Materials Management


Materials Management

Materials are the physical items that are needed for producing goods and services. Materials can be raw materials, components, sub-assemblies, parts, tools, consumables, services, or any other type of item. Materials are one of the main inputs to a process, and typically account for a major portion of the  costs. The significance of materials to the efficient operation of organizations is increasing more than ever.

Shortages of raw materials, components, and products have been experienced on a global scale. With demand exceeding supply, the price of many materials has increased significantly. Every organization requires raw materials and other materials for its operation that must be acquired, stored, and handled, and there is always necessity for enough stocks of materials and equipment to be maintained for immediate consumption and for short and long term requirements. These stocks or inventory are cash in kind that need utmost care. Therefore the safe custody, up keep and maintenance, handling and proper supply of the materials are of great importance.

Materials management is simply the process by which an organization is supplied with the goods and services which it requires to achieve the objectives of buying, storage and movement of materials. It is concerned with the flow of materials from suppliers to the organizational stores and to the user in the production department. It is related to planning, procuring, storing and providing the appropriate materials of right quality, right quantity at right place in right time so as to coordinate and schedule the production activity in an integrative manner in the organization. It includes activities of purchase of various types of materials, manage and control of their storage, and flow and supply of these materials to various places. The materials planning, purchasing, inventory planning, storage, inventory control, materials supply, transportation and materials handling are the activities which are part of the materials management.

Almost all the organizations, regardless of their nature, have the requirement of proper and efficient management of materials. Furthermore, both real and contrived shortage of materials make materials management an important and difficult organizational function. The reason is that material, especially components and sub-assemblies, have specific uses and have low flexibility and they need more care in procurement, storage handling, and distribution.

 Definition

 Some commonly used definitions of materials management are given below.

”Materials management deals with controlling and regulating the flow of material in relation to changes in variables like demand, prices, availability, quality, delivery schedules etc.”

” Materials management is the planning, directing, controlling and coordinating those activities which are concerned with materials and inventory requirements, from the point of their inception to their introduction in to the manufacturing process. It begins with the determination of materials quality and quantity and ends with its issuance to production to meet customer’s demand as per schedule and at the lowest cost.”

“Materials management is concerned with planning, organizing and controlling the flow of materials from their initial purchase through internal operations to the service point through distribution.”

“Materials management is a scientific technique, concerned with planning, organizing  and control of flow of materials, from their initial purchase to destination.”

“Materials management can be defined as that function of business that is responsible for the coordination of planning, sourcing, purchasing, moving, storing and controlling materials in an optimum manner so as to provide service to its customer, at a pre-decided level at a minimum cost.”

Essentially, materials management is the process of uniting the activities involved in the acquisition and use of materials employed in the production of finished goods.

The different components of material management are as follows. (Fig 1)

  • Purchase and contract management
  • Supply chain and logistics management
  • Stores management
  • Inventory management
  • Supplier relationship management

Components of material management

Fig 1 Components of material management

Objectives and functions of materials management

Materials management is concerned with the flow of materials from suppliers to the organizational stores and to user in the production department . It is, thus, an activity that involves planning acquisition, storage, control and disposition of inputs like raw materials and in-process goods which go into the production process directly and also capital equipment tools and accessories, spare parts and other indirect materials which are required for everyday operations. It is designed to ensure supply of materials of the right quality, in the right quantity, at the right time, at the right price, and at the right place acquired from the right source in order to ensure economy, efficiency, and smooth operation of the organization.

The objectives and functions of materials management can be categorized in two ways namely (i) primary objectives, (ii) secondary objectives.

The primary objectives include (i) efficient materials planning, (ii) buying or purchasing, (iii) procuring and receiving, (iv) storing and inventory control, (v) supply and distribution of materials, (vi) quality assurance, (vii) good supplier and customer relationship, and (viii) improved departmental efficiency. There are several secondary objectives of materials management. Some of them are (i) efficient scheduling, (ii) active participation in make or buy decisions, (iii) stock keeping and regular  stock verifications, (iv) assistance in preparation of specifications and standardization of materials, (v) assistance in product design and development, (vi) forecasting demand and quantity of materials requirements, (vii) quality control of materials purchased, (viii) material handling, (ix) smooth flow of materials, (x) coordination with user departments, (xi) disposal of scrap and surplus materials, (xii) preservation of materials in the stores, (xiii) use of value analysis and value engineering, (xiv) developing skills of personnel working in the department of materials management.

The role of the materials management is strictly economical within the organization. It has to handle all activities related to materials appropriately. The materials management is to ensure lowest final cost, optimum quality, assurance of supply, and lowest administrative costs. With the buying materials at the lowest possible costs, organizational operating costs can be reduced and profits can be increased.

Planning of materials is a necessary function since inventory of materials involves a major percentage of the total investment in the organization. The profit earned depends on the utilization of these materials and reducing the inventory of the materials.

Purchasing and procurement are very important functions of materials management since a major portion of sales turnover is spent on the purchase of various materials. Hence the profit earned by the organization depends on the efficiency by which this particular function of purchasing and procuring the requisite materials at appropriate time is being done.

