MATERIAL MANAGEMENT

DR. Vinoth Kumar V

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 Stores Management
Stores Management:
Store is an important component of material management since it is a place that keeps
the materials in a way by which the materials are well accounted for, are maintained safe,
and are available at the time of requirement.
Storage is an essential and most vital part of the economic cycle and store management
is a specialized function, which can contribute significantly to the overall efficiency and
effectiveness of the materials function.
Literally store refers to the place where materials are kept under custody.

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 Stores Function
STORE KEEPING: Store keeping is a specialized and important function of materials
control that is especially concerned with the physical storage of goods.

It is primarily service function in which the store keeper acts as a custodian of all items
carried in the stores. The storekeeper is responsible for safeguarding and keeping the
materials and suppliers in proper place unit required in production.
After the completion of purchase procedure, the next important aspect Of materials
management is storekeeping.
A storehouse is a building provided for preserving materials, stores and finished goods.
The in-charge of store is called storekeeper or stores manager.
The organisation of the stores department depends upon the size and layout of the
factory, nature of the materials stored and frequency of purchases and issue of materials.
According to Alford and Beatty “storekeeping is that aspect of material control
concerned with the physical storage of goods.”
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 Stores Relevance & Objectives
There are four sections in the process of storekeeping viz.
(a) Receiving section, (b) Storage section, (c) Accounting section (d) Issue section.
Objectives:
1. To ensure uninterrupted supply of materials and stores without delay to various production
and service departments of the organisation.
2. To prevent overstocking and understocking of materials,
3. To protect materials from pilferage, theft fire and other risks.
4. To minimise the storage costs.
5. To ensure proper and continuous control over materials.
6. To ensure most effective utilisation of available storage space and workers engaged in the
process of storekeeping.
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 Stores Function
1. Issuing purchase requisitions to Purchase Department as and when necessity for materials in stores
arises.

2. Receiving purchased materials from the purchase department and to confirm their quality and quantity
with the purchase order.

3. Storing and preserving materials at proper and convenient places so that items could be easily located.

4. Storing the materials in such a manner so as to minimise the occurrence of risks and to prevent losses due
to defective storage handling.

5. Issuing materials to various departments against material requisition slips duly authorized by the
respective departmental heads.

6. Undertaking a proper system of inventory control, taking up physical inventory of all stores at periodical
intervals and also to maintain proper records of inventory.

7. Providing full information about the availability of materials and goods etc., whenever so necessary by
maintaining proper stores records with the help of bin cards and stores ledger etc.
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 Duties in Stores Dept
1. To exercise general control over all activities in Stores Department
2. To ensure safe keeping both as to quality and quantity of materials.
3. To maintain proper records.
4. To initiate purchase requisitions for the replacement of stock whenever the stock level of any
item reaches the minimum limit fixed.
5. To stop further purchasing when the stock level approaches the maximum limit.
6. To check and receive purchased materials forwarded by the receiving department and to arrange
for the storage in appropriate places.
7. To reserve a particular material for a specific job when so required.
8. To issue materials only in required quantities against authorised requisition notes/material lists.
9. To check the book balances, with the actual physical stock at frequent intervals by way of internal
control over wrong issues, pilferage, etc.
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 Stores Ledger
A stores ledger is a manual or computer record of the raw materials and production supplies
stored in a production facility.
Stores ledger may be defined as a record maintained by the cost accounting department of the
enterprise. It is an assemblage of cards or sheets, which are maintained to keep a record of
quantity and cost of material received, transferred and remained in stock.
It is maintained by the person responsible for these assets, such as the warehouse manager.
It records items purchased as an increase to the inventory and items issued to the production
department as a decrease to inventory so as to show the available inventory of that material at
any given time. Those items issued to the production department are incorporated into the
product and become part of the cost of producing that product.

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 Stores Ledger
Itcomprises of an account for each item in the stock room that keeps the record of:
Quantity, Type, Rate, Amount.

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 Stores Bin card
Bin card is used to mean a document that keeps a record of the items held in stores.
Bin implies a container or space to keep materials, and with each bin, a card is placed,
that comprises of details of material received, issued and returned.
Bin card is used to quantitatively record the items received, issued and remained in the
stores.
As and when the transaction takes place, the entry is made in the bin card, after which
the materials are taken to/given from stores.
At the time of receiving materials, the quantity is entered in the receipt column of the
bin card from material requisition note (MRN), and on the transfer of goods to various
departments, the entry is made in issue column of the card.
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 Stores Bin card
Moreover, it contains details relating to the number of items, their description and
relevant notes (if any).

