Seminar presented by,Aju P. SamAnoop Kumar VAnoop Krishnan RKArun BalanAnu PrasadAnandhu Vijayan

MATERIALS AND SALES MANAGEMENT

● INVENTORY MANAGEMENT

INVENTORY IS SIMPLY A STOCK OF PHYSICAL ASSETS HAVING SOME ECONOMIC VALUE,WHICH CAN BE EITHER IN THE FORM OF MATERIAL, MONEY OR LABOUR. INVENTORY IS ALSO KNOWN AS AN IDLE RESOURCES A LONG AS IT IS NOT UTILISED.

RAW MATERIALS INCLUDING COMPONENTS HUMAN RESOURCES SUCH AS UNUTILISED LABOUR FINANCIAL RESOURCES SUCH AS WORKING CAPITAL WORK IN PROCESS SEMI-FINISHED GOODS AND FINISHED GOODS

CLASSIFICATIN OF INVENTORYMANUFACTURING ASPECT

CONTROL ASPECT

MANUFACTURING ASPECTINVENTORY HELD BY A MANUFACTURING CONCERN IS MAINLY OF FIVE TYPES:

PRODUCTION INVENTORY ITEMS GOING INTO FINAL PRODUCT SUCH AS RAW MATERIALS, COMPONENTS AND SUB- ASSEMBLIES PURCHASED FROM OUTSIDE ,FROM PRODUCTION INVENTORY. WORK-IN-PROCESS INVENTORY UNDER THIS ALL ITEMS IN SEMI FINISHED FORM OF PRODUCTS AT DIFFERENT STAGE OF PRODUCTION. FINISHED GOODS INVENTORY THIS INCLUDES THE PRODUCTS READY FOR DISPATCH TO USERS OR TO DISTRIBUTORS.

MRO INVENTORYMAINTENANCE,REPAIRS AND OPERATING SUPPLIES LIKE SPARE PARTS AND CONSUMABLE STORES, WHICH DON’T GO INTO FINAL PRODUCT BUT ARE CONSUMED IN THE PRODUCTION PROCESS. MISCELLANEOUS INVENTORYITEMS OTHER THAN THIS MENTIONED ABOVE, SUCH AS SCRAP,OBSOLETE,AND UNSALABLE PRODUCTS ARISING FROM MAIN PRODUCTION, STATIONARY USED IN OFFICE AND OTHER ITEMS NEEDED BY OFFICE, FACTORY AND SALES DEPARTMENT ETC.

CONTROL ASPECTS

ACCORDING TO THIS ASPECT THE ITEMS ARE BROADLY DIVIDED IN TO THREE GROUPS SUCH AS “A” ITEMS, “B” ITEMS AND “C” ITEMS. THIS CLASSIFICATION IS EXPLAINED AS ABC CONTROL POLICY IN THE NEXT SESSIONS.

OBJECTIVES OF INVENTORY CONTROL

TO MAINTAIN THE OVERALL INVESTMENT IN INVENTORY AT THE LOWEST LEVEL,CONSISTENT WITH OPERATING REQUIREMENTS.

TO SUPPLY THE PRODUCT, RAW MATERIAL, SUB ASSEMBLIES,SEMI FINISHED GOODS,ETC..TO ITS USERS AS PER THEIR REQUIREMENTS AT RIGHT TIME AND AT RIGHT PLACE.

TO KEEP INACTIVE,WASTE, SURPLUS, SCRAP AND OBSOLETE ITEMS AT THE MINIMUM LEVEL.

TO MINIMISE HOLDING, REPLACEMENT AND STORAGE COSTS OF INVENTORIES AND MAXIMISE THE EFFICIENCY IN PRODUCTION AND DISTRIBUTION.

TO TREAT INVENTORY AS INVESTMENT WHICH IS RISKY, FOR SOMETIMES, INVESTMENT MAY LEAD TO HIGHER RETURNS AND FOR OTHER LESS RETURNS.

INVENTORY MODELS

IN THIS SECTION, WE WILL CONSIDER TWO TYPES OF INVENTORY MODELS SUCH AS ECONOMIC ORDER QUANTITY MODEL AND ABC CONTROL POLICY.

