Group 1

FUNCTION OF MATERIAL MANAGEMENT

Materials Management Explained

Materials management is responsible for successfully satisfying

production demand. It requires a significant amount of coordination,
particularly with the operations of material flow, coordination, sequencing,
and the return of transport goods.

The materials handling task group is comprised of experienced members of the

industry who are responsible for the design of material racks, as well as the
enhancement of density and quality characteristics, to facilitate the efficient
transit of goods into assembly facilities. The “life cycle” study of racks and the
best practices around the recycling and life-maximization of shelves, including
safety issues, exhaustion, and load management, is the current topic among
the organization’s members.

The management and planning of the supply chain include a component

called materials management. The basic objective of materials management is
to supply manufacturers with all the raw materials required to complete their
wares’ production.

In addition, the management of materials emphasizes preventing the loss of

any individual components and achieving the highest possible efficiency in the
maintenance and administration of stock. Therefore, in addition to being
significantly involved in inventory management and storage, materials
management needs a grasp of what materials are required and where they can
be obtained to function properly.

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Functions of Materials Management

#1 – Production And The Management Of Materials

The production manager is responsible for preparing production schedules that
will be carried out in the future. The production schedules are the basis for
determining the requirements for the various components and materials.
Orders that have been placed or estimates of future demand for a product are
considered when developing production schedules. To ensure that
manufacturing runs without a hitch, every category or component of the raw
materials is made available.

#2 – Purchasing

The purchasing department can create purchase agreements based on other

departments’ requisitions. This section maintains contracts with the various
suppliers and regularly gathers quotations and other relevant information. This
division will make every attempt to make purchases of appropriate items of
appropriate quality at affordable costs.

Purchasing is a management action that extends beyond the basic act of

buying and involves the planning and policy activities spanning a wide variety
of activities that are connected to and complementary to one another. This
means that purchasing is more than just an act of buying something.

Stores not used in producing non-production items such as office supplies,

perishable tools, maintenance, repair, and operational supplies are kept in
stock according to the company’s requirements. One may not need these
retailers daily, but having them available is necessary. Furthermore, labor can
halt if these kinds of businesses are unavailable.

#3 – Transportation

One of the most significant functions of materials management is transporting

materials from various suppliers. The responsibility for coordinating
transportation service falls on the shoulders of the traffic department. Either
the company will have to buy the cars themselves or find a third party to
provide them on a rental basis. Everything relies on the amount and the
frequency of the material purchases. The goal is to secure economic and
practical transport facilities for the commodities.

It concerns the flow of materials inside a production organization, and the cost
of handling materials is controlled. It is also observed that no material losses or
wastages occur while the materials are being moved. For material handling,
specialized apparatus may be purchased.

#4 – Receiving
The receiving department is in charge of unloading commodities, counting the
units, verifying the quality of the items, and sending them to retailers, among
other responsibilities. In addition, the purchasing department is kept apprised
of the arrival of various materials.

Inventory Examples
Real-world examples can make inventory models easier to understand. The
following examples demonstrate how the different types of inventory work in
retail and manufacturing businesses.

 Raw Materials/Components: A company that makes T-shirts has

components that include fabric, thread, dyes and print designs.
 Finished Goods: A jewelry manufacturer makes charm necklaces. Staff
attaches a necklace to a preprinted card and slips it into cellophane
envelopes to create a finished good ready for sale. The cost of goods sold
(COGS) of the finished good includes both its packaging and the labor
exerted to make the item.
 Work In Progress: A cell phone consists of a case, a printed circuit
board, and components. The process of assembling the pieces at a
dedicated workstation is WIP.
 MRO Goods: Maintenance, repair and operating supplies for a
condominium community include copy paper, folders, printer toner,
gloves, glass cleaner and brooms for sweeping up the grounds.
 Packing Materials: At a seed company, the primary packing material is
the sealed bag that contains, for example, flax seeds. Placing the flax
seed bags into a box for transportation and storage is the secondary
packing. Tertiary packing is the shrink wrap required to ship pallets of
product cases.
 Safety Stock: A veterinarian in an isolated community stocks up on
disinfectant and dog and cat treats to meet customer demand in case the
highway floods during spring thaw and delays delivery trucks.
 Anticipated/Smoothing Inventory: An event planner buys discounted
spools of ribbon and floral tablecloths in anticipation of the June
wedding season.
 Decoupled Inventory: In a bakery, the decorators keep a store of sugar
roses with which to adorn wedding cakes – so even when the ornament
 team’s supply of frosting mix is late, the decorators can keep working.
Because the flowers are part of the cake’s design, if the baker ran out of
them, they couldn’t deliver a finished cake.
 Cycle Inventory: As a restaurant uses its last 500 paper napkins, the
new refill order arrives. The napkins fit easily in the dedicated storage
space.
 Service Inventory: A café is open for 12 hours per day, with 10 tables at
which diners spend an average of one hour eating a meal. Its service
inventory, therefore, is 120 meals per day.
 Theoretical Inventory Cost: A restaurant aims to spend 30% of its
budget on food but discovers the actual spend is 34%. The “theoretical
inventory” is the 4% of food that was lost or wasted.
 Book Inventory: The theoretical inventory of stock in the inventory
record or system, which may differ from the actual inventory when you
perform a count.
 Transit Inventory: An art store orders and pays for 40 tins of a popular
pencil set. The tins are en route from the supplier and, therefore, in
transit.
 Excess Inventory: A shampoo company produces 50,000 special
shampoo bottles that are branded for the summer Olympics, but it only
sells 45,000 and the Olympics are over — no one wants to buy them, so
they’re forced to discount or discard them.

