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Materials Management and

Integrated Materials Management




















UNIT I



6
Materials Management

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Materials Management and
Integrated Materials Management
LESSON
1
MATERIALS MANAGEMENT AND
INTEGRATED MATERIALS MANAGEMENT

CONTENTS
1.0 Aims and Objectives
1.1 Introduction
1.2 Materials Management
1.2.1 Classification of Materials
1.2.2 Importance of Materials Management
1.2.3 Materials Management as a Service Function
1.2.4 Materials Management as a Science or an Art
1.3 Integrated Approach to Materials Management
1.3.1 Functions/Concepts of Integrated Materials Management (IMM)
1.3.2 Objectives of Integrated Materials Management
1.4 Let us Sum up
1.5 Lesson End Activity
1.6 Keywords
1.7 Questions for Discussion
1.8 Suggested Readings


1.0 AIMS AND OBJECTIVES
After studying this lesson, you will be able to understand:
Meaning of materials management and its concepts
Functions of materials management
Concepts of integrated materials management
1.1 INTRODUCTION
For balanced growth and effective running of the enterprise, it is necessary that
material cost and utilization are so controlled that lead to (i) maximization of
production, (ii) reduction in the cost of distribution, and (iii) maximization of the
profit. Materials management helps in reducing materials cost, preventing waste and
improving the capital being locked up for a period, improving the capital turnover
ratio and achieving higher profitability.




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Materials Management

1.2 MATERIALS MANAGEMENT
Bailey and Farmer define materials management as the management of flow of
materials into organisation to point where these materials are converted into firms
end product.
Amber defines it as the process by which an organisation is supplied with goods and
services that need to achieve its objectives. The materials management begins with the
supplier and ends when the material is consumed or incorporated into some other
product.
The executives who engage in materials management are concerned with three basic
activities buying, storage and movement.
Lee and Double defines materials management as the confederacy of traditional
materials activities bound by a common 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.
The following definition of the materials management has been accepted by the
International Federation of Purchasing and Materials Management:
Material management is a total concept involving an organisation structure unifying
into a single responsibility, the systematic flow and control of material from
identification of the need through customer delivery.
Included within this concept are material functions of planning, scheduling, buying,
moving and distributing. These are logically represented by the disciplines of
production and inventory control, purchasing and physical distribution. The objective
of materials management is to contribute to increased profitability by achievement of
least material cost. This is done through optimizing capital investment, capacity and
personnel, consistent with the appropriate consumer service.
Another definition adopted by the National Association of Purchasing Management
U.S.A reads as follows:
Materials Management is an organisational concept in which a single manager has
authority and responsibility for all activities, principally concerned with the flow of
materials into an organisation. Purchasing, production, planning and scheduling,
incoming traffic, inventory control, receiving and stores normally are included.
American Production and Inventory Control Society Dictionary define materials
management as under:
Materials management is a term to describe the grouping of management functions
related with the complete cycles of material flow, from the purchase and internal
control of production material to the planning and control of work-in-progress, to the
warehousing to the shipping and distribution.
P Gopalkrishan and M. Sundaes define Materials Management as the function
responsible and controlling materials in an optimum manner so as to provide pre-
decided service to the customer at a minimum cost.
Thus, materials management is concerned with that management function
circumscribed in the complete cycle of material flow like purchasing, production and
inventory control, material handing, packaging, traffic and distribution. All these
related functions are grouped together and under the direct control of the one line
manager.


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Materials Management and
Integrated Materials Management
1.2.1 Classification of Materials
The materials manager is responsible for classifying the materials before they are sent
for inspection and entered into the stock ledger. Therefore, brand classification of
materials is done according to their nature.
Various items carried in a store are generally divided into the following major types in
order to help the materials executives, maintaining the records and laying down the
broad principles of preservation and internal organisation of store room.
1. Raw materials
2. Purchased components
3. Work-in-progress
4. Finished Goods
5. Spares
6. Consumables
7. Machinery and Equipment
8. Inflammables
9. Chemicals
10. Furniture
11. General stores
12. Scrap Materials
13. Packing Materials
14. Fuel stock
1.2.2 Importance of Materials Management
The importance of materials management cannot be over-emphasized in this complex
industrial world. It affects not only a particular industry but the entire economic
activity of a whole nation. Material contributes to the quality of the end product. The
amount spent on materials is increasing in relation to the expenditure on other inputs.
Materials add value to a product. The margin between the values of raw materials and
the finished products is known as the value added by production. Conservation of
materials and their availability for prosperity is one of the social responsibilities of
business hence, materials management is one of the centres of accountability for
performance. Reduction in the materials cost by about 5 per cent is always possible
through an efficient management of materials. Evidence is there to prove that skilful
and imaginative management had been able to save even more than 5 per cent of the
total cost of the final product.
Materials form the largest single expenditure item in most of the manufacturing
organisations. They usually represent 50 to 60 per cent of the total cost of the final
product. An analysis of the financial statement of a large number of manufacturing
organisations reveals the fact that on an average about 60 per cent of the total
expenditure is locked up in materials.
1.2.3 Materials Management as a Service Function
Certainly materials permeate almost all the activities of a manufacturing concern.
Materials management is a staff function and it serves essentially the production and
marketing of manufactured goods. However, Data holds that management of materials
is sometimes line authority as a staff activity. But he further clarifies that in its
immediate concern with materials, a materials management essentially as a staff


