1CHAPTER ONE Introduction

CHAPTER ONE
Introduction
What is a material Management?
Definition
 Material management is the process of planning, organizing, implementing and controlling

the tasks associated with the flow of materials throughout an organization in an integrated
fashion.
From the above definition we can infer the following main points;
 Material management, as other branch of management employ the basic

functions of management like:
a) Planning b) Organizing
c) Directing d) Controlling
 All these functions target at the optimum use and allocation of materials.
 Materials should be managed before, during and after the process
Inputs  process 
outputs

M.M. (material management provides an integrated system approach to the
coordination of materials, activities and the control of total material costs. It
advocates assigning to a single operating department all major activities which
contributes to the cost of materials
 Materials management designed to ensure supply of
 Materials of the right quality,
 With the right quantity,
 At the right time,
 For the right price
 At the right place
 Acquired from the right source in order to ensure economy, efficiency, and smooth
operation of an organization (6Rs).
 Materials management is concerned with the flow of materials from suppliers to production
and the subsequent flow of products through distribution centers to the user.
 Materials management is, thus, an activity that involves

 Planning
 Acquisition
 Storage
 control and disposition of inputs like raw materials and in-process goods which go
into the production process directly, finished goods inventories and also capital
Materials Management Page 1

equipment, tools and accessories, spare parts and other in-direct materials which are
required for everyday operations.
1.1 Historical Development of Materials Management

The conceptual foundation that gave birth to the management boom during and after World War
II also gave birth to an entirely new approach and an idea in the management field of what we
understand largely today as Materials Management. Although the concept is of recent origin and
had its root in USA, it has now spread fairly widely all over the world.
The development of materials management can track back to 1920s when the control, repair and
maintenance of materials were the responsibilities of purchasing managers in some industries.
After World War II, Prof. Howard T. Lewis of the Harvard Business School conducted extensive
studies in industrial purchasing practice. Depending upon the size and type of industry and on the
basis of the study, Prof. Howard T. Lewis made recommendation to several airframe companies,
whose operation he had been studying, for the establishment of new managerial position, viz. the
director of Materials.
He envisioned the responsibility of material manager to include

 Purchasing
 inventory control
 Receiving
 inspection
 Warehousing
 Traffic (logistic) and possibly other activities.
But its real appreciation goes as far back as world war I. the threat of material shortage during
the war, the heavy inventorying during the business collapse of 1920-21, culminating in a
prolonged depression following the ‘profitless prosperity’ of 1926-29, all contributed to a better
understanding of the inventory problem. At the same time, improved means of transportation and
communication, a recognition of unnecessary cost-burden, rapid technological changes in both
product and manufacturing process in many industries and a host of other factors came in to play
when industrial, economic and social organization in the USA were undergoing fundamental
changes under the impact of ‘scientific management’.
The outbreak of the war in 1939 set the US defense forces thinking seriously about increasing its
military personnel and material, and with this in view, entered the market as the single largest
buyer with an increasing emphasis on quality standards.
After this, the concept of material management became acceptable in every organization to give
due emphasis for the material aspect. In a constant attempt towards meeting day-to-day materials
operation, the establishment of functional organization of Materials Management became
indispensable in order to serves achievement of corporate goals and perform materials activities
efficiently, fulfillment of materials program objectives, elimination of waste and duplication of
efforts, and greater possibility of reduction on material cost.

1.2 Scope of Materials Management
Every organization requires materials for its operation, and there will always be the necessity for
some stores and stocks to be maintained either for immediate consumption, conversion, or re-
use.
 Manufacturing organizations require a variety of raw and other materials that must be
acquired, stored, and handled.
 Similarly, service organizations need materials, equipment, and some stores to run their
operations. In both cases enough stocks of materials and equipment have to be
maintained to meet at least short-run requirements.
 These stocks or inventory are cash in kind that need at most care. Therefore, their safe
custody, upkeep, and maintenance, handing and proper supply are of great importance.
 Almost all organizations, regardless of their nature, are demanding proper and efficient
management of materials.
 Both real and artificial shortage of materials, including food stuffs, metals, and energy
resources, have made materials management an important and difficult organizational
function.
 The reason is that materials, especially components and sub-assemblies, have specific
uses and have low flexibility. And they need more care in procurement, storage,
handling, and distribution.
Material management applied both in the public and private sector in varying degree. Effective
materials management is necessary for all organizations.
Manufacturing organizations: - for many manufacturing firms materials account for 50% - 75%
their product cost.
Service firms: - service firms use fewer raw materials and components.
The main functions of material management are:
1. Materials demand for casting: follows from sales forecast

2. Purchasing : acquisition of the kinds and quantities of materials required by department
3. Inventory control: planning and maintains stocks of raw materials, tools, supplies and
other materials and classification of these items
4. Traffic/transportation: includes both incoming and outgoing transportation also called
logistics management (physical distribution)
a) traffic control involves
- the selection of carriers
- documentation of shipments
- study of carrier services and rates
- evaluations of carrier performance
b) traffic/transportation concerned with assessing the total cost of transportation
including:
 loading and unloading
 methods of packaging
 transit time
 developing techniques for reducing overall transportation costs

5. Store and material handling involves:
- Receiving
- In plant materials movement
- Insurance
- Documentation, etc.
6. Disposal of scrap and surplus materials
1.3 Importance of materials management

In general, materials management (MM) is important for three reasons:
1) customer service
2) cost reduction
3) administrative efficiency
1. Customer service
Material management (MM) serves other units/departments of the organization. These services
support the goal of fast process throughout the organization, and include:
 Un interrupted flow of materials
 Assistance to customers; repair, replants or delivery
 Reduction in parts shortage
 Average transit from warehouse to customer
 Minimum of transportation delays
 Accurate inventory counts
 Good forecast accuracy
1. Cost reduction
The importance of materials management can be realized when it is said that;
 Purchases account for nearly 50% of an organization’s annual expenditure
 Nearly 80% of working capital is tied up in the inventory
 5% saving of materials cost will substantially increase the profit margin of an
organization
Cost reduction effort related to profit and effective material management certainly make
deference.
Specific cost reduction measures include:
 reduction in material costs
 reduction in storage space
 reduction in physical inventory
 increase in inventory turn over
 reduction in transportation cost
 reduction in setup time
2. Administrative efficiency
The last area is administrative efficiency which covers quality of measures related to department
efficiency in operation and development of people.
These measures include:
 Material management budget vs. actual
 Ratio of material budget to sales
 Ratio of key people among functional

 Installation of productivity- enhancing systems

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CHAPTER ONE

 Material management is the process of planning, organizing, implementing and controlling

 Material management, as other branch of management employ the basic

 Materials management is, thus, an activity that involves

Materials Management Page 1

1.1 Historical Development of Materials Management

He envisioned the responsibility of material manager to include

Materials Management Page 2

The main functions of material management are:

1. Materials demand for casting: follows from sales forecast

Materials Management Page 3

1.3 Importance of materials management

Materials Management Page 4

Materials Management Page 5

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