The Importance of Inventory Control

Inventory control helps companies buy the right amount of inventory at the
right time. Also known as stock control, this process helps optimize inventory
levels, reduces storage costs and prevents stockouts.

Inventory control empowers companies to collect the maximum amount of

profit. It enables them to minimize the investment made in stock, allowing
companies to best evaluate their ongoing assets, account balances, and
financial reports. It is important because it prevents exuberant costs because
of purchasing too much or inessential inventory, rather prioritizing the
obligatory inventory.
With the appropriate internal and production controls, the practice ensures the
company can meet customer demand and delivers financial elasticity.
Inventory control enables the maximum amount of profit from the least
amount of investment in stock without affecting customer satisfaction. Done
right, it allows companies to assess their current state concerning assets,
account balances and financial reports.

What Is Material Management?

Material Management is a system that effectively controls and manages materials

and supplies used in an organization. The goal of material management is to
ensure that the right materials are available at the right time and in the right
quantities, to support the production process and meet customer demand.

Here are some key points to consider when exploring material management:

 Material management plays a crucial role in the success of an organization

by ensuring that materials are available when needed and in the right
quantities.
 It helps to minimize waste and reduce costs by ensuring no over-stocking or
under-stocking of materials.
 It helps to improve customer satisfaction by ensuring that orders are
delivered on time and with the correct items.
 The critical components of material management include material
planning, procurement, inventory control, and distribution.
 Material planning involves forecasting demand, determining the materials
needed, and developing a plan to acquire those materials.
 Procurement involves sourcing and purchasing materials from suppliers.
 Inventory control involves managing the flow of materials into and out of the
organization and monitoring inventory levels to ensure they remain within
acceptable limits.
 Distribution involves the physical movement of materials from the
organization to the customer.

Types of Material Management

The following are the different types of material management:

 Inventory Management

Inventory management involves the maintenance of a company's stock of raw

materials, semi-finished goods, and finished products. It includes identifying the
optimal inventory level to be maintained, determining the reorder points, and
ensuring that the inventory is stored correctly.
Inventory management aims to strike a balance between the costs of holding too
much inventory and the costs of running out of stock.

 Purchasing Management

Purchasing management involves procuring raw materials, supplies, and services

required for production. It consists of the selection of suppliers, negotiation of
prices, preparation of purchase orders, and management of supplier relationships.

The objective of purchasing management is to buy the required materials at the

best possible price and quality while ensuring timely delivery.

 Warehouse Management

Warehouse management involves the storage and handling of materials, as well as

the management of the physical movement of goods within a warehouse. It
includes receiving, storing, and shipping materials, as well as managing inventory
levels and the location of materials within the warehouse.

The goal of warehouse management is to optimize the use of space and minimize
the cost of storing and handling materials.

 Material Requirements Planning (MRP)

Material Requirements Planning (MRP) is a computer-based inventory management

system used to plan production schedules and manage the procurement of
materials.

MRP considers the lead time for ordering materials, the time required for
production, and the inventory levels of materials. MRP aims to ensure that suitable
materials are available at the right time and in the correct quantity to meet
production needs.

 Transportation Management

Transportation management involves the physical movement of materials from one

location to another. It includes the selection of carriers, negotiation of freight rates,
preparation of shipping documents, and management of delivery schedules.
Transportation management aims to ensure that the materials are delivered on
time and at the lowest possible cost.

Objectives Of Material Management

The following are the five primary objectives of material management:

  Right Material

The first objective of material management is to ensure that suitable materials are
available for production. It involves identifying the materials required for production
and ensuring that they are of the correct quality, specification, and quantity.

By ensuring that the right materials are available, companies can minimize the risk
of production delays and ensure customer satisfaction.

 Right Time

The second objective of material management is to ensure that the right materials
are available at the right time. It involves managing the movement of materials
within the warehouse, reducing lead times, and improving the efficiency of delivery
processes.

 Right Amount

The third objective of material management is to ensure that the right amount of
materials are available for production. It involves determining the optimal inventory
level to maintain and implementing processes to manage the movement of
materials within the warehouse.

By ensuring that the right amount of materials are available, companies can
minimize the risk of stock shortages, reduce the cost of storage and handling, and
increase efficiency.

 Right Price

The fourth objective of material management is to ensure that materials are

purchased at the right price. It involves negotiating with suppliers to obtain the
best possible prices and implementing cost-saving measures, such as reducing
waste, reducing lead times, and improving the efficiency of delivery processes.

 Right Sources

The fifth objective of material management is to ensure that materials are sourced
from the right sources. It involves identifying reliable suppliers, developing
partnerships with suppliers, and ensuring that materials are purchased from
approved suppliers only.

By sourcing materials from the right sources, companies can reduce the risk of
defective materials, minimize the risk of production delays, and ensure customer
satisfaction.

Importance of Material Management

  Cost Reduction

One of the primary objectives of material management is to reduce the cost of

materials. It includes reducing the cost of purchasing materials, as well as reducing
the cost of storing and handling materials.

Cost reduction can be achieved through effective planning, procurement, and

storage processes, as well as through implementing cost-saving measures such as
reducing waste, reducing lead times, and improving the efficiency of delivery
processes.

 Improved Quality

Another objective of material management is to improve the quality of materials

and products. This includes ensuring that the materials and products used in the
production meet specified standards of quality and implementing processes to
prevent defects.

Improving the quality of materials and products can help ensure customer
satisfaction, improve the company's reputation, and reduce the cost of rework and
warranty claims.

 Timely Delivery

A third objective of material management is to ensure the timely delivery of

materials and products. This includes ensuring that the right materials are
available at the right time and in the right quantity to meet production needs and
implementing processes to prevent delays in the delivery of materials.