ECONOMIC ORDER QUANTITY

ECONOMIC ORDER QUANTITY IS REFERRED TO AS THE SIZE OF THE ORDER THAT GIVES MAXIMUM ECONAMY IN PURCHASING THE MATERIALS.IT IS ALSO KNOWN AS OPTIMUM OR STANDARD ORDER QUANTITY

• MAXIMUM STOCK

IT IS THE MAXIMUM OR UPPER LIMIT OF THE INVENTORY WHICH MUST BE KEPT IN STORES AT ANY TIME

• MINIMUM STOCK

IT IS THE LOWEST OR MINIMUM LEVEL OF INVENTORY THAT MUST BE KEPT IN STORES AT ANY INSTANT OF TIME

• ECONOMIC ORDER QUANTITY OR STANDARD ORDER

IT IS THE DIFFRENCE BETWEEN MAXIMUM AND MINIMUM QUANTITY

• REORDER POINT OR RE –ORDER LEVEL

THIS POINT REMEMBER US IS THE TIME TO INITIATE A PURCHASE ORDER AND IF NOT DONE SO THE INVENTORY MAY EXHUST,AND EVEN EMPTY THE RESERVE STOCK

• LEAD TIME

IT IS THE TIME REQUIRED INITIATE A PURCHASE ORDER AND RECEIVING THE ITEMS

• ECONOMIC ORDER QUANTITY OR STANDARD ORDER

IT IS THE DIFFRENCE BETWEEN MAXIMUM AND MINIMUM QUANTITY

• REORDER POINT OR RE –ORDER LEVEL

THIS POINT REMEMBER US IS THE TIME TO INITIATE A PURCHASE ORDER AND IF NOT DONE SO THE INVENTORY MAY EXHUST,AND EVEN EMPTY THE RESERVE STOCK

• LEAD TIME

IT IS THE TIME REQUIRED INITIATE A PURCHASE ORDER AND RECEIVING THE ITEMS

THE ECONOMIC ORDER QUANTITY DEPENDS ON TWO TYPES OF COASTS

1.ORDERING COST OR PROCUREMENT COST • CALLING QUOTATIONS• PROCESSING QUOTATIONS• RECEIVING AND INSPECTING• PLACING PURCHASE ORDER2.COST OF HOLDING STOCK OR INVENTORY CARRYING COST PER UNIT PER• STORAGE COST,HANDLING COST• OTHER EXPENSES DURING STORAGE• COST OF DETERIORATION AND OBSOLESCENCE• INSURANCE,TAXES ETC..

ABC CONTROL POLICYABC ANALYSIS IS A BASIC ANALYTICAL MATERIALS MANAGEMENT TOOL.IT IS A SELECTIVE APPROCH POPULARLY KNOWN AS ALWAS(A)BETTER(B)CONTROL(C)

A-ITEMS GROUP CONSTITUES 10%OF THE TOTAL NUMBER OF ITEMS AND 70% OF THE TOTAL MONRY VALUE FOR ALL ITEMS

B-ITEMS GROUP CONSTITUTES 20% OF THE TOTAL NUMBER OF ITEMS AND 20% OF THE TOTAL MONRY VALUE FOR ALL ITEMS

C-ITEMS GROUP IS JUST OPPOSITE OF A-ITEMS GROUP.IT CONSTITUTES 70%OF THE TOTAL NUMBER ITEMS AND 10%OF THE TOTAL MONEY VALUE

STORE PURCHASEACCORDING TO DR.WALTERS

THE PURCHASING SHOUND BE IN SUCH A WAY THAT ,IF SAFEGUARD THE STANDARD QUALITY,CONTINUITY OF SERVICE,THE COMPETITIVE POSITION AND THE COMPANY’S REPUTATION FOR FAIRNESS AND INTEGRITY.MODERN TRENDS IN LEGISLATION MAKE IT ESSENTIAL THAT THE PURCHASING DEPARTMENT ALSO SHOULD WATCH THE ENACTMENT OF NEW LAWS,BUSINESS REGULATIONS’S AND ENSURE THE COMPANY AGAINST THEIR VIOLATION.