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Stores Ledger Vs Bin card

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 Stores Identification System and Codification
 Store is being described as any space reserved and equipped for holding stocks, waiting for
dispatch to customers for further processing or for further use.

The word store can also be used to means inventory (materials). The responsibility of physical
situation and condition of materials and issuing when required has with the store man and his
department and storage facilities must be adopted to suit the types of materials handle.
However, for the store to carry out its operation effectively there must be an effective ways of
identifying materials.
Codification is an organization ways or method of identifying materials to give room for
uniformity in the description of the items concerned. It is important to point out, that the success
of any stock control systems depend on an efficient coding of materials
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 Classification and Codification Of Materials
 It’sa Step to maintain stores in a systematic way. Materials are classified in such way that
storing, issuing and identifying of materials become easy.
Generally, materials are classified on the basis of their nature. Materials can also be
classified on the basis of quality and utility. Ex: Materials may be classified as raw
materials, consumable stores, components, spares and tools.

For the purpose of identification and convenience in storage and issue of materials, each
item of material is given a distinct name. Such a process of giving distinct names and
symbols to different items of materials is called codification of materials. Good store-
keeping requires proper classification and codification of various items of stores on stock.
Stores are generally classified either by their nature or by their usage. By the nature of
materials is most commonly used. Under this method of classification, the various items of
stores are divided into specific groups like construction materials, belting materials,
consumable stores, and spare parts and so on.
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 Classification and Codification Of Materials
All the items are grouped, so that each item of stores will be conveniently codified
and given a distinctive store code number.
Alphabetic code e.g ABC, DEF etc
Numerical code e.g 0123, 5710
Alphanumerical code e.g A102, B2DF etc
Colour code e.g for iron, red, blue, colour for steel
Memonic code e.g choosing symbols which us of there meanings.
Brisch System e.g. 7 digits, basis is on logical major groupings-such as assemblies, sub
assemblies, components, off the shelf items.
Kodak System e.g. 10 digits, logic of major grouping(100 basic Classifications) is based on
sources of supply.

Advantages Of Classification And Codification Of Materials:

 Quick and easy identification of materials.
 Helps ensure a proper material control.
 Secrecy of materials.
 Saving of time in material handling.
 Eliminating the chances of wrong issue. bschool.cms.ac.in
 CODIFICATION AND STANDARDISATION
The concepts of simplification and standardization are closely interrelated and lead to
interchange ability. These concepts can be effectively used in industry to minimize
unnecessary activity, reduce inventory costs, simplify controls and improve product quality.
All these factors lead to higher efficiency in production.

Simplification – Simplification is a process of product analysis through which

unnecessary varieties and designs are eliminated. Only a limited number of grades, types
and sizes of the product are retained. It reduces the diversity among the products. It is the
process of minimizing product items to restrict production of useless products.

Standardization - Standardization is the second step after simplification towards

interchangeable manufacturing. Having selected the varieties and grades of the products to
be retained as much of its manufacturing details are standardized as possible. It establishes
a standard such as product dimensions, size, quality and then company produces product
on the basis of that standard. Ex: A company produces shaft of standard shape and size.
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 CODIFICATION AND STANDARDISATION
Since manufacturing involves a large number of decisions from selection of raw material
to the process used for finishing, standardization of some of these items reduces
unnecessary repetition of work.
Use of standard components reduces inventory costs, ensures interchange ability and
makes future maintenance easier.
It also reduces component cost since standard components are manufactures by mass
production methods and are cheaper.

Selection of standard materials ensures physical performance and guarantees failure-free

operation. Use of standard methods of production enables comparisons to be made of the
standard and actual manufacturing time.
The purpose of standardization is, therefore, on one hand, efficiency and economy in the
use of human effort and on the other economy of material varieties and stock quantities
and therefore reduction in cost and increase in turnover.
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 CODIFICATION AND STANDARDISATION
Advantages of standardization
Manufactures:
1. Rationalize different varieties of products.
2. Decrease the volume of products in the store and also the manufacturer cost.
3. Improve the management and design.
4. Speed up the management of orders.
5. Facilitate the exportation and marketing of products.
6. Simplify purchasing management
Consumer:
1. Establish quality and safety level to the service and products.
2. Inform to the characteristic of the products.
3. Make easier the comparison between the different offers
Public service:
1. Simplify the production of legal text.
2. Establish quality, environmental and safety policies.
3. Help to the economical development.
4. Facilitate the business.
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 Stores Procedures and Organization
Classification of stores
 Store can be of temporary nature which means that it has a limited life. Store can also be of permanent
nature. Stores are classified basically in the following broad categories.