Timely delivery is critical to any business's success and can help improve customer
satisfaction, reduce inventory costs, and improve production process efficiency.

 Inventory Optimization

Another objective of material management is to optimize inventory levels. This

includes determining the optimal inventory level to maintain and implementing
processes to manage the movement of materials within the warehouse.

Inventory optimization can help to reduce the cost of storage and handling and
minimize the risk of stock shortages or obsolescence.

 Efficient Supply Chain

A final objective of material management is to ensure the efficiency of the supply

chain. This includes reducing lead times, improving the efficiency of delivery
processes, and optimizing the movement of materials within the warehouse.
An efficient supply chain can help to reduce the cost of materials, improve
customer satisfaction, and increase the competitiveness of the business.

Group 2
Classification of Materials
Classification is the systematic division, grouping, or categorization of
materials or items based on some common characteristic.
Classification of materials can be performed on different bases (e.g., nature,
manufacturing process, value, and purpose).
To identify materials that are purchased and stored for commercial purposes,
they should be properly classified.
The department in charge of storage should closely study and monitor the
materials, ensuring their safe custody, meticulous handling, and protection
from damage, fire, pilferage, and spoilage.
A broad classification of materials is shown below, based on their nature, use,
and service.
 Raw Materials
 Consumable Stores
 Machinery and Plant
 Factory and Office Equipment
 Inflammable Stores
 Chemicals
 Furniture and Fixtures
 Scrap Materials
 Packaging Materials
 General Stores
Basis for Classification of Materials
The basis for the classification of materials involves several aspects, including
nature, manufacturing process, and value.
Basis of Nature
Based on their nature, materials can be divided into:
 Direct Materials: Direct materials are items that can be identified with a
product or a group of products and can be easily measured and charged
directly into the product.

These materials are part of the finished product (e.g., timber in

furniture).
 Indirect Materials: These are materials that cannot be traced to a
specific product or be charged directly to various products.

Indirect materials do not form part of the product. Examples include

repair and maintenance stores, lubricating oils, and cleaning materials.
Basis of Manufacturing Process
Based on the manufacturing process, stores are divided into:
  Pre-process Stock: These are items that are yet to be used in the
manufacturing process and are obtained prior to the start of production.

They include raw materials, bought-out parts and assemblies, and stock
in the pipeline of materials in transit.
 Intermediate Stock: Intermediate stock comprises the parts or
assemblies that are manufactured within the factory for use in the final
product.
 Finished Goods or Finished Products: As the name indicates,
finished goods are the items that have been duly manufactured in the
factory and are ready for shipment or sale to the customers.
Basis of Value
Based on value, stores may be divided into:
 Category A: Category A consists of materials which constitute 5% to
10% of the total items in the stores and represents 70% to 85% of the
total stores value.
 Category B: This category consists of materials which constitute 10% to
20% of the total items in the stores and represents 10% to 20% of the
total stores value.
 Category C: This category consists of cheap materials which constitute
70% to 85% of the total items in the stores and represents 5% to 10% of
the total stores value.
Category A items are costly items, calling for a greater level of control to
preserve them.
A reasonable degree of care may be taken to control category B items, while a
routine type of care may be applied to control C category (or residuary) items.
Basis of Movement of Stores
Based on the movement of stores (i.e., rate of consumption), stores items may
be divided into:
 Fast Moving Stock: Fast moving stock is exhausted rapidly due to high
demand from production departments.
 Slow Moving Stock: This category consists of stores or materials that
are consumed or exhausted slowly due to limited demand from the
production departments.
 Dormant Stock: This category consists of items that are not in demand
at present and may regain demand in the future. This category includes
seasonal materials, which are only required during specific seasons.
Advantages of Classification of Materials
Classifying the items that a business holds in its stores leads to many
advantages. These include:
1. Helpful in Grouping of Stores Items: Classification helps to group different
items in the store. Items that fall under a particular category can be stored in
one location, ensuring optimal use of storage space.
2. Easy Location: Proper classification of stores items helps in the easy
identification of the various items. Storekeepers can easily find materials
whenever they are required in the production departments.
3. Proper Accounting: Record-keeping processes are easier when items are
properly classified. Furthermore, simplified record-keeping ensures accuracy
in posting receipts and issues in the stores records.
4. Proper Care: By classifying items based on value, storekeepers can
ascertain their relative importance. Accordingly, a suitable degree of
supervision and control can be exercised that is proportional to the value of
each item.
5. Avoidance of Duplication: Proper classification helps to avoid the
possibility of duplicate stock items and materials.
6. Standardization: Classification helps to standardize various items in the
stores. Standardization involves variety reduction using fixed sizes and types,
leading to uniform standards for similar items.
Codification of Materials
After classifying and grouping the various items in an organization's stores, it
is useful to codify them.
Codification is the process of assigning a number or symbol to each store item,
along with a name, in order to make it easy and convenient to identify.
The codification of store items thus leads to time-saving and labor efficiencies.
Different kinds of store codes are used today. Most have been specially
designed to suit the requirements of a particular organization.
These codes may be based on the nature of stock items, the purpose for which
the items are used, or on any other basis that is viewed as suitable according
to the local circumstances.
Also, the accurate identification of the materials may require a lengthy
description. This can be complicated and, hence, may add to the confusion.
Codification is necessary because it involves the assignment of logical and
systematic numbers or alphabets (or both) to help in the simple but accurate
identification of the materials.
Advantages of Codification
The main advantages of codification include:
 Avoidance of long and unwieldy descriptions
 Accurate and logical identification of items
 Avoidance of duplication
 Standardization of purchasing and storage
 Reduction of variety
 Effective planning and high-quality production
The use of codification also leads to efficiencies in the following areas:
 Purchasing
 Recording
 Accounting
 Computerizing pricing
 Costing
  Indexing
 Inspection
Systems of Codification
In materials departments, four main systems of codification are commonly
used. An overview of each system is given below.
Alphabetical System
In the alphabetical codification system, alphabetical codes rather than
numerical codes are applied to items.
Each item in the storehouse is first classified and grouped based on its nature,
use, and other factors. In turn, the items are analyzed to create a unique and
descriptive alphabetical identifier.
For example, under an alphabetical codification system, iron ore may be
assigned the code IN-O, whereas iron bars may be assigned the code IN-BA.
Numerical System
In a numerical system, the codes assigned to materials are numerical.
Numbers are allotted as codes, which is useful for future expansion. For
example, iron ore may receive the code of 05—10 and iron bars may have 11—
67.
Decimal System
Codes in a decimal system consist of numbers, but instead of dashes in
between two numbers, decimals (i.e., periods or full stops) are placed.
This makes the codes more flexible and makes future expansion a
straightforward affair. For example, iron may be assigned the code 11.67.02
and iron bars may have 11.67.03.
Combined Alphabetical and Numerical System
Hybrid systems exist that combine all three of the above. Codes in a hybrid
system may look like IN--05.10 (e.g., for iron ore) and IN-11.6 (e.g., for iron
bars), and so on.
Bins and Racks
Bins
A bin is a compartment or a separate portion of a cabinet or pigeonhole used to
store a specific material.
A bin card is used to show, at a glance, the quality and quantity of the
materials stored inside. It functions as a materials movement record and as a
replenishment index.
A bin card is a brief version of the stock ledger pertaining to an item. It serves
the purpose of a ready-reckoner for the binned item. As such, it is a kind of
mirror for the bin.
A specimen of a bin card is shown below.