OBJECTIVES OF PURCHASING TO MAKE THE USER DEPARTMENTS OF THE ORGANISATION FROM TIME TO TIME AWARE OF THE RANGE OF QUALITY MATERIALS AVAILABLE IN THE MARKET AND TO MAINTAIN THE RIGHT QUALITY OF PURCHASED MATERIALS BASED ON STANDARDS,TECHNICAL SPECIFICATIONS AND SUITABILITY AS DETERMINED BY THE USER DEPARTMENTS

TO PURCHASE THE LOWEST POSSIBLE COST CONSISTENT WITH QUALITY AND SERVICE REQUIREMENTS

TO ENSURE THE MINIMUM POSSIBLE INVESTMENT IN SERVICE OPERATIONS RELATED TO PURCHASE MATERIALS,SUCH AS TRANPORTATION,INSPECTION,STORING,RECORD KEEPPING ETC..

FUNCTIONS OF PURCHASING MAINTENANCE AND DEVOLEPMENT OF PROCEDURES,FORMS,RECORDS AND REPORTS

CONTROL AND AUDIT THE ACCOUNTS AND RECORDS

MAINTAINS RECORDS OF RELIABLE SOURSES OF SUPPLY AND PRICE OF MATERIALS

REVIEW AND UPDATE MATERIALS SPECIFICATIONS WITH THE IDEA OF SIMPLIFYING AND STANDARDISING THEM

PLACE AND FOLLOW UP PURCHASE ORDERS

METHODS OF PURCHASINGPURCHASING BY REQUIREMENTS

PURCHASING FOR A SPECIFIC FUTURE PERIOD

MARKET PURCHASING

SPECULATIVE PURCHASING

CONTRACT PURCHASING

PURCHASING BY REQUIREMENTSTHIS METHOD IS ALSO KNOWN AS “HAND TO MOUTH BUYING”.THIS PRACTICE IS RESORTED TO SATISFY ONLY IMMEDIATE CURRENT REQUIREMENTS AND MAY BE UNECONOMICAL.

ADVANTAGES• SMALL STORAGE SPACE WILL BE REQUIRED• MARKET FLUCTUATION WILL NOT AFFECT AS COSTING IS BASED ON MARKET RATES

DISADVANTAGES• DISTRIBUTION COST HIGHER• BARGAINING CANOT BE HAD DUE TO SMALL AMOUNT AND IMMEDIATE REQUIREMENT

• THE COST MAY BE HIGHER DUE TO THE URGENCY OF REQUIREMENT

PURCHASING FOR A SPECIFIC FUTURE PERIOD

ADVANTAGES

• AS ORDER IS RECEIVED,THE PRODUCTION CAN BE STARTED WUTHOUT ANY DELAY

• MARKET FLUCTUATIONS WILL NOT AFFECT• THE INVOLVED WORKING CAPITAL IS LESS• LESS STORAGE SPACE IS NEEDED• COST ANALYSIS IS EASIER

DISADVANTAGES• MARKET FLUCTUATIONS WILL EFFECT IF NOT FAVOURABLE

• STORE ROOM IS REQUIRED

MARKET PURCHASINGIN THIS TYPE OF PURCHASING,ANTICIPATING THE REQUIREMENTS OF CONCERN,MARKET TRENDS ARE ANALYSED AND THEN PURCHASING IS DONE.USUALLY RAW METERIALS IN PROCESS OF MANUFACTURING ARE PURCHASED BY THIS METHOD.ADVANTAGES AS PURCHASING IS DONEIN LOT ACCORDING TO MARKET FAVOURABILITY BUMBER PROFIT CAN BE MADE.

TRANSPORTATION COST WILL BE LESS DUE TO BULK PURCHASE.

QUATITY AND PRICE DISCOUNT TO BULK PURCHASE. REDUCED ADMINISTRATION COST.DISADVATAGES IF THE MARKET REMAINS TOP FOR A LONG PERID THERE IS BIG LOSS’

LARGE STORAGE SPACE IS REQUIRED.

SPECULATIVE PURCHASINGIT INVOLVES PURCHASING IN EXCESS OF FORESEEABLE REQUIREMENTS IN ORDER TO MAKE PROFIT(OR IMPUTED PROFIT) FROM RISING PRICES OPPORTUNITIES ARISING FROM SUCH A PURCHASE WHEN PRICES FALLS TEMPORARILY AND THE ORGANISATION HAVE SUFFICIENT WORKING CAPITAL TO FINANCE SUCH A SPECULATIVE PURCHASES.ADVANTAGES MORE PROFIT CAN BE EARNED IN FUTURE DELAY FOR PRODUCTION WILL NOT BE THERE QUANTITY AND PRICE DISCOUNT OFFER FOR BULK PURCHASE

DISADVANTAGES IT MAY CAUSE INVENTORY BLOCK MONEY IF THE PRICES ARE STILL LOWER IN FUTURE ALSO NO BENEFIT

CAN ONLY APPLICABLE TO ORGANISATIONS HAVING SUFFICIENT WORKING CAPITAL.

