Kristu Jyoti College of Management and Technology

Post Graduate Department of Management studies

OPERATIONS MANAGEMENT
STUDY MATERIAL

Module III | MA HRM | 2nd Semester

Christin Mathew

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 MHRM
Module -III
Materials Management

Materials Management is the planning, directing, controlling and coordinating those

activities which are concerned with materials and inventory requirement. It involves
planning and programming for the procurement of material and capital goods of desired
quality and specification at reasonable price and at the required time.

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.

N.K. Nair:

“Material management is the integrated functioning of the various sections of an

organization dealing with the supply of materials and allied activities in order to achieve
maximum co-ordination.”

The fundamental objectives of the Materials Management function ,often called the
famous 5 R of Materials Management, are :

acquisition of materials and services of the right quality

in the right quantity
at the right time
from the right source
at 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

 To maintain a high inventory turnover , by reducing excess storage , carrying costs

and inventory losses occurring due to deteriorations , obsolescence and pilferage

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

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

 To develop reliable alternate sources of supply to promote a competitive

atmosphere in performance and pricing

 To minimize the overall cost of acquisition by improving the efficiency of operations

and procedures

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

 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

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

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

 To participate in Make or Buy decisions

Importance of Material Management:

Material management is a service function. It is as important as manufacturing, engineering

and finance. The supply of proper quality of materials is essential for manufacturing
standard products. The avoidance of material wastage helps in controlling cost of
production. Material management is essential for every type of concern.

The importance of material management may be summarized as follows:

1. The material cost content of total cost is kept at a reasonable level. Scientific purchasing
helps in acquiring materials at reasonable prices. Proper storing of materials also helps in
reducing their wastages. These factors help in controlling cost content of products.

2. The cost of indirect materials is kept under check. Sometimes cost of indirect materials
also increases total cost of production because there is no proper control over such
materials.

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3. The equipment is properly utilized because there are no break downs due to late supply
of materials.

4. The loss of direct labour is avoided.

5. The wastages of materials at the stage of storage as well as their movement is kept under
control.

6. The supply of materials is prompt and late delivery instances are only few.

7. The investments on materials are kept under control as under and over stocking is
avoided.

8. Congestion in the stores and at different stages of manufacturing is avoided.

Functions of Material Management:

Material management covers all aspects of material costs, supply and utilization. The
functional areas involved in material management usually include purchasing, production
control, shipping, receiving and stores.

Scope/Functions of material management:

1. Production and Material Control:

Production manager prepares schedules of production to be carried in future. The

requirements of parts and materials are determined as per production schedules.
Production schedules are prepared on the basis of orders received or anticipated demand
for goods. It is ensured that every type or part of material is made available so that
production is carried on smoothly.

2. Purchasing:

Purchasing department is authorized to make buying arrangements on the basis of

requisitions issued by other departments. This department keeps contracts with suppliers
and collects quotations etc. at regular intervals. The effort by this department is to
purchase proper quality goods at reasonable prices. Purchasing is a managerial activity
that goes beyond the simple act of buying and includes the planning and policy activities
covering a wide range of related and complementary activities.

3. Non-Production Stores:

Non-production materials like office supplies, perishable tools and maintenance, repair and
operating supplies are maintained as per the needs of the business. These stores may not

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be required daily but their availability in stores is essential. The non-availability of such
stores may lead to stoppage of work.

4. Transportation:

The transporting of materials from suppliers is an important function of materials

management. The traffic department is responsible for arranging transportation service.
The vehicles may be purchased for the business or these may be chartered from outside. It
all depends upon the quantity and frequency of buying materials. The purpose is to arrange
cheap and quick transport facilities for incoming materials.

5. Materials Handling:

It is concerned with the movement of materials within a manufacturing establishment and

the cost of handling materials is kept under control. It is also seen that there are no
wastages or losses of materials during their movement. Special equipment’s may be
acquired for material handling.

6. Receiving:

The receiving department is responsible for the unloading of materials, counting the units,
determining their quality and sending them to stores etc. The purchasing department is
also informed about the receipt of various materials.