Group 3
NEGOTIATION
 Negotiation is a skill that everyone develops from an extremely young age,
and everyone is a skilled negotiator by the time they can talk. On a
business level, negotiation is often a highly complex and sophisticated
process. Unfortunately, many people get stuck in a particular way of
thinking about how to negotiate, limiting their efficiency and capabilities.
Negotiation is a key business skill that needs to be developed through
training and practice.

What Is Negotiation?

Negotiation is, at its simplest, a discussion intended to produce an

agreement. It is the process of bargaining between two or more interests.

The primary goal of negotiation should be to achieve a mutually

acceptable deal, which accomplishes the objectives of the negotiation,

without making the other party walk away or damaging a valuable

relationship. This often requires substantial preparation, informed

negotiation, compromise, and flexibility, depending on the situation.

OBJECTIVES OF NEGOTIATION

No matter which type of negotiation you undertake, establishing your

objectives in advance will help bring about a favorable outcome. The goal of
negotiating is to achieve a result that, even if it falls a little short of your
original objective, is a satisfactory outcome. Compromise is an essential
component of successfully negotiating so that everyone feels that they gained
something in the process.

Negotiations need 3 Objectives

In our many walks of life we will prepare just one objective. For a negotiation
you should prepare three.

 Top-line objective – is the best case scenario or outcome that you could wish
for. Better than what you expect, but still within reason.
 Target objective – is a more realistic expectation than the top-line objective.
This is the outcome you intend to achieve.
 Bottom-line objective – is the lowest acceptable outcome for you to still be
successful. If the negotiation offers anything less you will walk away.

Negotiations in our global world are becoming more and more complex. It is
unlikely that your counterpart has the same position and interests as you so
you need to operate with greater flexibility and ingenuity. Preparing these three
objectives will help, and after you have considered: position, interests,
alternatives, BATNA, anchor, options and criteria you will have a great
framework to work on making the negotiation pie bigger for both parties.
What are the two types of negotiation objectives?

There are two opposite types or schools of negotiation: integrative and

distributive. This article introduces the important differences between each
negotiating type and gives advice on which one may be right for your
negotiation.

Negotiation Overview

Mind Tools
https://www.mindtools.com › ... › Negotiation

TECHNIQUES OF NEGOTIATION

These underused negotiation techniques can help professional negotiators

increase their bargaining power.

