Material management of a company Flashcards
What is material management ?
Material management is a coordinating function responsible for planning and controlling materials flow. Material management can do much to improve company’s profit. It is fundamental for the process of transforming inputs into outputs which is called the company transformation process.
Objectives of material management?
To maximise the use of the company’s resources
To provide the required level of customer service.
What is the transformation process ?
It consists of several small transformation processes while transforming factors of production into outputs (goods that the company can sell)
What are factors of production ?
It is an economic term that describes the inputs that are used in the production of goods or services to make an economic profit.
Types of factors of production
Elementary FOP and Derived FOP
Elementary FOP
fundamental inputs without which company transformation process could not happen (Land, Labour, Capital)
Derive FOP
they provide the control of the company transformation process (executives who carry out activities according to the management unit in which they operate)
What are supplies ?
Company’s tangible goods which were not used for any purpose yet. Supplies are active in the company transformation process in the short term they are mostly consumed and belong to current company assets.
Importance of supplies ?
Financial resources of a company are stored in supplies
Supplies affect the total costs of a company
Supplies ensure to continuous transformation process
Supplies ensure the continuous activity of a company.
Two main groups of supplies
Purchased supplies and supplies of own production
Purchased supplies are divided into
Product materials
Technological materials
Purchased goods Livestock
What are product materials?
Material which is part of the product
How do we divide product materials?
Primary material Secondary material Package
What is primary material?
Material which forms the subjest of the product (fabric in the production of shirt)
What is secondary material?
Material which completes the product (buttons in the production of shirts)
What are technological materials?
Material which is needed for the operation of machinery and equipment (lubricating oil, spare parts)
What are purchased goods?
Goods which have are bought from suppliers to finalise the product (ties which are sold with shirts in one package)
What is livestock (purchased supplies)
Animals used for breeding
What are supplies of own production ?
Supplies of own production are supplies obtained by own activities of a company.
How are supplies of own production divided ?
unfinished products
semi-finished products
finished products
goods in stores
livestock
What are unfinished products ?
products which is incomplete due to other operations that must be carried out (a company will perform such operations later)
What are semi-finished products
products that have not been completely assembled or manufactured; from the point of view of a company which produced them, semi-finished products are finished products because they can be sold,
What are finished products
final products which are intended to satisfy needs (not for further processing)
What are goods in stores
finished products placed in store
What is livestock (supplies of own production) ?
breeding gains (e.g. calves, chickens, etc.)
What is valuation of supplies ?
Valuation of supplies means expressing the value of supplies in monetary terms (in money)
Types of valuation
Acquisition price
Own costs
Fair value
What is acquisition price ?
purchased supplies (supplies price + acquisition costs)
What are own costs ?
supplies obtained by own activities of the company (direct costs + indirect costs)
What is fair value ?
supplies obtained for free or by transfer of private ownership
What is supplying
Supplying is an activity of a company aimed at the procurement of supplies.
How do we divide aims of supplying
technical aims
economic aims
What are technical aims of supplying ?
to procure the needed quantity of supplies,
to procure the required assortment and quality of supplies,
to procure supplies at the required place and time;
What are economic aims of supplying ?
to ensure that supplies bind the smallest amount of financial resources,
to ensure that supplies require the minimal storage costs,
to ensure the efficient use of supplies.
Who provides supplying in a company
Supplying is provided by the supplying department, also called a purchasing or procurement department.
What are main activities of supplying department
purchasing and receiving of supplies,
storing of supplies,
dispatching of supplies.
What is supplies planning ?
Supplies planning is the main supplying activity consisting of material selection, material consumption planning, planning the supplies level, creating the purchasing plan.
What is material selection
A company decides about materials which will be purchased while considering the production programme. The following questions must be answered:
What is the required quantity?
What is the required quality?
What is an optimal price?
What are the delivery and payment conditions?
Is the material environmentally friendly and recyclable ?
What is material consumption planning ?
When planning the material consumption, a company must know the production plan and
material consumption standard.
The material consumption standard represents the maximum amount of material which can be consumed in one production unit considering the required quality. It consists of the net proportion of material and waste (technological waste resulting from the technological process and other waste resulting from work processes). It can be expressed in natural (kilograms, pieces, meters, litres, etc.) and monetary units (E, $, £, etc.)
he material consumption standard is divided into
the primary material consumption standard
the secondary material consumption standard
the primary material consumption standard
it is expressed in one production unit (e.g. kilogram, piece, meter, etc.),
the secondary material consumption standard
it is expressed in one consumption unit (e.g. of one product, of one machine, of one worker, etc.).
What is planning the supplies level
When a company plans the supplies level, it decides whether it will store a high or low level of supplies while ensuring the continuous transformation process and binding the lowest storage costs. These requirements are met with the optimal level of supplies which ensures the continuous transformation process, binds the smallest amount of financial resources and requires the minimal storage costs.
