Materials Management an overview

Introduction & Importance of Materials Management

5 M’s

Men Machines Methods Money Materials

Reasons for popularity of materials

The amount spent on materials is higher than other inputs

Materials offer considerable scope for reducing cost and improving profit

Improving return on investment depends on the effective utilization of materials.

Materials add value to product Quality of end product depends on materials

Reasons for popularity of materials Materials management assumes responsibility for

whatever happens in purchasing, storing, inventory or any other area connected with materials.

Increasing demand for ensuring environmental safety The efficiency of any organization depends upon the

availability of right materials, in right quantity, at right time and at right price.

Materials are life-blood of man’s development

Materials management involves planning, programming, organizing, directing, controlling, and co-ordinating the various activities concerning the materials.

The production managers found it necessary to develop an organized body of knowledge on this subject. The resulting set of related disciplines is known as materials management.

Materials Management

• Materials are any commodities used directly or indirectly in producing a product such as raw materials, component parts or assemblies.

• Materials management is the grouping of management functions supporting the complete cycle of material flow, from the purchase and internal control of production materials to the planning and control of work in process to the warehousing, shipping, and distribution of the finished product.

– Thomas F. Wallace & John R. Dougherty

• Materials management is the management of the flow of materials into an organization to the point, where, those materials are converted into the firm’s end product(s)

– Bailey & Farmer

Functions of Materials Management

• Materials planning and programming• Raw material purchase• Receiving, store keeping, and warehousing• Issuing of material • Inventory control• Value engineering• Transportation of materials• Vendor development• Vendor rating• Disposal of scrap and surpluses

Focus of Material Management

To procure right materials In Right Quantity Of Right Quality At Right Time From Right sources At Right prices

5 R’s, principles of purchasing

Primary Objectives

• Buying the best item at the lowest cost• Reduction in inventory cost and High inventory

turnover• Maintaining the flow of production• Maintaining the consistency of quality

Primary Objectives

• Optimization of acquisition and possession, resulting in lower cost

• Cordial relationship with suppliers• Maintaining good records• Contribution towards competitiveness• Personnel development

Secondary Objectives

Promotion of standardization with suppliers Development of reciprocal relations with

customers Committees to decide on economic make –or-

buy decisions Development of inter departmental relationships Economic forecast New materials and product

Costs involved in the Management of Materials

Ordering Cost Cost of placing an order Loading and unloading of goods Transportation Costs Insurance for goods in transit Cost of receiving and inspection Administration Cost Taxes and Duties

Costs involved in the Management of Materials

Carrying Costs Warehouse Lighting Insurance Cold Storage and Refrigeration Supervision Cost Preservatives Breakage Pilferage

Integrated approach to Materials Management

Integrated approach to Materials Management

Organizing Materials Management.

Organization based on Commodities Organization based on Location Organization based on function

Organization based on Commodities

Organization based on Commodities

Here items are classified according to their nature such as raw materials, components, spares, imported items, finished goods etc. and assigned to individuals.

No wasteful duplication of efforts as each commodity will be separately handled.

Bulk buying and standardization are facilitated; the group becomes specialized in a particular commodity market.

Advantages

Organization based on Location If the organization has several plants located in different

plants of the country, There are two alternatives –

1. Centralized materials management (CMM) & 2. Decentralized materials management (DCMM).

Centralized materials management The most important benefit is combining

requirements of all plants and go for bulk buying which will result in substantial reduction in costs,

Interplant transfer of material is possible in case of emergency,

Surplus materials can be effectively used by other plants, since only one materials management department,

Since only one materials management department- Highly skilled workforce is present.

Decentralized materials management Better co-ordination with plant’s production,

Financing & marketing department are possible. Plant’s product lines play an important role i.e. each

plant may require some unique materials which can be better managed by DCMM.

Organization based on Location. Now a day’s combination of both Centralized and

Decentralized materials management is possible. Policies, procedures and systems for all plants are laid out by

the CMM system. Continues feedback is maintained in the operations of the

DCMM departments. Specific financial limits will be set by the CMM Department

beyond which the DCMM department will have no authority. Bulk buying of common usage items is done by the CMM

department.

Comparative Study

Organization based on function

The materials management department is structured on the basis of function such as stores, transport, purchase etc.

All purchasing activities of a particular function will be under one individual who reports to the material manager

Thank You