Advantages of just in time inventory management

Less space needed: With a faster turnaround of stock, you don’t need as much warehouse
or storage space to store goods. This reduces the amount of storage an organisation needs
to rent or buy, freeing up funds for other parts of the business.
Waste reduction: A faster turnaround of stock prevents goods becoming damaged or
obsolete while sitting in storage, reducing waste. This again saves money by preventing
investment in unnecessary stock, and reducing the need to replace old stock.
Smaller investments: JIT inventory management is ideal for smaller companies that don’t
have the funds available to purchase huge amounts of stock at once. Ordering stock as and
when it’s needed helps to maintain a healthy cash flow.

Disadvantages of just in time inventory management

Risk of running out of stock: By not carrying much stock, it is imperative you have the
correct procedures in place to ensure stock can become readily available, and quickly. Lack
of control over time frame: Having to rely on the timeliness of suppliers for each order
puts you at risk of delaying your customers’ receipt of goods.
More planning required: With JIT inventory management, it’s imperative that companies
understand their sales trends and variances in close detail.

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What Is Supply Chain Management (SCM)?

Supply chain management is the management of the flow of goods and services and
includes all processes that transform raw materials into final products. It involves the
active streamlining of a business's supply-side activities to maximize customer value and
gain a competitive advantage in the marketplace.

Purchasing

Purchasing means procurement of goods and services from some external agencies. The
object of purchase department is to arrange the supply of materials, spare parts and
services or semi-finished goods, required by the organisation to produce the
desired product, from some agency or source outside the organisation.

Importance of Purchasing:

1. Purchasing function provides materials to the factory without which wheels of machines
cannot move.

2. A one percent saving in materials cost is equivalent to a 10 percent increase in turnover.

Efficient buying can achieve this.

3. Purchasing manager is the custodian of his firm’s is purse as he spends more than 50 per
cent of his company’s earnings on purchases.

4. Increasing proportion of one’s requirements are now bought instead of being made as
was the practice in the earlier days. Buying, therefore, assumes significance.

5. Purchasing can contribute to import substitution and save foreign exchange.

6. Purchasing is the main factor in timely execution of industrial projects.

7. Materials management organisations that exist now have evolved out or purchasing
departments.

Objectives of Purchasing:

1. To pay reasonably low prices for the best values obtainable, negotiating and executing all
company commitments.
2. To keep inventories as low as is consistent with maintaining production.
3. To develop satisfactory sources of supply and maintain good relations with them.
4. To secure good vendor performance including prompt deliveries and acceptable quality.
5. To locate new materials or products as required.
6. To develop good procedures, together with adequate controls and purchasing policy.

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7. To implement such programmes as value analysis, cost analysis, and make-or-buy to
reduce cost of purchases.
8. To secure high caliber personnel and allow each to develop to his maximum ability.
9. To maintain as economical a department as is possible, commensurate with good
performance.

Principles of Purchasing

1. Right Quality:

The term right quality refers to a suitability of an item for the purpose it is required. For
producing the goods of best quality, the best grade of raw material may be the right quality
whereas for producing items of medium quality, the average lowest grade may be the right
quality.

2. Right Quantity:

Materials purchased should be of right quantity. The right quantity is the quantity that may
be purchased at a time with the minimum total cost and which obviates shortage of
materials.

3. Right Time:

The time at which the purchases are to be made is of vital importance. In case of items used
regularly, right time means the time when the stock reaches the minimum level. The
reorder level of material is fixed for each item under the principle of right time.

4. Right Source:

While selecting the supplier certain factors must be kept in mind, viz., location of the
supplier, warehousing facilities available with the supplier, relations of the employers with
the labour, credit worthiness of the supplier, size of the supplier’s firm and quality control
observed by the employer etc.

5. Right Price:

Determination of right price is a difficult task. It is the main object of any organisation to
procure the material items at the right price. It is that price which brings the best ultimate
value of the money invested in purchasing the materials.

