1. Block 5 Section 2 Part I
How is performance measured within organizations?
Prepared by
Hanady Ali Osman

2. What do we mean by materials? What do we mean by a materials systems?
Chapter 7 Planning and control of work: the mgt of materials (pg. 202 & 203 Galloway, et. al)
Learning Objectives;
What do we mean by materials?
What do we mean by a materials systems?
What is materials management trying to achieve?
What are the key questions for managers of materials
What techniques are available to the manager?
H.A.Osman

3. Introduction (pg 203 & 204) All Organizations need to acquire
and use materials if they are to
function properly. However,
materials are used differently in
goods manufacturing and service
provision.
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4. Types of material (pg. 204 & 205)
There are different classifications
for materials:
Raw materials
Work in progress
Inventory
Consumable materials
Buffer stocks
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5. Types of material (pg. 204 & 205)
Raw materials: Are those items which are stored waiting to be worked on.
Work in progress: Are materials that are being worked as a part of the process.
Inventory: These are transformed inputs into their final stage/product. Usually referred to as finished goods
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6. Types of material (pg. 204 & 205)
Consumable materials: Those materials that are used by the process but do not form a part of the direct material that is passed down the supply chain. e.g. Lubricants.
Buffer stocks: Are materials that are being deliberately used to protect the operation from the otherwise disruptive effects of interruptions to supply or sudden increases in demand.
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7. The basic concepts of materials systems (pg. 206-207 Galloway, et. al)
Stock Volume
Amount of stock available on the site
Reorder level
Buffer Stocker
Time
Lead Time
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8. The basic concepts of materials systems (pg. 206-207 Galloway, et. al)
Lead Time: This is the time which elapses from the placing of the orders to the actual delivery.
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9. The aims of material management (Pg. 207 Galloway, et. al)
Adverse implications of going out of stock:
The operation can stop running smoothly.
Delay in outputs may dissatisfy customers.
Can lead to lost support for the org.
Idleness of the operation can incur costs associated with staff, equipment & facilities.
Extra costs for unplanned stopping of the process.
Cost penalties for delay in delivery of orders
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10. The aims of material management (Pg. 208 Galloway, et. al)
Implications of access stock:
Stock levels have financial implications.
Stock represents certain risks.
High stock levels can be a powerful force against improvement.
H.A.Osman

11. Two of the main categories to measure both efficiency and the
Performance measures for materials systems (Pg Galloway, et. al.)
Two of the main categories to
measure both efficiency and the
effectiveness of stock management
within an organization are:
Customer service level
Inventory investment
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12. Dependent & Independent Demand (Pg. 215-216 Galloway, et. al.)
Independent Demand is defined as demand that is independent of the demand of others and/or demand is outside the control of the operation and is usually subject to trends and seasonal patterns.
Dependent Demand is defined as demand which results from the demand for other items.
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13. Techniques for managing materials in the case of independent demand
Techniques for managing materials in the case of independent demand. (pg. 217/18 Galloway, et. al)
The economic order quantity concept is
intended to assist managers in deciding amounts
of material that need to be ordered. This is
done by a formula that calculates the order
quantity that minimizes the total incremental
costs of holding inventory and processing
orders.
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14. The economic order quantity (pg. 217/18 Galloway, et. al)
Costs of holding stock derive from;
interest
insurance
council tax
deterioration in value
stock management
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15. The economic order quantity (pg. 217/18 Galloway, et. al)
Costs for placing orders derive from;
Preparing the order
Preparing material specifications
Tracking the order
Processing invoices
Receiving & handling delivered
ordered materials
H.A.Osman

16. The economic order quantity (pg. 219-220 Galloway, et. al)
Total holding costs
Total ordering costs
500
300
100 $ $
500
300
100
Volume (000s)
Volume (000s)
HC = Q x CU
Where;
Q is the volume of inventory
CU is the cost of holding one unit
No. of orders to be placed a year = R/Q
Where;
R is the annual number of units to be ordered
Q is the quantity to be ordered
H.A.Osman

17. The economic order quantity (pg. 219-220 Galloway, et. al)
Holding and Ordering
Cost
Holding and ordering
Costs summed
The optimal Volume of units
to hold is where the totals of
the OC and HC is at its
lowest point.
500
300
100 $ $
500
300
100
H.A.Osman

18. The EOQ formula (pg. 220-221 Galloway, et. al)
EOQ = 2 PN IC
Where;
P = the ordering cost per order
N = annual usage
I = storage cost per year as a
decimal factor of the purchase price
C = unit purchase price
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19. The EOQ model assumptions (Pg. 222 Galloway, et. al.)
Average demand is at a constant level.
Supply lead time is constant.
The replenishment of the inventory item is not connected with the replenishment of any other item.
The unit purchase price, the ordering cost and the storage cost do not change.
The EOQ is equal to the amount which can actually be delivered by the supplier.
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20. The risk of obsolescence. The risk of deterioration.
Other factors that limit the strict application of the EOQ (Pg. 222/223 Galloway, et. al.)
The risk of obsolescence.
The risk of deterioration.
Limited storage space.
The availability of money for stock purchases
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21. The reorder point (Pg. 226-227 Galloway, et. al.)
It is important to know when to place an
order. At what level should the existing
stocks be when an order is placed i.e.
reorder point:
Situations of known demand
Situations of uncertain demand
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22. Inventory Control Systems (Pg. 228-233 Galloway, et. al.)
Two basic types of control system are used to help
manage the flow of materials. They act as
mechanisms to draw the attention of managers to
the fact that action is required answering these
questions:
How often should stock levels be checked?
When should an order for more stock be placed?
What quantity should be ordered?
H.A.Osman