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Materials Management

function which is usually a service and advisory in nature. In short, materials
management is essentially a service function in blend and objectivity.
It is this thinking in the field of management of materials combined with three
segments of management which has given rise to the concept of integrated materials
management. Indeed, management of materials is not a single function. It is a
combination of interdependent functions. It is, therefore, neither treated nor performed
in isolation. It never appears in a vacuum. It is a functional management closely
associated to the other fields of a business enterprise.
1.2.4 Materials Management as a Science or an Art
Materials management is both a science as well as an art of managing materials. It is
an application to achieve the desired results. To meet the ends, the management is
functionally divided into broad but basic functions known as the three segments of
management. They are:
1. Arranging for finance: Making provisions for the operation of the enterprise for
which the management has to ensure the availability of adequate finance for a
smooth functioning of the organisation without any interruption.
2. Assembly, acquisition, storage and production of materials: This is in fact the
function of actual operation of the enterprise. For an efficient and purposeful
operation of the enterprise, materials are to be assembled, acquired, stored and
produced so that the organisation may move ahead uninterrupted with speed and
goodwill.
3. Distribution: The organisation operates for the ultimate consumer. It is the basic
function of any management to arrange the distribution so as to get the goods and
services reach the ultimate consumer.
It is these basic segments of management which slowly but steadily have crept into
the materials management giving rise to the concept of integrated materials
management. Obviously management of materials largely depends on (i) adequate
availability of finance, (ii) proper procurement, storage, and utilization of materials,
and (iii) effective handling, issuance and disposal of incoming and outgoing materials.
The integration of all the three segments is necessary in order to achieve the desired
results.
Check Your Progress 1
1. Define Materials Management.
..
..
2. Materials Management is . and acts .

1.3 INTEGRATED APPROACH TO
MATERIALS MANAGEMENT
The essence of materials management is the coordination of the various departments
of a company. As the Materials department spends large sums of money on the
purchase of materials, it is closely associated with the Finance department. Where
product designing is involved, construction coordination with the Design department
becomes essential because the knowledge of materials substitution comes only from
the Materials department.

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Materials Management and
Integrated Materials Management
The importance of pre-design value analysis needs to be stressed here. Similarly,
there should be close coordination with Transport, Quality Control, and Inspection
wings of the organisation.
Only an integrated approach to the various problems of materials management can
result in optimum benefits. If this integrated approach does not exist, mere application
of tools and techniques of materials management cannot result in cost reduction which
is the primary aim of materials management. There needs to be greater efficiency in
the entire field of materials management and this covers practically all departments.
For example, Inventory control and Production Planning are closely connected. Take
for example the effect of rush purchase on costs. Such purchase can be costly and
result from bad planning. Effective coordination alone can take care of these
problems.
An integrated approach to materials management is only a concentrated and
coordinated effort for obtaining greater efficiency in the field of materials utilization
and costs.
1.3.1 Functions/Concepts of Integrated Materials Management (IMM)
Purchasing: Purchasing department procures materials as per requirements to meet
quantity and time specifications. The main activities include:
(i) Selecting acceptable vendors and negotiating with them on purchase terms, price,
quality and other related factors.
(ii) Interacting with vendors to develop materials specifications, to control quality and
to solve problems involved in receipt and usage of materials.
(iii) Placing purchase orders for materials and service, considering economic levels,
blanket or open ordering, make-or-buy consideration, priority of orders and
vendor performance.
(iv) Expediting the delivery of materials.
(v) Keeping abreast of prevailing market conditions and knowing about the arrival of
new materials that results in cost reduction.
Receiving and Store: The receiving and store functions accept, store, handle and issue
materials and process the necessary documents to record transactions.
Their major activities include:
(i) Receipt of materials, verification of quantity, and preparation of material received
reports.
(ii) Storage of materials in accordance with pre-specified use of stores by using the
right facilities and equipment and practicing a system to enable the easy
identification of materials.
(iii) Issuing materials upon authorized requisition.
(iv) Physical check of stocks to verify accuracy of transactions through constant,
special and annual inventories.
Production Control: The function of production control is increasingly being
considered as a part of the material function.
I nventory Control: Inventory control is responsible for supplying materials to fulfill
production plans and schedules and ensuring that it is achieved with minimum
required stocks.


