Industrials

Integrated Materials Management Module-A Need For Sustainable Growth

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<p>With growing uncertainty in global markets and non-linear market demands, many organizations are reeling under heavy inventories in the supply chain and an increase in liabilities, affecting their business growth. Much of the financials are blocked in the entire supply chain resulting in bankruptcy.</p><p>Today's contemporary start-up companies are unaware of inventory management and land into acute financial crisis at the early stage of their business. Therefore it is a compelling necessity to implement an integrated materials management module/system to monitor and control the entire supply chain from procurement of raw materials and components to the delivery of the final product to delivery locations.</p><p>Materials departments should be empowered to:</p><ul><li style="list-style-type: none;"><ul><li>Procure raw materials and components</li><li>Vendor/supplier contractor selectionVendor/supplier/contractors quality audit</li><li>Price negotiation/procurement planning based on production schedules/market demand,</li><li>Logistics,</li><li>Stores and material handling,</li><li>Warehouse inventories</li><li>Allocation of funds and payments to vendors/suppliers with credit standards</li><li>Budgetary preparation of materials and MIS preparation for the Board of Directors for designing Business plans</li><li>Accountability from inward components and raw materials to the final fresh product delivery</li><li>Classifying materials and standardizing them into categories based on value, criticality, lead time for delivery, storage requirements, and shelf life.&nbsp;</li></ul></li></ul><p>&nbsp;</p><p>The prime objective is to procure the Right Quantity and Quality at the Right Price and at the Right Time in the Right Place.</p><p>&nbsp;</p><p><strong>Selection&nbsp;</strong></p><ul><li>The selection of Vendors/suppliers/Contractors should be unbiased.</li><li>Identify vendors/suppliers/contractors,</li><li>Rate vendors/suppliers/contractors based on their capacity utilization, quality standards,</li><li>Manufacturing facilities, commitment to timely deliveries, past experience in business, pricing, credit period, and logistics.&nbsp;</li></ul><p>&nbsp;</p><p>It is essential for any business entity, small or big, to define every tangible activity, to ascertain the cost-effective working culture. This contributes to and enhances greater transparency to handle costs in total, including material and man-hour costs, wastage in materials, and lead time is optimized, leading to better productivity.</p><p>&nbsp;</p><h2><span style="font-size: 14pt;">Inventory Management</span></h2><p>Inventory in any organization is detrimental unless it is dealt with on top priority. Time to time reviewing is a must. It slowly eats away the cash flow and ultimately results in a financial crisis. It has a significant impact on the profitability of the company. Persistent liabilities are detrimental to the growth of the company.</p><p>Designing or formulating the Key Result Areas to every section in the entire department and for every employee empowers them to apply value engineering to reduce cost and thereby increase the company's profitability.</p><p>Management should emphasize on training employees in the "5 S" program, Just in Time, Total Quality Management program, Total preventive maintenance, Team Building, Self development programs, documentation and reporting procedures, empowerment to design effective KRA's, etc. to meet their business objectives.</p><p>&nbsp;</p><p>&nbsp;</p><p><span style="font-size: 10pt;"><em>This article was contributed by our expert <a href="https://www.linkedin.com/in/vamnath-chavva-41a7792b/" target="_blank" rel="noopener">Vamnath Chavva</a></em></span></p><p>&nbsp;</p><h3><span style="font-size: 18pt;">Frequently Asked Questions Answered by Vamnath Chavva</span></h3><h3>&nbsp;</h3><h2><span style="font-size: 12pt;">1. What are the modern techniques of material management?</span></h2><p>The inventory modules are designed depending on the nature of the business, like manufacturing/ distribution/digital marketing, size of business, location of manufacturing/stores, and logistics infrastructure. Many software companies, like SAP, Oracle, etc., have products on inventory management.&nbsp;</p><p>However, depending on the above factors, one has to customize the software based on individual needs and business plans. I recommend customizing and designing an inventory management system for the organization based on business structure and management growth plans.</p><p>&nbsp;</p><h2><span style="font-size: 12pt;">2.&nbsp;What are the advantages of integrated materials management?</span></h2><p>Inventory management is the key factor in any business's growth. It deals with huge investments to the tune of 60% to 70% of the company's total revenue in the form of materials, semi and finished products, and the cost incurred in carrying that investment. The interest cost of carrying such investment/inventory is quite huge, and any management mistake would result in huge financial loss to the organization and eventually lead to bankruptcy.&nbsp;</p><p>Hence organizations with effective materials management systems would make huge profits and have great growth potential. By implementing good materials management procedures and systems, one can have strong controls on material procurement, effective inventory controls, and waste elimination, minimizing or eliminating obsolete, thereby increasing the organization's profitability.</p><p>&nbsp;</p><h2><span style="font-size: 12pt;">3. What is the most effective method of inventory management?</span></h2><p>My recommendation is to have the most comprehensive inventory management method involving:</p><ul><li>Vendor/contractor identification, selection, and development of vendor/contractor based on the specifications of required materials with quality</li><li>Categorization of materials/services</li><li>Price negotiation</li><li>Credit period</li><li>Logistics</li><li>Lead time for delivery</li><li>Production capability</li><li>Financial capability</li><li>Infrastructure of vendor/contractor</li><li>Vendor quality management and quality audit</li><li>Just in time concept implementation</li><li>Vendor/contractors grievances</li><li>Incoming and delivery stores management</li></ul><p>The logistics function should be under one integrated materials management system. By doing so, we would have greater accountability in controlling inventory and waste management.</p><p>&nbsp;</p><h2><span style="font-size: 12pt;">4. What are the key measures of inventory?</span></h2><p>Age old technique of ABC analysis for inventory management would not give good results. A comprehensive technique to measure and control inventory categorizes the materials/services into high-value, medium-value, and low-value materials/services. In addition, categorize materials/services based on criticality and quality demand, number of sources for such critical materials, lead time for delivery and logistics, shelf-life materials, storing hazards, etc.&nbsp;</p><p>Eventually, we need to arrive at the best levels of inventory norms to ensure smooth and continuous flow of material and services, thereby achieving the best productivity for the organization and finally contributing to the profitability of the organization.</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p>
KR Expert - Vamnath Chavva