Material Managment

MATERIAL MANAGEMENT ccem (Raipur)

Unit-1

Integrated materials functions: Integrated materials management, Organizational control, Materials planning & budgeting, Codification & standardization, Source selection.

INTRODUCTION

Materials Management is simply the process by which an organization is supplied with the goods and services that it needs to achieve its objectives of buying, storage and movement of materials. Materials Management is related to planning, procuring, storing and providing the appropriate material of right quality, right quantity at right place in right time so as taco-ordinate and schedule the production activity in an integrative way for an industrial undertaking. Most industries buy materials, transport them in to the plant, change the materials in to parts, assemble parts in to finished products, sell and transport the product to the customer. All these activities of purchase of materials, flow of materials, manufacture them in to the product, supply and sell the product at the market requires various types of materials to manage and control their storage, flow and supply at various places. It is only possible by efficient materials management. The materials requirements planning, purchasing, inventory planning, storage, inventory control, materials supply, transportation and materials handling are the activities of materials management. They will be discussed in details in various chapters to follow.About 20-25 years ago, there was no cut-throat competition in the market to sell the various consumer items manufactured by different industrial undertakings and the availability of materials to manufacture these items was not scarce. Therefore, materials management was not thought to be so important and its separate identity in the organization was not felt. But today it has become an important management activity to streamline production. Actually before the production begins it is necessary to ensure availability of all the types of materials needed for production and its supply at the various production centers. Planning, purchasing and scheduling are the main functions of materials management. It aims atimproved productivity. It is used to reduce the cost, which increases profitability and streamlines the production. Apart from management of material cost and its supply it helps in its proper utilization, transportation, storage, handling and distribution. The market research and forecasting both for sales of company’s product and purchasing of various materials required for producing the product are needed at the planning stage. Purchasing, procurement of materials, transportation, storage, inventory control, quality control and inspection of materials and goods supplied at various production centers before production are also managed as routine work. Materials handling, packaging, warehouse

Meaning & definition

Materials management can deal with campus planning and building design for the movement of materials, or with logistics that deal with the tangible components of a supply chain. Specifically, this covers the acquisition of spare parts and replacements, quality control of purchasing and ordering such parts, and the standards involved in ordering, shipping, and warehousing the said parts.

“Material management is an approach for planning, organizing, and controlling all those activities principally concerned with the flow of materials into an organization”.

The planning and control of the functions supporting the complete cycle (flow) of materials, and the associated flow of information. These functions include

(1) Identification, (2) cataloging, (3) standardization, (4) need determination, (5) scheduling, (6) procurement, (7) inspection, (8) quality control, (9) packaging, (10) storage, (11) inventory control,(12) distribution, and (13) disposal. Also called materials planning.

SHIV KUMAR.P (LECT.)


Scope of Materials Management

The scope of Materials Management varies greatly from company to company and may include material planning and control, production planning, Purchasing, inventory control, in-plant materials movement, and waste management. It is a business function for planning, purchasing, moving, storing material in a optimum way which help organization to minimize the various costs like inventory, purchasing, material handling and distribution costs.

Materials Management's scope:

The scope is vast. Its sub functions include Materials planning and control, Purchasing, Stores and Inventory Management besides others.

Basically, under its scope are :

1.Emphasis on the acquisition aspect

2. Inventory control and stores management

3.Material logistics, movement control and handling aspect

4. Purchasing, supply, transportation , materials handling etc

5. Supply management or logistics management

6. All the interrelated activities concerned with materials

Materials management can thus also be defined as a joint action of various materials activities directed towards a common goal and that is to achieve an integrated management approach to planning, acquiring, processing and distributing production materials from the raw material state to the finished product state.

objectives of MM

The fundamental objectives of the Materials Management function, often called the famous 5 Rs of Materials Management, are acquisition of materials and services:

1.The Right Quality

2. The Right Quantity

3 .The Right Time

4 . The Right Source

5. The Right Price

From the management point of view , the key objectives of MM are :

To buy at the lowest price , consistent with desired quality and service

1. To maintain a high inventory turnover , by reducing excess storage , carrying costs and inventory losses occurring due to deteriorations , obsolescence and pilferage

2. To maintain continuity of supply , preventing interruption of the flow of materials and services to users



3. To maintain the specified material quality level and a consistency of quality which permits efficient and effective operation

4. To develop reliable alternate sources of supply to promote a competitive atmosphere in performance and pricing

5. To minimize the overall cost of acquisition by improving the efficiency of operations and procedures

6. To hire, develop, motivate and train personnel and to provide a reservoir of talent

7. To develop and maintain good supplier relationships in order to create a supplier attitude and desire furnish the organisation with new ideas , products, and better prices and service

8. To achieve a high degree of cooperation and coordination with user departments

9. To maintain good records and controls that provide an audit trail and ensure efficiency and honesty

10. To participate in Make or Buy decisions

Materials Management thus can be defined as that function of business that is responsible for the coordination of planning, sourcing, purchasing, moving, storing and controlling materials in an optimum manner so as to provide service to the customer, at a pre-decided level at a minimum cost.

Functions of material mgmt

The broad Materials function has the following as identified and interlinked sub functions:

1. Materials planning and control: Materials required for any operation are based on the sales forecasts and production plans. Planning and control is done for the materials taking into account the materials not available for the operation and those in hand or in pipe line. This involves estimating the individual requirements of parts, preparing materials budget, forecasting the levels of inventories, scheduling the orders and

2. Monitoring the performance in relation to production and sales: Purchasing: Basically, the job of a materials manager is to provide , to the user departments right material at the right time in right quantity of right quality at right price from the right source. To meet these objectives the activities undertaken include selection of sources of supply, finalization of terms of purchase, placement of purchase orders, follow up, maintenance of relations with vendors, approval of payments to vendors, evaluating, rating and developing vendors.

3. Stores: Once the material is delivered, its physical control, preservation , minimization of obsolescence and damage through timely disposal and efficient handling, maintenance of records, proper locations and stocking is done in Stores.

4. Inventory control: One of the powerful ways of controlling the materials is through Inventory control. It covers aspects such as setting inventory levels, doing various analyses such as ABC , XYZ etc ,fixing economic order quantities (EOQ), setting safety stock levels, lead time analysis and reporting.

Process of material mgmt:

In its process of materials management has such sub fields as inventory management , value analysis, receiving, stores and management of obsolete , slow moving and non moving items. The various activities represent these four functions:

Planning and control



Purchasing

Value analysis and

Physical distribution

organizational control

The process of establishing and maintaining authority over and throughout an enterprise. The organizational control process within a larger business typically requires the use of systems that assist a manager in analyzing considerable amounts of data about how the business and its employees are functioning in order to make appropriate administrative decisions.

Organizational Control Objectives

Simply put, organizational control is the process of assigning, evaluating, and regulating resources on an ongoing basis to accomplish an organization's goals. To successfully control an organization, managers need to not only know what the performance standards are, but also figure out how to share that information with employees. Control can be defined narrowly as the process a manager takes to assure that actual performance conforms to the organization's plan, or more broadly as anything that regulates the process or activity of an organization. The following content follows the general interpretation by defining managerial control as monitoring performance against a plan and then making adjustments either in the plan or in operations as necessary.

The six major purposes of controls are as follows:

I. Controls make plans effective. Managers need to measure progress, offer feedback, and direct their teams if they want to succeed.



II. Controls make sure that organizational activities are consistent. Policies and procedures help ensure that efforts are integrated.

III. Controls make organizations effective. Organizations need controls in place if they want to achieve and accomplish their objectives.

IV. Controls make organizations efficient. Efficiency probably depends more on controls than any other management function.

V. Controls provide feedback on project status. Not only do they measure progress, but controls also provide feedback to participants as well. Feedback influences behavior and is an essential ingredient in the control process.

VI. Controls aid in decision making. The ultimate purpose of controls is to help managers make better decisions. Controls make managers aware of problems and give them information that is necessary for decision making.

Many people assert that as the nature of organizations has changed, so must the nature of management controls. New forms of organizations, such as self‐organizing organizations, self‐managed teams, and network organizations, allow organizations to be more responsive and adaptable in today's rapidly changing world. These forms also cultivate empowerment among employees, much more so than the hierarchical organizations of the past Some people even claim that management shouldn't exercise any form of control whatsoever, and should only support employee efforts to be fully productive members of organizations and communities. Along those same lines, some experts even use the word “coordinating” in place of “controlling” to avoid sounding coercive. However, some forms of controls must exist for an organization to exist. For an organization to exist, it needs some goal or purpose, or it isn't an organization at all. Individual behaviors, group behaviors, and all organizational performance must be in line with the strategic focus of the organization.

The Organizational Control Process

The control process involves carefully collecting information about a system, process, person, or group of people in order to make necessary decisions about each. Managers set up control systems that consist of four key steps:

1. Establish standards to measure performance. Within an organization's overall strategic plan, managers define goals for organizational departments in specific, operational terms that include standards of performance to compare with organizational activities.

2. Measure actual performance. Most organizations prepare formal reports of performance measurements that managers review regularly. These measurements should be related to the standards set in the first step of the control process. For example, if sales growth is a target, the organization should have a means of gathering and reporting sales data.

3. Compare performance with the standards. This step compares actual activities to performance standards. When managers read computer reports or walk through their plants, they identify whether actual performance meets, exceeds, or falls short of standards. Typically, performance reports simplify such comparison by placing the performance standards for the reporting period alongside the actual performance for the same period and by computing the variance—that is, the difference between each actual amount and the associated standard.

4. Take corrective actions. When performance deviates from standards, managers must determine what changes, if any, are necessary and how to apply them. In the productivity and quality‐centered environment, workers and managers are often empowered to evaluate their own work. After the evaluator determines the cause or causes of deviation, he or she can take the fourth step—corrective action. The most effective course may be prescribed by policies or may be best left up to employees' judgment and initiative.

These steps must be repeated periodically until the organizational goal is achieved.



material planning and budgeting

Production and manufacturing are terms used to describe a set of processes used for converting raw materials into finished products. These raw materials, or inputs, undergo number of stages of conversion, with each stage using a particular production, or manufacturing, process, and at each stage, the material(s) undergoes conversion and assumes a different form. The effective management of production and manufacturing must provide finished, or end, products of the required quality, and in appropriate quantities to satisfy the demand for the products, at the desired times and at a reasonable cost. Thus production and manufacturing planning and control functions are concerned primarily with the aspects of quantity or volume, delivery or timing, quality and cost. Before going any further, we must note the fine distinction between production and manufacturing.

Technically, manufacturing and production are the same, but whereas the term manufacturing can be used for any kind of production, it is generally used in cases where discrete products are produced. Such products are usually engineered products like automobiles, aircraft’s, refrigerators, machine tools, heavy, medium and light machines, televisions, radios and appliances, and manufacturing is the process of transformation of raw materials into these discrete engineered products. These products are distinctly different from bulk materials and products such as steel, fertilizer, chemicals, cement and pharmaceuticals. The important point here is that material in various forms, such as ores, raw stock, raw materials in the form of bars, plates, sheets, angles etc., purchased components and subassemblies and in-house manufactured component and subassembly, is the essential input, and production of bulk materials and manufacturing of discrete products can only be carried out effectively if, and only if, the requirements of various materials are adequately planned, budgeted and controlled. Material planning and budgeting is the starting point and the most important activity of materials management. If the planning of the requirements of various material inputs is either wrong or untimely, then the functions of manufacturing planning and control are most adversely affected. Materials planning deals with a number of critical

Questions, which include the following:

i)whether to make a component/subassembly or an intermediate product, in house,

or buy from an external vendor/supplier?

ii)How much to order? Or how much to order every time an order is placed?

iii)When to order? Or how frequently to place orders for that material?

