MODULE 4

Materials Management
Scope of Materials Management in Hospitality Industry
Materials management is defined as “the function responsible for the coordination of
planning, sourcing, purchasing, moving, storing and controlling materials in an optimum manner
so as to provide a pre-decided service to the customer at a minimum cost”.
From the above definition it is clear that the scope of materials management is vast. It
has been observed that materials cost in any manufacturing system is between 40 -50 percent of
total expenses in the process, Hence its importance becomes much more .
Scope of Materials Management:

Functions of Material Management

The functions of materials management can be categorized in the following ways:
1. Material Planning and Control
2. Purchasing
3. Stores Management
4. Inventory Control or Management
5. Standardization
6. Simplification
7. Value Analysis
8. Ergonomics
9. Just in time (JIT)
1. Materials planning and control:
Based on the sales forecast and production plans, the materials planning and control is done.
This involves estimating the individual requirements of parts, preparing materials budget,
forecasting the levels of inventories, scheduling the orders and monitoring the performance
in relation to production and sales.

2. Purchasing:
This includes selection of sources of supply finalization in terms of purchase, placement of
purchase orders, follow-up, maintenance of smooth relations with suppliers, approval of
payments to suppliers, evaluating and rating suppliers.

3. Stores management or management:

This involves physical control of materials, preservation of stores, minimization of
obsolescence and damage through timely disposal and efficient handling, maintenance of
stores records, proper location and stocking. A store is also responsible for the physical
verification of stocks and reconciling them with book figures. A store plays a vital role in the
operations of a company.

4. Inventory control or management:

Inventory generally refers to the materials in stock. It is also called the idle resource of an
enterprise. Inventories represent those items, which are either stocked for sale or they are in
the process of manufacturing or they are in the form of materials, which are yet to be
utilized.

PURCHASING AND INTEGRATED MATERIALS MANAGEMENT

Most business organizations, purchasing management involves people, processes and

technology. Hence, purchasing involves the sourcing, purchasing and delivery of goods and
services that a company needs either in its manufacturing and business management or for stock
that it resells at a profit.

The purchasing department is a very important, if not the most important, part of a
business as its good management directly impinges on the bottom line.

One of the fundamentals of purchasing is that goods are purchased at the best price and
terms in order to deliver the best profit for the company.

One of the methods that are used to ensure good purchasing management on day-to-day
purchases is the use of purchase orders and purchase requisitions.

There have been a number of purchasing trends over the last few years. One of the most
important are JIT (Just In Time) which was bought over from Japan in the 1990’s.
Purchasing Systems – Ways To Manage Purchasing Functions

Purchasing systems are ways for companies to efficiently purchase goods and services at
optimum terms and the best prices. Many companies use computerized purchasing systems and
even the smallest company can find a software program that will manage the more common
elements that are found in the more complex purchasing systems.

MOST BASIC PURCHASING SYSTEMS HAS THE FOLLOWING

FUNCTIONALITY:

 Automatic generation of purchase orders.

 Managing order requisitions.
 Managing received orders.
 Invoice management.
 Management of price variances – usually by report production of anomalies
 Keeping lists of suppliers.
 Payment of vendors invoices either by printing cheques or by inter-bank transfer
 Provision of financial reports that can be used to update the company’s general ledger.
 Forecasting future spending which helps with budgeting.
 Providing management information on spend to date, spend per product and spend
per supplier.

Purchasing & Material Management is responsible for controlling the cost of

goods ordered and controlling the inventory levels. It is part of Supply Chain
Management but it mainly covers the area of outsourcing and insourcing.
materials, from their initial purchase to destination. Purchasing process varies from company to company
It is most crucial area of entire organization as it manage the overflow of
and may include material production,

Purchase Procedure in an Organization

Material Purchase
Request

Enquires to Probable
Suppliers

Quotations from
Suppliers

Analysis of the Offers

(Comparative Statement )

Negotiations and
Selection of Vendor

Release of
Purchase Order

Order Acceptance
from Suppliers

VENDOR / SELECTION - RATING & EVALUATION

(SUPPLIER)
VENDOR :A vendor is a party in the supply chain that makes goods and services available to
companies or consumers. The term "vendor" typically is used to describe the entity that is paid for
goods that are provided, rather than the manufacturer of the goods itself. It is possible for a vendor,
however, to sometimes operate as both a supplier (or seller) of goods and a manufacturer.
 A vendor, also known as a supplier, is a person or a business entity
that sells something.
Large retail store chains such as Target, for example, generally have a list of vendors from which
they purchase goods at wholesale prices that they then sell at retail prices to their customers.

IDEAL VENDOR SELECTION PROCESS

One of the most important factors which can help an organization in successfully running a
business is the relationships you forge with your vendors.

Selecting an ideal vendor is one of the most important decisions a business can make. It is
not as simple as choosing a vendor who is nearby or is providing services at a low cost, since
the ideal vendor should meet all the vendor selection criteria and methods.