PURCHASE PROCEDURE PURCHASE REQUISITION SELECTION OF POSSIBLE SOURCES OF SUPPLY DETERMINING THE TIME, PRICE, QUALITY AND QUANTITY

MAKING REQUEST FOR QUOTATIONS SELECTION OF RIGHT SOURCE OF SUPPLY PLACING THE PURCHASE ORDER FOLLOWING UP AND EXPEDITING OF THE ORDER INSPECTION CHECKING AND APPROVING VENDORS INVOICES OF PAYMENT

CLOSING COMPLETED RECORDS.

STORES ARE GENERALLY OF THE FOLLOWING CATEGORIES

RAW METERIALSCONSUMABLE ITEMS INFLAMABLE LIKE PETROL,KEROSENE OIL ETC.

CHEMICALSMACHINERY AND EQUIPMENTHAND TOOLSFURNITUREFINISHED PRODUCTSUNSERVICEBALE STORESEMPTIES AND PACKAGE ETC..

OBJECTIVES OF STORE KEEPING• TO SEE THAT THE STOCK OF NO ITEM AT ANY POINT OF

TIME FALLS BELOW THE PRESCRIBED MINIMUM OR GOES IN EXCESS OF FIXED MAXIMUM QUANTITY.

• TO EXAMINE CAREFULLY ALL GOOODS AND MATERILAS ON RECEIPT

• TO ARRANGE FOR A SYTEMATIC AND EFFICIENT STORING OF MATERILAS

• TO MAINTAIN ACCURATE AND PROMPT DISTRIBUTION OF ITEMS TO DEPARTMENTS AS AND WHEN REQUIRED UNDER ISSUE REQUISTION NOTE.

• TO PROTECT STORES AGAINST DAMAGE,THEFT,DETERIORATION,OR WASTAGE.

• TO PURCHASE MATERIALS ON THE PRINCIPLE OF ECONOMIC ORDER QUANTITY SO THAT THE ASSOCIATED LOSES CAN BE MINIMISED

• TO MAINTAIN RECORDS OF MOVEMENTS OF STOCK AND TO ACCOUNT FOR ALL GOODS THAT HAVE COME UNDER THEIR CHARGE

FUNCTIONS OF STORE KEEPING

RECEIPT : STORAGE RETRIEVEL ISSUE RECORDSHOUSE KEEPINGCONTROLSURPLUS MANAGEMENTVERIFICATIONCOORDINATION AND COOPERATION

DUTIES AND RESPONSIBILITIES OF STORE KEEPER

THE FIRST MOST IMPORTANT DUTY IS TO PLAN THE STORES BY EFFECTIVELY UTILISING THE SPACE

TO RECEIVE THE MATERIALS, GOODS AND EQUIPMENTS AFTER THOROUGH VERIFICATION AND IDENTIFICATION.

TO KEEP RECORD OF MATERIALS RECEIPT AND THEIR COSTS.

ISSUE THE MATERIALS ON VERIFICATION OF AUTHORISED REQUEST AND ENTRIES ARE MADE IN THE REQUIRED REGISTER.

MAKE THE ENTRIES IN THE BIN CARD AS AND WHEN REQUIRED.

CHEK THE BALANCE OF ITEMS FROM TIME TO TIME AND SEE THAT DESIRED QUANTITIES ARE AVAILABLE.

HE HAS TO MAKE TRUE THAT MATERIALS ARE ISSUED PROMPTLY TO THE USERS.

