Table of Contents:-
- What is Material Management
- Material Management Definition
- Objectives of Material Management
- Functions of Material Management
- Costs involved in the Material Management
- Material Management Flow
- Interfaces of Materials Management
- Comprehensive Functions of Material Management
What is Material Management
Material management is defined as a function that integrates purchasing, storage, inventory control, materials handling, and standardization, among other activities, in an organization to reduce costs. Every organization aims to maximize profit by increasing production and minimizing production costs. The average material cost in a manufacturing setup is around 50-70% of the total expenditure, and this figure rises when considering inventory costs, storage, waste, and other factors.
Therefore, an organization must have sound material management to reduce material costs, control inventories, ensure a uniform flow of materials, and maintain good relations with suppliers. Material management involves activities related to the planning, acquiring, and utilizing materials.
The study of material management began gaining prominence in the early sixties and has grown in importance since then. Given that the expenditure on materials surpasses the combined costs for machines, labour, and methods, emphasizing materials becomes crucial. It is the most viable area that can provide opportunities for cost reduction and profit improvement. Materials contribute significantly to the value of a product, as product quality directly hinges on the materials used.
Material management can be viewed as a system that ensures the availability of products to customers at minimum cost. In essence, material management revolves around making the right materials available in the right quantity, at the right price, and at the right time.
Material Management Definition
Materials play an important role in the manufacturing process of a product. No production is possible without materials. Moreover, materials form an important part of the cost of a commodity and, therefore, proper control over its procurement, issue, movement and use is necessary. Proper and effective materials management is required in today’s business environment. Materials management can be defined as an activity having all control over the materials used and the commodities produced by the organization.
According to Lee and Dobler, “Material management as a confederacy of traditional materials activities bound by a common idea the idea of an integrated management approach to planning, acquisition, conversion, flow and distribution of production materials from the raw materials state to the finished product state”.
International Federation of Purchasing and Materials Management states, “Materials management is a total concept involving an organizational structure unifying into a single responsibility, the systematic flow and control of material from identification of the need through customer delivery.”
According to Ammer, “It is a process by which an organization is supplied with goods and services that it needs to achieve its objectives. The materials management begins with the supplier and ends when the material is either consumed or incorporated into some product. The executives, who engage in materials management, are concerned with three basic activities: buying, storage of materials and movement”.
Thus, materials management covers all aspects of materials and material supply necessary for converting raw materials and ancillary into the desired finished products. It is thus concerned with planning and programming of materials and equipment with pre-design value-analysis, with marketing research for purchases, with procurement of all materials including capital goods, and packing materials, with stores and inventory control, with transportation costs of materials, with materials handling and operation research of materials.
Objectives of Material Management
The objectives of integrated materials management can be classified into two different categories.
1) Primary Objectives
The following points may be determined as primary objectives which are to be achieved.
i) To purchase the required materials at the minimum possible prices by following the prescribed purchase policies and encouraging healthy competition.
ii) To achieve high inventory turnover i.e., to meet the materials requirement of the organization by keeping low average stocks so that the capital locked up in materials is turned over a large no of times
iii) To incur the minimum possible expenditure on administrative and other allied activities related to the purchase of materials and also to keep the materials in stock till they are finally delivered to the users.
iv) To ensure that continuity of supply of materials to the users is maintained by avoiding out-of-stock situations.
v) To supply materials of consistent quality i.e., of quality which meets user specifications and is fit for service.
vi) To keep the wage bill of the department low by ensuring proper distribution of work among staff and not employing surplus staff.
vii) To maintain good relationships with the suppliers of materials and also develop new suppliers for the products for which reliable suppliers do not exist.
viii) To ensure training and development of personnel employed in the department so that good industrial relations are maintained.
ix) To maintain proper and up-to-date records of all store transactions and purchases.
2) Secondary Objectives
The following may be identified as secondary objectives which are to be achieved.
i) To assist the technical/design department in developing new materials and products which may be more profitable to the organization.
ii) To make financial ‘create or purchase’ decisions.
iii) To ensure standardization of materials.
iv) To contribute to the product improvement.
v) To contribute to the development of inter-departmental harmony.
vi) To follow scientific methods of forecasting prices and future consumption of materials.
Functions of Material Management
Materials management functions encompass materials planning and control, purchasing, inventory control, storekeeping, material handling, warehousing, standardization, simplification, and organization, appraisal of materials.
Let’s discuss the functions of material management briefly:
1. Material Planning and Control
Material prerequisite lies at the core of successful material management. This function works out all the material requirements in any manufacturing process.
This function identifies sources of supply, conducts market research, calls tenders, selects suppliers, negotiates with them, and thus makes raw materials available.
3. Inventory Control
This function is responsible for the location and storage of materials, ensuring they remain available quickly and at the minimum cost.
This function is responsible for the receipt and issue of materials. Materials are stored in a way that minimizes handling and reduces wastage.
5. Material Handling
This function aims to minimize handling and provides equipment for material handling. It is crucial for reducing space requirements, effective distribution, and providing better working space.