QUALITIES TO LOOK FOR IN AN OUTSOURCING VENDOR

Starting and running a business is a huge task and you already have a lot of things on
your plate to handle. In such situations, it is always better to outsource some of your tasks to a
third-party service provider.

So what are the qualities one should look for while selecting an outsourcing
vendor? We try to clear some of your doubts by providing the qualities you need to look for
in an outsourcing vendor:

1. Reliability
The outsourcing vendor you are looking for should be highly reliable in terms of service
delivery. One needs to get an opinion from the past customers and get a sense of
reliability from the vendor. If the vendor lets you down, your customers will be directly
affected

2. Quality
Make sure that the outsourcing vendor you are opting for has been providing quality
services to all its customers. You need to ensure that you receive quality services
consistently and not only once or twice. Providing your customers with poor quality
services can result in spoiling your brand name

3. Experience
We need to ensure that the outsourcing vendor you are opting for is an experienced
campaigner in that particular field. Having an experienced vendor in the field gives you
an added advantage as you do not have to worry about the intricate details related to the
services. The vendor can also provide some
 valuable feedback on how various processes need to be taken care of as they have the required
experience
4. Range of Services
It is important that the outsourcing vendor is specialized in providing a range of services.
In case you need a service to complement the present service being provided, it would be
easy to employ the same vendor for that purpose rather than searching for a whole new
vendor. The existing vendor will be in a much better position to understand your business
needs

5. Communication
Outsourcing a service to a third-party vendor comes with a host of communication
problems. It is important that there is constant communicat ion between you and the
vendor. This helps in understanding the processes and how certain things are to be
handled. Lack of communication between the two parties can lead to deterioration in the
quality of services

6. Value for Money

It is important that the outsourcing vendor provides you with services at a reasonable
price, but not always. The quality of services needs to be at par with the cost you are
paying for them. The services need to bear the value for money that you are investing into
it.

VENDOR RATING AND EVALUATION

Vendor Development
Vendor development is one of the popular techniques of strategic sourcing, which
improves the value we receive from suppliers. Vendor Development can be defined as any
activity that a Buying Firm undertakes to improve a Supplier's performance and
capabilities to meet the Buying Firms' supply needs.

Vendor development involves four important stages :

1. First Stage : Survey Stage

2. Second Stage : Enquiry Stage
3. Third Stage : Negotiation and Selection stage
4. Fourth Stage : Experience and Evaluation stage

INVENTORY CONTROL
Inventory control, also known as stock control, is regulating and maximizing your
company’s warehouse inventory. The goal of inventory control procedures is to maximize
profits with minimum inventory investment, without impacting customer satisfaction levels.

Definition : At first glance, inventory control and inventory management seem similar. After all,
they both cover similar bases revolving around the question, “How much stock should an
organization order?”
 Inventory control involves warehouse management. This includes:

 Barcode scanner integration

 Reorder reports and adjustments
 Product details, histories, and locations
 Comprehensive inventory lists and counts
 Variants, composite variants, kitting, and bundling
 Syncing stock on hand with sales orders and purchase orders

Inventory management, on the other hand, is a boarder term that covers how you obtain, store,
and profit from raw materials and finished goods alike.

The right stock, at the right levels, in the right place, at the right time, and at the right cost.

INVENTORY CONTROL SYSTEMS AND MANAGEMENT

Keeping control of your stock so that you’re able to hold the least amount of inventory in your
warehouses makes for easier organization, lower holding costs, better cash flow, and more space
within your warehouses. When it comes to inventory control procedures, less is definitely more.

To do this, two formulas stand out:

1. Economic order quantity (EOQ)
2. Reorder point formula

ABC Analysis

ABC analysis is an approach for classifying inventory items based on the items'
consumption values. Consumption value is the total value of an item consumed over a specified
 time period, for example a year.
Inventory management and optimization in general is critical for business to help keep their
costs under control. ABC analysis works towards this goal by letting management focus most of their
attention on the few highest value goods (the A- items) and not on the many low value, trivial goods
(the C-items).

ABC Analysis Rules

ABC analysis may be seen to share similar ideas as the Pareto principle, which states that 80% of
overall consumption value comes from only 20% of items. Plainly, it means that 20% of your
products will bring in 80% of your revenues.

ABC analysis works by breaking it down in the following ways:

 A-items: 20% of all goods contribute to 70-80% of the annual consumption value of the
items
 B-items: 30% of all goods contribute to 15-25% of the annual consumption value of the
items
 C-items: 50% of all goods contribute only 5% of the annual consumption value of the
items.

Class A Material Class B Material Class CMaterial

- High Cost (Value) - Moderate Cost - Low Cost (Value)
- Low Consumption (Value) - High Consumption
(Quantity) - Moderate (Quantity)
Consumption
(Consumption)

STORES MANAGEMENT
STORE : “Stores is defined as a place where materials are stocked or kept which are meant
for future use only.”