 Functional stores – Functional stores are named based on the function of the materials stored. Examples are
fuels store, chemicals store, tools store, raw materials store, spare parts store, equipment store, refractories
store, electric store, explosives store, and finished goods store etc.

 Physical stores – Physically stores can be centralized stores or decentralized stores. These stores are named
based on the size and location of the store. Examples are central store, sub store, department store, site store,
transit stores, receipt store, intermediate store, open yard store, and covered store etc.

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 Stores Procedures and Organization
 Stores are also classified by naming them after the departments to which they serve.
Examples are construction stores, operation stores, rolling mill stores, blast furnace stores,
and steel melting shop stores etc.

 Stores are sometimes classified based on the nature of materials stored in them. Examples
are general store, bonded store, perishable store, inflammable store, salvage store, reject
store, and quarantine store etc.

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 Stores Layout
A good stores layout practice is one which usually brings the point or origin, store-room and point of use in
adjacent and proper sequence for best flow of material. Stores layout should be planned with the following
objectives: (i) To achieve minimum wastage of space. & (ii) To achieve maximum ease of operating.

Stores layout Planning :

(a) Classify all store items as follows:
(i) By measurement (i.e., size). (ii) By quantities (i.e. No. and weight) to be stored.
(iii) By frequency of handling. (iv) By (material) handling arrangements.
(v) By possibility of perishing the items and the susceptibility to damage.

(b) List the available storage space:

(i) Platforms, (ii) Floor space, (iii) Racks, (iv) Shelves, (v) Bins, (vi) Trays, (vii) Drums, and (viii) Barrels.

(c) Determine the sequence of laying out storage space for locating the materials:
(i) A Unit. It is the smallest space for storage which is given a particular identity.
(ii) A Tier. A Tier consists of a number of units placed vertically.
(iii) A Row. A row consists of a number of units joined together and spread horizontally.
(iv) A section. A section is made up of a group of rows.

(d) Study the size and shape of the space available for laying out the stores.
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 Stores Layout
Factors to be considered while planning the stores layout:
(a) A section adjacent to the store-room should be kept reserved for the receipt of materials and for its
inspection before storage.
(b)Store layout should be such that it provides for easy receipt, storage and disbursement of materials,
preferably, nearest to the point of use.
(c) Store-room layout should minimise handling and transportation of materials.
(d) An ideal store-room layout makes optimum utilisation of the floor space and height.
(e) Shelves, racks, bins, etc., should be situated in clearly defined lanes, so that items are quickly stored and
located for physical counting or issuing.
(f) Main lanes or aisles should usually be between 1.5 &3mtr wide, depending upon the type of material and
the amount of traffic involved. Sub-aisles between racks and bins may be a minimum of 80 cm wide.

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 Stores Layout
(g) Storage spaces should be clearly marked to ensure easy and quick identification.
(h) Storage space should be adequately protected against waste, damage, deterioration and pilferage.
(i) A place for storing a material should be decided depending upon the material characteristics, e.g., fuels and
flammable gases will require separate locations, cement, welding electrodes and ferrous parts need a dry place
for storing, etc. Portable and salable items should be stored in areas enclosed with wire-mesh partitioning so
that all unauthorized persons can be kept outside that area.
(j) Store layout should be such that for its efficient operation it can make use of modern material handling
equipment such as fork-lift conveyor’s, etc.
(k) Store layout should be such that the storekeeper is not compelled to put newly arrived material on the top
of the old. As a rule, all the old stock should be consumed first before using the new one.
(l) Due space (20 to 25%) should be left in each portion of the store to allow for expansion.

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 Stores Procedures
The systems in stores can be studied under three areas namely, receipt, issue and
documentation.
It may be seen that at every stage a great deal of information is required for checking,
controlling and feedback purposes.
Well designed stores systems and procedures ensure timely information for decision making,
particularly because stores is the starting point of all activities for control.

