Introduction

For our project on material management we have done an

industrial visit to SM foods ltd. Mr. Mitra who is the manager
for SM foods provided the information of the materials
department and also of other divisions within the company. He
has been working for the company for the past 28 years and at
some time or the other during his career he has been associated
with the different departments of the company.

About SM Foods:
Address and location:

The main head quarters of SM foods is situated in Mumbai.

Located : Thane district (W) Maharashtra.

Founded in 1977.

Founder : SM Shetty.

Previously known as : Fry-umm.

1
Products:

☻Peppy tomato discs.

☻Pik-nik paprika (chilli stix / pik-nik classic).

☻Baby pops.

☻Minis.

☻Senor pepito tautila chips (nacho flavors).

☻Simba junior.

☻Chip-stix red hot and (original flavors).

☻Simba junior.

☻Wagon wheels.

☻Chatila balls chatka.

☻Treo.

☻Junior mast masala.

☻Ring- a- ring jalapeno.

☻Peppy cheese balls.

2
 Materials Planning:

• Lack of proper material planning and coordination

leads to over ordering or under ordering of materials.

• Poor planning for material leads to emergency or rush

orders that costs more.

• Materials planning enable the purchase department to

spend money in an optimum manner.

Benefits of Materials Planning:

• Materials planning helps in acquiring both quality and

value for money for each item and avoids crisis which
creates undue pressure and wastage of money.

• It helps to get things done efficiently and effectively

by better forecasting of future materials needs.

• If purchase planning is carried out properly, it will

enable the buyer to know not only the prices of the
material but also the overall cost.

3
Materials Planning for SM Foods:

(a) On the 25th of every month the company reviews its

stock as well as the future requirements are assessed.

(b) Because production and packaging is carried out at 8

different branches it becomes imperative for each of the
branch to have 3-4 vendors.

(c) This helps in the smooth running and manufacturing of

the snacks depending upon the need.

(d) Since the demand from the market is forecasted well in

advance as well as from past experience the company is
capable of deciding upon the quantity of raw material
that has to be stocked.

(e) This has 2 benefits; firstly the money flow is not blocked
and secondly the best qualities of snacks are produced
since fresh raw material is used.

4
 For SM Foods

Raw materials:

Wheat flour, rice flour, palm oil and various flavoring

along with permitted preservatives (these are the basic raw
materials used in all of their ready to eat products but certain
raw materials may differ from product to product)

Raw Materials Procurement:

(a) The palm oil has to be imported from Malaysia whereas

refined groundnut oil is obtained from only one vendor
i.e. Kamani, Godrej India.

(b) Wheat flour, rice flour and the spices and chemicals
needed for making the seasoning and flavoring is
purchased from the local vendors.

(c) SM foods has 8 regional branches(dealership franchise)

viz. Mumbai, Lucknow, Pondicherry, Gwalior, Delhi,
Islamabad, Banglore, Chandigarh.

(d) The company has expanded to countries such as UAE,

US, UK and Canada where there is a huge Indian
population.

5
 Inventory Management

Inventory is defined as “stock of items kept on hand by

an organization to be used to meet customer demand”.

In an organization, the importance of inventory can be

recognized for the following reasons:

• Inventories represent resources acquired at a cost,

thereby locking up substantial working capital.

• It allows for smooth production process.

• Inventories serve as buffers against uncertain and

stock out situation.

6
Inventory Management for SM Foods :

(a) Since SM foods require raw materials like wheat flour,

rice flour, palm oil etc. that are perishable items proper
inventory is very essential. Perishable goods of this
nature cannot be stocked for more than a period of 3- 4
months.

(b) After this period the quality of these raw materials

degrades and therefore cannot be used for further
processing, also money gets blocked if large inventory
has to be kept. But the inventory should be such that,
that at no point of time the material should fall short of
actual production requirement.

(c) On the 25th of every month the company reviews its

stock as well as the future requirements are assessed.

(d) SM foods have three types of inventories i.e. raw

materials, work-in progress and finished goods.

7
Raw materials:

Wheat flour, rice flour, palm oil, unprocessed flavoring items

etc.

Work In Progress:

Pallets made of flour which are as yet non fried and non
flavoured, mixture of spices and preservatives.

