Standardization, Simplification and variety reduction of Material Management
Standardization means producing maximum variety of products from the minimum variety of materials, parts, tools and processes. It is the process of establishing standards or units of measure by which extent, quality, quantity, value, performance etc., may be compared and measured.
Advantages of Standardization
All the sections of company will be benefited from standardization as mentioned below.
Benefits to Design Department
- Fewer specifications, drawings and part list have to prepared and issued.
- More time is available to develop new design or to improve established design.
- Better resource allocation.
- Less qualified personnel can handle routine design work.
Benefits to Manufacturing Department
- Lower unit cost.
- Better quality products.
- Better methods and tooling.
- Increased interchangeability of parts.
- Better utilization of manpower and equipment.
- Accurate delivery dates.
- Better services of production control, stock control, purchasing, etc.
- More effective training.
Benefits to Marketing Department
- Better quality products of proven design at reasonable cost leads to greater sales volume.
- Increased margin of profit.
- Better product delivery.
- Easy availability of sales part.
- Less sales pressure of after-sales services.
Benefits to Production Planning Department
- Scope for improved methods, processes and layouts.
- Opportunities for more efficient tool design.
- Better resource allocation.
- Reduction in pre-production activities.
Benefits to Production Control Department
- Well proven design and methods improve planning and control.
- Accurate delivery promises.
- Fewer delays arise from waiting for materials, tools, etc.
- Follow-up of small batches consumes less time.
Benefits to Purchase and Stock Control Department
- Holding of stock of standard items leads to less paper work and fewer requisitions and orders.
- Storage and part location can be improved.
- Newer techniques can be used for better control of stocks.
- Because of large purchase quantities involved, favorable purchase contracts can be made.
Benefits to Quality Control Department
- Better inspection and quality control is possible.
- Quality standards can be defined more clearly.
- Operators become familiar with the work and produce jobs of consistent quality.
- Work study section is benefited with efficient break down of operations and effective work measurement.
- Costing can obtain better control by installing standard costing.
- More time is available to the supervisors to make useful records and preserve statistics.
- Reduced reductions and scrap.
- Helps supervisors to run his department efficiently and effectively.
Disadvantages of Standardization
Following are the disadvantages of standardization:
- Reduction in choice because of reduced variety and consequently loss of business or customer.
- Standard once set, resist change and thus standardization may become an obstacle to progress.
- It tends to favor only large companies.
- It becomes very difficult to introduce new models because of less flexible production facilities and due to high cost of specialized production equipment.
Simplification in Material Management
The concept of simplification is closely related to standardization. Simplification is the process of reducing the variety of products manufactured. Simplification is concerned with the reduction of product range, assemblies, parts, materials and design.
Advantages of Simplification
Following are the advantages of simplification:
- Simplification involves fewer, parts, varieties and changes in products; this reduces manufacturing operations and risk of obsolescence.
- Simplification reduces variety; volume of remaining products may be increased.
- Simplification provides quick delivery and better after-sales services.
- Simplification reduces inventory and thus results in better inventory control.
- Simplification lowers the production costs.
- Simplification reduces price of a product.
- Simplification improves product quality.
Variety reduction has become an essential part of materials management activities. Various purchases are made often to meet the urgent requirements for specific purposes and a good percentage of these materials thus obtained, very soon become ‘slow moving’ or even a totally ‘dead stock’ item within a short period.
Future purchases are not generally linked with stock availability because of the fact that many items are not properly identified and included in the stores catalogue. Economic purchases, storage and control in varieties directly lead to lower inventory cost, and proper usage of materials make substantial contribution to profit, which in turn could generate additional scope of activities.
Return on capital is generally regarded as an effective measure of efficiency. This is expressed as:
Return on Capital = Profit/Sales x Sales / Capital
‘Profit to sales’ ratio does not always give a true picture of the results of or industrial enterprise as profit depends on many external factors like, statutory controls, government policies, political and economical influences etc. on which management has little control. ‘Sales to capital’ is better measure to assess performance or, rather it should be modified as ‘sales to working capital’ ratio, as little can be done with regard to Fixed Capital.
According to an analysis of capital investment in 29 major industries in India given by central statistical organisation, approximately 90% of the working capital is invested in inventories.
Capital which is fixed in the form of land and buildings, plant and machineries etc. is not amenable to reduction. So, almost nothing can be done to reduction. So almost nothing can be done to reduce it. There remains then the working capital, of which a large part is invested in inventories.
Materials in stores, in the process of fabrication and in the form of finished goods are crystalised capital. It is essential, therefore, to keep this form of capital investment at minimum.
Importance of Variety Reduction:
Since the numbers of items are reduced due to variety reduction, the increased quantity of an individual item can lead to more economical price, because of larger quantities. It is possible to establish specifications for parts and route wise purchase activities.
The purchasing activity can be made truly competitive by eliminating special lots and brand names. Standardisation results in effective communication, which promotes better understanding between different departments, in order to avoid constant disputes and misunderstanding.
The variety reduction scheme in general offers the following advantages:
- Fewer items will mean more personalised attention and there will be fewer stock outs and service level will also improve.
- Inventory carrying cost will come down because less inventories will be held.
- Less procurement cost as fewer numbers of purchases for lesser number of items will have to be made. Further, since quantities per item will increase, better quantity discounts will become available and unit cost of each item will come down.