6. Right Place:

Besides obtaining the materials of the right quality and quantity from the right source at
the right price, it should be ensured that the materials are available at the right place.

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Types of purchasing

1. Centralized Purchasing:
When all types of purchasing is done at one level, it is known as centralised purchasing. A
separate department, known as purchase department, is set up for this purpose. All
departments send their purchase requirements to purchase department and it arranges
procurement of various goods needed.

2. Decentralized (or Localized) Purchasing:

This type of purchasing is suitable for concerns or when there are more than one plant or
the plants are situated at different places. Every department or plant, as the case may be, is
authorized to make its own purchases. A separate purchasing agent is appointed for every
department or plant.

3.Just In Time (JIT) Purchasing.

It is an approach to inventory management in which products are bought in small
quantities to reduce store inventory carrying costs and obtain delivery just in time for use.

Centralised Purchasing Vs Decentralised purchasing

Traditional Purchasing Vs JIT purchasing

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Inventory
In Production Management, inventory refers to your level of materials and supplies on
hand for use in manufacturing production. This is different from work-in-
process inventory, which is the value of goods in the middle of the production process, and
finished goods inventory, which is the value of products to your customers.

Inventory is the term for the goods available for sale and raw materials used to produce
goods available for sale. Inventory represents one of the most important assets of a
business because the turnover of inventory represents one of the primary sources of
revenue generation and subsequent earnings for the company's shareholders.

Types of Inventory/Classification of inventory

1. Raw Materials
Materials that are needed to turn your inventory into a finished product are raw materials.
For example, leather to make belts for your company would fall under this category. Or if
you sell artificial flowers for your interior design business, the cotton used would be
considered raw materials.

2. Work-In-Progress
Inventory that is being worked on is Work-In-Progress (WIP), just like the name sounds.
From a cost perspective, WIP includes raw materials, labor, and overhead costs. Think of
the inventory under this category as being a part of the bigger end-product picture. If you
sell medical equipment, the packaging would be considered WIP. That’s because the
medicine cannot be sold to the consumer until it is stored in proper packaging. It’s literally
a work-in-progress.

3. Finished Goods
Maybe the most straight-forward of all inventory types is finished goods inventory. That
inventory you have listed for sale on your website? Those are finished goods. Any product
that is ready to be sold to your customers falls under this category.

4. Overhaul / MRO
Also known as Maintenance, Repair, and Operating Supplies, MRO inventory is all about the
small details. It is inventory that is required to assemble and sell the finished product but is
not built into the product itself. For example, gloves to handle the packaging of a product
would be considered MRO. Basic office supplies such as pens, highlighters, and paper
would also be in this category.

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Inventory control
It is the systems and processes that manage and track a company's goods through a supply
chain, including purchasing, receiving, movement, transfers, picking and shipping. All
efforts in inventory control boil down to better visibility and lower costs.

Objectives:

(i) To minimise capital investment in inventory by eliminating excessive stocks;

(ii) To ensure availability of needed inventory for uninterrupted production and for

meeting consumer demand;

(iii) To provide a scientific basis for planning of inventory needs;

(iv) To tiding over the demand fluctuations by maintaining reasonable safety stock;
(v) To minimise risk of loss due to obsolescence, deterioration, etc.;

(vi) To maintain necessary records for protecting against thefts, wastes leakages of

inventories and to decide timely replenishment of stocks.

Advantages of Inventory Control:

Scientific inventory control provides the following benefits:

1. It improves the liquidity position of the firm by reducing unnecessary tying up of capital

in excess inventories.

2. It ensures smooth production operations by maintaining reasonable stocks of materials.

3. It facilitates regular and timely supply to customers through adequate stocks of finished
products.

4. It protects the firm against variations in raw materials delivery time.

5. It facilitates production scheduling, avoids shortage of materials and duplicate ordering.

6. It helps to minimise loss by obsolescence, deterioration, damage, etc.

7. It enables the firms to take advantage of price fluctuations through economic lot buying

when prices are low.

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Limitations of Inventory Control:

(i) Efficient inventory control methods can reduce but cannot eliminate business risk.