Finished goods:

The finished goods are immediately packed to retain the

crispiness and quality. Also the packages have a manufacturing
date on them so the finished good are removed to the market as
quickly as possible.

All the machinery required for the manufacturing of

pallets frying etc. is purchased from the local dealers, subject to
the certification and conformation of SM foods(since process of
frying, mixing of flavours etc. are done by franchise of that
particular regional branch).

8
 Vendor Development

In order to have good reliable suppliers it is very

essential for a buyer to develop vendors. Usually the
combination of price, quality, quantity, delivery time and
service is used to rate the vendors.

While choosing a vendor the following criteria must be

considered;

• Lead time and on-time delivery:

(a) Lead time the supplier can provide.

(b) Procedure followed by supplier for assuring on-

time deliveries.

(c) Procedure followed by supplier for documenting

and correcting delivery problems.

• Quality and quantity assurance:

(a) Procedure followed by supplier for quality control

and quality assurance.

(b) A-B-C analysis followed by supplier.

9
 • Flexibility:

How flexible is the supplier in handling changes in terms of

quantity, delivery schedules and product/ service design
changes.

• Location:

Is the supplier located nearby.

• Price:

(a) Are the prices reasonable for the entire

package.

(b) Is supplier ready to negotiate prices.

(c) Is the supplier willing to engage in joint effort

to reduce.

• Product or service change:

(a) How much advance notification the supplier

use when changes are made in products and
services.

• Reputation and financial stability:

(a) What is reputation of supplier.

10
 (b) How financially stable is the supplier.
Vendor Evaluation and Vendor Rating

It is not easy to identify good suppliers. Records

maintained or procured from some other sources about the
vendors help in their evaluation and rating. Usually, a
combination of price, quality, quantity, delivery time and
service is used to rate the vendors, giving relevant weightages
to those factors.
In addition, a checklist is used to facilitate from the
department standpoint. Some of the points are :

• Reliability:

Before selecting a vendor the buyer has to verify whether the

vendor is reputed, stable and financially strong. Also it must
be seen whether the supplier is going along with the product
development and the most important aspect is whether the
vendor is capable of supplying at a price and quality
required by the company.

• Technical capability:

It is very essential to verify whether the vendor actually has

the technical equipments and capability to make the goods as
per the design, quality, size, structure etc.

11
 • Convenience:

The vendor must be conveniently situated so that the orders

get delivered on time and also any material which is not
accepted is replaced immediately.

• Availability:

The vendor should be able to deliver in the given time

frame, also is the vendor capable of supplying at a short
notice should be checked out. Can the vendor be depended
on for a steady supply of material is also an important
criteria to be considered.

• After sales service and sales

assistance:

It is not enough that the vendor supplies in time or supplies

as per the requirement. It is very important to consider if the
vendor provides emergency service and also to see if the
parts are available when needed.

12
Vendor Development Management for
SM Foods:

(a) SM Foods believes in multiple vendors i.e. more than

2 vendors for each raw material for each branch.

(b) If a vendor is reliable but does not deliver on time

than the next time the order placed with him is small.

(c) Just because the vendor is supplying for a long time

does not guarantee that his mistakes will be
overlooked. Usually if a vendor is caught cheating or
if the pricing is too high that particular vendor is not
awarded the contract.

(d) Since most of the raw materials required by SM

Foods are eatables and perishable items most of the
suppliers are from the near by location. As a result the
cost of transportation is reduced as well as fresh
material is supplied as an when required.

(e) While considering the vendors the combination of

criteria such as reliability of vendor, quality of goods,
the price package, delivery time is considered.

13
 Stores Management

The word “stores” refers to the place where all kinds of

materials and goods are held in stock. It is a collection of
resources which are physically natured and which are classified
as per their status. They are generally classified as raw material,
components, inward goods, holding, spare parts, inflammable,
tools, maintenance materials, rejected materials, scrap,
packaging material etc.

Objectives of stores management:

• To facilitate smooth flow of raw materials,

components and tools.

• To maintain optimum stock of material, to

compensate for irregular supplies by supplier.

• To achieve efficient utilization of storage space.

• To prevent theft, damage, wastage and deterioration

of stored materials.

• Before considering the location for the stores the

layout must be made, so as to have an idea about the
amount of space that is required.

