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Unit 4: Material Control

Another characteristics of conventional manufacturing system is an emphasize on “keeping every Notes
one busy” as an end on itself. This inevitably leads to excess inventories particularly work in
process inventories. In Just in time manufacturing, the traditional emphasize of keeping everyone
busy is abandoned in favor of producing only what customers actually want. Even if that means
some workers are idle.
The main benefits of just in time manufacturing system are the following:
1. Funds that were tied up in inventories can be used elsewhere.

2. Areas previously used, to store inventories can be used for other more productive uses.
3. Throughput time is reduced, resulting in greater potential output and quicker response to
customers.

4. Defect rates are reduced, resulting in less waste and greater customer satisfaction.
As a result of advantages such as those cited above, more companies are embracing just in
time manufacturing system each year. Most companies find, however, that simply reducing
inventories is not enough. To remain competitive in an ever changing and ever competitive
business environment, must strive for continuous improvement.
Real Business Examples – PCs Just in Time Management
Del Computer Corporation has finally tuned its Just-in-Time system so that an order for a
customized personal computer that comes in over the internet at 9 AM can be on a delivery
truck to the customer by 9 P.M. In addition, Dell’s low cost production system allows
it to under price its rivals by 10% to 15%. This combination has made Dell the envy of
the personal computer industry and has enabled the company to grow at five times the
industry rate. How does the company’s just in time system deliver lower costs? “While
machines from Compaq and IBM can languish on dealer shelves for two months Dell does
not start ordering components and assembling computers until an order is booked. That
may sound like no biggie, but the price of PC parts can fall rapidly in just a few months. By
ordering right before assembly, Dell figures its parts, on average, are 60 days newer than
those in an IBM or Compaq machine sold at the same time. That can translate into a 6%
profit advantage in components alone.”
Source: Gray McWilliams, “Whirlwind on the web, “Business Week, April 7, 1997.

ABC Analysis

Normally the materials are classified on the basis of the following covenants viz:

z z Volume and
z z Value
Based on the above basis, the materials are classified into three categories:
z z Lesser percentage in volume and greater percentage in value – Category A
z z Greater percentage in volume and lesser percentage in value – Category B and

z z percentage in volume and percentage in value are more or less similar – Category C

Example: A store has 4,000 items of consumption and a monthly consumption of
` 20,00,000. 320 items will have a consumption of ` 15,00,000. 500 items will account for ` 4,00,000
and 2,680 items consume material worth ` 1,00,000 only.

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