and resulted in better planning and improved inventory turnover.

Page 19: Material Management and ABC analysis

• ABC analysis has to be resorted to because equal attention to ‘A’ ‘B’ and ‘C’ items will not be worth while and would be very expensive.

• Concentrating on all the items is likely to have a diffused effect on all the items irrespective of the priorities.

Page 20: Material Management and ABC analysis

It gets harder to do correctly the longer you do them.

Needs to be completed in the moment for the most accuracy.

Still might reflect the biases of the data collector.