material management at factory level

Every organisation has different system of purchase and material management. However, the common standard is as under:
Purchase procedure

Purchase procedure consists of the following steps :
1) Receiving the purchase Requisition or Indent or request for purchase of materials from the department requiring materials or from the storekeeper for all standard materials.
2) Locating sources of materials and suppliers, asking for tenders (at least 3 tenders in the case of govt. departments - with detailed terms).
3) Execution of agreements and placing of orders on suppliers.
4) Follow up of purchase order for ensuring the delivery of ordered goods in time.
5) Receiving of materials.
6) Inspecting and testing of materials
7) Return of materials to suppliers, if any, damaged, spoiled, excess or not in accordance with orders.
8) Checking and passing of bills for payment.

MATERIAL MANAGEMENT

The followings are the list of items coming within the group of materials :-
a) Raw materials :- Matirials which are worked on in the course of manufacture and which make up the physical form of the product. e.g..- timber, rubber, glass, steel, sheet metal, etc.
b) Components :- These are the finished parts which are attached to the product during manufacture. e.g..- Instruments, locks etc.
c) Consumable materials :- These are the materials generally used in running the factory. e.g.- soap, cotton waste, brushes, etc.
d) Maintenance materials : These are the materials required for maintenance of plant and buildings. e.g.- Spare parts, nuts & bolts, door hinges etc.
e) Tools :- All forms of tools including jigs and fixtures are included in materials group.

IDENTIFY VENDORS

After receiving the purchase requisition, the purchase department immediately starts exploring the sources of materials and suppliers. The following are the different sources from which suppliers can be located :- (a) Price lists, (b) Tenders, (c) Advertisements, (d) Telephone and trade directories, (e) Chambers of commerce and Trade Associations, (f) Inquiry letters, (g) Trade fair, (h) Technical and descriptive catalogue etc.

TYPES OF TENDERS
After purchase requisition is received, the purchase department invites tenders or quotations from the suppliers. The different methods of obtaining tenders are given as below :-
i) Open tender : It is a method of obtaining tender by open advertisement.
ii) Limited tender - It is a method of obtaining tenders by direct invitation to limited number of firms.
iii) Single tender - It is a method of obtaining tender by inviting one firm only.
A tender or quotation must contain details asto the following :
(a) Description of items,
(b) Quality of items,
(c) Quantity of items.
All the tenders received are opened on a stipulated date and a comparative statement is prepared to select the supplier who offers to supply goods on most favourable terms.

PURCHASE ORDER
After deciding the best quotation to be accepted, the purchase manager will issue a formal order to the supplier to supply goods. It is named as purchase order. A purchase order is a document or written authorisation to the supplier to supply material or materials specified therein. It is treated as a record of contract between the purchaser and supplier. For all practical purposes, it is used as a legal document and should be prepared with great skill and care after mentioning all possible details of materials to be purchased.
It is prepared in as many copies as are required. Normally, five copies are prepared in different shades and sent to :
a) The Supplier, b) The Receiving deptt., c) The Accounting deptt.,

d) The deptt. which initiated the purchase requisition,, e) One copy retained in purchase deptt.


The following steps may be taken as the follow up activities of the purchase order :-
i) To obtain acknowledgement of purchase order.
ii) To obtain confirmation in writing from the supplier to supply materials on specific dates.
iii) Frequent and regular reminder for important materials.
iv) To take remedial measures when delivery of materials is either not made or delayed beyond stipulated date.

GRN
The work of receiving the goods delivered by the supplier is done either by the Receiving department ( in case of large organisations) or by the store-keeper (in case of small organisations). However, the receiver of the goods signs the delivery challan in token of receipt of goods, keeps one copy with him and returns the duplicate to the supplier. Then the receiver or the Receiving department takes the
following steps for preparing Goods Received Note :-
I) Checking all contents of packages.
ii) Checking the quantity against the copy of Delivery challan and purchase order.
iii) Entering the details of materials received in a document called Goods Received Note for which a specimen is provided at the end.
iv) Preparing five copies of Goods Received Note for the following departments:
a) For Receiving department,
b) For Purchase department,
c) For the department initiating purchase requisition,
d) For Accounts department,
e) For stores department.
Specimen of Goods Received Note
AFTERSCHOOOL Ltd.
GOODS RECEIVED NOTE
Supplier’s Name _____________ G.R. No. _________________
Purchase Order No. ____________ Date ___________
Item No. Description Code Qty. Rate Amount Remarks