Moreover, the amount of order will depend on the stock, or inventory, in hand and on order. The elements of the task of materials planning and budgeting for production of bulk materials and products differ (and at times quite significantly) from that for the manufacture of discrete products. The procedures and algorithms used for planning, budgeting and control are also somewhat different. In this unit, we will discuss the various aspects of materials planning and budgeting in manufacturing and production. However, before we can take up the details of materials planning and budgeting in manufacturing industries, and in continuous process industries engaged in the production of bulk materials and products, we must briefly discuss the management of production and manufacturing. We must also identify the links and interfaces of materials planning and budgeting with purchasing and stores, one handmaid materials control, on the other. The material requirements planning algorithm will be discussed in detail in this unit.

How is codification / cataloguing done?

Codification / cataloguing is basically an identification system for each item of the inventory. There are often three broad approaches to developing a suitable identification system :

1. Arbitrary approach:



As the name suggests ,this approach does not use any design for codification. Rather , as and when an item is received by Stores in its receiving bay, a running and unique serialnumber is assigned to it. This number becomes the code of the item for subsequent use at different stages. While this system is the easiest one to use, it does not help in scientific management of inventory. For example, say a particular spare part of a machine is received in the stores and is assigned a running unique number 999XXX as its code. Then if the same item is received at any other point of time the code number shall not be the same i.e. 999XXX as by that time a lot many other items might have entered into the firm and might also have been assigned different running and unique code making it impossible to assign a previous code to any item. Arbitrary approach is useable only where perhaps items are non-repetitive and the inventory management need not be scientific.

2. Symbolic approach:

Also known as intelligent code system it assigns code in a manner that the same item is not allotted two different codes and also a code, because of its design, can be used to tell many things about an item. The system uses either a numeric codification system or an alphanumeric or mnemonic system. Under the numeric system, a set of numeric code (length pre-decided) is assigned to each item where different parts of the code describe, of an item :

A. Class B. SubclassC. Unique running number of that itemD. Location of storage E. Suppliers' code etc.

Thus the code of this item shall be a 10 digit code, 2145098344 and it shall remain always so for this item. It shall then be easy to communicate about this item among the concerned agencies. Similarly, there can be code using alpha numeric value like AA223B234 with different alpha and numerical value describing some pre-decided meaning. It is also called mnemonic system. Both numeric and mnemonic systems are symbolic systems as the codes under it describe a symbol for identifying an item. Since this code has certain logic it is also called intelligent code and this system is in wide use every where.

3. Use of drawing numbers:

In many firms using complex drawings through which part numbers etc are drawn, use their drawing numbers as codes to identify an item. Since the drawing number for a firm remains unique , assigning a code on this basis assumes a unique code for that item and hence confirms the requirement of unique identification for the item.

a) Process of codification:b) Decide if the firm wants to go for arbitrary system, symbolic system or engineering drawing systemc) List the inventory items d) Define the class of items such as (for example...) :e) Abrasivesf) Bearingsg) Belt and beltingsh) Bolts, nuts & washersi) Brooms & brushesj) Cans & containersk) Chemicals & reagentsl) Cloth, leather & rubberm) Electricalsn) Gases



o) Glasswaresp) Oil & lubricantsq) Pipe & Pipe fittingsr) Photographic itemss) Safety items t) Tools & tackles u) Stationeriesv) Welding materialsw) Rollsx) Refractoryy) Raw Materialsz) Building materials

Who does the codification?

Normally, it is the custodian who does the codification for the items he keeps in his inventory. However, in firms of substantial sizes where good number of items are received on regular basis , codification is usually done by a team consisting of representatives drawn from Stores, user department and Industrial engineering department. Still, for Automatic procurement items the responsibility lies with the Stores department.

When codification?

Codification identifies an item. Also it acts as a communicating medium for an item among the different users of that item in whatever way such as Stores, User department, Planning department, Finance, Purchasing etc.

Thus, as soon as the item enters into Stores (if item is a new one), it is codified. Once codified, the same code is used in the cycle of procurement, throughout and forever.

Standardization

standardization is the process of developing and implementing technical standards. Standardization can help to maximize compatibility, interoperability, safety, repeatability, or quality. It can also facilitate commoditization of formerly custom processes. In social sciences, including economics, the idea of standardization is close to the solution for a coordination problem, a situation in which all parties can realize mutual gains, but only by making mutually consistent decisions. Standardization is defined as best technical application consensual wisdom inclusive of processes for selection in making appropriate choices for ratification coupled with consistent decisions for maintaining obtained standards. This view includes the case of "spontaneous standardization processes", to produce de facto standards. The existence of a published standard does not necessarily imply that it is useful or correct. Just because an item is stamped with a standard number does not, by itself, indicate that the item is fit for any particular use. The people who use the item or service (engineers, trade unions, etc.) or specify it (building codes, government, industry, etc.) have the responsibility to consider the available standards, specify the correct one, enforce compliance, and use the item correctly... Validation of suitability is necessary.

Standardization is implemented greatly when companies release new products or software to market. Compatibility is important for products to be successful; many devices coming out have USB, Ethernet, or other standard types of connection. This allows consumers to use their new items along with what they already own.By using standardization, groups can easily communicate through the set guidelines, in order to maintain focus. The method is made to facilitate processes and tasks; this is why it interlocks with lean manufacturing.In the context of social criticism and social sciences, standardization often means the process of establishing standards of various kinds and improving efficiency to handle people, their interactions, cases, and so



forth. Examples include formalization of judicial procedure in court, and establishing uniform criteria for diagnosing mental disease. Standardization in this sense is often discussed along with (or synonymously to) such large-scale social changes as modernization, bureaucratization, homogenization, and centralization of society.In the context of business information exchanges, standardization refers to the process of developing data exchange standards for specific business processes using specific syntaxes. These standards are usually developed in voluntary consensus standards bodies such as the United Nations Center for Trade Facilitation and Electronic Business (UN/CEFACT), the World Wide Web Consortium W3C, the Telecommunications Industry Association (TIA), and the Organization for the Advancement of Structured Information Standards (OASIS).

In the context of customer service, standardization refers to the process of developing an international standard that enables organizations to focus their attention on delivering excellence in customer service, whilst at the same time providing recognition of success through a third party organization, such as British Standards Institution (BSI). The International Customer Service Standard (TICSS) has been developed by The International Customer Service Institute (TICSI) with the objective of making it the cornerstone global standard of customer service. This standard has the status of an independent standard, managed by The International Customer Service Institute.

Standards can be:

De facto standards which means they are followed by informal convention or dominant usage. De jure standards which are part of legally binding contracts, laws or regulations. Voluntary standards which are published and available for people to consider for use

There are at least four levels of standardization: compatibility, interchangeability, commonality and reference. These standardization processes create compatibility, similarity, measurement and symbol standards. Standardization in the context of supplies and materials management it covers the aspect of, any item of no use in the company must not be bought or made. The make or buy also outlines the standardization process, where bolts can be used, screws might substitute the bolts so finally that is a standard approach.

Types of standardization process: Emergence as de facto standard: tradition, market domination, etc. Written by a Standards organization: In a closed consensus process: Restricted membership and often having formal procedures for due-process

among voting members In a full consensus process: usually open to all interested and qualified parties and with formal procedures for

due-process considerations. Written by a government or regulatory body Written by a corporation, union, trade association, etc. Selection of Source (Supplier) -------Purchase procedure (contd...)

'Sourcing' or 'Selection of source/s' is a major challenge for any Purchasing manager. Source of supply of required materials is basically selection of a suitable supplier. The Purchasing manager has to ensure , getting the material / service from the right source (one of 5 R).

Once the Indent (also called requisition or Material Procurement Requisition/ MPR) is received in the Purchase department ,the concerned dealing person scrutinizes it , in respect of :

The complete specifications including drawings, if required

Consumption pattern Stock in hand and dues in



Budget availability Availability of all prescribed enclosures and certificates, Estimates Inspection guidelines, if any

On being fully satisfied that the next stage activities i.e. sourcing is now called for, the mode of selection of source , often called mode of tendering is decided. In many firms , if the number of items is not large then the sources are known and on the basis of suppliers record the Purchase order can be placed. However, in government firms where opportunities are supposed to be given to any eligible supplier, tendering is resorted to.Tendering is a process by which a potential source is contacted through a notice called Notice Inviting Tender (NIT). The NIT contains the details of material / service required , the terms and conditions applicable for entering into an agreement with the seller, offers made in response to NIT by the probable seller (Bidder) , for finally reaching the point of agreement between the selected bidder and the buyer.

NIT is issued by the buyer and Tender is submitted by the interested bidders /

Tenderers

Depending upon various reasons, mainly emanating from the extent of knowledge about the existence of a source (supplier), the mode of tendering is decided.

Different popular modes of tendering for selection of a supplier are as below:

Open Tender / Global Tender Limited Tender Enquiry (LTE) Single Tender Rate Contract DGS&D Rate Contract



Unit-2

Introduction to purchasing systems: Creative purchasing, Purchase systems, Price forecasting, Buying seasonal, commodities, Purchasing under uncertainty, capital equipment purchase, International purchasing, Imports

substitution-prospects and retrospect, Public buying, Legal aspects in buying, Insurance buying, Buyer-seller relationship and ethics.

'Purchasing System'

A method used by businesses to buy products and/or services. A purchasing system manages the entire acquisition process, from requisition, to purchase order, to product receipt, to payment. Purchasing systems are a key component of effective inventory management in that they monitor existing stock and help companies determine what to buy, how much to buy and when to buy it. A popular purchasing system is based on economic order quantity models.Purchasing systems makes the purchasing process more efficient and helps companies reduce supply costs. Computerized purchasing systems can cut companies' administrative costs, shorten the length of the purchase cycle and reduce human error, thereby minimizing shortages. They can also simplify order tracking and make it easier to manage purchasing budgets by quickly creating expenditure reports.

Purchasing is the function of buying Goods & Services from External Source to an Organisation. Purchase department buys Raw Materials, Spare parts, services etc as Required by the company or

Organisation. Purchase management is One of the most Crucial Area of the Entire Organisation. Thus, Needs Intensive

management. Purchase is the Main Activity in Area of Material management. Purchasing management is a department in an organization responsible for purchasing activities. Purchase is Most Important Function in any Organisation. Purchase management decides profitability of the Company. Purchasing management also covers the areas of outsourcing and in-sourcing. Purchasing management is the management of purchasing process, and related aspects in an organization.

Because of production companies purchase nowadays about 70% of their turnover, and service companies purchase approximately 40% of their turnover.

It is Studied that 1% Saved in the Purchase function Improves the profit of the Company as much as 2 to 3% !!!

The purchasing management department ensures that all goods, supplies and inventory needed to operate the business are ordered and kept in stock. It is also responsible for controlling the cost of the goods ordered, controlling inventory levels and building strong relationships with suppliers.

Objectives Of Purchasing Management I. To purchase the required material at minimum possible price by following the company policies.

II. To keep department expenses low.III. Development of good & new vendors (suppliers).IV. Development of good relation with the existing suppliers.V. Training & development of personal employees in department.

VI. To maintain proper & up to date records of all transactions.VII. Participating in development of new material and products.

VIII. To contribute in product improvement.IX. To take Economic "MAKE OR BUY" decisions.



X. To avoid Stock- out situations.XI. To develop policies & procedure

Principles Of Purchasing Management OR (7 R'S)

Buying Material at right QUALITY. In the right QUANTITY. From the right SOURCE. At the right PRICES. Delivered at the right PLACE. At the right TIME. With right mode of TRANSPORT. Purchasing Cycle/ System OR Steps In Purchasing Get Requirement from User Department. Send the INQUIRY to the Vendors (Suppliers). Get the QUOTATIONS from Vendors. Make COMPARATIVE Statement. NEGOTIATE; Fix the Price and Terms & Conditions. Place the ORDER to the right Vendor. FOLLOW up with Vendor. RECEIPT & INSPECTION. STORAGE & RECORD- KEEPING. INVOICE & PAYMENT.

