CHAPTER ONE

INTRODUCTION TO MATERIALS MANAGEMENT

1.1. Meaning of Materials Management
What are Materials?
Materials refer to inputs into the production process, most of which are embodied in the finished
goods being manufactured. It may be raw materials, work-in-progress, finished goods, spare
parts and components, operating supplies such as lubricating oil, cleaning materials, and others,
required for maintenance and repairs.
What is materials management?
Materials management is defined by different authors in different ways but for the same concept.
Some of these definitions of materials management are:

 It is defined as the integrated function of purchasing and allied activities so as to achieve the
maximum coordination and optimum expenditure in the area of materials. (N.K.Nair).
 It is a process of management which coordinates, supervises and executes the tasks
associated with the flow of materials to, through and out of an organization in an integrated
fashion (A.K.Datta).
 It is a confederacy of traditional material 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 material state to the finished product state. (W.Dobler
and his colleagues).

 Materials management is a total concept having its definite organization to plan and control
all types of materials, its supply, and its flow from raw stage to finished stage so as to deliver
the product to customer as per his requirements in time. This involves materials planning,
purchasing, receiving, storing, inventory control, scheduling, production, physical
distribution and marketing. It also controls the materials handling and its traffic. The
materials manager has to manage all these functions with proper authority and responsibility
in the material management department. The historical background about the materials
management is as follows.( International Federation of Purchasing and Materials
Management)

we sum up these definitions as, materials management can be defined as an organizational

concept designed to enhance coordination and control of the various materials activities
including an activity to plan, purchase, store, handle, distribute, use and control of materials in
order to contribute to organizational success and profitability.

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1.2 Significance of Materials Management

Every organization uses, transforms, distributes or sells materials of one kind or another.
Materials are one of the vital resources of an organization. If an organization is to function and
operate successfully, it must have proper and sufficient supply of necessary materials. These
materials may take different forms, such as raw materials, machinery, tools, equipment, vehicles,
furniture, stationary, fuel, oil and lubricants, accessories etc.
Lack of availability of adequate materials disturbs the normal operation or production causing
unnecessary delay of production or work stoppage. The dalliance or stoppage of work in turn
causes additional cost such as cost of depreciation of fixed assets, salary of permanent
employees, opportunity costs, loss of sales, dissatisfaction of customers, etc. Thus, effective
management of materials is crucial to the performance of many organizations.
Traditionally, materials were thought to be cheap, readily available and abundant. Today,
however, the realities of the market proved that materials are scared and costly. In many
organizations, materials form the largest single expenditure item. Studies indicate that materials
account about 60-80 percent of the total annual expenditure of organizations. Besides, materials
management has a tremendous influence on the ultimate cost of a product and efficiency of an
organization, because it is concerned with the total flow of materials in the organization. The
total flow can extend from suppliers to production and subsequently through distribution to
required place at the required time and by ensuring that these resources are properly handled and
utilized. Thus, the importance of materials management lies in the fact that any significant
contribution made by the materials manager in reducing material cost will help to improve the
profitability and rate of return on investment.
1.3 Scope of materials management
Materials management covers all aspects of materials, costs, their supply and utilization. It also
covers the whole range of functions involved in converting raw materials and ancillary supplies
in to finished products. It is concerned with the planning & programming of materials and
equipment, market research for purchase; pre-design and value analysis, procurements of all
materials, packaging and packing materials stores control and inventory control; transportation of
raw materials and materials handling, disposal of scrap and operation research for materials. On
the other hand it covers aspects of industrials management concerned with the activities involved
in the acquisition, storage and flow of all materials directly and indirectly employed in the

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prediction and marketing of finished goods.
Materials Management strives to ensure that the material cost component of the total product
cost be the least. In order to achieve this, the control is exercised in the following fields.
1. Materials Forecasting, Planning, Budgeting and Programming: The function of material
planning department is to plan for the future procurement of all the required materials as per
the production schedule. At the time of material planning, the budget allocated for the
materials will also be critically reviewed, for better control.
2. Purchasing: After material planning, purchasing is to be done. Purchasing department buys
material based on the purchase requisitions from user departments and stores departments
and annual production plan. There are four basic purchasing activities.
 Selecting suppliers, negotiating and issuing purchase orders
 Expediting delivery from suppliers.
 Acting as liaison between suppliers and other company departments
 Looking for new products, materials, and suppliers that can contribute to
company objectiveness.
At the time of purchase, right quantity and quality of materials must be purchased at right time,
at the lowest possible cost and select the efficient purchasing system, to derive maximum benefit.
When the items are purchased, proper storage facilities must be provided so that, the wastage is
reduced to a minimum. Sometimes to protect the quality, greater care must be taken during
storage.
3. Receiving, Inspection and Dispatching: The responsibility of Receiving, inspection and
dispatching department is to receive the materials when delivered by the suppliers. After
receiving it, the quantity and quality must be checked. Production parts and materials are
checked against blueprints and specifications. Non production items are also reviewed. When
once it is as per the specifications given, the goods will be accepted.
4. Store Keeping: When the items are purchased, proper storage facilities must be provided so
that, the wastage is reduced to a minimum. Sometimes to protect the quality, greater care
must be taken during storage.
5. Inventory Control: The duties of the inventory control department is to decide about the types
of ordering system, fixing the safety stock limits, fixing up the reorder level & maximum /
minimum stock level.
6. Materials handling & traffics and logistics: Materials handling section is responsible for the
transport of materials to various departments.
7. Value Analysis, Standardization and Variety Reduction: The Value Analysis and
Standardization offer greatest scope, in reducing the materials cost. It also reduces the
number of varieties and also helps in finding the substitute for the materials at lesser cost.
8. Disposal of Scrap and Surplus, Material Preservation: Finally, the disposal of scrap and
surplus must be done periodically to release the capital locked in those items.

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1.4 Objectives of Materials Management
The basic objectives of materials management are given below:
1. Making materials and services available in time and ensuring the balanced flow of materials
all the time.
2. To have the correct quantity and right materials on hand at the time required with minimum
investment expenditure; that is, ensuring proper control over inventories in order to minimize
investment and wastage of funds.
3. Continuity of supply by issuing and delivering of materials at the right time and place
because idle time of employees and machine push up overall costs of operation or production
of goods or services.
4. Ensuring quality materials in consultation with concerned units.
5. Ensuring good supplier relations: Materials management aims at studying and selecting
reliable suppliers and providing them fair treatment; that is, stimulating the suppliers for
better performance-so as to ensure continuous supply.
6. To buy competitively: To buy competitively the buyer needs:
 To consider the effect of the balance and supply in the market
 Understanding of the supplier’s cost structure
 The ability to negotiate price and service arrangements that are fair relative to the
supplier’s actual cost.

7. Departmental efficiency: involves the development of personnel, and the creation of

operating policies and procedures, that contribute to the accomplishment of departmental
objectives in the most cost-efficient manner.
8. Counseling service to management: This involves keeping top management aware of costs
involved in the organization’s procurements and any market changes that could affect the
organizations output or growth potential-cost-benefit analysis
9. Price and demand forecasting: By analyzing and interpreting data of past purchase, seasonal
variations in prices, and availability for materials, materials management forecasts future
trends and plan material requirements
10. To achieve maximum integration with the other departments of the organization. This
includes understanding the needs of using departments and translates these needs into
materials support action.

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