MATERIAL MANAGEMENT By A S BHALERAO Definition Material

MATERIAL MANAGEMENT By A S BHALERAO

Definition Material management is a scientific technique, concerned with Planning, Organizing & Control of flow of materials from their initial requirement by user to receipt at ware house after purchase. It is essentially extension of maintenance planning.

AIM OF MATERIAL MANAGEMENT To ensure availability of material to plant of q Right quality q Right quantity q At the Right time q For the Right cost q At optimum inventory level “Every management mistake ends up in inventory. ”

Ø Why we need store stock items ? Ø How to identify items for store stock ? Ø How to define min max ROL levels ? Ø History of store stock items in GHCL

v It is one most widely used & proven tool for inventory optimization. v Advantages v Avoids multiple , frequent indents in small qty. v Ease of operation for user as well buyer. v Reduces inventory carrying , ordering cost. v Works on Just in time principle thus reduces chances of storage of material beyond defined shelf life. v Better monitoring of consumption pattern thus Avoids hoarding of material in sub store by user.

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. About 10 % of materials consume 70 % of resources About 20 % of materials consume 20 % of resources About 70 % of materials consume 10 % of resources

• VED ANALYSIS Based on critical value & shortage cost of an item –It is a subjective analysis. • Items are classified into: Vital: • Shortage cannot be tolerated. Essential: • Shortage can be tolerated for a short period. Desirable: Shortage will not adversely affect, but may be using more resources. These must be strictly Scrutinized V E D ITEM COST A AV AE AD CATEGORY 1 10 70% B BV BE BD CATEGORY 2 20 20% C CV CE CD CATEGORY 3 70 10% CATEGORY 1 - NEEDS CLOSE MONITORING & CONTROL CATEGORY 2 - MODERATE CONTROL. CATEGORY 3 - NO NEED FOR CONTROL

• Re-order level: stock level at which fresh order is placed. • Average consumption per month x lead time + buffer stock • Lead time: Duration time between placing an order & receipt of material

Economic order of quantity EOQ = Average Monthly Consumption X Lead Time [in months] + Buffer Stock – Stock on hand

Service level for Moving items-Objective To fix Re Order Level ( ROL ) for moving items in the inventory. In other words, inventory levels are to be controlled on the basis of a continuous analysis of consumption, with a view to achieving a pre-defined service level. The service level required for each item is set according to its criticality and consumption value. Identifying Service Level for items in Inventory is a major step towards selective Inventory Control. This is done based on V-E-D and A-B-C classifications for moving items. Service Level Based On V-E-D And A-B-C Classifications - For Moving Items CONSUMPTION VALUE V E D A Moderate Stock And Constant Control 85% Moderate Stock 75% Very Low Stock 60% B Moderate Stock 90% Moderate Stock 80% Very Low Stock 67% C High Stock 99% Moderate Stock 90% Low Stock 75%

v • • • Movement analysis Based on Item movement (Velocity) The items are classified as Fast moving , Medium moving and Slow moving based on the following; Fast moving --- Annual consumption (AC) > 12 Medium moving --- AC >5 and <=12 Slow moving --- AC <=5 Item Class Annual Consumption No of Items Fast > 12 1885 Medium >5 and = 12 1068 Slow < =5 5633 Total 8586 Confidential and Property of Prumatech Infosystems 11

Typical inventory trend for any Soda Ash Plant Activity APR TO JUNE JULY TO AUG SEPT TO NOV. DEC TO MARCH Maint. Full swing Maint Activities Lean period for maint. Activities Max. Maint Activities Production period only necessary maint activities Procurement Moderate Max Min. after ASD Min. Consumption Max. min. Max. As per requirement Increasing trend Max. Decreasing trend Decreasing almost same level Inventory

ØIn GHCL this concept is in place since 1999 when Baan ERP System was implemented. ØBut due to some practical issues auto indenting was stopped and it was converted into annual indents with phased delivery 1200 + items were under annual indent till Jan 2012. ØFrom 1/1/2012 onwards Auto indenting for min max items started for C class 1600 items . ØSlowly they were increased and now almost 4010 items are under auto indent , VMI , annual indenting .

Major hurdles faced till date ØCyclic , uneven consumption pattern. ØTendency to issue material even if not required. ØIncrease in consumption pattern. ØLead time