Stores Management

Store is an important component of material management since it is a place that keeps the
materials in a way by which the materials are well accounted for, are maintained safe, and are
available at the time of requirement.

Storage is an essential and most vital part of the economic cycle and store management is a
specialized function, which can contribute significantly to the overall efficiency and effectiveness of
the materials function. Literally store refers to the place where materials are kept under custody .

Typically, a store has a few processes and a space for storage. The main processes of store are:

(i) to receive the incoming materials (receiving),

(ii) to keep the materials as long as they are required for use (keeping in custody), and
(iii) to move them out of store for use (issuing).
The auxiliary process of store is the stock control also known as inventory control.

Objectives of Store Management

An efficient stores management has normally the following main objectives.

 To ensure uninterrupted supply of materials without delay to various users of the

organization.
 To prevent overstocking and under stocking of the materials
 To ensure safe handling of materials and prevent their damage.
 To protect materials from pilferage, theft, fire and other risks
  To minimize the cost of storage
 To ensure proper and continuous control over the materials.
 To ensure most effective utilization of available storage space
 To optimize the efficiency of the personnel engaged in the store

Goods Receiving / Incoming Stores

Goods that arrive at the store need to be received and processed correctly.

Receiving goods involves checking that the number of cartons delivered corresponds with
the delivery challan. Processing involves unpacking the goods, checking and validating them,
and then dispatching them to the right area or department.

Activities performed at Receiving stores:

1. Receipt of materials from the supplier along with proper documents

a. Delivery challan
b. Bill of materials
c. Material in right quantity and quality
d. Copy of purchase order

2. Inspection of the materials for :

a. Quality
b. Quantity
c. Damages or defects.

3. Dispatch to usage area :

a. Main Stores
b. Production area
c. Application area

MAIN STORE

Dry Stores Wet Stores Cold Stores

Dry Stores:

All material which have a long shelf life are stored in this type of stores. In hotel various types of
materials like, Food raw materials, Office materials, durable materials and consumable materials.

Wet Stores:

These are those materials, which are in the form of liquid state and require a special place for storing.
Materials like, Liquor, Oils, fruit juices, soft drinks, etc.

Cold Stores:

This type stores is mainly required for all perishable goods to be stored, whose shelf life is small /
few days only. Materials which required cold environment for storing, or refrigeration systems.

Materials like, Ice Creams, Milk, and milk products, meat, fruits etc. are stored in such areas.

PRICING ANDCONCEPT OF TRANSPORT

Purchasing is the second phase of Materials Management. ...

Thus, purchasingis an operation of market exploration to procure goods and services of desired
quality, quantity at lowest price and at the desired time. Supplier who can provide standard items at
the competitive price are selected.

Purchasing is generally responsible for spending more than 50 percent of all the revenues
the firm receives as income from sales. More money is often spent for purchases of materials and
services than for any other expense, and the spend in services is rapidly increasing.

LOGISTICS OF MATERIALS MANAGEMENT

Logistics management is that part of supply chain management that plans, implements, and
controls the efficient, effective forward and reverses flow and storage of goods, services and related
information between the point of origin and the point of consumption in order to meet customers'
requirements.

Logistics management activities typically include inbound and outbound transportation

management, fleet management, warehousing, materials handling, order fulfillment, logistics
network design, inventory management, supply/demand planning, and management of third-party
logistics services providers.
COLD STORAGE AND WAREHOUSE

Cold storage warehouse providers have more complex conditions when handling
refrigerated and frozen inventory. Combined with the complications of handling food and
pharmaceuticals, this creates the need for a warehouse management system that is specifically
developed for cold storage warehouse management.

Cold storage systems are an effective way to protect your food products and leave you
free to concentrate on delivering excellent service to your customers. When food is stored and
maintained at the correct temperatures, the risk of food contamination is drastically reduced. As
we know, cold temperatures slow down the growth of bacteria. It is well known that temperatures
below 5°C are recommended for chilled food and our cold storage rooms efficiently maintain
optimum temperature levels.

Cold storage systems are incredibly energy efficient. A PIR insulation core which offers the
highest level of insulation performance, thereby saving your company money.
WAREHOUSE

A warehouse is a building for storing goods.Warehouses are used by

manufactures,exporters, wholesalers, transport businesses, customs, etc. They are usually large
plain buildings in industrial parks on the outskirts of cities, towns or villages.
They usually have loading docks to load and unload goods from trucks. Sometimes
warehouses are designed for the loading and unloading of goods directly from railways, airports,
or seaports.
They often have cranes and forklifts for moving goods, which are usually placed on ISO
standard pallets loaded into pallet racks. Stored goods can include any raw materials, packing
materials, spare parts, components, or finished goods associated with agriculture, manufacturing, and
production. In India, a warehouse may be referred to as a go-down.