(ii) The objectives of better sales through improved service to customer; reduction in

inventories to reduce size of investment and reducing cost of production by smoother

production operations are conflicting with each other.

(iii) The control of inventories is complex because of the many functions it performs. It

should be viewed as shared responsibilities.

Factors affecting inventory control policy

1. Characteristics of the manufacturing system
The nature of the production process, the product design, production planning and plant
layout have significant effect on inventory policy. Some of these factors are:

2. Degree of specialization and differentiation of the product at various stages

3. Process capability and flexibility
Inventory policy should aim towards balancing the production flexibility, capability,
inventory levels and customer service needs.

4. Production capacity and storage facility

5. The nature of the production system
6. Amount of Protection against Shortage
7. Organizational Factors
 Labour relation policies of the organization
 Amount of capital available for stock
 Rate of return on capital available if invested elsewhere.
8. Other Factors
a. Inflation
b. Strike situation in communication facilities.
c. Wars or some other natural calamities like famines, floods, etc.
d. Difference between input and output

Types of inventory cost

Ordering Cost-Cost of procurement and inbound logistics costs form a part of Ordering
Cost. Ordering Cost is dependent and varies based on two factors - The cost of ordering
excess and the Cost of ordering too less.

Holding\Carrying cost: They are expenses such as storage, handling, insurance, taxes,
obsolescence, theft, and interest on funds financing the goods. These charges increase as
inventory levels rise. To minimize carrying costs, management makes frequent orders of
small quantities

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Inventory storage costs typically include Cost of Building Rental and facility maintenance
and related costs. Cost of Material Handling Equipments

Stock-out cost-They include sales that are lost, both short and long term, when a desired
item is not available; the costs associated with back ordering the missing item; or expenses
related to stopping the production line because a component part has not arrived.

Types of inventory control techniques

1. ABC Analysis
It is a ranking system for identifying and grouping items in terms of how useful they are for
achieving business goals. The system requires grouping things into three categories: A -
extremely important. B - moderately important. C - relatively unimportant.

“A” items are very important for an organization because of its high spend value. Normally
A items are those items for which an organization spends close to 80 or even 90% of its
money. This is where the big bucks are!

“B” items or suppliers are those that an organization spends about 10% to 15% of its
money. These are not that high in priority but still may need to pay some attention.

“C” items or suppliers are those where spend is very low. Usually companies will have
around 75% to 80% of suppliers in this category
2.FSN Analysis

This analysis classifies inventory based on quantity, the rate of consumption and frequency
of issues and uses. Here is the basic depiction of FSN Analysis:
F stands for Fast moving, S for Slow moving and N for Nonmoving items.
Fast Moving (F) – Items that are frequently issued/used
Slow Moving (S) – Items that are issued/used less for a certain period
Non-Moving (N) – Items that are not issued/used for more than a certain duration
3.VED Analysis
This is an analysis whose classification is dependent on the user’s experience and
perception. This analysis classifies inventory according to the relative importance of
certain items to other items, like in spare parts.
In VED Analysis, the items are classified into three categories which are:
Vital – inventory that consistently needs to be kept in stock.
Essential – keeping a minimum stock of this inventory is enough.

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Desirable – operations can run with or without this, optional.
4.HML Analysis
HML Analysis classifies inventory based on how much a product costs/its unit price. The
classification is as follows:
High Cost (H) – Item with a high unit value.
Medium Cost (M) – Item with a medium unit value.
Low Cost (L) – Item with a low unit value.
5.SDE Analysis
This analysis classifies inventory based on how freely available an item or scarce an item is,
or the length of its lead time. This is how the inventory is classified:
Scarce (S) – Imported items and require longer lead time.
Difficult (D) – Items which require more than a fortnight to be available, but less than 6
months lead time.
Easily available (E) – Items which are easily available

Economic order quantity (EOQ)

Economic order quantity is necessary to minimize the order-related and holding costs of
merchandise and raw materials inventory. It is the perfect order quantity that should be
bought by an organization for its inventory. The economic order quantity is also known as
the optimal order quantity and optimal order size.