What is standard supply ?
Standard supply - ensures the estimated consumption between two deliveries:
aggregate supply - when considering the average length of the delivery cycle,
maximum supply - when considering the full length of the delivery cycle,
minimum supply = safety supply + technological supply.
What is safety supply ?
ensures the continuous transformation process when the delivery is late.
What is technological supply
ensures the continuous transformation process when material cannot be used right after the delivery (e.g. a company colours the material).
What does the supply standard represent ?
The supplies standard represents the average level of supplies stored in a company’s storage with the minimum storage costs. It depends on the average daily material consumption during the production period (e.g. one year). The time supplies standard expresses the number of days for how much the average supply should last.
What is creating the purchasing plan ?
The purchasing plan is a balance between company resources (initial supply + required purchase) and needs (consumption + final supply):
What is initial supply
supplies from the previous period
What is required supply
required deliveries during the reporting period
What is consumption
material to be consumed
What is final supply
supplies at the end of the reporting period
How to determine the right time to order the delivery
To determine the right time to order the delivery, a company considers the total procurement time (including ordering time, delivery time, shipping time, handling time, insurance time and other times) and quantity of material in storage.
What is procurement of supplies ?
Procurement of supplies consists of the supplier selection (supplier must be reliable, must provide the required services, must be at a suitable distance, must offer a reasonable price) and determination of the quantity and the delivery time (supplies must ensure continuous operation, supplies must bind the smallest possible amount of financial resources).
Main steps of procurement of supplies
choosing a procurement method
market research
selection of the supplier
legal protection of the delivery
delivery dispatching
delivery receiving
payment
Choosing a procurement method
the supplying department chooses between several
procurement methods:
о random procurement - material is procured after the need arises,
о storage procurement - material is procured and stored continuously,
just in time - material is not stored, it is delivered directly to the production
Market research
he marketing department prepares the necessary information about the suppliers according to the current market situation (assortment, quality, prices, goodwill, delivery conditions, payment conditions)
Selection of the supplier
the company chooses the best supplier according to the
results of market research
Legal protection of the delivery
a bill of sale is concluded when both parties confirm the order
delivery dispatching
the company chooses the best transport mean and place of delivery
delivery receiving
material is delivered, unloaded and stored in the storage, the number of transport packages, as well as quality, is checked and compared with the receipt card (the observed differences are recorded and claimed)
payment
the company pays for the delivery according to the agreed conditions in a bill of sale
What is supplies storing
Supplies are stored at a pre-defined place with required properties (light, temperature, humidity, etc.), unpacked and placed (e.g. in racks), treated (e.g. cleaning, chemical treatment, etc.) and sorted (e.g. sorting the primary and secondary material).
Main functions of supply storing
spanning function - storage aims to eliminate spatial and time inconsistency between delivery and consumption
transformation (processing) function - by storing some materials acquire new features (e.g. wine ripening, etc.),
security function - storage enables storing in case of delivery delays
Types of storing
Centralised - one central storage supplies all segments of production
Decentralised - a company has several smaller storages
Combined
Types of storages
Supplying - storages used for material and packages
Production - storages used for semi-finished products and spare parts
Sales - storages used for finishedd products
Covered - storages used for food, clothes, shoes etc.
Semi-covered - used for material which must be protected from rain like wood, clay
Open - used for building material like sand, gravel
Special storages - used for special material like frozen food, fuel, flammables
What is supply registration
Supplies registration means keeping records of supplies level and movements.
Records are kept in relevant documents:
receiving documents - invoice, receipt card, delivery note,
storing documents - storage card, label
dispatching documents - issue card, transfer card.
Who provides supply registration ?
supplying department - registration of bills of sale, orders, price lists, suppliers and carriers,
storage-registration of delivery notes, storage cards, receipt cards and issue cards,
accounting department - registration of invoices and claims.
Methods of registration
visual control - a book of records is used,
written records - storage cards and labels are used,
computer processing - special storing application is used.
What is the management of supplies
The main aim of management of supplies is to ensure the continuous transformation process and to ensure that supplies bind the smallest amount of financial resources. To fulfil these aims, companies use the level system and ABC method
What is the level system
a company monitors minimum supply level (the level of supplies which must be ensured to keep the continuous transformation process) and maximum supply level (the level of supplies which must not be exceeded),
What is the ABC method
a company monitors supplies according to their share of value and share of species:
class A - a group of materials whose share of value is from 70% to 80% and share of species (items) is from 10% to 20%,
class B - a group of materials whose share of value is from 15% to 20% and share of species (items) is from 20% to 40%,
class C - a group of materials whose share of value is from 5% to 15% and share of species (items) is from 50% to 70%.