Materials Management-1


SKU: AMSEQ-183 Category:

Assignment – A

Question 1. What do you understand by Vendor Development? How will you go about selecting and evaluating your vendors to ensure better performance? While explaining, draw examples from current practices in industry.

Question 2. Why is Integrated Materials Management important? Support your answer with practical examples from an organisation you are familiar with and indicate in detail how the objectives and functions of integrated materials management are being met in this organisation.

Question 3. Explain the Purchase Procedure and Purchase system with reference to good purchasing practices in industry. Support your answer outlining format of some key documents used in Purchasing. Take examples from existing practices in industry.

Question 4. Phoenix General Hospital has experienced irregular, and usually increasing, demand for disposable kits throughout the hospital. The demand for a disposable plastic tubing in pediatrics for September was 300 units and for October,350 units. The forecast for September based on simple average of last year’s demand was 200 units. Using a smoothing coefficient of 0.7, forecast the demand for disposable plastic tubing for November.

Question 5. How can Materials Manager contribute to bringing about improvements in Quality, Productivity and Profitability? Explain in detail with specific examples.

Assignment – B

Question 1. The annual demand for component ‘A’ is 900 units. Cost of placing order is Rs 100. Inventory carrying charge is 20%. The procurement price of component ‘A’ depends upon the quantity ordered as the supplier is willing to offer price breaks as under:
Price of component ‘A’ if order quantity upto 75 units — Rs 200 per unit
Price of component ‘A’ if order quantity
Between 75 to 150 units — Rs 180 per unit
Price of component ‘A’ if order quantity
Greater than 150 units — Rs 160 per unit

Determine the optimal order quantity for component ‘A’ and the total cost to be included per year. Show the relationship between the cost components and order quantity in a graph for the above case indicating the price breaks.

Question 2. Calculate ordering cost and inventory carrying cost in the example given below:

Purchasing department expenses Rs 200,000
Stores personnel expenses Rs 200,000
Obsolescence Rs 60,000
Hire charges of warehouse Rs 140,000
Material handling in stores Rs 160,000
Cost of bill payment Rs 100,000
Insurance charges 1%
Interest charges 18%
Orders placed per year 5000
Average total inventory Rs 200 lakhs


Question 3. With reference to an industry where you are working or you are familiar with, prepare a detailed outline of the stores system and procedures practiced in that industry. Describe the weaknesses in the system and what you would do as an incumbent Materials Manager to overcome those weaknesses.

Case Study

General Automobiles Ltd (GAL) is a large manufacturer of two wheelers in the country. Last year it produced more than 80,000 vehicles in three different models. Although GAL assembles all the vehicles in its own plant, it does not manufacture the components required to assemble a two wheeler itself. In fact, only some of the critical components for the engine and the transmission are manufactured by GAL itself and a large number of components are purchased from outside vendors.

Hasti Precision Works (HPW) is one of the suppliers manufacturing and supplying small pressed components to GAL. Last year, it supplied about 11,000 numbers of brackets for which GAL had six more suppliers. This bracket is used on all models of two wheelers manufactured by GAL and so last year GAL must have bought close to 80,000 brackets from all its vendors for this item. HPW currently charges Rs 15 per bracket to GAL. Mr Mehta of HPW has a suggestion for Mr Sen, the Purchase Manager to GAL. Mr Mehta thinks that if he is assured minimum order size of 40,000 nos he would buy a new die, which would be faster as well as of a higher precision and this would enable Mr Mehta to supply these brackets to GAL only at Rs 13.50 per bracket.

HPW is located very close to assembly plant of GAL. It has been supplying components to GAL for more than 7 years now. Mr Mehta himself is a quality engineer and he himself looks after the day to day management of HPW. GAL has never had any major problem with HPW and in fact over the last 7 years, with the growth of HPW, its business with GAL has also grown steadily. The operation of GAL is heavily dependent on the timely availability of good quality components and that is why Mr Sen tries not to depend on a single supplier for all the items. HPW had a total turnover of Rs 50 lakhs.


1. What should Mr Sen do in regard to the proposal of Mr Mehta? State the reason justifying your suggestions.

2. Comment on the nature of relationship between GAL and HPW, and what all should be done for a better buyer seller relations.

