Materials

Management

INTRODUCTION
Putting in the simplest terms materials management is about moving the
materials within an organization. What do “materials” mean? Materials can
basically be defined as those objects or things that are to be moved in order
to produce goods. Material is one of the 5M’s that a manager has at his
command, the other being Men, Machine, Methods and Money. Materials
could be in the form of raw materials, paperwork, messages or information
etc. So materials can be both tangible and intangible. You see the newspaper
boy delivering the newspaper to your doorstep everyday or the milkman
delivering the milk packets to you. These are tangible materials. There is also
some material moved when you watch a movie on your television or when
you receive a phone call. These are the intangible materials that are moved.
So materials management is an important function of every business. The
better is the materials management in a company the better is the health of
that company.

MATERIALS MANAGEMENT AND ITS FUNCTIONS

Materials can be put in three categories. First category is purchased
materials like the raw materials, components, spare parts and items that are
used and do not appear in the end product. The second category is of in-
process materials or the materials in the semi-finished stages and lastly the
finished goods that are ready for customers. One has to manage these
materials. The aim of this management is to obtain the materials at the
minimum possible price while maintaining quality also and to maintain the
inventories in such a way that minimum cost is incurred while maintaining
adequate materials for the production process.

Let us see what materials management actually means. It is defined as a

function that integrates purchasing, storage, inventory control, materials
handling and standardization etc in an organization to achieve its objective of
reducing the costs. Every organization wishes to maximize its profit by
maximizing its production and minimizing the cost of production. The average
material cost in a manufacturing setup is around 50-70% of the total
expenditure, which further goes up if one takes into account the inventory
costs, storage, waste and other factors etc. It is therefore imperative for an
organization to have a sound materials management with an objective to
reduce material costs, control inventories, ensure uniform flow of materials
and maintain good relations with suppliers. Materials
Management has to do activities related to planning, accusation and
utilization of materials.
Materials Management as a subject started picking up form early sixties and
has gained importance thereafter. Since the amount of money incurred on
materials is higher than the cumulative amount for machines, men and
methods, one has to give high importance to the materials. It is the most
feasible area that can offer opportunities for reduction of costs and
improvement of profits. Materials add value to the product, as the product
quality is directly dependent on the materials used. Materials Management
thus can be seen as a system that assures the availability of products to the
customers at minimum cost. In a nutshell, we can say that materials
management is about making available the right materials in right quantity at
a right price on the right time.
The functions of the materials management are materials planning and
control, purchasing, inventory control, store keeping, material handling,
warehousing, standardization & simplification and organization & appraisal of
materials. This course has been designed in such a manner so that you get a
feel of these functions in the subsequent blocks. Let us discuss them briefly.

1) Materials planning and control: Material requirement lies at the core of

successful material management. This function is at the core of all the
material requirements in any manufacturing process.
2) Purchasing: This function identifies the sources of supply, does market
research, call tenders and select suppliers, negotiate with them and thus
make available the raw materials.
3) Inventory control: This function is responsible for the location and
storage of materials so that they remain available at the minimum cost and
quickest time.
4) Store keeping: This function is responsible for the receipt and issue of
the materials. The materials are stored in such a way that minimum handling
is required and wastage is minimal.
5) Material handling: This function aims at minimizing handling and
provision of equipments for handling materials. This function is crucial for
minimizing space requirements, effective distribution and for providing better
working space.
6) Warehousing: This function is responsible for the storage facilities for the
materials, weighing facilities, materials handling equipments, material
distribution facilities, fire fighting instruments etc.
7) Standardization and simplification: This function selects items of great
demand and sets the standards for quality, raw material, sizes and
performance of any product.
8) Organization & appraisal of materials: This function helps in effective
functioning by proving smooth flow. It provides coordination and avoids
delays and wastages
Management of materials embodies various costs. Since the ultimate aim of
materials management is to reduce the costs of materials and hence the final
product, it is worth seeing what these costs are. Let us take a glimpse of
what these costs are:
Source: Shah N.M. (1996), An Integrated Concept of Materials Management
An integrated materials management system helps in taking judicious
decisions that in turn leads to lower cost for materials. Similarly if an
organization has low inventory carrying costs, less stock outs etc., it is bound
to do well.

