1. MATERIALS
MEANING OF MATERIAL CONTROL
STEPS IN MATERIAL CONTROL
NEED AND OBJECTIVE OF MATERIAL CONTROL
ISSUE OF MATERIALS
METHODS OF PRICING MATERIAL ISSUES
(FIFO, LIFO, SIMPLE AND WEIGHTED AVERAGE METHODS ONLY)

2. INTRODUCTION AND MEANING OF MATERIAL CONTROL
Material management is a function responsible for
-coordination of planning, sourcing, purchasing, moving, storing, and controlling materials.
Objective is to minimize the material procurement and stock holding costs.
material cost control to be effective, it involves the cooperation of various departments.

3. FEATURES OF MATERIAL CONTROL
The quality and specification of materials
Material control aims for Purchasing at minimum price and avoids urgent purchases
Storage of material or running out of stock will be avoided
Wastage and losses shall be avoided
Materials are classified and accounted.

4. NEED FOR MATERIAL CONTROL OR OBJECTIVES
Availability of materials
No excessive investment in materials
Reasonable price
Minimum wastage
Risks of spoilage and obsolescence
Information about availability of materials
Material can be easily misappropriated

5. ESSENTIALS OF MATERIAL CONTROL
Proper cooperation and coordination
Purchases of materials should be centralized
Proper scheduling of materials
Records should be maintained
System of internal check should be introduced
Good method of issue of material should be followed
Storage of material should be well planned
Proper method of inspection should be followed
Ordering quantity of material should be fixed
Minimum maximum and reordering levels of material should be fixed

6. CLASSIFICATION OF MATERIALS
DIRECT MATERIAL
All material and components specially purchased or issued from stores for the process and all primary packing materials.
INDIRECT MATERIAL
Consumable stores, lubricating oil, greases, fuel oil, tools, jigs and fixtures, sundry stores of small value like cotton waste broom stick etc.
STEPS IN MATERIAL CONTROL
MATERIAL PURCHASE
PROCEDURE
STORE KEEPING
TECHNIQUES OF INVENTORY CONTROL
PRICING THE MATERIAL

7. MATERIALS PURCHASE PROCEDURE
If possible – should be a separate purchase department
Should be centralized
If same material and stored required from number of factories- should be centralized.
The following are the issues in the material purchase dept
What to purchase?
When to purchase?
Where to purchase?
How much to purchase?
What price to purchase?

8. MATERIALS PURCHASE PROCEDURE
Purchase dept follows the following steps :
Receiving purchase requisitions
Exploring the sources of materials supply and selecting suppliers
Preparation and execution of purchase orders
Receipts and inspection of materials
Checking and passing of bills for payments.

9. RECEIVING PURCHASE REQUISITIONS
Purchase requisition – form used for a formal request
Prepared by storekeeper and approved by executive, works manager
Prepared in triplicate – purchase dept, kept by the storekeeper, executive
PR provides basic information to purchase dept.
What type of material is to be purchased?
When is to be purchased?
How much is to be purchased at one time?

10. EXPLORING THE SOURCES OF SUPPLY AND CHOOSING THE SUPPLIERS
Purchase dept – maintains suppliers names and address
Quotations are invited
Comparative statement is prepared
While selecting the supplier –
Manufacturing capacities
Reliability
Financial condition
Management
Price quoted
T O P
T O D
Purchase price should be the lowest and should be capable of supplying the materials of uniform quality at right time and reasonable price.

11. PURCHASE ORDER
Prepares the purchase order for the supply of stores to the supplier
Purchase order is the evidence of the contract – supplier and the buyer are bound to this contract
Three to five copies are prepared
Supplier.
Receiving dept
Person who initiated purchase requisition
Accounting dept
Retained by purchase dept

12. RECEIVING AND INSPECTING MATERIALS
A Separate receiving and inspection dept should be setup to receive materials.
Goods receiving clerk – record in S/G Rcd Note
Five copies of note should be prepared
Receiving dept
Storekeeper
Purchase dept
Accounts dept
Requisition dept
CHECKING AND PASSING OF BILLS FOR PAYMENT
Invoice received from supplier sent to stores accounting section to check
(authentication, arithmetical accuracy, price qty etc are checked) stores accounting dept certifies and passes the invoice for payment.