23. Inventory Control Systems (Pg. 228-233 Galloway, et. Al.)
The two basic types of control system
are:
The continuous review fixed reorder quantity system
The periodic reorder system
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24. Scheduling (Chapter 8 Galloway, et. al, Pg 237)
The master schedule:
The MS shows the output required over the
short term (usually 3 months). Presented
normally as a time-phased calculations
where (forecast – available stocks) +
Production = on-hand and available
inventory
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25. Table 8.5 (pg. 240 Galloway, et. al.)
Weeks 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 20 15 25
Available stock 14
Production
On hand
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26. Table 8.5 (pg. 240 Galloway, et. al.)
Weeks 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 20 15 25
Available stock 14 13
Production
On hand
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27. Table 8.5 (pg. 240 Galloway, et. al.)
Weeks 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 20 15 25
Available stock 14 13 17
Production
On hand
H.A.Osman

28. Table 8.5 (pg. 240 Galloway, et. al.)
Weeks 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 20 15 25
Available stock 14 13 17 21
Production
On hand
H.A.Osman

29. Table 8.5 (pg. 240 Galloway, et. al.)
Weeks 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 20 15 25
Available stock 14 13 17 21
Production
On hand
H.A.Osman

30. Table 8.5 (pg. 240 Galloway, et. al.)
Weeks 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 20 15 25
Available stock 14 13 17 21
Production
On hand
H.A.Osman

31. Table 8.5 (pg. 240 Galloway, et. al.)
Weeks 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 20 15 25
Available stock 14 13 17 21
Production
On hand
H.A.Osman

32. Table 8.5 (pg. 240 Galloway, et. al.)
Weeks 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 20 15 25
Available stock 14 13 17 21 -3
Production
On hand
H.A.Osman

33. Table 8.5 (pg. 240 Galloway, et. al.)
Weeks 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 20 15 25
Available stock 14 13 17 21 -3 -9
Production
On hand
H.A.Osman

34. Table 8.5 (pg. 240 Galloway, et. al.)
Weeks 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 20 15 25
Available stock 14 13 17 21 -3 -9
-10
Production
On hand
H.A.Osman

35. Table 8.5 (pg. 240 Galloway, et. al.)
Weeks 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 20 15 25
Available stock 14 13 17 21 -3 -9
-10 -6
Production
On hand
H.A.Osman

36. Table 8.5 (pg. 240 Galloway, et. al.)
Weeks 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 20 15 25
Available stock 14 13 17 21 -3 -9
-10 -6
Production
On hand -2
H.A.Osman

37. Table 8.5 (pg. 240 Galloway, et. al.)
Weeks 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 20 15 25
Available stock 14 13 17 21 -3 -9
-10 -6
Production
On hand -2
The inability to meet demand from week 8 will have to be discussed between production and sales
H.A.Osman

38. Approaches to master scheduling (Pg. 242 Galloway, et. al)
Make to stock
Make to order
Assemble to order
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39. The master plan is a basis for many scheduling approaches (pg
The master plan is a basis for many scheduling approaches (pg. 249 Galloway, et. al)
Material requirement planning
(MRP ) system
Enterprise resource planning (ERP) systems.
The Optimized production technology (OPT)
Just in time manufacturing
H.A.Osman

40. Managing the performance of projects (pg
Managing the performance of projects (pg. 49 binder) Chapter 9 Galloway, et. al
A project is a set of activities that has a definable
start and a definable end . They can be large or
small in size, e.g. Building the Millennium Dome, or
painting a room.
Other examples of projects include:
Developing a new software package
Relocating an office
Implementing a new information system
Opening a new hospital
Setting up a new business
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41. Project Characteristics (pg. 278 Galloway, et. al)
A well-defined objective
Most projects are usually a one-of-a kind undertaking
Relationships between project activities can be complex.
Project carry a certain amount of risk in terms of time, cost and resources due to changes in the environment that can occur.
Once a project achieves its specific objective the resources used on the project are usually abandoned.
All projects go through different stages.
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42. The role of a project manager (pg 279 Galloway, et. al)
Manage the project’s work content to define the goals and the work to be done in detail
Manage the people involved in the project
Manage information and channels of communications within the project
Manage time by planning and meeting a schedule
Manage quality so that the project outcome is satisfactory
Manage costs so that the project is performed within budget
H.A.Osman

43. Stages in project planning and control (Pg. 279-282 Galloway, et. al)
Effective planning and control of projects
depends on clear understanding of the
following stages in project management:
Project environment
Project definition
Project planning
Project control
H.A.Osman

44. Stages in project planning and control (Pg. 279/80 Galloway, et. al)
Project environment: Relates to factors which may influence the project during its life cycle, such as; supplier’s reliability, political instability, local laws, national culture of the host country, etc.
Project definition: This is being clear as much as possible on what is going to be done. This includes the projects objectives, scope and strategy.
H.A.Osman

45. Stages in project planning and control (Pg. 281/82 Galloway, et. al)
Project planning: This determines the duration and cost of the project. It also assists in the allocation of work to people, monitoring progress and assessing the impact of any change on the project.
Project control: This relates to mgt of activities that take place during the execution of the project i.e. decisions on monitoring the progress, measuring the performance, etc.
H.A.Osman