14
• The storage space has to be equipped with proper
ventilation, humidity control, temperature control
equipments etc. depending upon the material that has
to be stored i.e whether it is a solid, liquid or in
gaseous form, whether it is flammable or whether it
requires low temperature or if it is valuable etc. all
these factors play a major role for building a storage
space.

• Location:

(a) The storage area should be easily accessible

and also affordable.

(b) It should be at a proper distance from the

main production unit/ head quarters etc.

(c) Proper facility has to be given depending

upon the materials stored.

(d) For the easy handling of materials proper

handling equipments must be provided. Also
proper training should be given to the workers
for the handling of materials and equipments
and loading and unloading.

15
(e) There must be proper entry and exit for goods.

(f) Space management of the layout must be done

so that the space is used in the best possible
way.

(g) Depending upon once needs and usage for

storage of materials it should be decide
whether to rent or build your own storage
area.

(h) The materials should be placed in such a way

that it becomes easy to replenish old and
outdated stock with fresh stock. That means
depending upon the company’s policy of
using the stock i.e. LIFO or FIFO the
materials must be placed for easy accessibility
and handling.

16
Functions of Store Keeping:

• To receive raw material, components, tools,

equipments and other items.

• To provide adequate and proper storage and

preservation of various kinds of materials.

• To meet the demands of the user departments by

proper issues and keeping account of items.

• To highlight accumulation of stocks, abnormal

consumption and implement proper control measures.

• To assist materials accounts department in stock

verification and providing information for effective
purchasing.

• To coordinate storekeeping with related production

functions.

Improper store keeping can lead to difficulty in locating

materials, overstocking, inefficient use store room space. It
can also cause problems in material control and time
involved in supplying materials when needed. Because of
poor store keeping inventory carrying cost is added on to

17
cost incurred due to deterioration, damage and pilferages of
materials.

Stock Verification

• Stock verification is essential for checking out the

discrepancy between actual and book balance of
inventory.

• Stock verification can be done periodically or by fixed

annual inventory or it can be done by perpetual or
continuously and it can also be done by low point
inventory.

• In fixed stock inventory the stock verification is done

on a fixed basis for example every month, every 3
months or annually etc. in perpetual or continuously
inventory the inventory is divided into 52 equal
groups and assign each group for a week. Thus
perpetual inventory goes on without interrupting
production operation and in low point inventory
method physical inventory is taken when the stock is
lowest irrespective of the period.

18
 Stock Verification for SM Foods:

(a) SM foods follows a fixed or periodic inventory method

i.e. they carry out their inventory on a monthly basis
during the 3rd week.

(b) The result of the inventory is reported on the 25th of each

month. As a result it becomes possible for the company
to see which stock needs to be replenished and by what
amount.

(c) It also helps in understanding about which raw material

is used in what amount, the wastage etc. the only
disadvantage about monthly inventory is that about 1
week of time every month the work load on the store
keeper and the warehouse keeper increases. Also the
paper work is more.

(d) But since SM Foods deals in raw material of perishable

nature, so fresh stock is purchased almost on a
fortnightly basis and a monthly inventory check becomes
necessary to keep track of all the purchases.

(e) The method used is FIFO because of the nature of the

raw material. If the older raw material is not used it
becomes still and renders itself useless.

19
 Standardization

• It is defined as a process of formulating and applying

rules for an orderly approach to a specific activity for
the benefit and with cooperation of all concerned for
the promotion of the overall economy taking due
account of functional performance and safety
requirements.

• The Indian Standards Institution (ISI) is a nationalized

body dealing with standardization at national level in
India. 4 standards are used i.e. International standards,
National standards, Industrial standards and Company
standards.

Advantages of Standardization:

• Purchasing standard products saves time and money

as such items are readily available at lower cost.

• Use of standard products of standard size facilitates

interchangeability.

• Reduces variety of products and thereby improves

quality and cuts down cost.

20
 • Inventory carrying cost can be reduced due to variety
reduction.

• Chances of obsolescence can be reduced.

• Standard items reduces the number of defects since

the supplier adheres to standard specification while
manufacturing.

• Saves money because of lower price, processing cost,

inventory carrying cost and quality problems.