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 Management of Receipts
The inputs into stores or receipts can come from internal as well as external sources. The procedures start even
before the material reaches the stores when a Purchase Order (PO) is placed on the vendor. It involves:
(a) Requirement determination, (b) Raising purchase requisition,
(c) Chasing purchase orders to expedite supplies, (d) Scheduling arrival of materials,
(e) Receiving the materials physically and planning for storage, (f) Quantity & quality inspection,
(g) Checking input documents like invoice, lorry receipt, delivery challans and other challans, invoices etc.,
(h) Taking stock of material received and also of rejected material,
(i) Endorsing the suppliers bills and quantities and forwarding for payment to accounts,
(j) Provisional goods inwards in case of later inspection, (k) Final goods inwards in case of final acceptance of goods,
(l) Informing indenting departments of arrival of goods, (m) Sending paperwork to purchase accounts for payment,
(n) Updating insurance paperwork for latest goods arrival, (o) In case of damage, arrange insurance company.

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 Issue Control
Issues can be further divided into issues to consuming departments, and issues to outside
suppliers for processing or conversion. In both cases, there are certain common system
requirements.
It involves the issue of the right material, in the right quantity, to the right personnel, at the
right time and place on receiving the right authorisation, maintaining the records for the
same.
Based on consumption schedules/production programs, listing for each material, quantity
to be issued for each project for that material is made and circulated to all concerned.
This automatically controls consumption as the work order issued based on the quantity of
material to be issued by the stores.
One time issues like bathtubs, furniture, almirahs etc. are to be accounted for separately.
Proper weighing and counting equipment should be used for issuing bulk materials. Thus,
these instruments need to be calibrated frequently. -
Provision should be made for emergency issue and procedures should be clearly defined
for all concerned to regularise this.
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 Stores Documentation
All the documents received or generated inhouse should be properly categorised and a numbering
system should be developed for proper storage and quick retrieval. Besides the receipt and issue
documents, some other methods of documentation necessary are given below :
(a) Bincard,
(b) Stores transfer voucher (from one stores to another),
(c) List of slow moving/fast moving/obsolete items,
(d) Scrap disposal,
(e) Rejection notes,
(f) Acceptance notes,
(g) Delivery notes,
(h) Travel requisitions,
(i) Tour and expense reports,
(j) Imprest details,
(k) Indents,
(l) Codification methodology, and
(m) Material requirement planning.
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 Inspection and Handling
Chasing and following up ordered items is an essential part of the ordering scenario in India where
planning and commitments are not strictly followed or enforced.
While transporting the goods from the sellers to the buyer's premises, formalities like Sales Tax,
Octroi and Insurance have to be completed by contacting the necessary agencies and filling up the
necessary forms.
Coordination between end user, quality assurance and other departments is necessary to ensure
timely supplies in the smoothest possible manner.
In inspection, Quality is defined as that aspect or feature of the product or service which defines
any of the following :
(a) Dimensions and or weight,
(b) Physical and or chemical properties,
(c) Design and or performance characteristics,
(d) Surface textures,
(e) Aesthetic values,
(f) Packaging characteristics,
(g) Defectives allowable, and
(h) Service and or operating characteristics.

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 Inspection and Handling
Qualities are measurable and non measurable. This can be more appropriately defined in
terms of :
(a) Colour(s) used,
(b) Surface finish parameters, and
(c) Lacquer or varnish coat and its thickness.

To have a quality circle in the organisation, the following processes have to be actively
pursued in the organisation :
(a) Setting quality standards,
(b) Comparing performance of the product with the standard,
(c) Take immediate corrective action for deviations, and
(d) Continuously plan improvement by communicating to all concerned

Quality inspections can be done at even the vendors place on a periodic basis to eliminate
inspection costs at the user's end.
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 Security in Stores
Some of the few Security Measures we can include in Stores Security are :

 Small but costly items should have adequate special locking and security arrangement.
 Doors should be built large enough for the worst case situations.
Security devices and security personnel need should be adequately planned and nearest police
station availability should be known beforehand.
 Good Communication is a must for receiving indents, informing of supply or inventory status and
security considerations.
Access to storage issue areas must be restricted and confined only to authorised stores personnels
to prevent pilferage, theft, accident or damage.
 Fire-fighting equipment should be available and all personnels should be trained to use it properly.
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 Inventory Control
1) Establishing Annual Stocking Policies Inventory models:
2) Preparation of Inventory Budgets • Deterministic inventory models in which
demand rate of an item is assumed to be
3) Maintaining A Perpetual Inventory System constant.
4) Inventory Turnover Ratio • Probabilistic inventory models where the
demand for an item fluctuates and is specified in
5) Establishment of Optimized Purchasing Procedures probabilistic terms.