Received by ___________ Inspected by _____________
Store keeper ___________
Stores L/F _____________



It is the responsibility of the Inspection department to check the quality of materials. Generally, technical persons like engineers or chemists in the Inspection department certify the quality according to the purchase order and prepare the inspection report in a proforma as given below :
Specimen of Material Inspection Report.
ABCL CORPORATION
MATERIAL INSPECTION REPORT
No. _______________ G.R. Note No. ___________
Purchase Order No. ______ Date ___________________
Supplier’s name ____________
Item Description Code Quantity Reasons for
No. No. Received Accepted Rejected Rejection





Date of inspection ______________ Inspeced by _____________
Material Inspection Report is prepared in four copies for the following departments :-
a) Purchase department,
b) Receiving department,
c) Stores department,
d) Inspection department.

STORING GOODS
A bin is a storage space like a rack, a shelve, an almirah or any place where materials are stored.
A bin card is a store record which shows physical movement or quantitative record of receipts, issues and closing balance of items of stores. For each type of material, a separate bin card is maintained.
A bin card has; the following utilities :-
i) It helps to control material cost by being guided by the various material levels like Minimum stock level or Maximum stock level etc.
ii) It helps to send the purchase reqquisition when re-order level is reached.
iii) It shows the upto date stores balances in quantity only.
iv) It helps in maintaining stores record under perpetual inventory system.
v) It makes continuous stock taking possible.
vi) It facilitates many physical stores operations and acts as a system of internal checking.


The differences between a Bin Card and a Stores Ledger can be studied in view of the following points of differences :

1. Contents: A Bin card is a record of quantities of materials received, issued and balance left in terms of quantity only.
Stores Ledger is a record of materials received, issued and balance left in terms of both quantity and money value.
2. Maintaining department : A bin card is maintained in stores by the store-keeper.
A Stores ledger is maintained in the cost Accounting department by Accounts clerk.
3. Purpose : The main purpose of maintaining a Bin card is to exercise material control.
The purpose of maintaining a stores ledger account is to ascertain the valueof materials received, issued and closing stock.
4. Method of Recording: The receipt and issue of materials is made on day to day basis in the bin card.
In a stores Ledger, the receipts and issues for a period are recorded in a summarised way.
5. Inter-departmental transfers: A bin card does not record inter-departmental transfer.
A stores ledger records the inter-departmental transfer from one job or order to another for costing purpose.
6. Time: In a bin card, entries are made when transactions take place.
In a stores ledger, entries are made after the transactions take place.


On physical verification, the actual stock can be known. This may vary from the stock as shown by Bin card or Stores Ledger. The causes of such a variance may be outlined as follows:-
1) Aviodable causes: (a) Pilferage, (b) Breakage, (c) Errors of posting, (d) Improper storage of materials, (e) Over/under issues.
2) Unavoidable causes due to normal reasons: (a) Loss by shrinkage and evaporation, (b) Gain by absorption of moisture, (c) Loss of materials issued by breaking bulky items into smaller parts, (d) Materials purchased by weights and issued by numbers like nut-bolts, etc.
3) Unavoidable causes due to abnormal reasons: (a) Loss due to fire, earth quake, etc.(b) Loss of materials due to burglary, riots, etc.

MATERIAL TRANSFER NOTE:
Material Transfer Note is a document which is used to record the transfer of surplus materials from one job to another without returning the same to stores. The Material Transfer note is prepared by the foreman in charge of the job transferring materials. He prepares this note in three copies, He keeps one copy with him for reference and sends the other two copies to the foreman in charge of the job receiving materials. The later signs a copy of material transfer note and returns it to the former as an acknowledgement of receipt of materials transferred. The foreman transferring the materials, then sends this copy to the costing department for necessary adjustment entry. As this transaction does not pass through the stores, so no entry is to be made in the Bin card or Stores Ledger Account.

Specimen of Material Transfer Note

ABC & CO.

MATERIAL TRANSFER NOTE

From Job No.................... To Job No...............
From Deptt. No................ To Deptt. No...........

Please receive the under-mentioned materials.


Signature of Foreman

Description Quantity Rate Value Costing Remarks
of Materials Net weight reference






Received the above Signature of Foreman
Work Order No........ Deptt. No...................