MATERIALS LOGISTICS MANAGEMENT (MLM)

Materials logistics management program (MLM) started in eighties for an
American university management students to meet the industry
requirements. Bower sox et al. (1984) presented an overview of this
philosophy.
Figure 1.1 shows the value-added activities included in MLM. There are two
flows that are depicted here. One is a requirements information flow from
customers to suppliers and other is a value-added materials flow from the
suppliers to the customers. The whole process is directed by an integrated
database. MLM covers three essential areas required for moving materials i.e.
purchasing, manufacturing and physical distribution and asserts an
integrated logic to ensure smooth flow of materials. As can be seen in the
figure the MLM seeks the achievement of objective like controlled customer
service performance, inventory reduction, minimum variance in planned
operations, minimum total cost of operations and procurement and product
quality control.
 Materials Flow Systems
Figure 1.1: Materials Logistics Management Process
Source: Bowersox et al. (1984)
Bowersox et al. (1984) further described the three interfaces that MLM
covers.
These are the physical distribution interface, the manufacturing interface and
the purchasing interface. Let us see how these interfaces contribute to the
MLM productivity. The Table 1.3 summarizes this.

Source: Based on Bowersox et al. (1984)

There are some perceptions attached with each interface.

From the point of view of the physical distribution interface,
· Demand management coordinates and modifies how customers order
products in an effort to reduce uncertainty and simplify transactions,
· Scheduled distribution aims to fulfill customer order in a short span of time
and
· Postponement carries a planned delay of an activity as long as possible
until a profitable preposition is achieved.
From the point of view of the manufacturing interface,
· Master schedule management resolves the conflicts between
manufacturing and marketing as it is the point where overall requirements
determined by forecasts, customers orders, back orders and physical
distribution are collated.
· Just in time (JIT) scheduling or Kanban means bringing inventories to zero
level. To reduce the inventory, methods like reducing lot sizes, load leveling,
quality control and preventive maintenance can be used.
· Flexibility should be achieved by using “pull” systems, computer-based
planning and control systems. Achieving flexibility is important to
manufacturing as it will reduce manufacturing activities unless or otherwise
specifically asked for.
From the point of view of the purchasing interface,
· Supply management identifies the manufacturing trends and initiates
effective purchasing for long-term competitive advantage.
· Schedule requirements expedite purchasing. They must be specified so
that suppliers provide exact lead-time information and purchasers provide
exact requirement information to the supply network. This can be achieved
by employing a suitable integrated data-processing system.
· Responsiveness of the supply network identifies frequent changes in
customer requirements and product life cycles.
Bowersox et al. (1984) concluded with the following remarks, “increased uses
of computer- based information systems will be required to achieve co-
ordination and improved performance towards simultaneous attainment of
target objective”.

INTERFACES OF MATERIALS MANAGEMENT

According to Dutta (1998), “When we say that materials management
contains an integrated process of materials flow, in, through and out of an
organization, we give some indication that materials management has
interfaces of two kinds, internal and external”.
Table 1.4: Various Interfaces of Materials Management
Materials management actually does not start with purchase of materials and
end with production of materials. The total material management concept
forces it to do much more. Dutta (1998) further stresses the materials
management functions as follows:

1) Materials forecasting, budgeting, planning and programming

2) Scheduling, purchasing and procurement
3) Receiving and receiving inspection as to quantity and quality
4) Inventory control, storage and warehousing
5) Materials handling, movement control and traffic etc.
6) Dispatch, shipping and disposal
In addition to this materials management also needs to put attention to
coordinate all the above activities and keep liaison between manufacturing,
finance and marketing

OBJECTIVES AND ADVANTAGES OF MATERIALS

MANAGEMENT IN AN ORGANIZATION
Materials Management has several core objectives and many secondary
objectives. The core objectives of material management are:
· Proper, cost effective material procurement.
· Proper storage of materials so as to minimize wastages and material hold
ups.
· Making available the material TIMELY.
A good material management system will keep up to data records of all the
information generated in it, preferably using a computer-based system.
In addition to these primary objectives a materials management system
indirectly fulfills many secondary objectives also. These secondary objectives
are normally related to the functions of a material management system.
Some of these secondary objectives are:
· Identifying new or better sources of supply
· Development and sustenance of relationships with the vendors
· Creating a standardized quality of the products
· Performing the value analysis of inventory. This can be related to the cost
of materials.
· Creating a smooth flow of materials and information among the various
sections of materials management system.