Assignment – C

1. If the material cost is 60% of sales turnover and profit margin is 6% of sales, what action should be taken to increase profits by 10%:
(a) Reduce material cost by 10%
(b) Improve Quality by 5%
(c) Reduce Material Cost by 1%
(d) None of the above

2. Effective materials management can improve productivity because:
(a) Production volumes will increase as material will be available
(b) Systems improvement will take place
(c) Wastages will reduce
(d) None of the above

3. Effective materials management can increase profits because:
(a) Market recession is getting over
(b) Cost will reduce
(c) Company will secure a larger market share
(d) None of the above

4. Centralisation of material function is desirable:
(a) to reduce lead time
(b) to give prompt service
(c) to economise on procurement and overheads
(d) none of the above

5. ‘A’ category material must be handled by:
(a) General Manager Materials
(b) Purchase Officer
(c) Stores Office
(d) Finance Manager

6. Tick the item not required for Material Requirement Planning:
(a) Bill of Materials using a product tree structure
(b) Master Production Schedule
(c) Lead time for supply
(d) Value engineering

7. Demand for part number 3710 was 200 units in April, 50 units in May, and 150 units in June.
The forecast for April was 100 units. With an exponential smoothing constant of 0.20, what is the material forecast for July:
(a) 114.8
(b) 106
(c) 120
(d) 110

8. Janta Television has a plant for making 30,000 TV’s per month. It has facilities of making PCB
assemblies, TV sub assemblies, final assembly, testing and packing. The market fluctuates between 20000 to 40000 TV’s per month. Should it subcontract making of PCB assemblies (tick the relevant answer) :
(a) Yes, if PCB assembly is their core strength
(b) Yes, if it is economical to produce in-house
(c) Yes, if demand is more than capacity and PCB assembly is not their core strength
(d) Yes, if the chief says outsourcing is the trend

9. Re levance of Standardisation to Materials Manager is that it helps in:
(a) Reducing materials cost
(b) Providing more variety
(c) Increasing complexity
(d) Acquiring knowledge of world standards

10. Value of material can be increased by:
(a) Reducing the functional worth
(b) Increasing functional worth by 1.5 times and increasing cost to provide the functions by 1.6 times
(c) Increasing the functional worth keeping cost constant
(d) None of the above

11. Receiving Stores:
(a) Stocks company’s material and the stock is shown in company’s balance sheet
(b) Keeps material as received from supplier and offers to QC for inspection
(c) Issues material to production
(d) Issues material to vendor

12. Purchasing is buying right quality material from right source in right quantity in right Place at right time at:
(a) Lowest Price
(b) Convenience of Buyer
(c) Optimal price which is a balance of quality, reliability, payment terms and delivery
(d) Convenience of Supplier

13.Each unit of end product X requires 2 units of subcomponent Z. The lead time for X is one week. The standard order quantity is 40 units of X, and current availability in stock is 35 units.
Gross requirements for the next six weeks are 25, 30, 15, 15 and 20 respectively.
What is the planned order release for product X in week 5?
(a) 40
(b) 80
(c) 60
(d) None of the above

14. In the above problem 13, for item Z lead time is 2 weeks, and standard order quantity is 80 units. The current availability in stock is 90 units of Z. A scheduled receipt of 80 units of
Z is due in week 1.
What will be the available stock for item Z in week 6 if a new order for Z is released in week 3.
(a) 90
(b) 80
(c) 10
(d) None of the above

15. The annual consumption of item A is 730 units. The ordering cost is Rs 150. Carrying cost of inventory is 30% of average inventory investment. Unit cost is Rs 120. What is the economic order quantity?
(a) 78 units
(b) 88 units
(c) 68 units
(d) 80 units

16. In problem 15 above, if the days in a year are taken as 365 and delivery lead time is 5 days,
what is the reorder point?
(a) 15 units
(b) 20 units
(c) 10 units
(d) None of the above

17. Demand for item A is 200 units. Cost of placing order is Rs 240. Inventory carrying cost is
20%. Price of unit item if the ordering quantity is below 49 units is Rs 290. What is the optimal order quantity?
(a) about 41 units
(b) about 50 units
(c) about 49 units
(d) none of the above