You’ve mastered the basics of good negotiation

techniques: you prepare thoroughly, take time to
build rapport, make the first offer when you have a
strong sense of the bargaining range, and search
for wise tradeoffs across issues to create value.
Now, it’s time to absorb five lesser-known but
similarly effective negotiation topics and
techniques that can benefit all professional negotiators:
1. Reframe anxiety as excitement.
The preparation stage of negotiation often comes with unpleasant side effects,
such as sweaty palms, a racing heart, and seemingly overwhelming anxiety. It’s
common even for professional negotiators to feel nervous, but this state of
mind can lead us to make costly decisions, according to Harvard Business
School professor Alison Wood Brooks. We tend to believe the best negotiation
techniques to deal with our anxiety is to calm down, but that can be easier said
than done. Try reframing the state of high physiological arousal associated with
anxiety as excitement, recommends Brooks.
2. Anchor the discussion with a draft agreement.
Due to a widespread decision-making heuristic known as the anchoring bias,
first documented by psychologists Amos Tversky and Daniel Kahneman, the
person who makes the first offer in a negotiation is likely to sway the
discussion in her favor. First offers tend to serve as powerful anchors, even for
experienced professional negotiators. To make an even bigger impact, you
might try opening substantive negotiations with a draft agreement, or
standard-form contract, prepared with your legal counsel and any relevant
decision makers from your team. Though such drafts aren’t always
appropriate, they can increase your influence over the negotiation, according to
Tufts University professor Jeswald Salacuse.
3. Draw on the power of silence.
In negotiation, as in any discussion, we tend to rush in to fill any
uncomfortable silences that arise with persuasion techniques and counter-
arguments. That can be a mistake, according to Harvard Business School and
Harvard Law School professor Guhan Subramanian. After your counterpart
speaks, allowing a few moments of silence to settle can give you time to fully
absorb what he just said. “Silence give you the ability to dampen your instincts
for self-advocacy and amplify your instinct to listen,” according to
Subramanian.
4. Ask for advice. Professional negotiators often assume that asking the
other party for advice will convey weakness, inexperience, or both.
But in fact, in one recent study, participants rated partners who asked them
for advice to be more competent than partners who didn’t ask for advice,
Brooks, Wharton School professor Maurice Schweitzer, and Harvard Business
School professor Francesca Gino found. When we ask for advice, we flatter the
adviser and boost her self-confidence, the researchers discovered.
5. Put a fair offer to the test with final-offer arbitration.
When negotiating to end a dispute under the shadow of a lawsuit, you might
find yourself frustrated by a counterpart’s seeming inability to make or
entertain reasonable, good-faith offers. How can you come to a settlement
that’s fair to both sides in such an adversarial negotiation? One promising but
underused tool is final-offer arbitration (FOA), also known as baseball
arbitration, according to Harvard Business School professor Max H. Bazerman.
In FOA, each party submits its best and final offer to an arbitrator, who must
select either of the two offers and not any other value. Parties may not appeal
the arbitrator’s decision. When parties agree to use FOA, their offers typically
become reasonable, as they now have an incentive to impress the arbitrator
with their reasonableness. In Major League Baseball, where FOA is available,
uncertainty about what an arbitrator might decide usually motivates players
and teams to come to agreement in contract disputes. The next time you are in
a dispute with someone you believe is being unreasonable, consider suggesting
FOA, recommends Bazerman

5 Good Negotiation Techniques - PON

Program on Negotiation at Harvard Law School

https://www.pon.harvard.edu › negotiation-skills-daily

QUALITIES OF GOOD NEGOTIATOR

The ability to ask open-ended questions and actively listen to the answers is
critical in negotiation. But, often, negotiators are asking the wrong questions,
or they fail to ask questions for reasons such as: Not planning in advance.
Worrying about what the other party will think.

Negotiation comes from the root word

‘negotiat’ meaning ‘done in the course
of business’.
In other words, it’s a natural part of the
conversation process when dealing with
prospects, so if you feel you’re not good
at negotiating, or you don’t have the
assertiveness to get a good position for
yourself during a negotiation, then you
are certainly missing out on carrying out better deals and working well with the
prospect.
So, what are the top qualities needed today to negotiate to a great position for
yourself or your business?

1) Know what you want before you start

Too many salespeople go into negotiations with only a vague idea of what will
be a success.
If you have the aim simply to sell at any price, or an unclear demarcation for
how high or low you will go, then the other party will recognise this and be
given the power in any discussions.

2) Set limits to what you will negotiate on

Linked to the first quality, you need to be aware of what limitations you will set
yourself.
Think of three positions for the negotiation:

1. What you would LIKE to get (your opening offer or base price)
2. What your INTEND to get (your mid-point position)
3. What you MUST not go beyond (the point where you will stop or walk
away)

Setting these limits means you won’t be tempted to do business at any price.

3) Do your research on what the other party might be wanting from the
negotiations
Researching their positions before starting may well make it clearer to you
where you stand.
It also stops you considering a position that is way out of kilter from what
position they may want to achieve.

4) Have patience
Rushing into any negotiation shows you might be desperate for business and
may offer the other party a sense of power.
Patience will help you analyse the situation as a whole and not make snap
decisions you might regret later.
5) Listen intently to the other side’s arguments
You want to be clear on what they want and why they want it.
Listen ‘between the lines’ as well, meaning that you have to ask relevant
questions that will uncover some of the reasons they are taking the stance they
have proposed.
Remember to establish ‘why’ they are taking their position.
6) Concentrate of interests rather than positions
If you simply negotiate on positions, you run the risk of focusing on only the
monetary value or the time pressures or items that force your hand.
By finding out the key interests of the other party, you might be able to
establish reasons why a particular position could serve those interests better.
People are more likely to put higher value on achieving their interests than on
just gaining a particular position, so focus on the ‘why’ of a person’s point
rather than just on the ‘what’.
7) Trade, don’t concede
This is a key quality of top negotiators and one that sets you apart from the
average negotiator.
They see every movement as something that needs to be traded, rather than
given away.
8) Look for a collaborative position, not a compromise
If you wanted £10,000 for your car and someone offered you £9,000, the
compromise position would be £9,500.
This is the 50/50 split, meeting the other half-way.
Top negotiators realise this isn’t a negotiation at all, and both parties only get
part of what they wanted.
You need to find out what the other party values more in the final solution they
are requiring, so you need to collaborate and see if there is something that
would get you closer to your position, while assisting the other party to achieve
something of value to them as well.
In the above example of the car sale, you could get the buyer to come closer to
your original asking price by offering something of value to them that would
outweigh the actual amount of money involved.
For example, offering to pay for extended warranty or their first year’s
insurance may help you get closer to your asking price and allow you to pay for
the extras over a period of time, hence bringing you your required figure up
front, and settling the extras in your own time.
If the customer asks for a higher discount, this should be traded for quicker
payment terms, or more volume, or promises of further orders to offset the
decreased margins you will be achieving.
9) Don’t give in too easily
If the other party asks for a move in position and you give in straight away, you
show a weakness in your policy and that could be seized upon by the other
party.
Use the ‘broken record’ technique, where you state your final position and stick
to it religiously, with continual repetition of that fact, showing you won’t move
unless there are movements in the other’s position as well (i.e. trading, not
conceding).
10) Show the end benefits of the negotiated position
By confirming what benefits you and the other party will have gained by
agreeing the final negotiated position, you are able to secure confidence in what
you have achieved and are less likely to face further Negotiating Tactics or
ploys as you reach agreement.
This ‘forward-focusing’ position helps both of you feel happy you have achieved
an outcome that is conducive to you both achieving a goal you feel benefits
each party; you have the margin or interest you want, and the customer has
the solution that they will benefit from too.