The very nature of the storage system is to act as a buffer between acquisition and various consuming departments. The function of stores is the receipt, physical upkeep and maintenance, and distribution of large sums of moneys in the form of stocks. The management of inputs and output flow requires a large volume of transaction and needs a comprehensive reporting, accounting, and verifying system. This function of material management must be managed and operated in a highly efficient way. Proper handling and storage of materials can reduce the total cost of materials.

Continuity of supply is of paramount importance in materials management. This foreshadows all other objectives, because idle time costs of men and machines push up overall costs of production and expediting supply means additional transport costs.

Lack of quality of materials presents cost plus problems during production. Quality of the materials is a very important aspect which is needed to be kept in mind while procuring, storing and distributing the materials. Materials management also ensures that parts and materials used in the supply chain meet minimum requirements by meeting quality assurance standards. Materials meeting the quality standards is one of the prime objectives of materials management, and normally other objectives are sacrificed for the cost of quality.

Although inventory function is more complex, more subtle, and the balances of costs and gains is much more difficult to find out, one of the objectives of materials management is to have the correct quantity and right quality of material on hand at the time required. Keeping the right balance of inventory is important because when inventory turnover is high, storage and carrying cost are low. Striking of a balance between stock-outs and built-in- inventory is the most important objective of the materials management.

Suppliers play an important role for the organization especially when the organization is very much dependent on the outside suppliers for the materials needed for production. Good relations with the suppliers is what is needed for the organization. Normally organizations which have good relations with suppliers are more successful in attracting customers than organizations which have bad relations with the suppliers. Also when the organization has good relations with its suppliers, it has the benefits of cost reductions, cooperative environment from the employees of the supplier, and willingness to help with materials ordered and orders pending. Bad relation with the suppliers  may results into possible late deliveries or delivery of wrong materials and litigation problems. This results into an impact in the total cost of the product, possibly increasing the total costs, and delay in the supply of materials for production and hence a significant effect on the production.

The discovery and improvements of materials frequently leads to new products development and lower costs on existing products. Materials management helps in the development of materials and components that can do better or equivalent jobs at a lower cost. Besides materials management can also help in price, demand and requirements forecasting. Materials management personnel have intimate knowledge of the market conditions through daily contacts with suppliers. Therefore by analyzing and interpreting data of past sales, seasonal variations in prices, availability and demand for materials, it helps to forecast the future trends and planning of the material requirement accordingly.

Benefits of materials management

An effective materials management in the  organization can bring following benefits to the organization.

  • Better control of materials
  • Reduction in the overall cost of the materials
  • Improvement in the handling of materials
  • Reduction in duplicated orders
  • Materials are available in stores when needed and in the quantities required
  • Improvements in the labour productivity
  • Improvements in overall plant availability for production
  • Improvement in the quality of the materials
  • Reduction in the inventory needed to be stored
  • Improved turnover of the materials
  • Improved economy in the purchase of the materials
  • Improved relationship with the suppliers
  • Better cash flow management
  • Improved teamwork and relationship with production departments

Integrated materials management concept

All the materials management related activities taken together is termed as integrated materials management. In an integrated set-up, the materials manager is responsible to exercise control and coordinates with an overview that ensures proper balance of conflicting objectives of the individual functions. Integration also helps in the rapid transfer of data, through effective and informal communication channels. This is crucial as the materials management function usually involves handling a vast amount of data. Therefore, integrating the various functions ensures that message channels are shortened and the various functions identify themselves to a common materials management department which, in turn, results in greater co-ordination and better control.

The  organization which has gone in a big way for the integrated materials management normally usually enjoy the following advantages.

  • Better accountability – Through centralization of authority and responsibility for all aspects of materials management function, a clear cut accountability is established. This helps in evaluating the performance of materials management in an objective manner.
  • Better coordination – Integration of the materials management functions creates an identity which is common. This results in better support and co-operation in the accomplishment of the materials function. The user departments also find that they have to approach this common identity for discussing and solving their materials problems. This creates an atmosphere of trust and generally better relations between the user departments and the materials management department.
  • Better performance – As all the interrelated functions are integrated organizationally, greater speed and accuracy results in improved communication. Need for materials is promptly brought to the notice by materials planning. Purchase department is fed with stock levels and order status by stores and inventory control departments. All this calls for judicious decisions leading to lower costs, better inventory in paper work.
  • Adaptability to EDP – The centralization of the materials function makes it possible to design data processing system. All information with regard to materials function is centralized under the integrated materials management function. This facilitates the collection and analysis of data, leading to better decisions. Advanced and efficient electronic data processing systems can be economically introduced under in integrated set-up.
  • Miscellaneous advantages – Under integrated materials management system, a team spirit is inculcated and this results in better morale and co-operation. The opportunities and exposure available for the individuals for growth and development are better in an integrated set-up.

Articles on related subjects are available under following links

http://ispatguru.com/purchase-management/

http://ispatguru.com/contract-and-contract-management/

http://ispatguru.com/inventory-management-and-control/

http://ispatguru.com/spares-parts-management/

http://ispatguru.com/supply-chain-management/