Standardization for SM Foods:

(a) The preservatives used in the snacks is as per the FDI

standards.

(b) The pallets have a standard size, shape and weight.

(c) Even the seasoning consist of mixtures of various

masalas which have to be just right. Even a small change
in the mixture can vary the taste vastly. Therefore the
margin of deviation is very small and the company
strictly adheres to the company standard.

21
(d) The printing on the packets i.e. the colour etc. also is
standardized. This is because if the packets look different
or if the colour doesn’t look same every time there is a
chance that the customer might consider it as a duplicate
copy and refuse to buy it.
(e.g. the product peppy has 3 p’s in it, if by chance there is a
printing mistake and the name is pronounced as pepy or
pappy etc. the consumer will definitely think that it is a
duplicate made by another company).

(e) Since the company is using standard type of raw material

i.e. same type or quality of rice flour, wheat flour,
potatoes etc. for the last 28 years. This has become a
company standard and the vendors know exactly what
the company wants each time, as a result there has been
very few errors during quality check.

(f) Even the moisture content of the pallets is rigorously

maintained this is because the size of the pallets after
frying should be of a certain standard. The reason behind
this is the packets are of predetermined size and shape
and they can hold only a certain amount of the snacks.

(g) If the pallets after frying are small than more amount will
go into the packets and its weight will increase, also the
nitrogen that goes into the packs is small. This might
result in excess quantity and a risk of breakage. Similarly

22
 if the pallets size is more after frying than less quantity
will go into the packs then what is actually needed.

Purchase Management

• Purchasing management refers to all activities

required to manage relationship with suppliers. It
focuses on structuring and continuously improving the
purchase process within the organization.

• Before making purchase of any sort first we have to

identify the needs and potential, also we have to
understand what and how much we require to achieve
the organizations goal.

While making purchase following things have to be

considered:

• Inventory turnover ratio:

Inventory turnover ratio tells us within a year how many

times the raw material has to be purchased.

The purchase of the raw material depends upon:

(a) Availability:

If material is freely available then there is no need to

stock it.

23
 (b) Need:

If the material is required in large quantities and is used

heavily then the material has to be purchased in bulk and
vice-versa.

(c) Price:

By applying the A-B-C analysis we have to see whether

the materials are extremely expensive, moderately
expensive or cheap. The expensive materials are brought in
small amounts, the moderately expensive items are
purchased in relatively large amount whereas the cheaper
items can be stocked in bulks.

For SM Foods:

(a) Since the basic raw materials such as wheat flour, rice
flour, etc. are available throughout the year, there is
no need to stock in large quantities.

(b) All the snacks have the basic raw materials such as
rice and flour, salt, oil etc. in them, these raw
materials need to be such a quantity that it suffices all
the production needs.

24
(c) The oil use for frying is palm oil, this oil is not
available in India very easily or of the quality that the
company demands. Therefore this oil is imported
specially from Malaysia. Because the oil has to be
imported its cost is very high due to transportation
and also due to its own high cost.

(d) Thus the order has to be placed in such a way that it

covers the quantity demanded, and also in such an
amount that it does not become a burden on the
finance department since the price is very high

• Business cycle:

A business goes through various cycles i.e.

prosperity, peak, recession, depression etc. it also has
to face various seasons such as peak season, slumps
etc.

(a) If the material is stocked during the off-seasons

then it will be available at lower price. Thus
when the product is sold during a slump
period, the loss suffered will be low whereas
during the peak season the profit also
increases.

25
Business cycle for SM Foods:

1. The potatoes required for making chips grow during a

certain period only. Therefore it has to be ordered in bulk
at that time alone.

2. The peak season for the sale of ready to eat snacks of SM

Foods is from September to April. Therefore the raw
material for this period is ordered in more quantity that
has to be ordered for the rest of the year.

26
 Lead Time

The knowledge of Lead time is very important for

any organization. Only when we know the amount of
time the supplier requires to make the delivery, we
will be able to make arrangements for that period.

Lead Time for SM Foods:

(b) Since the palm oil has to be imported from

Malaysia it takes about 10 days, so the oil in
hand should suffice for that period.

(c) All the raw materials is comes from different

parts of the country from Mumbai and
Pondicherry. Therefore the delivery time taken
by them needs to be adjusted in such a way
that the stock in hand does not fall short of the
production requirement.