10 Top Qualities Of A Good Negotiator

MTD Sales Training

https://www.mtdsalestraining.com › in-house-training

Distributive Negotiations – The Fixed Pie

The term distributive means a giving out or a scattering of value. By
the nature of the business, there is a limited amount of what’s being
distributed or divided. So, this type of negotiation is often referred to
as “The Fixed Pie.” There is only so much to go around, and the
proportion to be distributed is limited and variable.
How often has somebody shouted out, “Who wants the last piece of
pizza?” Everyone looks at each other, then two or more hands rush to
grab the last slice.
In the real world of negotiations, two teams enter discussions with the
goal of claiming as much value as possible. The seller wants to go after
the best price they can obtain. The buyer wants to pay the lowest price
to achieve the best bargain. It’s good old-fashioned haggling.
A distributive negotiation usually involves starting talks with no pre-
existing relationship. A long-term relationship is also unlikely to
develop. Everyday examples include buying or selling a car or a house.
The purchasing of products or services is a simple business example.
Here, distributive negotiation bargaining is often employed.
Let’s say we’re dealing with someone unknown to us, and it’s a one-
time-only occurrence. Except for the deal itself, there is no real benefit
in investing in the relationship. So, we are generally less concerned
with how the other person perceives us. We are also less concerned
about how the other person might view our reputation. Our interests
and the other side’s interests are usually self-serving.
Distributive Bargaining Basics

 Play your cards close to your chest – Give little or no

information to the other side. The less the other negotiator
knows about our interests, the better our position. This can
include why we want to make the purchase, our preferences, or
the point at which we’d decline the deal. Expressing eagerness
or need reveals a weakness that could be exploited.

 The opposite is equally true – Try to obtain as much

information from the other side as you can. Any further
 information uncovered is potential leverage to negotiate a better
deal.

 Let the other side know you have options – The only
information we should reveal is the fact we have options. This
includes other sellers we can purchase from at a competitive
price. Reminding the seller of their competition shows our
willingness to walk if necessary. It also lets the seller know there
will be no negative consequences for us.

 Make the first offer – Whatever the first offer is will

generally act as a negotiation anchor. The anchor becomes the
point on which the rest of the negotiation will likely revolve. Try
to make the first offer to ensure discussions set off in your favor.

 Be realistic – Being too greedy or too stingy will likely result

in no agreement. So, keep expectations realistic.

Integrative Negotiations – Everyone Wins

Something (Usually)
Integrative negotiations need a more developed type of business
negotiation skills. For this reason, we typically start our negotiation
skills training with simple distributive bargaining role-plays. We then
build up to more complex team-based integrative negotiation role-
plays.
The word integrative means to join several parts into a whole.
Integration implies cooperation, or a joining of forces, to achieve
something together. It usually involves a higher degree of trust and a
forming of a relationship. Both teams want to walk away feeling
they’ve achieved something that has value. Ideally, this means each
team achieving what they want.
In the real world of business, the results often tilt in favor of one
side over the other. This is because it’s unlikely that both sides will
come to the table at equal strength when talks begin.
Nonetheless, there are many advantages when both teams take a
cooperative approach. Skillful mutual problem-solving generally
involves some form of making value-for-value concessions. This is
usually in conjunction with creative problem-solving.
Generally, integrative negotiations are future-focused, with long-term
relationships in mind. The aim of our on-site negotiation training is
to create ongoing mutual gains. This mutually beneficial type of
negotiation outcome is often described as the win-win scenario.
Integrative Negotiation Basics

 Multiple Issues – Integrative negotiations usually involve

many issues that are up for discussion. Each side wants to get
something of value while trading something of lesser value. In
contrast, distributive negotiations generally revolve around the
price or a single issue.

 Sharing – To understand each other’s situation, both sides

should share as much information as possible. This helps each
side understand the other’s interests. You can’t solve a problem
without knowing the parameters. Cooperation is essential.

 Problem Solving – Find solutions to each other’s problems.

For example, offer something valuable to the other side that is of
lesser value to you. If you can make this trade while realizing
your goal, you have integrated your problems into a positive
solution.
  Bridge Building – More and more businesses are engaging
in long-term relationships. Relationships offer greater security
and the promise of future success.
v