Purchasing Process

Purchasing Process includes as usual 11 main stages as follows:

1. Market survey2. Requisitioning3. Approving4. Studying Market5. Making Purchase Decision6. Placing Orders7. Receipting Goods and Services Received8. Accounting Goods and Services9. Receiving Invoices and Making Payment10. Debit note in case of material defect11. Purchasing Management Process

Purchasing Management Process consists usually of 4 stages:

1. Purchasing Planning,2. Purchasing Tracking,3. Purchasing Reporting,4. Negotiate5. Purchasing Planning

THE IMPACT OF PURCHASING MANAGEMENT A large study based on 175 company surveys with a respond rate of 22% performed by Carr and Pearson (2002) shows that the factors strategic purchasing and Purchasing



Management have a positive impact on the firm’s financial performance in both small and large firms. Carr and Pearson (2002) also write that Purchasing Management and supplier involvement does affect the success of a new product introduction. This study also shows that a link exist between implementation of strategic Purchasing Management and achievements of a firm’s comprehensive goals. It is also stated in the report by Carr and Pearson (2002) that it is believed that most firms recognize the importance of strategic purchasing, because they spend a large percentage of their sales on purchased inputs. Carr and Pearson (2002) also finish their study with the words “Based on this study, management should better understand the importance of Purchasing Management, supplier involvement, strategic purchasing and its relationships with firm’s financial performance.

Price Forecasting Technique s

An important part of anticipating both future price levels and the risk that anticipated prices will not be achieved is developing strategies for forecasting prices. In general, there are two basic approaches to forecasting prices in grain markets: fundamental analysis and technical analysis. While they are often presented as substitutes or competitors in price forecasting, the two can be complimentary. Most market analysts pay attention to both fundamental and technical factors even though they may emphasize one over the other.

Fundamental AnalysisFundamental price analysis is based on the notion that the underlying supply/demand conditions in a given market ultimately determine price. Since the futures market is attempting to discover prices that will balance supply and demand in some future time period, there is uncertainty in initially establishing an equilibrium price. The market may be “shocked” by new information, resulting in traders’ changing their assessments of what the equilibrium price will be in the future. Fundamental analysis is attempts to both anticipate changes in supply/demand information, and to evaluate the direction and range of price movement resulting from new information. Fundamental analysis may be simple (intuitive), or complicated (using quantitative statistical or mathematical models). In both cases, analysts are attempting to assess price implications of economic variables including:

1) seasonal use patterns2) seasonal supply patterns3) prices of substitute goods4) prices of compliment goods5) market structure

Technical AnalysisWhile fundamental price analysis often asks the question: "Where should the price be?" given economic conditions, technical analysis asks the question: "How will we get there?" As such, technical analysis often deals with the timing of pricing decisions within a given price range. While sophisticated mathematical models are often employed with technical analysis, the only data used is past price history, volume traded, and in futures markets the open interest (i.e., how many futures contracts are outstanding). As such, technical analysis is simply the analysis of price trends -- by looking at past prices, volume, and open interest technical analysts attempt to identify buy and sell signals based on underlying market emotion. The idea is to reduce the opportunity cost of buying too early or selling too late.

There are literally an infinite number of ways to look at past prices, but some of the more common technical indicators include:

1. Bar Charts



2. Lines of support and resistance

3. Consolidation planes (also called price channels)

4. Key reversals

5. Price Gaps and

6. Moving Averages

1. Bar ChartOn bar charts, price is plotted on the vertical axis and time (days or weeks) on the horizontal axis. Each time period shows a vertical bar indicating high, low and closing price (settlement). The open, or first price of the time period, is also often included.The most common time periods used in constructing bar charts are days, weeks, and months. However, some short term futures traders construct bar charts using 5, 1`0, or 15 minute intervals. Through time, up and down trends develop, displaying the process of price discovery, and bar charts provide a way to identify these trends.

2. Trend line (lines of support or resistance)

As trends develop over time, bar charts can be enhanced to determine the exact nature of the trend. This is done by constructing lines of support and/or resistance.In up trends, support lines are drawn connecting the lowest of lows over a given time period. These lines are called lines of support. As long as price action in succeeding trading days does not penetrate the up-trending line, it is assumed that the market will continue to trend upward, and holding long positions (i.e., being a market buyer or a keeper of a physical commodity) is justified. Once a day is encountered where price action penetrates the line of support, it is assumed that the market trend is over, and prices are likely to move sideways or down, suggesting that long positions in the market now face an increased likelihood of losing money.In down trends, resistance lines are drawn connecting the highest of highs over some time period. When the resistance lines are penetrated by some day’s price action, it is assumed that the downtrend is over and prices are likely to get higher. At this point, short positions (i.e., initial sellers in the market) face increased price risk.

In both cases the lines are extended to and beyond the current date. One (or more) closes below a support line is a "sell" signal. One (or more) closes above a resistance line is a "buy" signal. The close is the markets closing price if the bar chart is plotted using days as the time interval, or the last price traded in the time interval if it is other than days.

As with all technical analysis techniques, the selection of he time interval over which the lines of support and/or resistance are constructed are extremely subjective, and affect the levels of support and/or resistance identified. This is a significant limitation. The length of time over which the trend line is drawn greatly affects its slope and sensitivity. In general, the more bars included in the construction of a trend, the more confidence one has that the prices have changed direction when the trend is violated.

3. Consolidation PlanesWhen price congestion occurs in a sideways pattern, parallel horizontal lines are drawn from the highest highs and lowest lows in the congestion area. The market signal is to sell at the upper end of the channel and buy at the lower end of the channel as long as the pattern is maintained.A breakout up or down is indicated when a close occurs outside of the congestion area. This is often interpreted as some important change in the underlying fundamental relationships for the particular market being watched, but the actual fundamental data is not important to the measurement of the price pattern.

4. Key Reversal



A key reversal occurs on what is called an outside day, and indicates a reversal in the previous price trend. Outside days are when the day’s high is higher than the previous day’s high, and the low is lower than the previous day’s low. Many technicians also require that the closing price must be lower than previous day’s lowest price for a bearish key reversal. A bearish key reversal means price are expected to go down. In other words, if the market had been trending up, a bearish key reversal would be a sell signal based on the assumption that the market will now trend down. If the market had been trending down, and the close is above the previous days high, a bullish key reversal is recorded, and a buy signal is generated. A key reversal indicates a day of huge battling over fundamental information. The closing price indicates who won the battle among buyers and sellers.

5. GapsGaps reflect a strong change in supply/demand assessment due to new market information, or a change in the general interpretation of existing information. A gap is when a given day’s high (low) is lower (higher) than the previous day’s low (high). This can be interpreted two ways. One is that an important signal of short-term direction has developed and prices will move away from the gap. In other words, if today’s highest price is below yesterday’s lowest price, prices are expected to continue deteriorating in the short run. However, many \trader’s believe that gaps will almost always eventually be filled, and thus expect that at some point prices will turn and trade back through the gap.

6. Moving AveragesMoving averages are used to smooth out daily price fluctuations so that an analyst might get a better idea of the underlying market trend. They tend to be used two ways. First, a rather long term moving average is followed. When the price crosses the moving average, a buy or sell signal is generated. For example, a trader might follow a 50-day moving average of corn prices (usually based on the closing prices). If prices are trending up, the moving average will be below the price level. Once the price in a given day closes below the 50 day moving average a sell signal is generated, and the trader would sell corn futures. The second way moving averages are employed is to track a short and a longer moving average, and initiate positions when they cross. For example, a trader may track a 5-day and a 10-day moving average for corn. When the market is moving up, the 5-day moving average will lie above the 10 day. If prices correct and start to move down, the 5 day moving average will respond quicker than the 10 day, and after a few days of lower prices will cross the 10 day average and then lie below it. When the shorter average crosses the longer average, a trade signal is generated. If the 5-day crosses the 10-day from above, a sell signal is generated. If the 5-day crosses the 10-day from below, a buy signal is generated.Shorter averages will be more sensitive to trend changes but will also give many false signals in a sideways market. Moving averages work best in well-defined trend markets.

Buying seasonal

Seasonality often plays a part in determining prices for commodities in regular cycles throughout the year. Normal increases and decreases in supply and demand for particular commodities seem to occur every year in fairly consistent patterns. Commodity seasonal patterns might appear to be an easy trading strategy for commodities, but seasonal tendencies are just that – tendencies.

Some Popular Commodity Seasonal Patterns

1. Soybeans tend to move higher seasonally from February and peak in June. Much of the anxiety over crop losses diminish once the crops are in the ground and this is wrapped up normally by early June. Prices tend to drop during the summer if there are no major weather problems – prolonged drought and major floods. Grain prices tend to drop and bottom during harvest, which is around October.



2. Unleaded gas tends to move higher from February until May. This is due to commercial buying ahead of the summer driving season, which begins on Memorial Day at the end of May.

3. Lean hogs have a strong seasonal tendency to move higher from late February until May. Hog inventories usually drop during this period as packers buy ahead of the summer grilling season.

How To Trade Commodity Seasonal

Most commodities have a couple of strong seasonal tendencies every year. I do not recommend trading solely on those seasonal patterns. I sometimes use them as a filter when I am trading commodities. A strong seasonal trend may be the determining factor on whether I take a trade or pass on it. Many new commodity traders have been burned by using a trading system that only uses seasonal patterns. You may have seen the claims that such and such commodity moves higher 90% of the time during a certain two-week period every year. That may sound enticing, but the laws of statistics will undoubtedly find those numbers if they search enough combinations. Commodity seasonal patterns can play a very useful role in your trading. They are better used as a guide and they can often keep you on the right side of the market. Remember, the seasonal pattern doesn’t repeat every year, so it is not a foolproof indicator – just like everything else in trading.

Capital Equipment

Definition: Equipment that you use to manufacture a product, provide a service or use to sell, store and deliver merchandise. This equipment has an extended life so that it is properly regarded as a fixed asset. When deciding when to purchase and register capital equipment on your books, there are two lines of thinking. The first is to purchase and install the needed equipment at a point during the year where additional volume warrants the expenditure, thereby assuring sufficient cash flow to handle the additional debt service or the outright purchase of the equipment. The second method is to have the equipment purchased and installed at the beginning of the business year or quarter closest to the time when you'll actually need the equipment, allowing time for training and working out bugs before the equipment is placed into full production. The avenue you choose depends on your cash flow. If you can service additional debt or purchase the equipment from operating expenses, then the latter method works best. If your cash flow is tight, then choose the former method. Either way, capital equipment costs are accounted for under the heading "capital."

PURCHASING CAPITAL EQUIPMENT

A Capital Equipment purchase is equal to or greater than $5,000 and has a useful life span of one or more years. For additional information regarding capital equipment purchases, call the Capital Asset Administrator.

LEASE OR BUY

Equipment purchases usually involve a substantial financial commitment – the purchase price of the equipment and the cost to service and repair it. The primary reason to lease rather than buy an item is because the needed item is so expensive that its direct purchase is not possible and other financing mechanisms are unavailable or more expensive than leasing. In order to be considered for leasing, the item must have a value of at least $50,000 and must have CEA approval.

If the buyer decides to lease the equipment, provisions should be made for upgrading the equipment, if needed.For additional information see Leasing Policies and Procedures.

MAKING THE BUY

Once the decision has been made to purchase the equipment, the specification is prepared, the suppliers selected and the RFQ/RFP is developed.



International Purchasing

Purchases of products of foreign origin and manufacture on federally sponsored agreements must be allowable in accordance with the provisions of the Buy American Act. The Buy American Act also requires that purchases from foreign vendors be shipped via U.S. flag ship carriers. Competitive bidding requirements, when applicable, must be also be met. Written price quotations must be in English. To avoid problems associated with fluctuations in currency exchange rates price quotations should be requested to be in U.S dollars with contractual payment terms for all payments to be made in U.S. dollars in accordance with the quoted prices. The price quotation may be in the appropriate currency, but prices must be converted to U.S. dollars at the current exchange rate on the date of the price quotation on the requisition.

