TOP 10 Techniques of Material Control

Material control involves the use of various methods to plan, procure, store, handle and consume raw material, aimed at controlling material costs, minimizing wastage and ensuring a smooth production run through continuous material availability while avoiding overstocking.

In other words, it optimizes inventory investment for a business by procuring the right quantity at the right time, thus improving its profitability and efficiency. The methods of material control involve demand forecasting, material purchase, storage, maintaining inventory records, and more.

What are the Objectives of Material Control?

According to the TERI report on ‘National Resource Efficiency Policy for India’, the share of average material costs in total production cost in Indian manufacturing setups is more than 70%, which is way higher than 40 to 50% average material costs in developed countries.

Given how material consumption impacts production costs, it highlights the need to adopt efficient techniques of material control and implement them with the robust support of modern ERP software .

Let’s look at the key objectives of material control:

• Production Continuity: Maintain a smooth production flow by ensuring the availability of exact material specs for different production lines and production stages, reducing the lead time.
• Cost Optimization: Tighten your hold over production costs by planning your material purchase, and avoid unnecessary cost escalation due to urgent and unplanned purchases.
• Reduce Wastage: Cut down on material consumption by minimizing wastage during storage and handling by tracking production and inventory errors in your ERP system.
• Prevent Shortage: Monitor the stock levels in your warehouse, forecast demand and ensure a regular supply of inventory, and also prevent overstocking.
• Maintain Quality: Set quality assurance standards by ensuring the usage of the right material during production, which meets the design requirements and is at par with industry benchmarks.
• Enhance Efficiency: Upgrade your existing material control mechanisms to reduce handling time, meet market demand and improve your production efficiency.

What are the Top 10 Techniques of Material Control?

A comprehensive understanding of various methods of material control makes sure you choose the one that aligns with your business objectives and production processes. Let us understand the meaning of different material control techniques and how it help you improve inventory control.

1. ABC Analysis

ABC Analysis is a material control technique where you place your inventory into three categories, namely, A, B, and C, based on how expensive they are and how frequently they are consumed in production. Items that fall under the ‘A category’ are the most valuable and they require accurate inventory control. ‘B category’ items are of moderate importance and require relatively less control whereas ‘C category’ are of less importance and do not require close monitoring.

The classification of inventory into the ABC category is automated through manufacturing ERP software , where you get a granular view of all the materials by value and consumption. The up-to-date data on each material helps you analyze and choose its category or change the category to align with changing order demand. As a result, you can prevent stock-outs of high-value items, take decisions on what to stock and save time and money in managing inventory.

Read more: What is ABC Analysis in Inventory Management System?

2. VED Analysis

VED Analysis is a method of material control to identify parts critical for maintaining production continuity. The raw materials are classified into Vital, Essential and Desirable categories. Vital parts are critical for operations and their stock-out can severely disrupt production. Essential parts, may not be as critical but their shortage can reduce production efficiency. Desirable items are those that improve processes in some ways, however, they do not affect operations in the short run.

Having the ability to classify materials into vital, essential and desirable categories gives you clarity on what needs to be purchased on a priority. With VED analysis, you can achieve better cost efficiency and minimize inventory shortage risks through adequate checks and alerts triggered via inventory management software . It makes sure that you have sufficient safety stock for critical items while paying close attention to their storage conditions and high-quality material procurement.

3. FNSD Analysis

FNSD Analysis groups the inventory based on their rate of consumption. FNSD stands for fast-moving, non-moving, slow-moving, and deadstock. Fast-moving items are very high in consumption, non-moving are consumed at moderate rates, usually within a year. Slow-moving items have a low turnover rate while dead stock lies idle for a long time with no foreseen demand.

The purpose of FNSD analysis is to set order priority based on the rate of consumption of items, how long they stay in storage and accordingly set their reorder point. It enables the identification and removal of dead or underperforming stock while helping you to plan better and make informed decisions on inventory.

4. Perpetual Inventory System

A perpetual inventory system is a method of managing inventories that allows for real-time updates and continuous tracking of inventory levels after each transaction. It improves reporting and inventory accuracy. This system can be easily integrated with purchase and sales systems to automatically document purchase and sales prices and determine the cost of goods sold.

With a perpetual inventory system, business owners can prevent low material supply situations, automatically modify reorder points, and stay continuously updated on inventory levels. It results in increased inventory efficiency and control by substantially reducing the need for physical inventory counts.

5. JIT Inventory System

Just-in-Time or JIT inventory system is a method of material control where goods are only received when they are needed for production, thereby enhancing production efficiency and increasing material turnover. This system requires perfect collaboration with suppliers as the suppliers need to be ready with the material when the manufacturer orders it.

Also called the pull system of inventory, the JIT system is executed via an ERP solution that helps manufacturers avoid the risk of obsolescence and significantly reduce storage space. Manufacturers focused on total quality management prefer this method of inventory control as they are frequently looking for better quality or innovative raw material to improve the quality of the final product.

You Might Also Like: What is Total Quality Management?

6. Double Bin System

One of the popular techniques of material control, the double bin or kanban system uses two bins to store inventory. The first bin contains the working stock and the second bin contains the reserve stock. The working stock bin caters to the current production demand whereas the reserve stock bin maintains the inventory level equivalent to the amount to be used until the new stock arrives.

This inventory replenishment technique ensures that there’s always sufficient material available for production. Manufacturing setups will relatively stable product demand prefer this system as it helps them reduce inventory ordering costs and ensure better inventory planning. Automating this ordering system via procurement software can generate significant cost savings for your company.

7. Inventory Costing

Inventory costing in material control is a technique used to determine the value of each stock item the company holds. Accurate assignment of cost using the ERP application gives the company a clear picture into their total costs associated with holding inventory, including the storage costs, labor costs, as well as ordering costs and the cost of raw materials.

Such cost-saving techniques of material control are excellent for financial planning and cash flow management. Giving transparency into the holding costs, the inventory costing method allows efficient tracking of inventory throughout the production and sales. It helps avoid excessive spending on inventory by optimizing new inventory purchases.

8. Level Setting

Level setting is a material control method to set different levels of inventory, helping you to closely monitor the consumption of inventory and timely order fresh supplies. It involves setting the reorder point, minimum level, maximum level, danger level, and average stock levels.

Level setting ensures what stock levels need to be maintained at any given point. As soon as a predetermined level is reached for any stock item, the ERP software sends an alert to the purchase manager and the company can consequently begin the purchase requisition process and automatically generate the purchase order .

9. Economic Order Quantity

Economic Order Quantity (EOQ) is an inventory technique to identify ideal order quantity that meets demand without creating shortage of inventory. This method of material management is used to maintain healthy working capital by avoiding overstocking. Calculation of EOQ takes into consideration annual product demand, cost of ordering, and holding costs per unit.

The formula for EOQ is as follows:

Where:

D = Demand rate (units sold per accounting period)

S = Order cost (per order)

H = Holding cost (per unit per accounting period)

Your ERP software can automatically determine the economic order quantity for any product, thus helping you save time and maximizing profits.

10. Input Output Ratio

Input Output Ratio is part of the ratio analysis methods of material control where we determine the ratio of input raw material that goes into production and the standard raw material content of the output. This ratio helps you to determine the quantity of material being consumed and identify areas for improvement in production processes.

Besides controlling material consumption and saving costs, this ratio analysis technique also helps in improving product quality that comes with efficient production process. Manufacturing ERP keeps a detailed record of input-output ratios to help you track your material consumption and implement cost-efficient production methods.