Chapter One

Introduction to Materials
Management
What do you think about the
importance of learning material
management?
 Introduction
• Materials management is an indispensable core activity of all
organizations.
• Material related costs cover 45% to 85% of the total product cost.
• That means materials soak up a substantial portion of the capital invested in
the industry.
• Efficiency in the materials management releases substantial gains to the
organization in terms of cost and capital requirement.
• Like production, marketing, finance and personnel, materials
management has been recognized as the fifth key area of management
of the organizations.
 Meaning of Materials Management

• Materials management is the planning, organizing and controlling

of the flow of materials from the initial purchasing operations
to distribution of finished goods as well as disposal.

• Is a management concept that concern on the activity to plan,

purchase, store, handle, distribute, use, and control of materials
in order to contribute to organizational success and profitability.
Steps in Materials Management
1. Materials Requirements Planning

• The amount of material used is inversely proportional to the profit

gained by the business.

• Less investment in materials with proper planning increases the profit.

• At present days some industries considering “Just in Time ” (JIT)

strategy to avoid inventory.

• However, this strategy requires careful planning to maintain

continuous production without impacting the operation schedules.
 Steps in material management …
cont’d
2. Purchasing

• It is the set of functions associated with procuring the goods and

services that an organization requires.

• The profit margin of a business increases by efficient and

economical purchasing.

• Purchasing process includes activities like ordering, expediting,

receiving, and fulfilling payment.
Steps in material management …cont’d
3. Inventory Planning and Control

• Inventory includes finished goods, work in process, raw material.

• During inventory planning the company follows a JIT strategy,

which means materials are purchased from vendors and brought
in the warehouse just before they enter the production process.

• This reduces the cost of maintenance of inventory.

• For better material management, close to zero inventories are

beneficial.
Steps in material management …cont’d
4. Flow and Supply of Materials

• During the distribution of materials in various production plant, make

sure that continuous supply of the materials should be maintained.

• Otherwise, a lack of inventories can lead to huge losses to the

organization.

• So, Materials management is a very important part of supply chain

management.
 Steps in material management …
cont’d
5. Quality Control of Materials

• The quality of raw materials is one of the deciding factors of the quality
of finished goods.

• The importance of using good quality material is huge in any production

system.

• So inspection of materials before purchasing is necessary to

control the quality.
 Types of Materials
There are two types of material – direct and indirect:

1. Direct Materials represents the raw material or goods necessary to

produce or manufacture a product.

The cost of direct material varies according to the level of output of the
production system.

• For example, Milk is the direct material of butter, Iron ore is direct
material of steel.
Types of materials … cont’d
2. Indirect Materials

• Indirect materials are the materials that are necessary for the
production process but it’s not directly used in the product itself.

• These materials does not become an integral part of the product.

• Examples- greases
 Origin of materials management

During WWI & WWII managing large inventories to economize inventory

and to eliminate shortage of materials.

The importance of materials management was recognized during the two

world wars. To organize and facilitate the flow of consistent material supply.
Contributors:
• The first mover of the field was Tylor (scientific management),
• Babbage also known as “materials man” (on his book of economy of
machinery that emphasis the importance of purchasing was recognized )
• Howard T. Lewis in WWII (study in industrial purchasing practice).
 History of materials management …Cont’d

Transition
First phase: Executives who are primarily concerned with other
functions have carried on almost unconsciously all materials
management.
Second phase: The major materials management functions are
recognized formally, not centralized organizationally.
Third phase: Materials management functions concerned with
purchased materials are grouped together under a senior
executive.
Fourth phase: Materials management functions become a genuine
value adding activity for business.
 Functions of Materials Management
• Materials management covers all aspects of materials costs, materials
supply and utilization.
• It covers the whole rang of functions involved in converting raw
materials and ancillary supplies in to finished products.

logical boundary of materials management:

Materials Planning: is the scientific way of deciding the
requirements of raw materials, components and other items
needed for production.
Functions of Materials management… Cont’d

Materials Forecasting: creates “the basis for materials planning.

There are quantitative and qualitative forecasting.

Materials Budgeting: refers to the procedure of preparing purchase

budget in terms of quantity and money value of materials to be
procured in a specified time period.