• Order Placing:

While placing a order we have to consider what is

the material available with us, what is in transit and
about the order which has been previously made.
Thus a proper plan has to be chalked out. The other
thing that has to be considered is the level of stock i.e.

27
 WIP, material in the pipeline and the finished stock.
So orders can be placed accordingly.

• Seasonal Demand:
Products which are available during certain
seasons should be stocked, but we should consider its
price and shelf life before stocking. Sometimes
demand for products goes up during a particular
period therefore adequate raw material needs to be
stocked up to meet the increased demand.

Seasonal Demand for SM Foods:

(a) The potatoes required by SM Foods to make

chips only grows between the winter months of
November to February. Thus they have to be
stocked in advance for the entire year.

(b) The entire stock has to be deep freezed so as to

keep it fresh and intact.

(c) The months of September to April is the time

when the demand for ready to eat snacks goes
up and in accordance to that the production has
to step up in order to match the demand.

28
Quantity and future cost increases:

1. If large quantity of material or material in bulk is ordered

then usually the organization can get certain perks such
as extra quantity, discounts such as price discount,
payment discount i.e. extended period of payment etc

2. If an organization expects the price of raw material to go

up then it becomes obvious to stock up that material of it
is moderately or highly expensive. But if the raw material
is cheap then a small increase in price does not warrant
stocking up in bulk.

29
Financial Implication of Purchase

• For purchasing any type of material the materials

department has to 1st check it out with the financial
department. This is because the finance department
has a specific budget, if pre intimation is given than
the load for immediate payment is greatly reduced.

• The purchase department has to forecast & intimate

Financial department beforehand so that proper
allocation of funds can be done and also payments can
be duly made.

• The purchase department along with the production,

stores, accounting and finance departments have to be
consulted before any sort of budget is made.

• The company has to make all sorts of purchases,

payments, loans, debts etc. therefore it is very
important to consider the financial aspect before
making any decision about the size of consignment,
the payment and credit terms, discounts etc.

30
 • The important thing to remember is that the business
is all about money, so how, when and where the
money has to spend should be considered. There
should be a continuous flow of money which will
ultimately earn profit for the company.

Financial Implication on Purchases for SM

Foods:

(a) SM Foods has 8 branches all over India and numerous

vendors for each raw material and that too for different
branches. Therefore it becomes very important to keep
track of the credit period and credit terms of each and
every supplier.

(b) The credit terms and the consignment order is of such a

nature that money is not blocked.

(c) The entire financial department is looked after by the

head quarters of Mumbai. This has 2 benefits: firstly the
main purchase and production department is situated in
Mumbai. Therefore it becomes easy for the finance
department to interact with the materials department.

(d) Secondly as all payments etc. are done from Mumbai, all
the bills, payments, loans, credits etc. is done under one

31
 roof. Therefore there is no chance of any fraud or
discrepancy etc.

Contract

Contract is a written document where buyers and sellers

agree mutually on certain terms and conditions. The contract
and record documents of past 7 years has to be maintained as
per the IT and sales Tax regulation.

Advantages of contract documents:

• A contract exactly mentions the credit period, delivery

period, credit terms, quantity, quality, price etc.

• Since every thing is mentioned in a clear cut manner

the vendor cannot make any errors and he can be hold
responsible for any cheating and discrepancy.

• If rejection of material happens then the vendor has

obligation to replace it.

• In case of any legal problem crops up then the

contract document can be used as a proof.

• Records help in easy reference and also is useful for

decision making.

32
Contract for SM Foods:

(a) The contracts about purchases made are handled by the

materials department situated in Mumbai. This holds to
for all the purchases made by the other 7 branches.

(b) SM Foods has the policy of holding documents of past

10 years. They have a separate department for record
keeping whose exclusive function is to maintain records
in a systematic and orderly fashion.

(c) Also the files of past 12 years have now been converted
to computer documents. This has helped in easy
accessibility and maintenance.

(d) They use the past records for ascertaining the size of
consignments, the vendor certification etc.

33
 Research and Development:

• R&D is the heart and soul of any organization in

today’s time. Since every organization has to face
tough competition it has to keep on evolving and
bettering itself.