Such requisitions must include the cost of each item shown in both the foreign currency and the U.S. dollars and specify whether the payment will be made in U.S. dollars or in foreign currency. If the payment is to be made in foreign currency the standard policy is to estimate the amount of the purchase order in U.S. dollars and issue the payment at the current conversion rate at the time the payment is made. Purchase orders are always committed in U.S. dollars. The requisition should also include the payment requirements; e.g., international draft or wire transfers. Wire transfer requests must include the complete name of the bank, the account number and the bank telephone number. Exel Global Logistics, Inc. is the Office of Sponsored Program's preferred customs broker who will clear the shipment with customs and forward it to Receiving for subsequent department delivery. Freight, U.S. Customs duty, and brokerage charges are generally not committed against the purchase order of any foreign purchase. Actual charges for these items will be paid upon receipt of the appropriate invoices.

Receipt of International Shipments

As with a purchase of goods, provide the foreign shipper the same shipping. Prepare and submit a requisition form to Purchasing covering customs and shipping charges. The requisition form must be made out to the customs broker clearing the shipment to cover all associated customs and shipping charges.

Duty-Free Entry

Requests for duty-free entry of scientific instruments or apparatus, if applicable, may be made. This should be done as soon as the purchase order is issued because it may take several weeks to obtain approval. All documents are available from either the university's customs broker, Exel Global Logistics, Inc., or the U.S. Department of Commerce Business and Defense Services Administration & Treasury Department, Bureau of Customs. All documents are to be completed and submitted directly to customs by the PI. Purchasing should also be advised that duty-free entry is being requested.

In the event that the goods arrive prior to approval of duty free entry, the import tax may have to be paid in order to clear the shipment through Customs. If duty free entry is subsequently granted, a credit for the duty paid may be requested.

Import substitution policies

What are import substitution policies? They are policies that attempt to reduce foreign dependency of a country's economy through local production of food and industrial products. Import substitution policies advocate replacing imports with domestic production. It is based on the premise that a country should attempt to reduce its foreign dependency through local production of goods, mainly industrial products. Many Latin American countries implemented import substitution policies with the intention of becoming more self-sufficient and less vulnerable to adverse terms of trade. The import substitution strategy is often complemented with state-led economic development through nationalization, subsidization of vital industries and agriculture. Such regimes are characterised by highly protectionist trade policy. Many Latin American countries adopted import substitution policies from the 1930s until



around the 1980s. Some Asian countries, especially India and Sri Lanka, pursued such policies from the 1950s. One of the arguments for import substitution is that all countries which have industrialized went through a stage of import substitution in which investment in industry was directed to replace imports. All major developed countries used interventionist economic policies to promote industrialization and protected industries until they had reached a level of development when they were able to compete in the global market. This policy is also termed the infant industry argument: those industries in their infancy should be protected till they grow up and are strong to withstand competition.

Advantages and disadvantages

The major advantages claimed for import substitution are increases in domestic employment and resilience in the face of global economic shocks such as recessions and depressions. The disadvantages are that import substitution industries create inefficient and obsolete products as they are not exposed to international competition. Other disadvantages include unemployment increasing internationally as World GDP decreases through the promotion of inefficiency. Countries that adopted import substitution policies faced many undesirable effects such as chronic problems with the balance of trade and payments. Although import substitution was supposed to reduce reliance on world trade, there was a need to import raw materials, machinery and spare parts. The more a country industrialized the more it needed these imports and import substitution industrialization (ISI) was strongly biased against exports. Trade protection and overvalued exchange rates raised domestic prices and made exports less competitive. Consequently, import substitution industrializing countries were unable to export enough to buy the imports they needed. The faster the economy grew, the more it needed imports; but exports could not keep up with the pace of imports and so countries ran out of foreign currency. In response, governments restricted imports to essentials. The currency was devalued to raise the price of imports and make exports more attractive. Government subsidized industrial investments. Such spending chronically outpaced government revenue and these budget deficits were usually covered by printing more money. The result was inflation which made domestic goods more expensive which in turn reduced exports even further. Sri Lana experienced much of this during its import substitution industrialising period in the 1960s and 1970s.

Past policies

Ideology has played an important role in the formulation of economic policies in the past. The inward looking economic policies that the country adopted for several decades till liberalisation of the economy in November 1977 put the country back and also heaped many burdens on people, especially the poor. Ideological reasons still continue and inward looking economic policies are advocated as better than the liberal export-led economic policies, for nationalistic reasons. These inward policies are often couched in nationalistic terminology that makes them more acceptable irrespective of their economic consequences. Labels in particular are a disservice to pragmatism.

Imports substitution-prospects and retrospect,

In retrospect, it is recognised that the inward economic policies pursued from the 'sixties till liberalisation was one of the important reasons that put the country's economy on a slow mode of growth. The impracticability and ill advisability of these possibilities were not clear at the time. Many an economist of the time viewed inward looking economic policies to be the means of coping with the serious balance of payments problem and inadequacy of foreign exchange. It was only later that everyone realised that a small trade-dependent economy had to adopt an export-led economic strategy.

International experience:



East Asia

Countries of East Asia and South East Asia were more pragmatic and adopted export-led economic policies with the minimum of import and exchange control policies. This was one of the important reasons for the wide differences in economic performance between East and South Asian countries. The outward economic orientation was one of the important reasons for the rapid economic development of countries like South Korea, Malaysia and Singapore. ISI was rejected by most nations in East Asia in the 1960s. Some economists attribute the superior performance of East Asia in the 1970s and 1980s to this difference in policies. East Asian policies rejected import substitution policies, though they maintained high tariff barriers. The strategy followed by those countries was to focus subsidies and investment on industries which would make goods for export, and not to attempt to undervalue the local currency. This export promotion approach to industrialization in East Asian countries contrasts with the strategy of ISI pursued by Sri Lanka.

Success and failure in import substitution

While import substitution industrialisation was not successful, it must also be recognised that some import substitution policies were a success and contributed to increasing the country's production and economic development. These were in agriculture, where protection afforded to agriculture contributed to increased production of rice and other food crops. It was, however, not only protective import control policies that resulted in food production increasing. The import restrictions were complemented by guaranteed prices for farm produce, research, extension services, marketing arrangements and subsidies in inputs.

This range of policies enabled the country to achieve impressive gains in food production. At the time of independence when the country had a population of only 7 million, the country imported nearly half of her food needs. This includes rice, many subsidiary food crops like chillies, onions, potatoes and poultry. There were also high imports of sugar, wheat flour, milk and lentils (dhal). The latter category remains one where domestic production is inadequate. Rice is perhaps the most spectacular success as the country is able to feed its near 21 million population with domestic rice and there has also been decreased consumption of imported wheat flour that is being substituted by local rice. Per capita rice consumption has increased from less than 100 kilograms per capita to about 115 kilograms per capita, while per capita wheat consumption has reduced. In several other commodities too there has been significant substitution of local produce for imported ones. These include maize, potato, poultry products. The important lesson to be drawn from this experience is that the price support given by import substitution policies contributed much to the increase in production. However while such price support was important and necessary, it was not sufficient. There were also several other support measures that make the import substitution strategy work. Conversely there were crops where the lack of adequate resources, incentives and other capacities where the import substitution strategy has not succeeded. Sugar production is a good example of this. Although the country still imports about 80 percent of its milk requirements, there is evidence that the improved prices and other incentives and institutional support is contributing to increased milk production.

Legal aspects in buying,

Insurance buying

Understanding and anticipating the legal impact of purchasing decisions is vital for every organization -- and therefore vital for every purchasing professional. Yet, in most organizations, very little attention is paid to whether purchasing staff truly understand the legal dimensions of purchasing. This program has been designed to lay a foundation for an enhanced understanding of purchasing-specific legal issues. Moreover, participants will learn how to carry out purchasing activities in a way that prevents problems from occurring. Specific attention will be paid to contracts, agency law and the relationship between buyer and seller. We will explore and discuss in detail the impact



of the Uniform Commercial Code on supply chain management, freight issues and anti-competition laws that can affect everyone in the supply chain.

PARTICIPANTS WILL LEARN:

How to deal with e commerce How to avoid entering into a bad contract Three methods to reduce the cost and liability of freight What you need to know about the Uniform Computer Information Transaction Act (UCITA) Selecting the best contract for different types of purchasing Two key laws every buyer should know How to handle unauthorized shipments Ways of handling defective materials The best way to get your materials delivered on time WHO SHOULD ATTEND: Associate Buyers Buyers Transportation, Distribution and Non-Purchasing Executives Managers responsible for the purchasing function Engineers and Managers with Purchasing-Supplier interface

Insurance buying

Many nonprofit managers dread the insurance purchasing process. An insurer may demand a lot of information, but then decline to offer a policy. The process may seem to waste valuable time and resources. Many nonprofit managers dread the insurance purchasing process. Here are 10 suggestions to make the process effective and efficient.However, insurance is an important risk management tool. Insurance protects against catastrophic losses, stabilizes expenditure flow, preserves earnings and resources, and provides settlement money so that small claims do not turn out to be big ones. Insurance gives your staff the peace of mind that they will be protected in the event that a claim does arise.The suggestions below should make the insurance purchasing process effective and efficient. Attention to detail ensures that the insurance policy covers your organization's risks, and that it is purchased at the best possible price.Give the underwriter a reason to write the account. Each underwriter has basic underwriting guidelines, but these guidelines do not, and cannot, address every situation that is likely to arise. Emphasize your organization's good works, prevention and risk reduction programs, and professional operation. Give the underwriter a reason to fit your organization into the guidelines, and to make an exception for your organization if necessary.

If you have a renewal quotation for an existing policy, say so. Give the underwriter a baseline from which to start. Let him/her match or beat the other quotation. Use the other quotation to negotiate more favorable terms.Build in time for an underwriting review. If you send the insurance application to the underwriter well in advance of the desired coverage date, the underwriter has a chance to review the submission and ask questions. The lead time also gives your organization a chance to understand the features of the insurance product, to solicit competing quotations, and to compare competing terms.Complete the application! Every question on an application form is important to the insurance company. An incomplete application will either be declined outright or sent back to your organization for completion. A quick glance will save a lot of time in the long run.Attach all supporting information. An insurer will consider its requested information to be important to accurate underwriting. List the enclosed items in your cover letter and ensure that each item is in the package prior to mailing.Provide accurate and truthful information, preferably in writing. False information may only be discovered by the insurer when you file a claim. By then, the insurer is generally within its rights to deny coverage, and your organization is deprived of the protection that it



thought it had paid for.Anticipate questions and answer them up front. In consultation with your insurance agent, provide any necessary explanation for the answers on the application and unique exposures that your organization may have. In a single submission, give the underwriter sufficient information to evaluate the risk.Promptly respond to requests for information. A prompt response not only saves time, but it highlights your organization's professionalism and willingness to cooperate.

Negotiate quotation terms with respect. A clearly unacceptable quotation may result from an honest mistake, unreasonable underwriting guidelines, or a misunderstanding about the risks involved in your operations. While you should question the basis of the quotation and try to alter the terms, do so in a way that will not alienate the underwriter. Give him/her a chance to act reasonably.Offer alternatives for unacceptable quotation terms. If an insurance quotation is unacceptable, offer suggestions that will improve the terms. For example, if the insurer refuses to cover an activity, offer to institute an insurer-approved risk management plan as a condition of coverage and to accept a higher deductible. Show your organization's willingness to work with the insurer to find a win/win solution.