Materials Purchasing: Purchasing implies – procurement of

materials, supplies, machinery and services needed for manufacturing
and maintenance of concern.
 Functions of Materials Management…Cont’d
Receiving and Inspection:
The materials are unpacked and compared to the materials listed in the
purchase order.
If the materials are found to be in order, they are sent to the inspector
for quality inspection.
Inventory Control: is the process of maintaining a business’s stock
level, to meet customer demand and minimize costs.
The primary objectives of inventory control are guarding the inventory
against damage, theft, availability and reporting inventory in the
financial statements.
 Functions of Materials Management…Cont’d
Storage and Warehousing:
Storage refers to the place where materials are kept under custody.
It is a place that keeps all the materials in a way, by which the materials are
well accounted for, are maintained safe, and are available at the time of
requirement.
store management are mainly concerned receiving materials, quantity
verification and visual inspection, preservation of materials.
Materials Handling:
It is the movement, protection, storage and control of materials and products
throughout the manufacturing plant, warehousing, distribution, consumption
and disposal.
 Functions of Materials Management…Cont’d
Dispatch or Shipping:
It is External transport means any of the different kinds of transport facilities
used to carry goods, raw materials, people outside the manufacturing plant.
Some of the examples are truck, plane, ship, etc
Disposal (Including Wastes, Scraps And Surplus Materials)
Disposal action follows when the scrap cannot be used within the organization
anymore.
All the activities and actions required to manage waste from its inception to its
final disposal.
This includes, collection, transport, treatment and disposal of waste together
with monitoring and regulation.
 Scope of Material Managements
• It covers the whole functions that involve in conversion process.

• It emphasis with the activities of acquisition, storage and flow of all

materials that employed in the production and marketing of
finished goods.
 Cont’d
Materials Forecasting, Planning, Budgeting and Programming
Purchasing
Store Keeping
Inventory Control
Receiving, Inspection and Dispatching
Materials Handling & Traffic/logistics
Disposal of Scrap and Surplus
 Integrated material management
 It is a system approach towards the management of materials.
 It advocates the management of purchasing, receiving, storage,
inventory control, and other material activities under one
division in an integrated manner.
 This approach considers the interrelation and
interdependence of materials management with
other internal functional areas.
 Integrated materials management can solve the problem of
coordination and communication problems.
 Integrated material management… cont’d
• When organizations were small almost all functions were performed by
the chief responsible to handle materials management and other
functions.
• As organizations grow, the materials management functions will
diversified to different managers performing other activities such as
production, engineering, marketing, etc.

• In this case the function is widely dispersed throughout the

structure, and it create the problem of coordination and
communication. And integrated materials management able to solve
this problem.
 Objective of Material Management
Effective material management minimizes the material cost.

To procurement and purchase materials of desired quality and quantity

when required, at the lowest possible overall cost.
Materials management try to reduce investment tied in inventories for use in
other productive purposes and develop high inventory turnover ratios.
To purchase, receive, transport and store materials efficiently to reduce the
storage and warehouse related costs.
 Objective of material
management ...cont’d
• To trace the new source of supply and to develop cordial relations with the
suppliers, in order to ensure continuous material supply at reasonable rates.

• To cut down costs through simplification, standardization, value analysis,

import-substitution, etc.
• To modify and improve the paperwork procedure in order to minimize delays
in procuring materials.
• To train personnel in the field of material management in order to increase the
operational efficiency of the manufacturing firm
• The overall purpose of material management is:-

To get
Right supplies

Right quantity

Right time

Right place

 Right cost
 Importance of Material Management
• Reduced operating costs and timely production.

• Greater job satisfaction for stakeholders.

• To carry reserve stock and avoid stock out

• Every inch of the space is properly utilized.

• The issue of materials is also facilitated.

• It helps in maintaining effective production planning and control.

 Materials management and its Environment

Broadly classified in to two factors, external and internal:

1. External factors
Government: Regulation of business by the various levels of government is
extensive.
Economy: General economic conditions influence the demand for a
company’s products or services and the availability of inputs.
Competition: communication is fast, transportations becoming cheap and
global competition is hard, so it is open for global competition.
Customers: Both consumers and industrial customers have become much
more demanding, high quality, low price, speed, and flexibility.
Quality: successful companies provide quality that not only meets
customers’ high expectations, but exceeds them
Materials management and its Environment
… cont’d
2. Internal factors

Within an organization, the material management

function is influenced by other functional areas such as:

I. Materials Management and Finance

• The finance section is responsible for maintaining cash flow and providing
advice in preparing operating budgets.
• To have smooth relationship between finance and materials management, the
later should spend only reasonable costs for ordering, handling & inventory.
Materials management and its Environment … cont’d

II. Materials Management & Manufacturing

• In this case the material management section supplies all the

necessary materials to manufacturing section.

• The materials management section should supply the right quantity

materials/part with the right quality at the right time and at a
reasonable price.

• Also manufacturing team required to provide proper requests.

Materials management and its Environment … cont’d

3. Marketing with Materials Management

• In- order to meet customer needs /wants they should have close
cooperation. sales forecast is the base for row materials
requirements.
 Problems Associated with Material Management
Lack of qualified managers

Insufficient upper management support

Improper planning and implementation

Lack of credibility: Due to inadequate service or

information, delay of delivery and shortage of materials
T h a n k Yo u