STORE KEEPING RECORDS RECEIPT OF MATERIALSa) MATERIAL RECEIPT BOOKb) MATERIAL RECEIPT NOTEc) DAILY RECEIPT VOUCHER d) DAMAGE/SHORTAGE/EXCESS REPORTe) PACKAGE SLIPf) BIN CARD g) STOCK IDENTIFICATION CARD INSPECTION OF MATERIALSa) PURCHASE ORDERb) DAILY RECEIPT VOUCHERc) INSPECTION NOTEd) REJECTION NOTEe) BIN CARD f) STOCK IDENTIFICATION CARDg) STOCK LEDGER

ISSUE OF MATERIALSa) MATERIALS REQUISITION SLIPb) BIN CARDc) GATE PASSd) STOCK LEDGERe) STRES ADVICE NOTE VERIFICATION OF STORESa) STOCK TAKING SHEETb) STOCK-VALUATION SHEETc) BIN CARDd) STOCK LEDGERe) MATERIAL TRANSFER NOTEf) MATERIAL RETURN NOTE MATERIALS CONTROLa) STOCK DAY SHEETb) STOCK LEDGER CARDc) KARDEX CARD

BIN CARDA BIN CARD IS SAID TO BE A MIRROR OF THE BIN, WHICH DEPICTS THE QUATITY AND QUALITY OF MATERIALS STORED THEREIN. IT TELLS THE HISTORY OF THE BIN.STOCK LEDGERTHE STOCK LEDGER IS A BOOK, WHICH CONTAINS INDIVIDUAL ACCOUNT OF EACH ITEM OF MATERIAL STORED IN THE STOREHOUSE.ITS FUNCTIONS ARE;1) TO RECORD IN ALL DETAILS THE RECEIPTS,

ISSUES AND BALANCE OF MATERIALS.2) TO SHOW THE DIFFERENT LEVELS OF

REPLENISHMENT.3) TO SHOW THE VALUES OF MATERIALS RECEIVED,

ISSUED AND BALANCE4) TO SERVE AS A CHIEF STORES ACCOUNTING BOOK.

STORE LAYOUTTHE STORES LAYOUT IS AN IMPORTANT ASPECT OF STORE KEEPING. THE INTERNAL ARRANGEMENT OF STORE IS KNOWN AS STORE LAYOUT. THE EFFICIENCY OF STORE KEEPING DEPENDS ON HOW AND IN WHAT WAY THE INTERNAL ARRANGEMENT IS PLANNED.LAYOUT AND DESIGN OF STORESi. CLASSIFICATION OF STORE ITEMS BY SIZE,

NUMBER, WEIGHT,AND FREQUENCY OF HANDLING(FSN-FAST MOVING,SLOW MOVING, NON-MOVING), HANDLING ARRANGEMENTS, AND PERISHABILITY.

ii. SPACE REQUIREMENT TO STORE THE ITEM.iii.UNITS WITHDRAWN AT A TIME.iv. MAXIMUM NUMBER OF UNITS TO BE STORED AT ONE

TIME.v. STORAGE FACILITY BEST SUITING THE ITEM.vi. LIST THE AVAILABLE STORAGE SPACE FOR

PLATFORM, FLOOR SPACE,RACKS ETC.

CENTRALISED AND DECENTRALISED STORES

ADVANTAGES OF CENTRALISED STORES ORGANISATION

• EFFECTIVE AND BETTER SUPERVISION AND CONTROL

• BETTER AND EFFICIENT LAYOUT OF STORES• BETTER INVENTORY CHECKS• MAINTENANCE OF OPTIMUM STORES• FEWER REDUNDANT AND OBSOLETE ITEMS• PROVISION OF BETTER SECURITY ARRANGEMENTS POSSIBLE

DISADVANTAGES OF CENTRALISED STORES ORGANISATION

INCREASED MATERIAL HANDLING AND ASSOCIATED WORK

SLOW DELIVERY DUE TO ONE STORE AND DIFFERENT DEPARTMENTS

RISK OF LOSS BY FIRE OR THEFT IS MORE

ADVANTAGES OF DECENTRALISED STORES ORGANISATION

• REDUCED MATERIAL HANDLING AND ASSOCIATE WORK

• QUICK DELIVERY OF MATERIALS

• LESS RISK OF LOSS BY FIRE OR THEFT

• LESS CHANCES OF PRODUCTION STOPPAGE BECAUSE EASY AND PROMPT AVAILABILITY OF MATERIALS

DISADVANTAGES OF DE-CENTRALISED STORES ORGANISATION

• OVER ALL SUSPENSION AND CONTROL IS NOTICED

• REQUIRE MORE ADMINISTRATIVE AND LABOUR COST

• OVERALL INVENTORY CHECKS ARE DIFFICULT

• SECURITY ARRANGEMENTS ARE TO BE INCREASED