Buyer-seller relationship and ethics

Ethical Salesperson Behavior in Buyer-SellerRelationships

Buyer attitudes and behaviors. The results of this study confirmed several hypotheses showing that ethical salesperson behavior, or ESB, is a quality that can differentiate salespeople and increase positive outcomes.

Think Point #1: What is ESB?

Before discussing the implications of ethical salesperson Behavior, or ESB, it is imperative to define the Characteristics that comprise this sect of ethical behavior.The following descriptors denote desirable attributes of ethical behavior in the buyer-seller relationship:

HonestyFair playFull disclosurePromoting the welfare of the customerProviding factual communicationsSelling only those products and services believedto benefit the customerPromising only what can be deliveredTreating customer information in a confidentialmanner

Think Point #2: ESB influences buyer trust and commitment.

The study confirms the notion that ESB leads to buyer commitment and trust, two desirable Outcomes of a strong sales relationship. As depicted in the empirical model, buyer trust andbuyer commitment bridge the gap between other favorable outcomes in a positive buyer seller Relationship. Buyer trust is the primary result of ESB and is the building block for buyer commitment. To gain buyer trust, real estate agents and other sales professionals must demonstrate reliability and high integrity. Built on the foundation of trust, buyer confidence is increased by observable behaviors including consistency, honesty, fairness, responsibility and benevolence. Because buyers will feel less inclined to monitor the activities of ethical salespersons, they will perceive this buyer-seller relationship as more valuable, saving them both time and anguish.

Think Point #3: ESB influences share-of-customer.



Share-of-customer refers to the amount of spending customers devote to a specific firm for a particular product. Share-of-customer percentages translate into the economical benefits of repeat patronage and brand loyalty. While the study did not indicate a direct relationship between ESB and share-of-customer, it was concluded that share-of-customer is indirectly influenced by ESB, through its positive relationship with buyer commitment. As buyer commitment increases, their investments in the specific buyer-seller relationship based on anticipated future returns also rises.

Think Point #4: ESB influences buyer communication.Buyer communication refers to the transmission of both judicious and timely information by the buyer to the seller. In a buyer-seller relationship, enhanced communication benefits both parties. Specifically, timely and honest communication, initiated by the buyer, increases the success of the seller. The study shows that ESB indirectly influences buyer communication through the channels of both buyer commitment and buyer trust. Buyers who trust the ethics of a real estate agent or other professional salesperson feel more comfortable communicating openly. In addition, buyers who are more committed to an agent or salesperson will tend to share more information as a means for further developing the relationship.

Think Point #5: ESB influences positive word-of-mouth communications. Positive word-of-mouth communication is an interpersonal interaction where buyers share positive business reviews with their peers. These interpersonal communications carry more weight for future buyers, who often accept these recommendation with a high level of trust. ESB was found to indirectly influence positive word-of-mouth communications through the avenue of buyer trust. Of all the positive outcomes, ESB is most significantly related with an increase in positive word-of-mouth communications. The study confirms: buyers will more often recommend salespeople that display ethical behavior.



Unit-3

Stores and warehousing: Stores management, Systems and procedures, Incoming material control, Stores accounting & stock verification, obsolete, surplus and scrap management, Value analysis, Material handling, Transportation and

traffic management.

Stores Management

A professionally managed Store has a process and a space within, to receive the incoming materials (Receiving Bay), keep them for as long as they are not required for use (Custody) and then to move them out of stores for use (Issue).

In a manufacturing firm this process forms a cycle to maintain and run the activities of Stores.

The basic responsibilities of stores are to act as custodian and controlling agent for parts, supplies, and materials, and to provide service to users of those goods. Typically and at times essentially, a Stores has to follow certain activities that are managed through use of various resources and are thus called Stores Management. The task of storekeeping relates to safe custody and preservation of the materials stocked, to their receipts, issue and accounting.

The objective is to efficiently and economically provide the right materials at the time when it is required and in the condition in which it is required. The basic job of the Stores Manager hence is to receive the goods and act as a caretaker of the materials and issue them as and when Production demands it. Needless to say storekeeping activity does not add any value to the product. In fact it only adds to the cost. The organization has to spend money on space ie. expenditure on land, building and roads, equipment, machinery and other facilities provided such as electricity, people i.e. salaries and wages, insurance, maintenance costs, stationary, communication expenses and the cost to maintain the inventory etc. All of these get added to the organizational overheads and finally get reflected in the costing of the finished product. However, it is an essential function in any manufacturing or marketing organization. This basic reason has propelled the evolution of philosophies such as JIT, JIT II etc.

Thus , the basic functions , to manage a stores, carried out are:

1. Receiving of incoming consignments (goods)2. Safe keeping of goods (Custody)3. Disposal of undesirable goods 4. Inventory Management

Housekeeping and record maintenance

It all starts with a suitable Lay out design of stores. Depending upon the nature of items used for processing by the organisation the lay out and type of stores are selected. For example , a process that requires use of raw materials , not costly enough, an open and nearby stores with truck / rail inside movement possibility can be adequate. Similarly, for storing costly material, a closed and restricted type of stores shall be needed. However, irrespectiveof the type and lay out , any Stores would have , as its starting activity , receiving and accounting of the incoming goods. This part of Stores is known as Receiving Bay. Once the material has been received and cleared through inspection and accepted for use, it needs safe custody till it's actually used. It calls for a separate physical storage space , open or closed, as per need. It maintains all documents that are able to trace an item , show all its details and preserve it up to its shelf life in the manner prescribed or till it is issued for use. This part of Stores is called Custody. Thus the role of Custody is to receive and preserve the material and then to issue it to the user, as and when needed. A stage comes when the material is needed for use. Stores thus releases the material from its custody



to the user department and the process is called 'issue of goods. It might also happen that after partial use , some materials having useable value in future are returned to the stores and thus they also become part of the custody again. In the long drawn process of preserving the materials till its use ,some materials might get obsolete and unserviceable and may require removal from stores , in order to clear space for other incoming goods. This activity is known as Disposal of goods for which auction etc is done.Since the material has a cost , the organisation would definitely like to incur optimum cost on this account and thus there is a need to manage the materials within a stores such that the total cost of maintaining materials remains optimum.

The materials , lying unused but have future economic value are said to form inventory which needs professional handling. Inventory control / management thus is a vitally important aspect of any stores function. One of the basic functions of stores is to account for every material received in Stores by maintaining proper records of all the incoming, stored and outgoing materials so that proper accounting and audit trail is maintained. Hence , record keeping is a vital function of stores . Of course , it also goes along the various activities and with development in the information technology domain, the record keeping in stores too is through electronic medium making the whole process smooth and efficient. Any Stores as such is a physical entity which deals with material receipt , preservation and issue. Material handling therefore is another vital function. Just as Lay out of a Stores is designed considering the nature of material Stores has to handle, material movement equipment and implements also are important. Within a typical manufacturing organisation, its Stores is seen having Forklifts, Over head Cranes, Trolleys etc inside the Stores and trucks, Dumpers and Railway wagons as outside Stores equipment to handle materials.

Any Stores system starts with planning the need for materials. It is assumed here that the need itself has been forecast with a considerable degree of accuracy. The forecast also must be subjected to periodic review. The art of storekeeping is largely that of optimizing the use of resources to meet actual needs in an efficient manner. Efficiency of Stores function is measured by the number of times the stocks have turned over. That is how much time material spends in the stores. The lesser time it spends the better it is. As money is a scarce resource , once it is converted into materials, then only it is useful. This is the essence of stock turnover. Stores is a very broad word that indicates a wide variety of materials stored such as chemical, metals, liquids, gases, spare parts, equipment, or finished goods, ranging from engineering components to drugs and pharmaceuticals.

Each of these items will require a specific type of storage and their handling and preservation methods will vary accordingly. There is a high degree of specialization required to store and handle these products and in many cases special storage licenses need to be obtained from the Government, e.g., the storage of petroleum products or explosive products. It is hence mandatory for Stores personnel to understand thoroughly all of these requirements and implications The understanding of these principles is most important in the efficient practice of the art of storekeeping.

The services rendered by Stores can be arranged into 5 broad activities:

1. To make available a balanced and uninterrupted flow of raw materials, components, tools, equipment and any other material needed to meet operational requirements

2. To provide maintenance materials, spare parts and general stores as requirements3. To receive and issue finished products4. To accept and store scrap and other discarded material as they arise5. To effectively dispose of the unwanted materials

The interesting facet of the whole situation is that Demand comes bundled while supplies unbundled. That is demand is usually from Production which will give Stores a BOM (Bill of Materials) and probably different materials (which come from different suppliers) are required at the same time. While supply comes from different



suppliers from different regions which may or may not (in all possibility may not) come at the same time. Hence balancing all these is a considerably demanding job, which is required to be performed by stores personnel.

Incoming Materials Control

Any organization , big or small, shall look for quality input (materials) from suppliers to have the desired output or use. For this reason, it devises ways to control the incoming materials by having a check system on quantity , quality and readiness for use.

Control on incoming materials is exercised through Inspection by the purchaser.

1. Need For Inspection:

Inspection is an important aspect of Integrated Materials Management. It is an adjunct to the purchase function to ensure that the incoming materials of right quality are procured for use. The word quality has numerous meanings. The most appropriate meaning of quality in the present context is “CONFORMANCE TO ORDERED SPECIFICATION & FITNESS FOR USE”, whether for products or services. Depending upon the nature, criticality & value of items, inspection is conducted either at supplier’s premises or at plant stores after receipt. There are several ways of carrying out inspection

2. Pre Dispatch Inspection :

This is inspection before dispatch of material. Usually specified in the Purchase Order (PO) , the inspection is carried out at supplier’s premises (works). Supplier gives an Inspection Request (IR) to the inspection agency mentioned in the PO. On receipt of IR, the inspecting officer visits the supplier’s premises along with documents necessary for inspecting such as copy of PO, drawing, specification etc. The following checks are conducted depending on the nature of item:

Visual check Dimensional check Functional check Physical testing such as hardness, pressure test, load test etc Electrical and other on-bed testings such as High voltage test, Insulation resistance test etc.

The accepted materials are marked by stamping/punching/stickers/ seal/tag etc as a mark of acceptance, The supplier is asked to deliver the same to the consignee as mentioned in the PO.

Stage Inspection / Final Inspection :

For critical items, it is required to conduct stage inspection of semi-finished items (such as castings, forgings etc) at suppliers premises. In such cases, the supplier gives an interim Inspection Request to the inspection agency.During stage inspection, sample is collected by the inspecting officer for Chemical analysis / Physical testing at either their own facility or at 3rd party locations.On receipt of test results, conformance to specification is verified & clearance is given to the supplier for further processing of the item. After readiness of the material in all respect & internal



checking, the supplier gives the final Inspection Request to the inspection agency. In some critical cases, joint inspection by Indenter & Inspection is carried out at supplier’s premises.

Document Inspection :

Sometimes and usually for very standard ,off the shelf items, inspection can be carried out through the verification of supplier given certificates such as Material Test Certificate (MTC), Manufacturing Certificate (Mfg. TC), Guarantee Certificate (GC) etc. After ensuring conformance of materials to the ordered specification

in all respect, Inspection Certificate (IC) is issued by the inspecting officer to the supplier.

Stores / Receipt Inspection :

Majority of items are inspected through this route. Materials are received in the receiving bays of Stores. Such items are usually accepted based on visual examination & verification of documents. Materials in the receiving bay are segregated into several categories, based on their quality control status and destination.

Procedures in receiving provide for storage and transport of material in each category.

The major categories are :

Awaiting inspection – This category consists of material that has been received and is awaiting inspection before being moved into stock.

Acceptance upon certification – This category consists of material that may be accepted pending certification.

