Management of Materials
Why? Net Working Capital: - Debtors Management - Creditors Management - Trading Stock / Inventory / Materials Management N.B. for decisions relating to management decisions Cost Management
Management of Materials
4 Basic Activities Anticipating materials requirements Sourcing and obtaining materials Introducing materials into the organisation Monitoring the status of materials as a current asset The ultimate goal of all of this is to maximise the profit of the company
Normal Stock Buffer Stock usage is erratic Strategic stock Speculative Stock Stock-in-transit Economical and Technical Stock Over-stocking and under-stocking Average Stock Maximum Stock
Acquisition of Stock
What is required? How much is required? ( Do I require safety stock) When is it required?
Safety Inventory
Maximum usage x ( maximum lead time normal lead time) Example: Average weekly usage = 20 units Order period = 2 weeks Order size = 80 units Maximum order period = 3 weeks 20 units ( 3 weeks - 2 weeks) Safety stock = 20 units
Order Point
The level of inventory reached before placing a new order is known as the order point The order point can be calculated as follows: ( Order period x normal usage) + safety inventory Based on above example: Order point = ( Order period x normal usage) + safety inventory ( 2 x 20) + 20 = 60 units
Storage of Inventory
Goods Received Voucher Storage in a safe place usually a warehouse The layout of the warehouse is N.B. should not inhibit or hinder the flow of inventory The following factors should be taken into account when the layout of the factory is considered: Allocation should be done according to a predetermined classifcation policy Safety aspects should be considered Unique characteristics of each product must be taken into account Fast moving inventory should be kept in a place that is easily accessible Entrances should be kept to a minimum
Issuing of Stock
Importance of stock requires tight and formal processes Stock should only be issued on the basis of a requisition Provides authorisation for the storekeeper Source document for accounting entries