Classification and Codification of Materials

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on June 22, 2021

Classification of Materials

Classification‘ refers to the systematic division, grouping or categorization of materials or store items with reference to some common characteristic. Classification of materials can be made on different bases namely nature, manufacturing process, value, purpose etc.
For identification of materials being purchased and stored it is necessary that they should be properly classified. The store incharge should make a close study of the materials during the process of storage for the purpose of their (i) safe custody, (ii) meticulous handling and storing, and (iii) protection from damages, fire, pilferage, spoilage, etc. He is responsible for the classification of the materials.
The broad classification according to the materials (i) nature, (ii) use, and (iii) service can be done in the following, classes:
(i) Raw Materials
(ii) Consumable Stores
(iii) Machinery and Plant
(iv) Equipment: Factory and office
(v) Inflammable Stores
(vi) Chemical
(vii) Furniture and Fixtures
(viii) Scrap Materials
(ix) Packaging Materials
(x) General Stores.

Basis of Classification of Materials

The important basis of classification of materials may be given as follows:

0n the Basis of Nature

On the basis of nature, materials may be divided into:
(i) Direct Materials: Direct materials are those items of material which can be identified with a product or a group of products in a manufacturing concern and can be easily measured and charged directly to the product. Such materials form the part of the finished product e.g., timber in furniture, cloth in garments, bricks, sand and cement in building, yarn in cloth etc.
(ii) Indirect Materials: These are the materials which cannot be traced to a specific product and cannot be charged directly to the various products. These materials do not form part of the product. Examples of indirect materials are—repair and maintenance stores, lubricating oils, cleaning materials, cotton rags etc.

On the Basis of Manufacturing Process

On the basis of the manufacturing process, stores are divided into:
(i) Pre-process Stock: These are the items of stores which are yet to be taken into the manufacturing process and are obtained prior to the commencement of the manufacturing process or production. These include raw materials, bought-out parts and assemblies, and stock in pipeline of materials in transit.
(ii) Intermediate Stock: Intermediate stock comprises the parts or assemblies which are manufactured within the factory for use in the final product.
(iii) Finished Goods or Finished Products: As the name indicates, finished goods are the items which have been duly manufactured in the factory and are ready for shipment or sale to the customers.

On the Basis of Value

On the basis of the value, the stores items may be divided into:
(i) Category ‘A’: Category ‘A’ consists of materials which constitute 5% to 10% of the total items in the stores and represent 70% to 85% of the total stores value.
(ii) Category ‘B’: This category consists of materials which constitute 10% to 20% of the total items in the stores and also represent 10% to 20% of the total stores value.
(iii) Category ‘C’: This category consists of cheap materials which constitute 70% to 85% of the total items in the stores and represent 5% to 10% of the total stores value.
Category ‘A’ items constitute costly items calling for greater degree of control for preserving 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.
On the Basis of Movement of Stores
On the basis of the movement or rate of consumption, stores items may be divided into:
(i) Fast Moving Stock: Fast moving stock indicates the items of materials which exhaust at a very fast speed on account of high demand from production departments of a manufacturing concern.
(ii) Slow Moving Stock: This category indicates the items of stores or materials which are consumed or exhausted at a very slow speed on account of low demand from the production departments of the manufacturing concern.
(iii) Dormant Stock: This category covers stores items which do not have any demand at present and may regain demand in future. This category includes seasonal materials which are required during specified seasons.

Advantages of Classification of Materials

The main advantages of classifying stores items may be given as follows:
1. Helpful in Grouping of Stores Items: Classification process helps in the grouping of the different items of materials in the store. Items falling under a particular category can be stored at one place which ensures optimum utilization of storage space.
2. Easy Location: Proper classification of stores items helps in the easy identification of the various items. The store-keeping staff can easily find out the materials whenever these are required in the production departments.
3. Proper Accounting: Record-keeping process of properly classified items of stores is simplified. Simplified record-keeping ensures accuracy in posting the receipts and issues in the stores records.
4. Proper Care: By classifying the various store items on the basis of value, their relative importance can be ascertained and suitable degree of supervision and control may be exercised over them with reference to such value.
5. Avoidance of Duplication: Proper classification of the store items helps in avoiding the possibility of duplication in stocking the same item of material.
6. Standardization: Classification helps in the standardization of various items in the stores. Standardization of store items involves the variety reduction through the use of fixed sizes and types. Standardization aims at having uniform standards for similar items.

Codification of Materials

After having classified or grouped the various items of stores, it is necessary and useful to codify them. Codification is the process of assigning a number or symbol to each store item in addition to its name for making its identification easy and convenient. Codification of store items leads to saving in time and labour on account of substitution of a symbol or number for a longer name.
There are different kinds of store codes in use and most of them are specially designed to suit the requirements of a particular organization. These codes may be based upon the nature of stock items, the purpose for which these items are used or on any other basis which is considered as suitable according to the local circumstances.
Also, accurate identification of the materials may require a lengthy description which may be complicated and hence may add to the confusion. Codification is necessary as it refers to as allotment of logical and systematic numbers or alphabets or both (as a mixture) so as to help in simple but accurate identification of the materials.

Advantages of Codification

The following are the main advantages of codification :
1. It avoids the long and unwieldy descriptions.
2. It tries to have accurate and logical identification.
3. It prevents duplication.
4. It standardizes the purchasing as well as storage.
5. It reduces the varieties.
6. It makes purchasing, recording, accounting, computerizing pricing, costing, location, indexing and inspection efficient and result-producing.
7. It assures planned and quality production.

Systems of Codification

The following four systems of codification are commonly used in a materials department:
1. Alphabetical system is one in which codes to materials are allotted in alphabets which have no relation to numbers. Each item of the storehouse is grouped according to nature, use etc. of the item and materials are then analyzed from the point of view of codification. Say, for example, Iron ore is given a code of IN-O and Iron Bars the IN-BA and so on.
2. Numerical system is one in which codes to materials are based on numbers. Numbers are allotted as codes to materials making provision for future expansion as well. Say, for example, Iron ore is given a code of 05—10 and Iron Bars the 11—67 and so on.
3. Decimal system is one in which codes to materials are again based on numbers but instead of dash in between two number decimals are put. This makes the codes more flexible and future expansion is very much possible. Say, for example, Iron ore is given a code of or Iron Bars the 11. 67.03 and so on.
4. Combined Alphabetical and numerical system. This combines all the three above. Say, for example, Iron ore is given the code of IN–05.10 and Iron Bars the IN-11.6 and so on.

Bins and Racks

Bin is a compartment or a separated portion of a particular almirah, pigeon-hole, cabinet, etc. utilized to store only one type of materials. A bin card is used for depicting the quality and quantity of the materials stored therein. It functions as a materials movement record and as replenishment index. It is a brief version of the stock ledger pertaining to an item. It serves the purpose of a ready-reckoner for the item binned therein. It, thus, serves as a mirror of the bin. The following is the specimen proforma of a bin card:
Classification and Codification of materials
Racks are used for keeping materials inside the store. This is just like an almirah either open or close. They are mostly used for keeping general store items. They are in common use. Racks are fixed or movable frames of either wood or metal bars. Racks for storing tubes, bars, sheets, plates, types, cables, drums, etc. The racks may also be specially designed.

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