Inventory Control Techniques

Some techniques of inventory control are as follows:
1. Economic Order Quantity

2. Inventory Models

3. ABC Analysis
4. Material Requirements Planning
5. VED Analysis.

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 Stock verification
No matter how diligently a storekeeper performs the custodial job or how carefully a
ledger clerk a maintain records ( compuertised or manual ) some discrepancy between the
actual the book balances of inventory is bound to occur.

The system is operated by people, and people to commit to mistakes. For this reason, every
inventory item should be physically counted and checked against its book balance at least
once in a year.

The books are subsequently adjusted to match the actual count. Most companies create an
inventory discrepancy or inventory short or over account to absorb such discrepancies. This
account is eventually closed by transferring the balance to manufacturing the overhead
account.

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 Stock verification
Stock verification can be conducted in one of the three ways:
1. Periodic inventory or fixed annual inventory
2. Perpetual or continuous inventory
3. Low point inventory

Under the low point inventory method companies take physical inventory
when the stock is lowest, irrespective of the period. Stock taking is naturally
irregular. The low point approach is minimises the time required for actual
inventory work because of the small quantities of materials involved.

However, it has the disadvantage of producing an irregular inventory

schedule which leads to peak the work load for stores personnel.
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 Stock verification
In the continuous inventory approach, at the beginning of the each year, some
firms divide the inventory in to 52 equal groups and assign one of them to be
physically counted each week.
Thus the physical inventory operation goes on without interrupting
production operation or upsetting store room activities.
This approach has advantages like:
It can be planned and worked into scheduled activities without a shutdown.
It can be conducted in an orderly and relaxed manner; these conditions are
also conductive to accurate work.
There is a possibility of detecting and eliminating causes for discrepancies
without allowing them to continue to throughout the year.
This approach facilities efficient utilization of stores personnel.

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 Inventory Valuation
Valuation of materials stocked in stores as inventory and of materials issued for production
is necessary because of two reasons they are:
Inventory valuation of converting physical quantities of materials into monetary value is
necessary to judge the performance of materials management function in terms of inventory
turnover ratio and to control inventory to satisfy the norms set for inventory by top
management.
Material costing in terms of the valuation of the cost of materials consumed by the user
departments in order to estimate the cost of the products produced which forms the basis
for pricing decisions.

Costing the receipt of materials:

The factors to be considered in the cost of the materials received and calculating materials
price, freight charges, insurance, taxes, customs duty, packing charges, discounts availed if
any, duty draw backs against export orders etc.,
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 Inventory Valuation
Valuation of stocks :
While issuing the materials to the consuming departments to enable the costing of production and
When preparing periodic performance statements in terms of value of inventory on hand from time
to time.
Stores accounting:
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.
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 Inventory Valuation
Methods of valuation:
The process of valuation of the material in the industry varies from conservative practice
of considering the market price or cost of procurement whichever is less, on hand to modern
method such as replacement cost or current value method.
The choice of a method should be based in the nature of the material and the type of
business. Some of the methods of valuation of materials issued are below:

1. FIFO (First in First out method)

2. LIFO (Last in First out method)
3. Average price method & weightage average method
4. Actual price method
5. Inflated price method
6. Replacement price or current value method or market value method

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 Material Manager- Interview
 Tell me about yourself ? Why should we hire you?
 How did you come to find out about our company and what do you know about us?
 What goals will you set for yourself as our new materials manager?
 How Is Lot Size Used in material management ?
 What is an order Point?
 How do you determine the material needs for each shift?
 How do you want to maintain the best possible relationships with the suppliers?
 What Are Transactions that will cause Change In Stock?
 What is a RFQ and How it is Different From Quotation?
 There’s a last minute order from one of the customers, but there’s no material in
production, or in the warehouse. What will you do?
 Suppose if I get a Discount will it Effect the Eoq Model?
 What role does reporting and monitoring play in a job of materials manager?
 Tell us about a time when you had to meet a tight deadline in work.
 How does the job of a materials manager match with your career plan?
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