13. STORE KEEPER
In charge of stores and responsible for stores control.
Store keeper – technical knowledge, wide experience and ability to organize. Duties and responsibilities
Receiving the stores correctly
Entering all receipts regularly.
Keeping every item of stores in its allotted
Maintaining the stores in orderly and tidy manner
Ensuring the material are issued only to those who present a duly signed requisition and recording it correctly
Ensuring stock do no exceed maximum level or go below the minimum level
Requisition from purchase dept
Preventing unauthorized person entering into the stores
Supervising the duties of staff under his charge

14. REQUISITION FOR STORES
Duty of storekeeper – send requisition for stores
Storekeeper should not block the capital and production should not be affected
In order to overcome this problem – guided with re-order level, economic ordering qty and maximum and minimum qty which he is authorised to store.
REORDERING LEVEL = maximum consumption * maximum reorder period
MINIMUM LEVEL (Safety stock level) – (fixed qty) minimum qty of material must be maintained in hand at all times.
MINIMUM STOCK LEVEL = reordering level – (normal consumption * normal reorder period)

15. MAXIMUM LEVEL – (should not exceed this level) maximum qty of material must be maintained in hand at all times. Overstocking to be avoided (needs more godown space , loss due to obsolescence, fear of depreciation, blocks working capital)
MAXIMUM STOCK LEVEL = reordering level + reordering qty – (minimum consumption * minimum reordering period)
AVERAGE STOCK LEVEL = minimum stock level + ½ of re-order qty (OR) ½ (minimum stock level + maximum stock level)
DANGER LEVEL – normal issues of material are stopped and issues made only under special instruction.
DANGER LEVEL = average consumption * max. reorder period for emergency purchase.

16. ECONOMIC ORDERING QUANTITY – Consists of total acquisition cost, total ordering cost and total carrying cost.
Carrying cost consists of storage space, cost of bins and racks, cost of maintaining the material, spoilage in stores, transportation costs, cost of obsolescence, insurance cost, clerical cost.
Ordering cost consists of staff posted and cost of stationery, postage and telephone charges
Q = square root of 2CO / I where Q = quantity to be ordered, C = consumption of the material concerned in units, O = cost of placing one order including the cost of receiving the goods, I = interest payment including variable cost of storing per unit per year.

17. TECHNIQUES OF INVENTORY CONTROL
SETTING OF STOCK LEVELS
ABC ANALYSIS, JIT ANALYSIS, PARETO, VED AND FSN METHOD
TWO BIN SYSTEM
ESTABLISHMENT OF SYSTEM OF BUDGETS
USE OF PERPETUAL INVENTORY METHODS
DETERMINATION OF ECONOMIC ORDER QTY
ABC ANALYSIS : importance, frequency, their values.
A Category items consists of only 10% but requires high investment of 70%.
B Category items consists of only 20% but requires moderate investment of 20%.
C Category items consists of 70% but requires less investment of 10%.

18. JIT ANALYSIS : purchases goods to deliver immediately precedes their use.
To reduce stock levels to minimum,
Arranges more frequent deliveries (small qtys),
Achieved through close cooperation between purchasing com and supplier.
PARETO : 80/20 Distribution
20% of stores items accounts for 80% of the value of stock
80% of stores items accounts for 20% of the value of stock.
VED ANALYSIS : vital, essential and desirable is done to control spare parts
VITAL = stock out for short time will stop production for some times.
ESSENTIAL = stock out for few hours will stop production
DESIRABLE = stock out for even a week will not stop production.
FSN ANALYSIS : fast moving, slow moving, and non moving items
FAST MOVING items are consumed very fast requires more attention.
SLOW MOVING items are consumed in moderate
NON MOVING items are not consumed in a year, should be disposed.

19. TWO BIN SYSTEM : Bin divided into two parts (smaller and larger)
ESTABLISHMENT OF SYSTEM OF BUDGETS :
To control investments in inventories
production plans and production schedules - budgets are prepared
USE OF PERPETUAL INVENTORY METHODS :
systems where records are maintained by stores dept;
Bin card : records receipts, issued and closing balances of items
stores ledger : records receipts and issues with help of GRN and GIN
DETERMINATION OF ECONOMIC ORDER QTY : Consists of total acquisition cost, total ordering cost and total carrying cost.
Carrying cost consists of storage space, cost of bins and racks, cost of maintaining the material, spoilage in stores, transportation costs, cost of obsolescence, insurance cost, clerical cost.
Ordering cost consists of staff posted and cost of stationery, postage and telephone charges.

20. METHODS OF PRICING MATERIALS ISSUE
FIRST IN FIRST OUT (FIFO) : (Falling price)
Materials first received are issued first, simple to operate and logical method
LAST IN FIST OUT (LIFO) : REPLACEMENT COST METHODS
priced in reverse order, the price of the latest items is recorded, will show lowest profit, leads to clerical error.
BASE STOCK METHOD (BSM): minimum stock is maintained (safety stock)
SIMPLE AVERAGE METHOD : Average of closing rate and receipt rate
WEIGHTED AVERAGE METHOD : closing rate