Material Control

Concepts and objectives

Materials include: raw materials used for production, sub-assemblies and fabricated parts. Stores is wider in meaning and includes: tools, equipments, maintenance and repair items, factory supplies, components, jigs, fixtures etc.

Material control consists of controls at two levels: 1. Quantity Controls lesser and lesser units should be used in production process. 2. Financial Controls frequent purchase of material increase costs.

Economic Order Quantity (EOQ)



The EOQ is the optimum or the most favourable quantity which should be purchased each time the purchase are to be made. At EOQ level, the cost of carrying inventory is equal or almost equal to the cost of not carrying inventory (cost of placing orders)

      

EOQ =

2xUxO IC where U = Annual Usage in units O = Cost of placing an order I = Cost of carrying inventory (%) C = Cost per unit of material

Example
      

Annual usage units (U) = 6,000 Cost of placing an order (O) = Rs.30 Carrying cost of inventory (c) = 20% Cost per unit of material (I ) = Rs.5 EOQ = 2 x 6,000 x 30 -------------------- = 600 units 5 x 20%

Behaviour of Carrying cost, Ordering cost, Minimum Total Cost & EOQ


Cost Minimum Total cost Total holding ( carrying) cost

Total Ordering cost 0 EOQ Order Quantity

When to Order (Re-order Level)



  

The EOQ determines how much to buy at a particular time. But it does not reveal When to buy. Three factors that determine this level are: 1. The expected usage 2. The time interval between initiating an order and its receipt ( lead time) 3. The minimum inventory ( safety stock)

Formulae


1. Re-order level = Safety stock + (Average re-order point or lead time) 2. Re-order level = Minimum re-order period x Maximum usage.

Example


  

If daily usage is 400 units of materials which have a lead time of 20 days and the safety ( minimum) stock is 500 units, the order point will be: Order point = Daily consumption x lead time + Safety stock = 400 x 20 = 8000 units + 500 units = 8500 units.

Pareto or ABC Analysis



Inventory items are ranked according to investments in each item in the inventory. The large value items are grouped together into one class. The lowest value are grouped into another class and those items which are of intermediate value are grouped into a middle classification.

ABC Method Graphical representation

    

    


100 v 90 A 80 L 70 U 60 E 50 40 30 20 10 0

Class A Class B Class C 20 40 60 80 100

Number of items (cumulative)

KANBAN DISPLAY ON INSTRUCTION CARD



It is a system of markers which authorizes production and movement to the process which requires the parts. It contains: Reorder point, lead time, delivery location, source of supply, part number, quantity of parts that should be processed etc. Reduces inventory, decreases lead time, increases productivity through integrating different processes

Just-in-time Method


   

Materials are obtained just in time for production to provide finished goods just in time for sale. JIT Production & JIT Purchasing. Producing what is needed, when it is needed, in the quantity just needed. Requires better coordination with suppliers. Long term contracts is best suited for JIT. Zero inventory, Zero breakdown, 100% on time delivery service, elimination of non-value added activities, Zero defects.