Page 180 - DMGT525_MATERIALS_MANAGEMENT

Unit 13: Evaluation of Materials Management

detailed information may be sent to all in the purchase and user departments. The reports Notes
should be accurate, up-to-date, brief, clear and to the point. The report should serve the materials
policy in an organization, namely, continuity of supply of uniform quality of input, with the
lowest cost of ultimate product.
For this purpose, the reports should be presented suds that they are easily read and understood.

Notes The report must include enough supporting diagrams, data and charts to explain
the variations from the budgeted figures.
The reports should cater to the management’s needs, an analysis of the business conditions,
environment price movement, material requirements, estimates of cash requirements, changes
in lead-time, comparison of actual performance with budget, etc. Obviously, the reports should
be more frequent, containing detailed and quantitative data to the operating levels, whereas the
results should be summarized with suitable recommendations for the policy-making level. The
important aspects in reporting are: (a) clarity. (b) brevity, and (c) periodicity (related to frequency.)

Task Choose a company and formulate the materials management evaluation criteria
for it.
The evaluation of materials management can either be done by external agency or internally.
The process of evaluation can be visualized on various measures either on temporal comparison
basis i.e. performance over financial or calendar years - or between similar companies inter-
firm comparisons-over the same year. The criteria of evaluation depends on corporate objective,
company culture, functions of materials management, evaluation process of other departments
etc. and hence could vary, and do vary, from company to company. An illustrative list of criteria
in the form of ratios given below can be used to evaluate the performance of different functions
of Materials Management.

Material Cost Indexes

Material cost for a product
1. Material Cost Index =
Production cost of the product
Material cost for each product
2. Material Cost/Sales Index =
Sales Value

Cost of 1 indigenous material
3. Indigenous Content Index =
Total material cost
Value of material actually used
4. Material Variances Index =
Value of standard material quantity

Vendor Rating Indexes
No. of lots rejected
1. Vendor Rating Index (Quality) =
No. of lots received

Delivery on Schedule
2. Vendor Rating Index (Delivery) =
Total No. of deliveries

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