This function is responsible for storage facilities, weighing facilities, material handling equipment, material distribution facilities, fire-fighting instruments, etc.
7. Standardization & Simplification
This function selects items of great demand and sets standards for any product’s quality, raw material, sizes, and performance.
8. Organization & Appraisal of Materials
This function helps in effective functioning by ensuring a smooth flow, providing coordination, and avoiding delays and wastages.
Management of materials encompasses various costs. Since the ultimate aim of materials management is to reduce the costs of materials and, hence, the final product, it is worth understanding what these costs are.
Costs involved in the Material Management
|Cost of materials
|The basic cost of materials has to be paid to suppliers.
|The costs incurred in purchases include staff costs, tendering, stationary, postage, processing supplies, receiving, and inspection.
|Costs incurred on paper, plastic, metal, metal foils, wood containers, etc.
|Inventory carrying costs
|The costs incurred on storage, including staff expenses, buildings, interest on capital (locked/borrowed), and obsolescence.
|Costs incurred in moving the goods to different desired locations occasionally.
|Wastage during production
|Costs incurred on obsolete stock, holding scrap, and their disposal
|Material handling cost
|Costs are incurred on handling equipment like conveyors and cranes.
An integrated material management system helps make informed decisions that, in turn, lead to lower costs for materials. Similarly, if an organization has low inventory carrying costs, fewer stockouts, etc., it is bound to perform well.
Material Management Flow
In any organization, the responsibility for maintaining the quality of the product and incurring less cost in its production lies with production/operations, while deciding the product’s price and finding customers falls under marketing. The question arises: What does the materials management function do? The answer is that materials management begins when materials enter the organization’s warehouse from the suppliers and continues until the final product is obtained. The interrelated activities carried out to achieve this are systematically sequenced. The management of this systematic flow of materials is called materials management. This flow of materials is facilitated through activities presented in the table below.
Set of activities for the flow of materials
|Setting the goals, indicating the sources of finance
|Purchasing and Procurement
|Vendor contracts and vendor selection
|Requirements specification, quantum and delivery schedules
|Inspection and Quality control
|Materials handling and distribution logistics
|Controlling flows, shipments and distribution
|Stores and Inventory control
|Determining maintenance, inventories and upkeep
The table given above highlights the importance of integrated systems and function models’ dependence on decision making. The organizations are now multi-dimensional. The total materials management concept evolved to address this dimension and avoid conflicting objectives. Comprehensive material management helps establish accountability so that a response to a problem is quick and appropriate. The material functions are performed in more coordinated patterns with the help of this integrated approach. When this happens, there is increased communication for the need for materials, and hence, one gets lower costs, better inventory turnover, reduced stockouts, and other significant benefits. Data processing systems are designed based on the integrated material function.
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.” Let us understand what these interfaces are.
Various interfaces of Materials Management
|Forecast demands to determine production based on existing/expanded facilities, equipment, processes, workforce, and materials.
|The materials budget is affected by the nonavailability of finance. A major chunk of finance is invested in materials and inventories.
|The materials flow begins before the production cycle, runs throughout, and continues even after production, ensuring an uninterrupted flow of materials to feed the production process.
|Inspection and quality control
|Close liaison with material management is required as it runs throughout like materials.
|Material management plays a critical role here, as the availability of materials and access to physical supply have to be assured.
|Materials Handling and physical distribution logistics
|Material management ensures materials are physically distributed at the right time with minimal handling.
|Suppliers/ Other Companies
|Material Management liaises closely with outside vendors and other companies seeking trade relationships. Evaluation of supplier performances should also be done.
|Material management interfaces with customers rarely, but it happens sometimes.
Comprehensive Functions of Material Management
Material management does not simply start with the purchase of materials and end with the production of materials. The total material management concept requires it to do much more. Dutta (1998) further emphasizes the functions of material management as follows:
- Materials forecasting, budgeting, planning, and programming
- Scheduling, purchasing, and procurement
- Receiving and receiving inspections for quantity and quality
- Inventory control, storage, and warehousing
- Materials handling, movement control, and traffic, etc.
- Dispatch, shipping, and disposal
In addition to these material management activities, it is important to pay attention to coordinating all the above activities and maintaining liaison between manufacturing, finance, marketing, etc.
Material management is an important function of every business organisation. The better the materials management in a company the better the health of that company. The functions of materials management are materials planning and control, purchasing, inventory control, storekeeping, material handling, warehousing, standardization & simplification and organization & appraisal of materials. Management of the flow of materials is called material management. This flow of materials can be met through a set of activities discussed above.
What are the functions of material management?
There are 9 functions of materials management which can be categorized in the following ways:
- Stores Management
- Material Planning and Control
- Inventory Control or Management
- Just-in-Time (JIT)
- Value Analysis
What is the purpose of material management?
The purpose of material management is to maintain the regular flow of production by purchasing materials of the right quality, in the right quantity at the right time from the right source, on the right terms and conditions, and at a lower price.
Material management functions to control inventories efficiently. It is beneficial in developing good buyer-seller relations. Through material management, coordination with other departments is established and considerably helps the organisation to grow and advance in the technical field.
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