The material management system works under the broad basic objectives of
an organization that is “maximum profit with sustained growth and research,
satisfied customers and staff of the organization”. The material management
supports this objective by providing support through:
· Continuity of supply by maintaining a uniform flow of materials,
· Reducing the costs of materials purchased and handling by using scientific
techniques and electronic tools. The use of scientific tools and techniques for
materials and information management,
· Minimizing holdups of working capital and performing effective inventory
control,
· Releasing working capital by ensuring effective control over inventories,
· Providing high quality at the lowest price, and
· Development of better relationships with customers and suppliers.

Why Integrated Materials Management?

Some of the key functions that are undertaken during the process of material
management are:
· Materials Planning
· Materials purchasing
· Receiving of Materials
· Stores
· Inventory Control
· Scrap and Surplus disposal
A material management system integrates all these functions as a single
function.
But what is the need of such integration?
If we do not integrate the functions as above then they can operate of their
own and integration can produce suboptimal results. This is analogous to a
situation when you want to make a computer hardware, you buy all the sub-
systems that are cost optimized in there own way, for example the mother
board may support fastest CPU, RAM may have maximum capacity in the
same cost etc., but when you assemble your PC you find that all these
components are not compatible to each other. Similarly, one expects similar
strains among the functions of the material management system, for
example, although high procurement may reduce cost but is it really
justifiable keeping the inventory control function requirements in
considerations. Thus, various functions have conflicting optimizing
requirements.

A material management system has to bring solution within these conflicting

requirements.
However, since the material management system is not controlled by a single
subsystem, enforcing such requirements may create a problem. Therefore, in
an integrated set up, a materials manager can be made responsible for inter-
related function control. S/he may be allowed to control and coordinate with a
view that ensures proper balance of the conflicting objectives of the
individual functions.

Advantages of Materials Management

Material management has created a niche in many organizations, which have
implemented the integrated materials management. These organizations
usually enjoy the following advantages:
· Better accountability on part of materials as well as other departments as
no one can shift blame to others.
· As materials management is handled by single authority, it can result in
better coordination, as it becomes the central point for any material related
problems.
· Materials management department makes sure that better quality
material is supplied timely to the requesting departments. This can result in
better performance of the organization.
· A materials management system is typically controlled through
information system, thus, can help in taking decisions related to material in
the organization.
· One indirect advantage of material management is that good quality
material develops the ethical and moral standard in an organization.
However, please note there is no study on this issue.
Scope of Materials Management

However, after discussing so much about the role of material management it

is worth mentioning the scope of the material management also.
Although the scope of a material management system is vast, yet we can
define the following functions as its scope functions.

Material Planning and Controlling: One of the key functions that identify
the scope of the materials management is the materials planning and control.
This function is based on the sales forecast and the production plans of an
organization. The activities of this function are:
· Estimation of materials requirements
· Preparation of materials budget of the organization
· Estimating the levels of inventories required in the organization
· Scheduling the orders placed with the vendors to ensure availability of
material
· Controlling by monitoring of production vis a vis sales.
Purchasing: The purchasing is another major function for the materials
management. This function contains the following activities:
· Identification and selection of possible Suppliers
· Finalizing the terms and references of purchases that are to be made.
· Placing the purchase orders this activity may be staggered as per the
inventory control function.
· Managing the purchase orders till delivery of materials
· Giving clearance to payment of received good; and
· Analyzing the performance of the suppliers and rating them.
Stores and Inventory Control: This function helps in physical control of
materials. It has the following list of activities:

· Minimization of material losses due to obsolescence and handling. This

activity controls the timely disposal and efficient handling of materials.
· Maintenance of stores records along with proper location and stocking of
materials.
· Physical verification of stocks and reconciling.
· Performing inventory setting and control. Some such activities include
performing ABC analysis, fixing economical ordering quantities, identification
of selling safety stock levels, performing lead-time analysis etc.

ROLES OF MATERIALS MANAGEMENT IN AN

ORGANIZATION

Materials Management is a system that tries to ensure the following for an

organization:
· Availability of products desired by customers. These products should be
prepared with best obtainable cost of manufacture.
· Quality and cost of manufacture should be most affordable for the
organization. Although quality and cost of production are the responsibilities
of the Production Manager, however, material management can support this
process by the timely delivery of quality material.
· Advice the sales pricing. Although pricing is a sales function, but Materials
Management with proper record keeping can be used for generating price
data for the various destinations. For example, the cost of the materials used
for a product can be determined through this system. Thus, material
management can helps in determining the cost of the product.
Let us revisit the materials flow process that you have seen in Unit 1. As
shown in Figure 2.1, a simple customer demand can trigger a series of flow of
material along with lot of information flow. Please notice that material
management will be required across the entire life cycle of the material flow.
Please also note that during the material flow a lot of information is
generated, which can be used strategically for various purposes as, explained
in the following paragraphs.