The advantages of economic order quantity are as follows

 The economic order quantity helps in reducing the holding costs of inventory. The
company does not have to order excess stocks that need to be stored in warehouses
and thus saves money that would have to be spent on rent and other expenses
related to storage.
 The economic order quantity equation helps an organization to determine the
number of units and the number of units it needs to purchase. This reduces the
ordering costs as the company orders in fewer times and saves on costs related to
transportation, packing, etc.
 The EOQ helps the organization to manage its inventory in a better manner. It is now
able to minimize its operational costs, and this ultimately leads to profits.
 It makes restocking an easy process as the formula helps to determine how often you
should be placing orders.
 The EOQ model helps the company to find the best deal because now you are
purchasing only what you require and not any excess that can become a waste

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The disadvantages of economic order quantity are as follows

 The economic order quantity needs several assumptions to survive and operate
 As per the formula of economic order demand, the consumer demand is constant, and
this makes it impossible to calculate during seasonal changes
 Forecasting the demand accurately is simply not possible because the demand is not
static. It continues to rise and fall substantially and thus changes the equation every
time
 Sometimes the company places an order with the supplier, but he does not have the
required raw materials. This can cause problems as the organization is unable to
meet the unexpected and high demand for the product. The EOQ model states that
the demand is constant, and this can cause a loss for the firm.
 It is important to monitor the reorder levels if it is following the economic order
quality formula. This is a time-consuming and expensive process because you will
have to hire a team to do so regularly.

Material Handling

Manual material handling ranges from movement of raw material, work in progress,
finished goods, rejected, scraps, packing material, etc. These materials are of different
shape and sizes as well as weight. Material handling is a systematic and scientific method of
moving, packing and storing of material in appropriate and suitable location. The main
objectives of material handling are as follows:

 It should be able determine appropriate distance to be covered.

 Facilitate the reduction in material damage as to improve quality.
 Reducing overall manufacturing time by designing efficient material movement
 Improve material flow control
 Creation and encouragement of safe and hazard-free work condition
 Improve productivity and efficiency
 Better utilization of time and equipment

Principles of Material Handling

Material handling principles are as follows:

 Orientation Principle: It encourages study of all available system relationships

before moving towards preliminary planning. The study includes looking at existing
methods, problems, etc.
 Planning Principle: It establishes a plan which includes basic requirements,
desirable alternates and planning for contingency.
 Systems Principle: It integrates handling and storage activities, which is cost
effective into integrated system design.
 Unit Load Principle: Handle product in a unit load as large as possible

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  Space Utilization Principle: Encourage effective utilization of all the space
available
 Standardization Principle: It encourages standardization of handling methods and
equipment.
 Ergonomic Principle: It recognizes human capabilities and limitation by design
effective handling equipment.
 Energy Principle: It considers consumption of energy during material handling.
 Ecology Principle: It encourages minimum impact upon the environment during
material handling.
 Mechanization Principle: It encourages mechanization of handling process
wherever possible as to encourage efficiency.
 Flexibility Principle: Encourages of methods and equipment which are possible to
utilize in all types of condition.
 Simplification Principle: Encourage simplification of methods and process by
removing unnecessary movements
 Gravity Principle: Encourages usage of gravity principle in movement of goods.
 Safety Principle: Encourages provision for safe handling equipment according to
safety rules and regulation
 Computerization Principle: Encourages of computerization of material handling
and storage systems
 System Flow Principle: Encourages integration of data flow with physical material
flow
 Layout Principle: Encourages preparation of operational sequence of all systems
available
 Cost Principle: Encourages cost benefit analysis of all solutions available
 Maintenance Principle: Encourages preparation of plan for preventive
maintenance and scheduled repairs
 Obsolescence Principle: Encourage preparation of equipment policy as to enjoy
appropriate economic advantage.

How many categories of material handling devices are there?

According to the latest industrial norms, all the material handling applications can be
categorized into four slots. The four categories are as follows-

 Transportation equipment and applications

 Positioning applications
 Applications to form the unit loads properly.
 Storage equipment
Now, let’s know about all the devices and applications that come under these four
categories.