Rework – In this category are materials that are defective and must be reworked. Return – This category contains materials that are defective and will be returned to the supplier for credit or

replacement. Materials to be tested – This category consists of materials which have been received and are awaiting

delivery to the using/testing department. store Accounting and Verification

A Stores is a virtual money that can be encashed. However, this money needs to be properly counted or accounted for. Stock accounting is thus a systematic way of assessing the money value of the items lying in stores as also the items under transaction through stores. Transactions , in terms of receipts and issues are a regular feature in any stores and therefore Stock accounting process , in most of the cases, concentrates only on the stock in hand, lying in Stores.

The most popular methods of accounting are, FIFO i.e First In First Out and LIFO, Last In First Out.

FIFO and LIFO Methods as accounting techniques are used in managing inventory (Stock lying in Stores for future use) and financial matters involving the amount of money a company has tied up within inventory of produced goods, raw materials, parts, components, or feed stocks. These methods are used to manage assumptions of cost flows related to inventory, stock repurchases (if purchased at different prices), and various other accounting purposes.

FIFO standing for first-in, first-out, implies that the oldest inventory items are recorded as sold first but do not necessarily mean that the exact oldest physical object has been tracked and sold.

LIFO stands for last-in, first-out, meaning that the most recently produced items are recorded as sold first. Since the 1970s, some U.S. companies shifted towards the use of LIFO, which reduces their income taxes in times of inflation, but with International Financial Reporting Standards banning the use of LIFO, more companies have gone back to



FIFO. LIFO is only used in Japan and the U.S.The difference between the cost of an inventory calculated under the FIFO and LIFO methods is called the LIFO reserve. This reserve is essentially the amount by which an entity's taxable income has been deferred by using the LIFO method.

Store Verification & reconciliation:

For maintaining the continuous accountability of items under storage, it is essential to periodically verify the stock of the items with respect to their storage record.The process of physically verifying the stock of items with respect to the stock on record is known as stock verification. The correction of the record to take care of any observed discrepancy in stock is known as reconciliation of stock. The periodicity of stock verification depends on the value of the item and also nature of the item. High value & pilfer-able items are verified more frequently.

Consumption budget monitoring :

Each User department is allocated the Budget for the consumption of various commodities of items in the beginning of the financial year. Issue of material to the user department is made after ensuring the availability of budget for that department for that commodity.Once the issue of material is made the budget of the department is updated. Once the budget is exhausted the user departments need to take additional budget provision or clearance of competent authority to draw further material from Stores. This consumption budget monitoring is done to ensure proper control on the expenditure and cost incurred by the user department.

Definition of 'Obsolete Inventory'

Term that refers to inventory that is at the end of its product life cycle and has not seen any sales or usage for a set period of time usually determined by the industry. This type of inventory has to be written down and can cause large losses for a company.

Also referred to as "dead inventory" or "excess inventory".

Large amounts of obsolete inventory are a warning sign for investors: they can be symptomatic of poor products, poor management forecasts of demand, and poor inventory management. Looking at the amount of obsolete inventory a company creates will give investors an idea of how well the product is selling and of how effective the company's inventory process is.

Inventory Management - eliminating obsolete stock

Stop 'hoarding'!

Don't allow your business to become collector! A lot of businesses find it very difficult to throw away products they paid good money for. However, retaining obsolete stock just consumes even more of your valuable cash. Ridding your business of obsolete stock promptly, will free up space and generate cashflow that can be used more effectively.To eliminate obsolete stock, Core Logistics Consulting will create a tagging program to identify old stock items. Our tagging program will help you to move these products into a quarantined area of your warehouse. Once we have established the appropriate stock control parameters, our program will help you cut your losses and liquidate any obsolete merchandise.Tagging of obsolete items is something that originated with Japanese automakers. These companies are simply eliminating obsolete stock to make room for newer, more profitable inventories. An effective inventory tagging program works for anything in your warehouse, not just consumable inventories.We will show you how to conduct regular 'obsolete-item-tagging' programs in any area of your business



to help you more effectively manage aging inventory. Our Lean Inventory Management programs are guaranteed to increase the effectiveness or your stock management operations.

The obsolete, surplus & scrap items can be put under the following categories.

1. Obsolete materials & equipments

2. Unserviceable equipment & machines

3. Deteriorate stock

4. Surplus stock

5. Scrap material

1. Obsolete Materials & Equipments:

Obsolete should be defined as materials, equipments or parts which are no longer usable in the service for which they are purchased and which cannot be utilised safely or economically for any other purpose. Broadly, it can be said that spares for plants sold become obsolescent when the machines they are carried for go out of production or are no longer available. Ordinarily, obsolescence arises on account of the following reasons:

(a) Adoption of standardization or elimination of non-standard varieties.

(b) Faulty planning leads to over stocking of inventory.

(c) Non-implementation of project/job.

(d) Changes in demand due to change in fashions and supply conditions and change in business policy.

(e) Purchasing wrong items results in non-utilisation of stores.

(f) Bad communication within the organisation as well as with suppliers.

(g) The sudden emergence of new technology or a design change.

(h) Excess purchasing, whether due to wrong forecast of requirement or to take advantage of quantity discount.

2. Unserviceable Equipments & Machines:

The unserviceable equipments and machines are those inventories which outlived their life. No amount of repairs, renewals or replacements can bring them back to their usable life. Such equipments become irreparable and thus fit only for disposal as scrap. Examples are crankshaft, connecting rods, bearing etc. of an engine. Replacement is taken from stores on requisition and old ones are thrown into the scrap dump and sold by weight.

3. Deteriorate Stock:



Deterioration because of evaporation, spoilage, damage, moisture, rust or any other reason causing reduction in the value of stock is known as deteriorated stock. It is a state or condition when with the lapse of time the usable value of stores falls. For example, rust to iron, moisture to cotton over a period of time will reduce the economic value of stocks.

4. Surplus Stock:

Surplus means such items which are more than the required quantity and cannot be consumed during a specific time for certain reasons. These are the materials which can be consumed at some future time or that which is no longer required for the job, for which it was purchased. Surplus materials arise from many reasons:

(i) When manufacturing operations are suddenly curtailed on account of design improvement etc.

(ii) When the project has been completed.

(iii) These stores may be in excess of the normal manufacturing and repairing requirements to the job concerned.

(iv) Excess purchase of stores due to wrong judgement at the procurement stage.

(v) When there is a change in the specification of size.

Surplus & scrap mgmt

Definition

The technique of managing the funds of a company or financial institution with the aim of earning a return on the available assets and creating more assets than liabilities (surplus). also called asset/liability management.

1. Extent to which generation of goods, services, and resources (such as capital) exceeds their consumption. Surplus of resources is the bedrock on which capitalism is built.

2. Goods that are in excess of the requirement and cannot be returned to the vendor for credit, but are useful for some purpose.

3. Remainder of an appropriation account after all expenditure.

4. Unusual situation in a government budget where revenue exceeds expenditure.

5. Alternative term for capital surplus.

6. Alternative term for retained earnings

Scrap consists of recyclable materials left over from product manufacturing and consumption, such as parts of vehicles, building supplies, and surplus materials. Unlike waste, scrap can have significant monetary value.Scrap metal originates both in business and residential environments. Typically a "scrapper" will advertise their services to conveniently remove scrap metal for people who don't need it, or need to get rid of it.

Scrap is often taken to a wrecking yard (also known as a scrap yard, junkyard, or breaker's yard), where it is processed for later melting into new products. A wrecking yard, depending on its location, may allow customers to browse their lot and purchase items before they are sent to the smelters, although many scrap yards that deal in large quantities of scrap usually do not, often selling entire units such as engines or machinery by weight with no regard to their functional status. Customers are typically required to supply all of their own tools and labour to extract parts, and some scrap yards may first require waiving liability for



personal injury before entering. Many scrap yards also sell bulk metals (stainless steel, etc.) by weight, often at prices substantially below the retail purchasing costs of similar pieces. Scrap has been defined as the incidental residue from certain type of manufacturing operations, such as turnings, boring, spurs, flashes etc. According to ICMA (London), “It is a discarded material having some value which is usually either disposed off without further treatment i.e., other than the reclamation and handling or is introduced into the production processes in place of raw materials. In contrast to wreckers, scrap yards typically sell everything by weight, rather than by item. To the scrap yard, the primary value of the scrap is what the smelter will give them for it, rather than the value of whatever shape the metal may be in. An auto wrecker, on the other hand, would price exactly the same scrap based on what the item does, regardless of what it weighs.

Typically, if a wrecker cannot sell something above the value of the metal in it, they would then take it to the scrap yard and sell it by weight. Equipment containing parts of various metals can often be purchased at a price below that of either of the metals, due to saving the scrap yard the labor of separating the metals before shipping them to be recycled. As an example, a scrap yard in Arcata, California sells automobile engines for $0.25 per pound, while aluminum, of which the engine is mostly made, sells for $1.25 per pound.

Resources

Some of the biggest searches for scrapping is for scrap prices. Finding them throughout the internet can be tricky. Sometime they are displayed as the market prices which are not the prices that recyclers will see at the scrap yards. Other prices are ranges or older and not updated frequently. The rate of the scrap metal market is ever changing. Some scrap yards' websites have scrap prices on them and are updated but sometimes it can just pay to call the scrap yard yourself. Scrap prices are reported in a handful of U.S. publications, including American Metal Market, based on confirmed sales. Non-US domiciled publications, such as The Steel Index, also report on the US scrap price, which has become increasingly important to global export markets. Scrap yards directories, like the iScrap App are also important for recyclers to find facilities in the US & Canada allowing users to get in contact with yards within minutes. With many resources online for recyclers to look at for scrapping tips, like on YouTube and Blogs, scrapping is often referred to as a hands and labor intensive job. Taking apart and separating metals is important to making more money on scrap. For tips like using a magnet to determine ferrous and non-ferrous materials, that can help recyclers make more money on their metal recycling. When a magnet sticks to the metal, it will be a ferrous material, like steel or iron. This is usually a less expensive item that is recycled but usually is recycled in larger quantities of thousands of pounds. Non-ferrous metal do not stick to a magnet like copper, aluminum, brass, and stainless steel. These items are higher priced commodities for metal recycling and are important to separate when recycling them.

Risks

Great potential exists in the scrap metal industry for accidents in which a hazardous material, which is present in scrap, causes death, injury, or environmental damage. A classic example is radioactivity in scrap; see the Goiânia accident and the Mayapuri radiological accident as examples of accidents involving radioactive materials, which entered the scrap metal industry and some details of the behavior of contaminating chemical elements in metal smelters. Many specialized tools used in scrap yards, such as the Alligator shear which cuts metal using hydraulic force, can also be dangerous to untrained people.

Benefits of recycling scrap metals

According to research conducted by the US Environmental Protection Agency, recycling scrap metals can be quite beneficial to the environment. Using recycled scrap metal in place of virgin iron ore can yield:[5]

75% savings in energy



90% savings in raw materials used 86% reduction in air pollution 40% reduction in water use 76% reduction in water pollution 97% reduction in mining wastes

Every ton of new steel made from scrap steel saves:

1,115 kg of iron ore 625 kg of coal 53 kg of limestone Energy savings from other metals include:

Aluminum savings of 95% energy

Copper savings of 85% energy Lead savings of 65% energy Zinc savings of 60% energy Metal recycling industry[edit]

The metal recycling industry encompasses a wide range of metals. The more frequently recycled metals are scrap steel, iron (ISS), lead, aluminum, copper, stainless steel and zinc. There are two main categories of metals: ferrous and non-ferrous. Metals which contain iron in them are known as Ferrous where metals without iron are non-ferrous. Common non-ferrous metals are copper, brass, aluminum, zinc, magnesium, tin, nickel, and lead.

Non-ferrous metals also include precious and exotic metals.

Precious metals are metals with a high market value in any form, such as gold, silver, and platinum group metals. Exotic metals contain rare elements such as cobalt, mercury, titanium, tungsten, arsenic, beryllium, bismuth, cerium, cadmium, niobium, indium, gallium, germanium, lithium, selenium, tantalum, tellurium, vanadium, and zirconium. Some types of metals are radioactive. These may be “naturally-occurring” or may be formed as by-products of nuclear reactions. Metals that have been exposed to radioactive sources may also become radioactive in settings such as medical environments, research laboratories, or nuclear power plants.