• The R&D department is very important since it helps

in bringing out better options in terms of product,
equipments, technology or the techniques used.

• For the materials department the R&D department is

very crucial, since the latter can help in cutting down
cost. But all the inventions or outcome from the
research done does not necessarily translate into
actual production. It means that some of the
inventions look good on paper but are not actually
realistic or are too expensive to produce or use.

Therefore it is very important for an organization to

decide how much of the resources to be allotted to the R&D
department.

34
Research and Development for SM Foods:

(a) SM Foods essentially produces ready to eat snacks

and other eatables, as such they have to face
ferocious competition. In order to survive and to
grow it has to depend upon it’s R&D department to
bring out better and newer flavours and also invent
different varieties of snacks.

(b) On an average SM Foods brings out at least two

different snacks items each year.

(c) Because of the R&D department SM Foods has been

able to successfully market 35 different types of
ready to eat snacks.

(d) It is the market leader when it comes to flavoured

Indian snack items.

35
 Negotiations

• The main aim of the materials department within any

organization is to acquire raw material at good prices
in the sense, it must be at a price which is not only
affordable but also is able to cover the production cost
and to earn profits. This can only be achieved by
proper negotiations with the vendor or supplier.

• Everybody wants value for their money be it the

supplier or the purchaser. Therefore negotiation is
considered to be an art.

The things to be remembered while negotiating are as

follows:

• Negotiations should always be done between people

of same stature e.g. materials manager of one
organization to other i.e. it should always take place
on equal terms.

• Initial groundwork should always be done before

negotiating i.e. in terms of quantity, quality, pricing
and other aspects such as cost of transportation, trade

36
 discounts etc. from other sources or previous
experiences.

• Always try to avoid group negotiations. One to one is

always better.

• Make the situation cordial and friendly i.e. there

should be no feeling of fear, threat, pressurizing of
any sort etc.

• Always remember how badly the material is needed,

because if it is an emergency there is no point in
bargaining since it will only eat up time.

Negotiations for SM Foods:

(a) SM Foods has to buy different raw materials and for

each there are at least three to four vendors.
Therefore they have to negotiate with each of them
to get the best bargain in terms of quality, pricing
etc.

(b) There are numerous suppliers in the market so they

select only those who are well reputed, situated
locally and give the best bargains.

(c) If they have to buy any raw material in case of

emergency they have certain vendors with whom

37
 they have cordial relations who provide the
necessary material and the best terms possible for
them on such a short notice.

Warehousing

• Warehousing means storing raw materials or goods

within or outside the physical boundry of an
organization.

• When goods are Warehoused within the boundary

then they are completely under your own control. The
company has too hire its own people for the
maintenance. Therefore it is an expensive affair as
land has to be purchased, developed internal facilities
have to be built etc.

• But if you hire a Warehouse than the cost of labour,

rent and lighting etc. is not incurred.

• Therefore an organization has to decide whether it has

to build its own Warehouse or hire it. This usually
depends upon the need for storage i.e. if the material
has to be stored daily then there is no point in hiring
since it is very expensive. On the other hand if
materials have to be stored occasionally then it is
better to hire a rented space.

38
The things to be considered while selecting the site for
warehouse are as follows:

• There should be no problem of water logging.

• There should be no difficulty in climbing.

• It should not be near a place where there are big

boilers or high tension wires etc.

• It should be well connected to roads or railways or

other modes of transport.

Warehousing for SM Foods:

(a) The storage unit of SM Foods is at Bhivandi, Mumbai.

This area is an industrial location therefore the
government provides electricity, rent at subsidized rates.

(b) The area is well connected with roads and highways.

(c) Since the land is rented at a very low cost the company is
able to hire a huge warehousing space with ample

39
 sections for the different raw materials i.e. separate space
for deep freeze area, for inflammable goods like oils etc.

Conclusion
Materials management is like the very foundation on
which an organization stands and grows. For any organization
to be successful in today’s competitive market has to cut down
costs internally since it is very difficult to expand by increasing
the market share because of heavy competition. Also there are
so many challenges and difficulties posed in a developing
nation like India.
Materials department helps in making financial decisions
easy and also helps in forecasting how much the future
production would cost based on past experience. A good
materials manager can make a dog into a cash cow.

40