1. Transportation equipment and applications: You might have already understood

the functions of the equipment from the name. Yes, the main uses of these

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 applications are to move products from one place to another. The following devices
are the main ones among all the transportation equipment.
 Conveyors: You can use a conveyor when you have a fixed load to transport or
move. Also, keep in mind that the movement path has to be the same every time.
That means when you move a fixed load between two specific points, a conveyor
can be used. You can divide the conveyors into different types according to
capabilities. Like based on load taking capacity, there are two types- unit load
conveyors and bulk load conveyors
 Cranes: Almost everyone is familiar with cranes. Cranes, in the industries, come
to use when the loads are too heavy to move with conveyors. Cranes can lift the
loads both vertically and horizontally, and the maximum load-taking capacities
are much higher. But cranes too have a limitation. You can use cranes to lift loads
within a limited area.
 Industrial trucks: These are the trucks that can be used within the factory or
warehouse premises. The industrial trucks have the capabilities to take up more
loads than the conveyors. You can also overcome the limitations of cranes by
using Industrial trucks. With an industrial truck, you can carry the load in
variable paths according to the needs. There several different types of industrial
trucks, like- hand trucks, pallet jacks, forklift trucks, etc.
2. Positioning applications: These kinds of applications are mainly used for
positioning the material in the right way. The main purpose of the positioning
applications is to make sure that the products are in the right conditions.
Throughout the whole manufacturing and processing process, the workers can
condition the products easily with positioning applications. With these applications,
the workers can enhance the quality of the product and limit the chances of
damaging. Some of the examples of positioning equipment are- hoists, balancers,
manipulators and industrial robots.
 Hoists: Hoists are the most common equipment for industrial purposes. Lifting
of heavyweights and loads can be easier with different types of hoists. There are
different types of hoists like- manual chain hoists, electrical hoists, etc.
 Balancers: These are the devices that help you to balance the products in the
right way. While storing the products in the warehouse, balancing the products
is highly important to keep the quality intact.
 Industrial robots: An amazing gift from advanced technology, an industrial
robot can be highly beneficial. These robots can make functions as human and
capacities of these robots are very high. These kinds of robots can be highly
beneficial in handling and positioning the products.
3. Unit loading equipment: The unit loading equipment is essential during the
transportation of the products. While transporting the products, these equipment
keep the integrity of the products intact. Pallets and slip-sheets are main among unit
loading equipment.
 Pallets: Pallets can be made of wood, plastic, metal and rubber. A pallet has
enough space that is divided into segments under the top surface. You can insert
the products in those segments to keep the products safe.

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  Slip-sheets: Slip-sheets include several tabs that you can bring out by pushing
or pulling. You can insert the products inside the tabs and keep those in a safe
and compact condition.
4. Storage equipment: Storage is an important factor that you need to keep in check
after manufacturing the product. Storage applications can be of different types.
Double-deep racks are highly efficient in storing a large number of products safely.
You can also bring an automatic storage or retrieval system. With such a computer-
controlled system, you can store your products in more safe and accurate ways.
These kinds of storages can provide you with additional safety that other types can’t
provide

SELECTION AND DESIGN OF HANDLING SYSTEM

Materials handling systems are expensive to purchase and operate. The expenses are those
of initial costs, labor cost for operating the material handling equipments and maintenance
and repair costs. The indirect expenses are those resulting from damaged or lost materials,
delays in material deliveries and accidents. Since these expenses are quite substantial,
greater attention of management is needed to the design and selection of materials
handling systems.

Steps to be followed in the selection and design of materials handling systems are:

1. Identification of the appropriate systems.

2. Review of design criteria and objectives of the handling system.
3. Collection of data regarding flow pattern and flow requirements.
4. Identification of activity relationships between departments.
5. Determination of space requirement and establishment of material flow pattern.
6. Analysis of material and building characteristics.
7. Preliminary selection of basic handling system and generation of alternative systems
considering feasibility of mechanization and equipment capabilities.
8. Evaluation of alternatives with respect to optimal material flow, utilizing gravity,
minimum cost, flexibility, ease of maintenance and capacity utilization.
9. Selection of the best suitable alternative system and checking it for compatibility with
the layout.
10. Specification of the system.
11. Procurement of the equipment and installation of the system.