Value analysis/ Value engineering

Value engineering (VE) is a systematic method to improve the "value" of goods or products and services by using an examination of function. Value, as defined, is the ratio of function to cost. Value can therefore be increased by either improving the function or reducing the cost. It is a primary tenet of value engineering that basic functions be preserved and not be reduced as a consequence of pursuing value improvements. In the United States, value engineering is specifically spelled out in Public Law 104-106, which states “Each executive agency shall establish and maintain cost-effective value engineering procedures and processes."

Value engineering is sometimes taught within the project management or industrial engineering body of knowledge as a technique in which the value of a system’s outputs is optimized by crafting a mix of performance (function) and costs. In most cases this practice identifies and removes unnecessary expenditures, thereby increasing the value for the manufacturer and/or their customers.VE follows a structured thought process that is based exclusively on "function", i.e. what something "does" not what it is. For example a screw driver that is being used to stir a can of paint has a "function" of mixing the contents of a paint can and not the



original connotation of securing a screw into a screw-hole. In value engineering "functions" are always described in a two word abridgment consisting of an active verb and measurable noun.(what is being done - the verb - and what it is being done to - the noun) and to do so in the most non-prescriptive way possible. In the screw driver and can of paint example, the most basic function would be "blend liquid" which is less prescriptive than "stir paint" which can be seen to limit the action (by stirring) and to limit the application (only considers paint.) This is the basis of what value engineering refers to as "function analysis".

Value engineering uses rational logic (a unique "how" - "why" questioning technique) and the analysis of function to identify relationships that increase value. It is considered a quantitative method similar to the scientific method, which focuses on hypothesis-conclusion approaches to test relationships, and operations research, which uses model building to identify predictive relationships.

What is VA/VE?

VAVE: Value Analysis/Value Engineering is a systematic and organized procedural decision-making process. It has been used in almost any kind of application. It helps people creatively generate alternatives to secure essential functions at the greatest worth as opposed to costs. This is referred to as value. It is also known as Value Analysis, Value Management, Value Planning, and a host of other names.

Typical Benefits of a VA/VE Project1. Reduce piece cost and total cost — up to 26% across the board savings2. Improve operational performance 40-50%3. Improve product quality between 30-50%4. Reduce the manufacturing costs up to 30%5. Improved customer-supplier relations6. Cost avoidance on future programs7. Reduction in product variations8. Who Should Use Aether's VA/VE Services?

If you are not happy with the current level of profitability on your products, or if you are looking for an innovative way to drive cost out of your products and improve quality, or if you are looking to build meaningful relationships with your key suppliers, then you should consider Aether's Value Analysis / Value Engineering services. Reducing product cost has taken on many different looks - six sigma, lean manufacturing, design to cost and the most common method is to demand price reductions from suppliers. Price demands have resulted in some success but have also resulted in strained relationships with suppliers. And unhealthy supplier relationships will not allow you to optimize your supply chain, product quality, or the long-term health of your company.

VA/VE is an innovative way of reducing product costs while simultaneously strengthening the relationships with our key suppliers, and improving product quality. Improvement occurs both internally to your organization as well as externally with your suppliers. It's a win - win situation for all involved. VA/VE allows you to get price reductions from your suppliers while allowing them to remain profitable.Aether Consulting brings years of VA/VE experience to your company. We can help you change the way you approach product cost reduction, change the way you look at your supply base, and provide valuable results.Aether's VA/VE solutions look at your products and supply chain from a unique perspective allowing for cost reduction, improved quality, and meaningful supplier relationships. ether has partnered with OpEx to deliver VA/VE projects worldwide.



Material handling

Material Handling is the field concerned with solving the pragmatic problems involving the movement, storage, control and protection of materials, goods and products throughout the processes of cleaning, preparation, manufacturing, distribution, consumption and disposal of all related materials, goods and their packaging. The focus of studies of Material Handling course work is on the methods, mechanical equipment, systems and related controls used to achieve these functions. The material handling industry manufactures and distributes the equipment and services required to implement material handling systems, from obtaining, locally processing and shipping raw materials to utilization of industrial feedstocks in industrial manufacturing processes. Material handling systems range from simple pallet rack and shelving projects, to complex conveyor belt and AutomatedStorae and Retrieval Systems (AS/RS); from mining and drilling equipment to custom built barley malt drying rooms in breweries. Material handling can also consist of sorting and picking, as well as automatic guided vehicles.The material handling system (MHS) is a fundamental part of a Flexible manufacturing system since it interconnects the different processes supplying and taking out raw material, workpieces, sub-products, parts and final products. Due to the automated nature of the whole production process, the MHS must respond in concert with timeliness for all requirements of the processes and systems.

Material handling is the movement, storage, management and guard of materials, goods and products during all the stages under manufacturing, distribution, consumption and disposal. Material handling is very diverse as it covers racks, shelves, multifaceted conveyor belts and automated storage and retrieval systems.

Transportation and traffic management.

A transportation management system (TMS) is a subset of supply chain management concerning transportation operations and may be part of an enterprise resource planning system.A TMS usually "sits" between an ERP or legacy order processing and warehouse/distribution module. A typical scenario would include both inbound (procurement) and outbound (shipping) orders to be evaluated by the TMS Planning Module offering the user various suggested routing solutions. These solutions are evaluated by the user for reasonableness and are passed along to the transportation provider analysis module to select the best mode and least cost provider. Once the best provider is selected, the solution typically generates electronic load tendering and track/trace to execute the optimized shipment with the selected carrier, and later to support freight audit and payment (settlement process). Links back to ERP systems (after orders turned into optimal shipments), and sometimes secondarily to WMS programs also linked to ERP are also common.

Licensing

Recently, these systems have been offered with many different types of licensing arrangements. These different arrangements have given shippers who otherwise would not be able to afford sophisticated software the opportunity to utilize TMS to better manage this vital function. The 4 primary offerings are:

1. On-premise licensing (traditional purchased license)2. Hosted licensing (remote, Saas, Cloud)3. On-premise hosted licensing (a blend of 1 and 2)



4. Hosted - TMS free of licensing (same as 2 but free with no license requirements)

Additionally, some software providers have either been acquired or merged with traditional supply chain management consultancies and are now offering shippers "blended" managed and software services as an outsourced process. Primary Tier 1 TMS providers are still independent, carrier and 3PL neutral, and ERP neutral. While ERP providers are moving to improve their on-premise transportation management offerings by adding TMS modules to their existing, implemented base, the advent of Software-as-a-Service or "SaaS" delivery has resulted in a surge of emerging TMS providers. Independent TMS providers have an advantage in that their smaller size and specific focus on transportation process automation enables them to be more responsive to shifting transportation needs. Moreover, transportation is the core competency of the independent TMS provider whereas for large ERP providers, transportation is not a top priority. This is why according to a survey of 400 transportation managers produced in 2012 by analyst firm Peerless Research Group, a plurality reported that load optimization/consolidation, electronic communications, settlement, reporting and integration with other enterprise applications were prime objectives. Shipping organizations are increasingly drawn to SaaS model TMS implementations due in large part to the low level of up-front costs (in terms of hardware and IT resources) required to implement and integrate SaaS-delivered TMS with industry standard ERP systems.

Functionalities

Transportation management systems manage four key processes of transportation management:

1. Planning and decision making – TMS will define the most efficient transport schemes according to given parameters, which have a lower or higher importance according to the user policy: transport cost, shorter lead-time, fewer stops possible to ensure quality, flows regrouping coefficient, etc.

2. Transportation Execution – TMS will allow for the execution of the transportation plan such as carrier rate acceptance, carrier dispatching, EDI etc..

3. Transport follow-up – TMS will allow following any physical or administrative operation regarding transportation: traceability of transport event by event (shipping from A, arrival at B, customs clearance, etc.), editing of reception, custom clearance, invoicing and booking documents, sending of transport alerts (delay, accident, non-forecast stops…)

4. Measurement – TMS have or need to have a logistics key performance indicator (KPI) reporting function for transport.

Various functions of a TMS include but not limited to:

Planning and optimizing of terrestrial transport rounds Inbound and outbound transportation mode and transportation provider selection Management of motor carrier, rail, air and maritime transport Real time transportation tracking Service quality control in the form of KPI's (see below) Vehicle Load and Route optimization Transport costs and scheme simulation Shipment batching of orders Cost control, KPI (Key performance indicators) reporting and statistics Typical KPIs include but not limited to: % of On Time Pick Up or Delivery Performance relative to requested Cost Per Metric - mile; km; Weight; Cube; Pallet Productivity in monetary terms, e.g. $/lb or $/shipping unit Productivity in operational terms, e.g. shipping units/order or weight/load



However, all the above logistical functions need to be scrutinized as to how each parameter functions.

Unit-4

Value stream mapping

Value stream mapping is a lean management principle used to analyze and design the flow of materials and information required to bring a product or service to a consumer. Pioneered by Henry Ford in the 1920s, perfected by Toyota. At Toyota, it is known as "material and information flow mapping". It can be applied to nearly any value chain.

1. Implementation 2. Applications3. Metrics4. Hand drawn or software tools5. Associated analysis methods Implementation

Planning and preparation. Identify the target process, product family, or service. Create a charter, define the problem, set the goals and objectives, and select the mapping team. Socialize the charter with the leadership team. Draw while on the shop floor a current state value stream map, which shows the current steps, delays, and information flows required to deliver the target product or service. This may be a production flow (raw materials to consumer) or a design flow (concept to launch). There are 'standard'[citation needed] symbols for representing supply chain entities.

Assess the current state value stream map in terms of creating flow by eliminating waste. Draw a future state value stream map. Work toward the future state condition. Applications

Value stream mapping has supporting methods that are often used in Lean environments to analyze and design flows at the system level (across multiple processes).Although value stream mapping is often associated with manufacturing, it is also used in logistics, supply chain, service related industries, healthcare,softwaredevelopment,productdevelopment,and administrative and office processes.In a build-to-the-standard form Shigeo Shingo[10] suggests that the value-adding steps be drawn across the centre of the map and the non-value-adding steps be represented in vertical lines at right angles to the value stream. Thus the activities become easily separated into the value stream which is the focus of one type of attention and the 'waste' steps another type. He calls the value stream the process and the non-value streams the operations. The thinking here is that the non-value-adding steps are often preparatory or tidying up to the value-adding step and are closely associated with the person or machine/workstation that executes that value-adding step. Therefore each vertical line is the 'story' of a person or workstation whilst the horizontal line represents the 'story' of the product being created.

Metrics



A key metric associated with value stream mapping is lead time.

Hand drawn or software tools One common method to deepen one understands of a value stream is to draw a map. In current-state mapping this is done while observing the actual value stream in situ. The value stream maps are often drawn by hand in pencil; the mapping process is simple, real-time, and iterative, as this method allows for simple correction. An effective way of working as a group is to cover a wall with paper, such as butcher paper, and provide adhesive notes to each work team, ideally color-coding each group. Each group writes their tasks on individual notes and applies them to the paper in sequence. Lines are drawn between the steps to indicate the work flow. This way the tasks can easily be moved around as other steps come to mind. However, software tools can also be used. A variety is available either as stand-alone products or stencils/add-ons to products. Hines and Rich (1997) defined seven value stream mapping tools they are:

1. Process Activity Mapping2. Supply chain responsiveness matrix3. Product Variety Funnel4. Quality filter mapping5. Forrester effect mapping6. Decision point analysis7. Overall Structure Maps

Value stream mapping is a lean tool that employs a flow diagram documenting in high detail every step of a process. Many lean practitioners see value stream mapping as the fundamental tool to identify waste, reduce process cycle times, and implement process improvement. Some organizations treat the value stream map as the hallmark of their lean efforts.In analyzing value steam maps, it has occurred to me that some may have been created primarily as heuristic tools to teach lean concepts. It seemed as if the process improvement teams had focused on the method as the end, rather than how to use the method as a means to achieve an end. The detail was overwhelming. In some cases, the time spent creating the maps actually became a waste of time in itself, resulting in a negative return on the process improvement effort.Don’t get me wrong: Value steam mapping can be a crucial tool to document processes and eliminate waste. Every process improvement initiative should begin with a clear understanding of current performance and an idea of the waste minimization you can achieve.However, don’t allow enthusiasm for lean to lead you automatically to value stream mapping. In some cases, using value stream mapping would be like using a top fuel dragster – the fastest and most expensive car in the quarter-mile race, the best-of-the-best in technology, drivers, and pit crews – to take you to the mailbox at the end of your driveway.

