Page 195 - DMGT525_MATERIALS_MANAGEMENT

Materials Management

Notes Explosion of bill of Materials

Explosion of bill of material refers to splitting of the requirements for the product to be
manufactured into its basic components; then by multiplication process we get the total
requirements. This is very effectively done with the help “of demand forecast”. As we have seen
earlier the very basis for material planning is the forecast of demand for the end-products for the
calculation of requirements for various materials department. An explosion chart is a series of
materials grouped together by combining the requirements for different components. It shows
the total requirement for particular end-product or a group of end-products.
Past Consumption Analysis Technique: This technique is used for items that are consumed on a
continuous basis and for which no bill of materials is possible. In it, past consumption data is
analysed and future projection is made based on past and future production.

Self Assessment

Fill in the blanks:
15. Inventories consume a larger part of ……………… capital.

16. Sales ……………… and production ……………… are two major functions which normally
precede the materials planning.



Case Study Integrated Information System

/s Jyoti Textiles, with four spinning mills, eighteen cloth cutting centres, sixteen
processing departments and more than 200 machine centres has installed an
Minformation system.

The operations are characterised by a nationwide distribution network. The finished goods
moves through 38 branch offices and 312 authorised distributors all of whom maintain
some inventory. Authorised distributors generate 37% of the orders but account for only
24% of the sales. Most of the business is done through the branch offices.
The product line is large; products are classified into 175 family groups, representing
12,000 finished goods. Approximately 1,500 new items enter the product line annually,
and a similar number are discontinued.

The 12,000 finished goods require 25,000 component parts of which 6,600 are carried in
inventory and 18,400 are made to order. The newly implemented information system
already has paid off substantially and refinements continue to increase benefits. In the
preceding year, M/s Jyoti Textiles achieved a 60% customer service level (i.e. 60% of the
orders were delivered according to original customer request, with no delays or adjustment
of dates). Clerical expenses were 36% of the sales.
Questions

The company felt this was not good enough and wanted to improve the customer service.
The company therefore is thinking of a highly integrated system.
1. Keeping in mind the objectives, do you think the company should go in for a highly
integrated system? Support your answer with reasons.
2. Discuss the relevant inventory management strategies for the company.
Source: Narayan.P, Subramanian.Jaya(2008). "Inventory Management: Principles and Practices".Excel Books Pvt. Ltd.

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