SELECTION AND DESIGN OF HANDLING SYSTEM

Materials handling systems are expensive to purchase and operate. The expenses are those
of initial costs, labor cost for operating the material handling equipments and maintenance
and repair costs. The indirect expenses are those resulting from damaged or lost materials,
delays in material deliveries and accidents. Since these expenses are quite substantial,

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greater attention of management is needed to the design and selection of materials
handling systems.

Steps to be followed in the selection and design of materials handling systems are:

1. Identification of the appropriate systems.

2. Review of design criteria and objectives of the handling system.
3. Collection of data regarding flow pattern and flow requirements.
4. Identification of activity relationships between departments.
5. Determination of space requirement and establishment of material flow pattern.
6. Analysis of material and building characteristics.
7. Preliminary selection of basic handling system and generation of alternative systems
considering feasibility of mechanization and equipment capabilities.
8. Evaluation of alternatives with respect to optimal material flow, utilizing gravity,
minimum cost, flexibility, ease of maintenance and capacity utilization.
9. Selection of the best suitable alternative system and checking it for compatibility with
the layout.
10. Specification of the system.
11. Procurement of the equipment and installation of the system.

Vendor Analysis – Picking the Best Vendor

Vendor analysis is the assessment of current or prospective suppliers with respect to their:

 Financial strength.
 Vendor’s business model.
 Capacity to supply the appropriate products and services.
 Capabilities – what it can and cannot do or provide.
 Turnover and profit levels.
 Markups, price list and discounts.
 Reliability and quality.
 Reputation.
 Payment terms.
 Deliveries.
 Ability to implement a solution if services are being purchased.
 Availability of experienced staff.

It is undertaken when a company is consolidating its existing suppliers, choosing new

vendors or analyzing the capabilities of the current suppliers.

It may also be undertaken when a company is searching amongst potentials suppliers of a

possible solution to a business problem that it has. For example, the company may be
seeking to consolidate its accounting, inventory and purchasing systems using one
software system.

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The company would first undertake a vendor analysis to ascertain as to which large
companies provide Enterprise resource planning (ERP) software.

The resulting report would look at the appropriate companies and also analyze the
functions and benefits of each ERP package. This would allow the company to ascertain a
shortlist of appropriate vendors with whom to discuss their requirements.

Some companies purchase from a large number of suppliers and they need to undertake a
series of periodic vendor analysis. They seek to understand which of their suppliers are
contributing the most to their profit and conversely which are costing more to manage than
they are contributing. This vendor analysis thus becomes a cost benefit analysis.

Thus the performance of the vendor coupled with their direct and indirect benefits is
compared to the physical cost of doing business with them. These costs would include such
matters as:

 Overpricing.
 Difficult delivery times that require extra staffing to manage.
 Early requests for invoice payment.
 Unreliability and frequent short and damaged deliveries.

What Is Vendor Assessment?

Vendor assessment is an evaluation and approval process that businesses can use to
determine if prospective vendors and suppliers can meet their organizational standards
and obligations once under contract. The end goal is to secure a low-risk, best-in-
class vendor and supplier portfolio

Vendors and suppliers both furnish services or goods, but there is a distinction: The
term vendor applies to business-to-business (B2B) and business-to-consumer (B2C) sales
relationships, while supplier applies only to B2B relationships.
Similarly, a vendor cost analysis incorporates terms from the cost analysis with an overall
supplier assessment to decide if the products and prices offered are economical. Businesses
should initially judge a vendor based on their-

 Reputation
 Profit levels
 Reliability
 Business model
 Delivery time
 Discounts
 Payment terms
 Quality and cost of goods or services
 Financial stability
 Production capabilities
 Staff experience

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