Material cost is a main component in the total cost of the product (varying from 25 to 70%).
Therefore, in order to control the cost, it is necessary to pay maximum attention for controlling material cost in following way:
Way # 1. Control Over Abnormal Losses:
These are avoidable losses and are wastage which should be controlled. These losses arise due to mischief or inefficiency. These may occur due to theft, fire or damage, careless handling etc. However, there are some normal losses which are unavoidable e.g., loss of weight due to evaporation.
Way # 2. Material Handling Charges:
Material must be handled through economical means i.e., after examining various methods like using crane, manual labour or other devices. Bulky materials must be stored, transported and handled in a planned way so as to minimise handling charges.
Way # 3. Control Over Inventory:
Inventory must be kept in a scientific way and only in required quantities. For proper inventory control modern techniques must be adopted.
Way # 4. Control Over Indirect Material:
Indirect material is controlled by using past experiences and each type of indirect material decided by way of rational thinking e.g.,
(a) Past history of record should be kept for repairs and maintenance of machines which shall give quantity and frequency of lubricants, spares and repairs needed.
(b) For special jobs, bill of materials be prepared, which gives full details of parts required.
(c) Deciding the norms for consumption of fuels and lubricating oils etc., for the furnaces, cranes, trucks, dumpers and other machines.
Way # 5. Reclamation of Loss from Defective Products:
Defective products must be dismantled in the reclamation room, from where,
(i) good and serviceable parts should be sent for use again; while,
(ii) the parts which are defective but can be made serviceable with some extra efforts are sent to the workshop for correction; whereas, and
(iii) the parts which are completely spoiled are either used in the foundry or sold as scrap.
Way # 6. Control Over Consumption in the Workshop:
To check whether the consumption of material is justified or not, two methods are employed:
(i) To compare with that of past years record of consumption, and
(ii) To compare with that of standards set for the purpose.