Discuss the function of Materials Management Explain selective inventory control?

Answer 1

Materials Management Roles include the following
1. Vendor Administrator role.
[externally --manages the coordination with vendors of material supply]
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2. Centralized Material Master Administrator role.
[internally - manages the total material management operation ]
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3. Buyer role
[externally - manages the buying operation with the supplier
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4. Contract Administrator role.
[externally -manages the outsourcing of contract jobs ]
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5. Purchase Administrator role.
[internally - collaborates with the buyer ]
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6. Inventory Administrator role
Inventory Issuer role.
[internally --manages the coordination with the INVENTORY MANAGER]
Inventory Receiver role.
[internally --manages the coordination with the INVENTORY MANAGER]
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7.Material Planning Role
[internally --manages the material requirements with production planning ]
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8. Raw material Inventory Display role.
[internally - manages the stock level of raw materials.
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9.Raw material quality control role.
[internally --manages the quality control of incoming materials with QC.
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10. Material Budgeting role.
[internally - manages the department planning / budget ]
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SELECTIVE INVENTORY CONTROL
· To identify items, which bring significant benefit by proper management from among
hundreds and thousands of items managed by an organisation
· Determine the importance of items and thus allows different levels of control based
on the relative importance of items
Stock-Keeping Unit (SKU)
· Management decisions regarding inventories must ultimately be made at the level of
an individual item or product
· The specific unit to be controlled will be called a stock-keeping unit
· An SKU will be defined as an item of stock that is completely specified as to
functions, style, size, colour, and usually location
Examples:
· The same style shoes in two different sizes would constitute two different SKUs
· Each combination of size and grade of steel rod in raw stock constitutes a separate
SKU
· An oil company must regard each segregation of crude as a separate SKU
· A tire manufacturer would normally treat the exactly same tire at two geographically
remote locations as two distinct SKUs
ABC Analysis
· Classifies items based on the annual usage value (AUV)
· Identify a small percentage of items which account for most of the total inventory
value
Basic Principle
20/80 - Rule
Pareto's Law - Vilfredo Pareto - Italian Economist
"Few are vital' and 'many are trivial'
AUV = Annual demand C Price
Pareto's law applied to inventories
· The relationship between the percentage of items and the percentage of AUV follows
a pattern
A - about 20 % of items account for about 80 % of the AUV
B - about 30 % of items account for about 15 % of the AUV
C - about 50 % of items account for about 5 % of the AUV
Steps in Making an ABC Analysis
1. Determine the annual usage for each item
2. Calculate the AUV of each item
3. List the items according to their AUV (descending order)
4. Calculate the cumulative AUV and the cumulative percentage of items
5. Examine the annual usage distribution and group the items into A, B, C based on
percentage of AUV

Using ABC approach, there are two general rules to follow:
· Have plenty of low-value items
· Use the money and control effort to reduce the inventory of high-value items
Different Controls used with different classes
· A Items: High priority - Tight control including complete accurate records, regular
and frequent review by management, frequent review of demand forecast and close
follow-up and expediting to reduce lead time
· B Items: Medium priority - Normal Control
· C Items: Lowest priority - Simplest possible control. Perhaps use a two-bin system or
periodic review system. Order larger quantities and carry sufficient safety stock.