18. In problem 16 above, if the price of unit item is Rs 285 for ordering quantity between 50 to 99 units and Rs 280 if order quantity is above 100 units, the optimal order quantity will be:
(a) about 41 units
(b) 50 units
(c) 100 units
(d) none of the above

19. In problem 16 and 17 above, what will be the total cost if order quantity is 50 units:
(a) about Rs 59385
(b) about Rs 59280
(c) about Rs 30000
(d) none of the above

20. For ‘A’ category items, the ordering frequency must be:
(a) once a year
(b) twice in a year
(c) four times in a year
(d) very frequently, like once a week

21. Tick the statement which is true:
(a) Purchase requisition is a legal document
(b) Goods Received Note is prepared by Issue section
(c) Technical evaluation is done before price evaluation in the tendering process
(d) Receiving Stores prepares the Inspection report

22. Tick the statement which is true:
(a) JIT purchasing means buying in large lots
(b) JIT purchasing means having multiple sources of supply and short term contracts
(c) JIT leaves delivery schedule to buyers
(d) JIT packaging is in small standard to hold exact quantity

23. In vendor evaluation, if the weights given to quality and delivery are the same, and the weight given to price is two times that of quality, what will be the vendor rating index for vendor First always when quality index is 0.9, Delivery index is 0.8 and price index is 0.6.
(a) 0.725
(b) 0.75
(c) 0.9
(d) 1.15

24. Understocking can create problems given below. Tick the answer which is not correct.
(a) missed delivery
(b) lost sales
(c) production loss
(d) blocked capital

25. What should be the safety stock with a 2.5% (k=2) risk of stock out, when price of item is
Rs 30 each, ordering cost per year is Rs 1,64,000, inventory carrying cost is 20%, annual requirement is Rs 14,40,000, number of orders per annum are 8200 numbers, lead time is one month and standard deviation is 63.5 units.
(a) 127
(b) 130
(c) 254
(d) none of the above

26. In the above problem 25, what will be the economic order quantity?
(a) about 566 units
(b) 600 units
(c) 900 units
(d) none of the above

27. Probability distribution of annual demand is :
Demand 3000 5000 10000 15000
Probability 0.1 0.3 0.5 0.1
What is the economic manufacturing lot size if setup cost is Rs 1000 per setup and carrying cost is Rs 10 per item per year.
(a) about 1289 units
(b) about 1429 units
(c) 1300 units
(d) none of the above

28. Consider a regularly fast consuming item with annual consumption of 10000 units priced at
Rs 40 each with carrying charges of 30% and order charges of Rs 600 per order. What is the economic order quantity?
(a) 1000
(a) 100
(b) 10000
(c) none of the above

29. In the above problem 27, the average lead time is 6 weeks. Standard deviation of demand per week is 10 units. Maximum delay in lead time is 3 weeks and probability of maximum delay is 0.39. Service level desired is 95% (k=1.64) What is the reorder point?
(a) about 1420 units
(b) about 1155 units
(c) about 1380 units
(d) none of the above

30. The annual demand for item X is 250000 numbers. Lead time is 6 weeks. The cost is Rs 1 per unit. The demand per week is 4810 units. The standard deviation per week is 400. The
Economic Order Quantity is:
(a) 20000 units
(b) 10000 units
(c) 1000 units
(d) none of the above

31. In problem 29 above, the safety stock to cover demand fluctuations is:
(a) about 1607 units
(b) 1500 units
(c) about 2607 units
(d) none of the above

32. In problem 29 above, the safety stock to cover lead time fluctuations is:
(a) about 2810 units
(b) about 4810 units
(c) 16320 units
(d) none of the above

33. In problem above, the reorder point is:
(a) 6417 units
(b) about 35277 units
(c) about 28860 units
(d) none of the above

34. In ABC analysis, the’ A’ category items are :
(a) items with high unit value
(b) items with high resale value
(c) about 10-20% of items which make up about 80% of annual consumption value
(d) about 15% of items contributing to about 15% of annual consumption value