Group2

Classification
When there are numerous items handled by an organization, their planning
and coordination becomes extremely. difficult, if not impossible, if each one of
them is handled separately. Classification of materials involves grouping of
items according to some criteria. We are quite familiar with classifying our
domestic articles into clothes, kitchenware, electric appliances, electronic
gadgets, furniture, professional articles, entertainment articles, groceries,
consumables, non-consumables etc. It is easy to see that an item may belong
to more than one class depending on the criteria used. For example, a radio set
is an electronic gadget as well as a non-consumable and entertainment article.
What is the purpose of classification? Following are the major objectives of
classification: • To devise procedures of planning and control for materials in a
class. • To devise purchase procedures, inspection methods, and storing and
issuing procedures, common to all materials in a class. • To devise accounting
and evaluation procedures common to all materials in a class. Obviously; the
concentration of effort according to class system would be more efficient and
effective as compared to diluted effort corresponding to each individual item.
Following are the major classification systems.
On the Basis of Nature of Materials:
Raw Materials: Raw materials include all those materials which are purchased
from the original producer or other manufacturers and are used directly in
producing. the firm’s product. For example, cotton and yarn are raw materials
for cotton textile mills for they help in producing the final product cloth. Cotton
is purchased from the original producer, i.e., cotton grower, whereas yarn is
procured from other manufacturers, i.e., spinners. The product in one trade
may become the raw material for the other trade.
Machinery and Equipment: All the machinery, both power and handdriven,
such as, presses, lathe machines, typewriters, electric motors, fans, and other
machines used in the production and other departments, is classified as such.
Tools also come under this category, and they are issued on loan basis to the
various departments for a definite period, generally till their life-time.
Consumable Items: Those materials used in the manufacturing process which
cannot be used for the second time for the same purpose since their utility for
the purpose in question has ceased and the shape changed are referred to as
consumable items. Coal, coke, mineral oil, lubricants, cotton waste, paints,
varnishes, oxygen, stationery items like pencil, paper, carbon papers, ink, etc.,
are a few examples of the consumable items.
Chemicals: Substances obtained after undergoing certain processes in
chemistry according to a formula devised for the purpose may be known as
chemicals. They should be stored, preserved and issued very cautiously 139 C
after a careful scrutiny and proper analysis since their use involves risk even to
life. Items like carbide, acids, etc., can be classified under the head.

Inflammable Items: Items highly susceptible to fire, such as petrol, kerosene,

films, dopes and paints, fall under the category. Due to their hazardous nature,
they are generally stored as far away as possible from the main building with
complete fire-fighting arrangements standing by.

Fuel Stock: These are also consumable items. But there is a slight difference
between the two in respect of their uses. When an item is directly used for
production and is a fuel for the furnace, oven, etc., it is classed as fuel stock. It
is a necessary item for completing, rather starting, the manufacturing process
and of course one of the important items in a manufacturing unit, but it can
never constitute the finished product. However, sometimes it may rightly be
taken as a raw material. Coal is a fuel stock but is also a raw material for an
iron and steel industry.

Furniture: Movable contents of a house or a room like chairs, tables,

almirahs, benches, stools, etc., are furniture items. Their repairs, renewals and
replacements also require proper maintenance of records since they are issued
temporarily on loan basis.
Scrap Materials: On the expiry of life of a particular item, the residue is called
the scrap. Such material as is left over as waste in the process of production is
also known as scrap. The scrap is sold out in the market so as to fetch some
value out of it. Kabadis are the best purchasers of scrap in this country.

Packaging Materials: These include all kinds of wrapping materials, such as

paper wood carvings, sawdust, straw, etc., containers like boxes, crates, drums
and bottles, protective coatings, such as, wax, grease, as also plastic cans,
bags, etc.
General Items: This category includes all those items which do not fall under
any of the above categories of items. In a large undertaking, general stores
section is separated from other stores under an independent in-charge since
they cover a large number of items. Although not directly linked with the
production processes, are required for day-to-day smooth and efficient running
of the enterprise. Cleaning materials like soap, brooms, uniforms for the staff,
stationery and all other items of general use are handled in the general stores
department. On the Basis of Usability of Materials a) Serviceable, Unserviceable
and Obsolete Items: Serviceable items are those items which go temporarily out
of order. After repairing and replacement they may become serviceable again
and their usable life may thus be extended for some more time. Unserviceable
items are those items which have outlived their life. No amount of repairs,
renewals or replacements can bring them back to their usable life. They are
thus fit only for disposal as scrap. Obsolete items are those items which have
gone out of date because of new inventions in design, use, etc., and which
cannot profitably be used again. b) Finished and Semi-finished Items: Finished
items are those goods which have been manufactured in complete form by the
production department and are ready for sale. On the other hand, semi-
finished items are those which have not yet been manufactured completely and
need some further processing before they can be put to sale in the market.
They are thus taken back by the production department for turning them into
a final product. c) Dead Stock Items: This term is generally used in government
departments. Furniture, equipment, machinery and other items which have
some definite life and which cannot be written off before the expiry of their life,
They are classed as dead stock items. They are issued temporarily on loan
basis to their users. d) Unused Items: These are not stock items in the real
sense of the term. These cannot be used in the production unit, because, being
defective, damaged beyond use, or because of some other reason they have
been rendered unusable. Sometimes unused stocks are mistaken for scrap and
unserviceable materials. But this is not the real position. Scraps are generally
left out items from the production unit. They cannot be used, as either they are
less in quantity or less in measurement, weight, etc. But unserviceable items
are movable items which have been rendered unserviceable by constant use
and are now beyond repair.