Prepare for the High Cost of Participation

While value steam mapping can be an effective process improvement tool, the cost to use it can be high. Like racing a top fuel dragster, value steam mapping requires the presence of highly skilled support team members who practice frequently. Because of the need for considerable detail, team members will spend hours, even days, to develop a comprehensive value steam map.

Unlike drag racing, where direct costs can be measured, value stream mapping involves the risk of opportunity costs that are difficult to quantify. Simpler, more productive tools that are easier to learn might be available to make describing the current process faster and more effective. Many organizations forget to consider these opportunity costs for using value stream mapping.

Add Horsepower Incrementally



When management begins to appreciate the power of value steam mapping, a natural tendency is to want to jump in and improve the most complex business processes. After all, the most complex processes can often provide the highest potential return for process improvement efforts.

On the other hand, anyone who has raced top fuel dragsters did not start with top fuel. Starting with gas-powered engines led next to alcohol engines and finally to top fuel.

I recommend a “stepping up the ladder” approach to value stream mapping. When first learning, control the complexity of the project by limiting the size of the analysis and the need for cross-functional involvement. Begin by evaluating and mapping a limited, simpler process within one area of the organization. Achieve some early wins. Publish your results. Build your confidence in using the tool for process improvement.Advanced use of value steam mapping should occur when competence, experience, and time for mapping are available and when the tool applies to the situation. Examples of appropriate situations include:

You are addressing a process that requires participation across functional areas. Team members will need detailed explanations of business practices outside their expertise.A less detailed process map will not reveal any obvious opportunities for improvement. Sometimes the “benefit” really lies in the details.Buy-in is required from management to fund improvements. To make the most of a business case presentation, a compelling picture can be worth a thousand words.

Tune the Process of Ongoing Improvement

A dragster wins only when many components work well in unison. An improved, but overpowered engine can result in “tire shake.” A strengthened transmission can result in excessive tire spin when starting off the line. Improvements in only some parts of the drive train sometimes do not result in faster times.

The analogy in designing process improvement is critical and meaningful. Value steam mapping helps you find and eliminate waste. The approach often results in reduced business process cycle time.However, reduced cycle time does not always deliver bottom-line economic improvements. In addition, improvement in one area of a value stream does not always result in process improvement of the whole. If you are going to invest in a powerful tool such as value stream mapping and you want a positive return on your investment, then new process measures are required.Measure your process improvement projects based on actual performance. Dragster performance times are measured in thousandths of a second, and there is always a winner.

To determine process improvement priorities for your organization, answer the following questions:

Does the project result in less work in progress as defined by fewer open tasks or less inventory?

Will the project allow you to reduce operating expenses as defined by reduced total spending at month end?

What does the project do to improve an organizational goal as defined by earned profit or by improved service?

Answer the questions with honest, quantifiable evaluations and you will be on your way to improving the productivity of your value stream mapping efforts.



Unit-5

Inventory management: Inventory overview, JIT

What is Inventory Management?

Effective inventory management is all about knowing what is on hand, where it is in use, and how much finished product results.Inventory management is the process of efficiently overseeing the constant flow of units into and out of an existing inventory. This process usually involves controlling the transfer in of units in order to prevent the inventory from becoming too high, or dwindling to levels that could put the operation of the company into jeopardy. Competent inventory management also seeks to control the costs associated with the inventory, both from the perspective of the total value of the goods included and the tax burden generated by the cumulative value of the inventory.

Balancing the various tasks of inventory management means paying attention to three key aspects of any inventory. The first aspect has to do with time. In terms of materials acquired for inclusion in the total inventory, this means understanding how long it takes for a supplier to process an order and execute a delivery. Inventory management also demands that a solid understanding of how long it will take for those materials to transfer out of the inventory be established. Knowing these two important lead times makes it possible to know when to place an order and how many units must be ordered to keep production running smoothly.Calculating what is known as buffer stock is also key to effective inventory management. Essentially, buffer stock is additional units above and beyond the minimum number required to maintain production levels. For example, the manager may determine that it would be a good idea to keep one or two extra units of a given machine part on hand, just in case an emergency situation arises or one of the units proves to be defective once installed. Creating this cushion or buffer helps to minimize the chance for production to be interrupted due to a lack of essential parts in the operation supply inventory.Inventory management is not limited to documenting the delivery of raw materials and the movement of those materials into operational process. The movement of those materials as they go through the various stages of the operation is also important. Typically known as a goods or work in progress inventory, tracking materials as they are used to create finished goods also helps to identify the need to adjust ordering amounts before the raw materials inventory gets dangerously low or is inflated to an unfavorable level.

Finally, inventory management has to do with keeping accurate records of finished goods that are ready for shipment. This often means posting the production of newly completed goods to the inventory totals as well as subtracting the most recent shipments of finished goods to buyers. When the company has a return policy in place, there is usually a sub-category contained in the finished goods inventory to account for any returned goods that are reclassified as refurbished or second grade quality. Accurately maintaining figures on the finished goods inventory makes it possible to quickly convey information to sales personnel as to



what is available and ready for shipment at any given time.In addition to maintaining control of the volume and movement of various inventories, inventory management also makes it possible to prepare accurate records that are used for accessing any taxes due on each inventory type. Without precise data regarding unit volumes within each phase of the overall operation, the company cannot accurately calculate the tax amounts. This could lead to underpaying the taxes due and possibly incurring stiff penalties in the event of an independent audit.

What Are Common Components of an Inventory Management System?

Barcode Scanner

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Mobile Computer

Our Mobile Computers and portable data terminals are the perfect multi-use tool for your advanced data capture and mobility needs. With options for batch and real-time wireless (Wi-Fi and Cellular) data capture, we have units for every application and environment. Find the right device for wherever your business takes you.

Inventory Software

We carry inventory software for control and tracking of warehouse or point of sale inventory. Bundle our software with barcode scanning hardware for a complete inventory management system solution. Download a free inventory software demo program for your computer.

Barcode Printer

BarcodesInc has barcode printers for every business size and print volume. Whether you're printing asset labels from your desk or in the warehouse making shipping labels all day, we have a printer to meet your needs and budget. No matter the application, we'll get you printing in no time!

Barcode Label

BarcodesInc is ready to meet your labeling needs with a full range of stock blank labels for your printer as well as completely pre-printed labels. With options for a variety of sizes, colors, and material types, we have the perfect match for any application. Whether you're making shipping labels, company asset tags, or safety compliance stickers we'll get you the right labels.

Just in time (JIT)

Just in time (JIT) is a production strategy that strives to improve a business' return on investment by reducing in-process inventory and associated carrying costs. To meet JIT objectives, the process relies on signals or Kanban between different points, which are involved in the process, which tell production when to make the next part. Kanban are usually 'tickets' but can be simple visual signals, such as the presence or absence of a part on a shelf.



Implemented correctly, JIT focuses on continuous improvement and can improve a manufacturing organization's return on investment, quality, and efficiency. To achieve continuous improvement key areas of focus could be flow, employee involvement and quality.

JIT relies on other elements in the inventory chain as well. For instance, its effective application cannot be independent of other key components of a lean manufacturing system or it can "end up with the opposite of the desired result." In recent years manufacturers have continued to try to hone forecasting methods such as applying a trailing 13-week average as a better predictor for JIT planning; however, some research demonstrates that basing JIT on the presumption of stability is inherently flawed.

Effects

A surprising effect of JIT was that car factory response time fell to about a day. This improved customer satisfaction by providing vehicles within a day or two of the minimum economic shipping delay. Also, the factory began building many vehicles to order, eliminating the risk they would not be sold. This improved the company's return on equity. Since assemblers no longer had a choice of which part to use, every part had to fit perfectly. This caused a quality assurance crisis, which led to a dramatic improvement in product quality. Eventually, Toyota redesigned every part of its vehicles to widen tolerances, while simultaneously implementing careful statistical controls for quality control. Toyota had to test and train parts suppliers to assure quality and delivery. In some cases, the company eliminated multiple suppliers.

When a process or parts quality problem surfaced on the production line, the entire production line had to be slowed or even stopped. No inventory meant a line could not operate from in-process inventory while a production problem was fixed. Many people in Toyota predicted that the initiative would be abandoned for this reason. In the first week, line stops occurred almost hourly. But by the end of the first month, the rate had fallen to a few line stops per day. After six months, line stops had so little economic effect that Toyota installed an overhead pull-line, similar to a bus bell-pull, that let any worker on the line order a line stop for a process or quality problem. Even with this, line stops fell to a few per week.The result was a factory that has been studied worldwide. It has been widely emulated, but not always with the expected results, as many firms fail to adopt the full system.

The just-in-time philosophy was also applied to other segments of the supply chain in several types of industries. In the commercial sector, it meant eliminating one or all of the warehouses in the link between a factory and a retail establishment. Examples in sales, marketing, and customer service involve applying information systems and mobile hardware to deliver customer information as needed, and reducing waste by video conferencing to cut travel time.



Benefits

Main benefits of JIT include:

Reduced setup time. Cutting setup time allows the company to reduce or eliminate inventory for "changeover" time. The tool used here is SMED (single-minute exchange of dies).

The flow of goods from warehouse to shelves improves. Small or individual piece lot sizes reduce lot delay inventories, which simplifies inventory flow and its management.

Employees with multiple skills are used more efficiently. Having employees trained to work on different parts of the process allows companies to move workers where they are needed.

Production scheduling and work hour consistency synchronized with demand. If there is no demand for a product at the time, it is not made. This saves the company money, either by not having to pay workers overtime or by having them focus on other work or participate in training.

Increased emphasis on supplier relationships. A company without inventory does not want a supply system problem that creates a part shortage. This makes supplier relationships extremely important.

Supplies come in at regular intervals throughout the production day. Supply is synchronized with production demand and the optimal amount of inventory is on hand at any time. When parts move directly from the truck to the point of assembly, the need for storage facilities is reduced.

Minimizes storage space needed. Smaller chance of inventory breaking/expiring.

Problems Within a JIT system



Just-in-time operation leaves suppliers and downstream consumers open to supply shocks and large supply or demand changes. For internal reasons, Ohno saw this as a feature rather than a bug. He used an analogy of lowering the water level in a river to expose the rocks to explain how removing inventory showed where production flow was interrupted. Once barriers were exposed, they could be removed. Since one of the main barriers was rework, lowering inventory forced each shop to improve its own quality or cause a holdup downstream. A key tool to manage this weakness is production levelling to remove these variations. Just-in-time is a means to improving performance of the system, not an end.Very low stock levels means shipments of the same part can come in several times per day. This means Toyota is especially susceptible to flow interruption. For that reason, Toyota uses two suppliers for most assemblies. As noted in Liker (2003), there was an exception to this rule that put the entire company at risk because of the 1997 Aisin fire. However, since Toyota also makes a point of maintaining high quality relations with its entire supplier network, several other suppliers immediately took up production of the Aisin-built parts by using existing capability and documentation………………………….


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