WHAT IS MATERIALS MANAGEMENT

Materials Management

Introduction:

Industries are in quandary today. Production costs are going up progressively due to ever increasing labour cost and rising cost of materials and  overheads.  to remain competitive in the market,  every organisation most worked upon some of the verticals of the business. what then is to be done?

A manager has four resources at his command- Men, Machines, Money and Materials these are the four M's. These are the inputs of any business activity and the output is either goods or services.  expectations from every manager is to give the required output by putting in as low inputs as possible so that the organisation remains profitable. In other words, expectation is to  maximize the outputs from a given point from input. Of course, in this way,  there are various management tools or processes like organising, planning, leading, controlling, motivating, coordinating to be used.

Regarding the inputs, there is hardly any say in the control of expenditure on men. the cost will continue to rise and any idea of reducing this expenditure is just not entertained. even the  cost of Machines will continue to rise in the  inflationary conditions prevailing at present. Further, to remain competitive in the market the Machines need to be modernized scrapping the old machines and replacing them with the latest one. money is care and is just not available in these days of credit squeeze. The on can possible and the area where nowadays the focus is very high is the materials management.

 

What are materials?

Materials Management is concerned with materials required by organisations for the internal consumption or conversion to carry on with their manufacturing or service activities.two broad categories of materials are:

1. Purchased materials- like raw materials, components, spare parts, oil, grease, consumables, MRO, Machinery, Tools etc
2.  in process materials which are on the shop floor in a semi finished stage.
3.  finished goods which are the final manufactured products ready for sale.

 Definition and scope of materials management:

Scope of Materials Management

Materials management can be defined as the function responsible for the coordination of planning Sourcing purchasing moving storing controlling materials in an optimum manner so as to provide a pre-decided service to the customers at a minimum cost.

From the definition it is very clear that the scope of materials management is vast. it can be broadly  classified into the following function:

1. Materials planning and control- best of the sales forecast and production plants the materials planning and control is done this involves estimating the individual requirements of pass differing what is budget forecasting the levels of inventory scheduling the orders and monitoring the performance to production and sales.
2. Purchasing-  this includes selection of source of supply, finalization of terms of purchase, placement of purchase orders, follow-ups, maintenance of smooth relationship with suppliers, approval of payment to supplier, evaluation and rating of suppliers etc.
3. Stores and inventory control-  this involves physical control of materials prevention minimization of observations and damage to timely disposal and efficient handling maintenance of stores records proper location and stocking. the store is also responsible for the physical verification of stock and  reconciling them with books of accounts. The inventory control covers aspects such as setting inventory levels, ABC analysis, FMR categorization, fixing economic order quantity, setting safety stock level, Lead time analysis and reporting. This also includes an analysis of excess and obsolete inventory and keeping the stock in healthy condition. 

Importance of materials management_A profit Centre approach:-

Most of the industries materials account for 50% - 60% of the total expenditure.In below exhibit, industry wise  approximate expenditure of material is given:

 

Sl no	Industry	Avg Expenditure on Materials %
1	Electrode, Rubber goods, Cotton yarn, motors, sugar, jute, motor vehicles etc	60 to 75%
2	Textile, cable & wires, utensils	60 to 65%
3	Engineering goods, non-ferrous	55 to 60%
4	Ship building, cement, chemical, electricity	50 to 55%
5	Pharma	45 to 55%

Therefore, it is obvious that any significant savings on expenditure on material will directly affect the profitability also on the return on investment.  if sales remain constant and the profit also remains constant, the only way to improve return on investment is to reduce the assets. where the fixed assets cannot be reduced. so one has to fall back upon current assets, a large proportion of which are in the form of materials- the inventory holdings. therefore one must find a way to reduce inventory holdings to improve the return on investment.

In other words, we can say that every rupee saved on materials goes directly towards profit and materials management, therefore, is an area where there is a good potential of increasing profitability of organisations through cost reduction. Therefore this is a profit Centre which requires careful nursing.

What are costs? where do they lie?

Now the question arises what are the various costs involved in the management of materials? Below bullet points are the important aspects which one should keep in mind.

1. Basic cost of materials which is paid to the suppliers
2. Purchasing cost - which means the cost incurred in affecting purchase. This includes cost on staff, cost of tendering, stationary, postage, supplier visit, supplier development, receiving, inspection etc.
3. Inventory carrying cost- like costs incurred on storage including building and cost of staff, interest on capital Locked Up or interest on capital borrowed, obsolescence, deterioration, depreciation, cost of specialized storage for chemical and organic compounds ( like cost of AC special containers etc).
4. Packaging cost
5. Transportation cost
6. Material handling cost
7. Wastage during production- incorrect quality, scrap, inefficiency in production, design defects etc

The ultimate goal of the Materials management department is to reduce the above cost so that ultimate material cost is at the lowest .

Integrated systems approach to materials management:

The Advantages of integrated form of approach are obvious.if each other  awesome of the functions are allotted to other discipline,  some curious situation may arise and there will be a conflict of interest which, as a result, may create a hindrance to the company's ultimate goal. for example,  the production department may insist on holding large inventory and economical safety stock to ensure an interrupted production. the purchase department will most likely concern in buying cheap and may therefore, give under the weight and bulk requirement to avail quantity discounts without realising its impact on capital requirements warehousing need inventory carrying costs etc. in both situations sub optimisation of available resources is the net result and for the organisation the results are  disastrous. balance the various inter from an overall angle, all interrelated functions may be interested to one individual at the helm of materials management function. the results in Optimisation and ensures a predetermined service level.

• Materials management will take decisions keeping a right balance of various conflicting interests under different function
• With the centralization of authority clear-cut accountability is ensured. As a result everyone knows where to look for all problems on material.
• Coordination of various functions listed above is much better, various sections under the department develop and identity of purpose
• Decisions can be taken speedily and accurately.  judicious decisions can be taken leading to lower cost of materials, improve inventory turns, less stock-out situation and less lead time.
• All functions related to materials are centralized, it is for improving decision taking.
• Every individual in the department gets exposed to all aspects of material functions with the result that an improved materials management cadre develops. opportunities for their growth improve resulting in long-range benefit to the organisation.

For best results all functions related to materials management under one department. Now the question arises: what are the functions?

Functions of Materials Management

1. Materials planning-  assess the needs of users well in advance and convert the sales projections into production requirements.  making a closed realistic estimate of various items of materials required, their quantities and time when required.
2.  make or buy decision- which of the items are to be produced internal E and which are to be uploaded to outside sources based on relative economics.
3. Purchase of required materials to ensure their uninterrupted supply for production needs. This includes raw materials and consumables.
4. Receipt and inspection-  to control the receipt of the materials and coordination with quality department for faster inspection.
5. Storage-  providing right storage warehouses using proper methods of prevention providing proper security so that losses due to pilferage and iterations are minimized.
6. Materials distribution- arranging most expeditious supply to inventors
7. Transportation-  arranging most economical and expeditious transport for incoming and outgoing materials
8. Inventory control- maintaining economical level of investments in inventories so as to reduce needs of capital with proper service levels
9. Disposal of excess and obsolete inventory and Salvage of materials
10. Developing new sources of supply for purchase to remain competitive. keeping up close touch with the market in search of cheaper but effective substitute is one of the key function
11. Development of existing vendor
12. Import substitution- developing indigenous sources of supply for imported materials to save on Foreign Exchange
13. Materials cost control by using various cost reduction methods  such as value analysis,  ABC categorization and different selective inventory control techniques
14. Co-ordination with various departments to achieve ultimate goal, customer satisfaction