Codification
Usually in organisations an article which is required or stored is allocated a
nomenclature based on description. Problems arise when an article has been
allocated different names by different departments for example a chemical
maybe known by its commercial name, its formula or the chemical name itself.
A spare part may be known as per its use, or it may even be a crucial part in
another machinery. The product required may have been identified by its
commercial name, but the demand raised might be by its technical name.
Thus, now arises the need for codification of items. Codification helps in
bringing uniformity and reducing ambiguity in identifying and storing
products. It also helps in quickening the procurement of the product,
simplifying classification of products, reduces effort and time involved in
identifying items as well as mechanization of processes. In practice, codes are
usually allocated as per the metric system. Codes should be uniform as far as
possible with respect to metric system. They should be simple and unique.
Codes should also be compact and consistent and easy to modify as per use in
future. The key features of a code include:
a. Ease of identifying commodities
b. Name of the item
c. Specify and classify items
d. Indicate source of raw materials and their origin
e. Specify inter relationship between the items
f. Transaction details
g. Processing system
The main use of codification is to uniquely identify each item. It is helpful in
requisitioning, placing orders, receiving items from the supplier and controlling
inventory levels. Codification also helps in controlling losses, checking
deterioration and pilferage. With unique identification, controlling inventory
and adopting techniques of materials management is not The main use of
codification is to uniquely identify each item. It is helpful in requisitioning,
placing orders, receiving items from the supplier and controlling inventory
levels. Codification also helps in controlling losses, checking deterioration and
pilferage. With unique identification, controlling inventory and adopting
techniques of materials management is not

Types of Codification Systems

There are a number of types of coding systems which help in classifying the
materials into broad categories and then grouping them as per their type, size,
use and department in which they are required. Codification is a process of
indicating each product by a number. The digits of the number indicate group,
subgroup, type and its dimension. The simplest way of coding is based on their
use. For instance, Raw materials, components, spare parts, tools, fixtures.
Another way of grouping can be based on shape of items or their material. For
example, wires, tubes, rods, sheets, bars or steel, iron, PVC, Alloys,
Polypropylene etc. There are a number of types of codification systems such as:
Arbitrary systems: This type of a system is based on allocating serial numbers
to materials while stored and is also its code number. Through this approach
inventory items are identified through arbitrary numbers at times sequentially.
These numbers are discrete but do not have a systematic relationship wait
each other items. Two similar items or products going into similar finished
good may have numbers which are quite distinct and may have a large gap
between them. For example, if nuts have been given a new a code as 5432,
screws follow sequentially in storage which may be allocated the code as 5433,
nuts which may not have been procured immediately after screws, may not
have a code near these products despite having similar use or characteristics.
The main advantage of this system is that there is no limit to codes allocated to
items while the main disadvantage is that these codes may not indicate the
characteristics possessed by the items.
Mnemonic System: In this system, alphanumeric notations are adapted as
symbols in codes. In these codes each part has a significant meaning
associated with a characteristic or use of the item. For example, a product like
screws purchased for the assembling department of an organisation with cross
heads maybe represented as P Sc ACH 201. This system is used in cases where
there are less number of items. This makes identification much easier as it is
descriptive in nature. A disadvantage of this system maybe inability to identify
large number of items as symbols are limited.
Brisch System: In this system, an item is identified with seven digits and at
three different stages. The items are first grouped as per their characteristic an
then seven digits are accorded to it. This system is based on logical grouping of
products. This logic is primarily based on the source of supply. For example, all
materials required are first classified based on their characteristic like
hardware, spare, component and then allotted a code number
Characteristics of Codification
We have now seen how codification is important and how it can be carried out
depending upon the items in question and their requirement for the company.
Codification primarily helps in easily locating items through logical processing.
Characteristics of a good coding system are:

• Concise: The code should be short and precise to the description. It should
have minimum digits and the selection of features represented in the code
should be precise. For instance, 10.70.32.20 is the code for ball point pens. In
which the first two digits indicate the Box No., next two digits indicate the ink
colour, then next two digits indicate the material of the pen and the last two
digits indicate the price of pen. In this code, the last two digits can be deleted
as it will be the same for all pens in the consignment. • Logic: The code should
be logical. For example, in the above stated example of ball point pens, the
price range should be mentioned only if it is changing.
• Flexible: the code designed should be flexible like codes given to books in a
library. New additions do not affect the codes of old books. Similarly, in coding
addition of new items should not affect the present coding structure.
• Unique: Each code should identify a unique product. There should be no
duplication amongst codes. Every item should have a simple and meaningful
code.
• Symbols: Precautions must be taken while choosing symbols or alphabets or
numbers for coding. Similarity across alphabets, numbers or symbols should
be kept in mind while selecting symbols. For example, O maybe confused with
0, Z with 2, I with 1, S with 5 and V and U. similarly, letters with similar
phonetic sounds must be avoided like C, B, P, V, D, M, N, T.
• Capacity: Before selecting a coding system, the capacity to code items should
be assessed. For instance, a 4 digit code will have 10,000 unique
combinations. Thus considering the number of items required, the coding
structure should be selected.
The main advantages of codification are:
a. Identification: As each item is allocated a logical code, identification of
items becomes easier and accurate. These codes are available for each item
depending upon their characteristics like quality, size, specifications, usability
and requirement.
b. Duplication: Codification helps in preventing duplication and arranging the
items in a logical way.
c. Standardization: This helps in reduction of varieties and groups identical
items together. Codification also reduces the cost of inventory and brings about
standardization in purchasing and storing items.
d. Purchasing: Codification helps in simplifying negotiation with suppliers as
use of codes eases documentation preparation like invoices, purchase orders,
requisitions etc. It helps in reducing time and bringing clarity in transactions.
e. Recording and Accounting: Eases stocking process, helps in efficient
recording and reduces discrepancies in accounting.
f. Location and Inspection: Codification helps in locating items easily and
also inspecting them as and when required.
g. Automation: Codification helps in automation of inventory processes and
thus bringing in efficiency in cost and time.

References
https://www.netsuite.com/portal/resource/articles/inventory-management/
inventory.shtml
https://www.deskera.com/blog/material-management/
https://www.financestrategists.com/accounting/cost-accounting/material-
costing/classification-and-codification-of-materials/
codification
https://egyankosh.ac.in/bitstream/123456789/90803/3/Unit-9.pdf