Source: Dutta A.K (1998), Materials Management: Procedures, Text and Cases
In order to further define the strategic role of the material management let us
relate it to the internal interfaces of material management in somewhat more
detail. It is to be noted that material management’s indirect benefits already
have related it to the external interface. A brief introduction to interfaces of
materials management as described in “Source: Dutta A.K (1998), Materials
Management:

Internal interfaces and role of Material management

Market forecasting: One of the key role-played by materials management

is to forecast the future demands. For example, if a university like IGNOU is
printing study material for its students, it needs to manage the raw materials
and well as the finished product that is the printed blocks. The first point here
would be to ascertain what would be the demand of study material for the
various Programs; this forecast can be made on the basis of material usage
patterns and increase in demand for the last few years, in addition expected
enrolments for programs that are new, this information can be predicted on
the basis of response to new programs of similar type/ area during last few
years. Thus, materials management has a great role to play for an
organization. But remember here, a forecast is always estimation.

Production: One of the key roles of material management system would be

to see that the process of production goes unhindered. For example, once
again the case of the university as above, printing would require availability
of printing paper and art card paper - required for covers. If any of the two
papers is out-of stocks the printing process cannot continue. In addition,
please note that the demands have been predicted thus the material
requirements can be calculated with this data. In production organizations
making predictions is even more difficult as the sales are to be predicted
without much of a basis.

Finance: The material management is strategically very much linked to cost

reduction. The cost may include the inventory cost and thus, have a major
impact on the material budget. For example, one must procure the paper for
the university, so that the paper requirement of printing in fulfilled in time,
however, this should not cause any unnecessary hold up of the finance. The
hold up time should be minimum. For example, if study materials are to be
sent to student in the month of May-June then procurement of paper may be
done in January-
February so that study material can be printed in March-April.

Inventory Control: One of the key strategic roles of material management

would be to minimize the inventory of an organization. This also results in
cost minimization. In general a production schedule is made in an
organization. This should be synchronized with the material procurement and
supply so that the production process is not hampered. For example, as
stated above the material should be procured in January-February such that
the printing process can proceed smoothly.

Inspection or quality control: This is a very interesting interface as the

quality of material for different types of an organization is impacted during
materials management cycles, though materials management is not directly
responsible for quality, yet it can cause indirect effects on the quality of
products. The products, whose quality deteriorates with time, are very likely
candidates in this category. For example, if we buy paper 3-4 months in
advance then proper storage conditions may need to be kept in store to
avoid any deterioration of quality of the paper. This is also the problem of
inventory control.

Material handling, traffic and physical distribution logistics: The role

here is to see that the material is handled and distributed easily. For
example, the paper stores of the university may be located outside the
campus and may be near the place where most of the printing presses are
located. Also since the university sends the study materials through post, a
unit of distribution may be located near some head post office.

Materials management system activities have impact on:

· Purchasing and procurement activities sometimes it determines the
details of past performance of vendors, quality, etc details which may help in
proper selection of vendors. If so needed the orders can even be distributed
over time.
· Receiving and inspection data is very important quality control activity
during this process, where information about the quality is registered.
· Production planning information/ sales information does impact the
process of material management.

Thus, Materials Management is a social technology, which demands

professional expertise of its own and have a direct impact on the cost
effectiveness of an organization. It can also be defined in terms of the
functions that are needed for the coordination of planning, sourcing, moving,
storing and controlling materials in an optimum manner so as to provide a
pre-decided service to the customer at a minimum cost. But which
department should be made responsible for coordinating the functions of
Materials Management?
In the recent past the Materials Management is not tied up to any group
within an organization rather it is largely system-oriented, which takes into
account functional dependence with a wide range of partial activities, where
utility of materials is enhanced as these pass through each of the stages of
the production process till the finished product. Thus, material management
may be found a very suitable component that needs to be controlled by a
centralized database or enterprise resource planning (ERP) packages.