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Materials Management

Product Distribution: Product distribution receives, stores, select orders, packs and
ships finished goods, process the necessary papers to record such transactions and
arranges for transportation of inbound and outbound shipments.
Material cost control and cost reduction: As has been stated, materials cost control
and reductions are the chief tasks of materials management.
1.3.2 Objectives of Integrated Materials Management
Objectives of materials management are listed below:
To ensure an uninterrupted production or operation, by maintaining steady flow
of materials.
To affect economies in cost of materials by purchasing materials of the right
quality in the right quantity, at the right time from the right source, and at the right
price.
To effect the economies in the costs incurred on materials purchased through
storage, processing and warehousing till the finished goods reach the customer
utility.
To reduce working capital requirements through proper and scientific inventory
control.
To be alive to the changes in the market in respect of new products, etc.
To improve the quality of manufactured goods by the use of better raw materials
or components and thereby increase the competitiveness of goods put on sale.
To also increase the competitiveness of manufactured goods by reducing their
prices through cost reduction and value analysis.
To save foreign exchange through import substitution and economizing on foreign
purchases.
To conserve material resource within the organisation, thereby contributing to the
conservation of national resources.
Materials Management
Coordinates Activities
Planning
and
Sourcing
Budgeting
Research and
Analysis
Indenting and
Processing
Receiving
Storage
Accounting
and
Controlling
Issuing
and
Dispatching
Disposing

Figure 1.1: Meaning and Functional Areas of Materials Management
1. Materials Management as a Prime Corporate Function: Materials management
plays a key role in the management of the organisation and is considered as a top-
level corporate activity. The materials manager directly reports to the Chief

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Materials Management and
Integrated Materials Management
Executive. Materials management is treated as an important area of management
like production, marketing, finance and personnel. For e.g., in process industries,
where little is added to the raw materials for their conversion into finished
products, the cost of the materials may be as high as 60% to 70% of the product
cost.
2. Materials Management as on Operating Function: Under this, the function of
materials management is considered subordinate to the production function. The
materials manager acts as a subordinate to the works manager. Materials
management is considered as a service function to operations and is regulated
with the other operations under the control and superintendence of the works
manager. The splitting of the material management department will largely
depend on the quantum of the work of each section and the need of the
organisation. Whether the materials management is treated as a prime function or
as an operating function, the nature of splitting of the activities will be more or
less the same.




Chief Executive


Personnel Finance Material Production Marketing
Manager Manager Manager Manager Manager

Purchase Receiving Stores Material Traffic Shipping
Officer Department Department Handling Section Section

Board of Directors
Figure 1.2: Organisation of Integrated Materials Management
Check Your Progress 2
1. List out the concepts of IMM.
..
..
2. Material Management co-ordinates
1.4 LET US SUM UP
Materials management plays a key role in the management of the organisation and is
considered as a top-level corporate activity. The materials manager directly reports to
the Chief Executive. Materials management is treated as an important area of
management like production, marketing, finance and personnel.
1.5 LESSON END ACTIVITY
Assume you were asked to develop an integrated materials management to improve
the smooth supply of materials. What are the functions you would perform and how?
1.6 KEYWORDS
Materials Management: Management of materials in an organisation.
I ntegrated Materials Management: It refers to the coordination of the various
departments of a company.


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Materials Management

1.7 QUESTIONS FOR DISCUSSION
1. Explain the importance of materials management.
2. Give the various concepts/functions of integrated materials management.
3. Bring out the objectives of materials management.

Check Your Progress: Model Answers
CYP 1
1. According to P. Gopalkrishan and M. Sundaes, Materials Management as
the function responsible and controlling materials in an optimum manner so
as to provide pre-decided service to the customer at a minimum cost.
2. a Science and an Art, as a service function.
CYP 2
1. Purchasing, Receiving and Store.
2. Planning and Sourcing, Budgeting, Research and Analysis, Issuing and
Dispatching, Indenting and Processing.
1.8 SUGGESTED READINGS
P. Saravanavel and S. Sumathi, Production and Materials Management, by Margham
Publication, Chennai, 2006.
M.M. Varma, Production and Materials Management, Published by Sultan Chand & Sons,
New Delhi, 1993.
P. Saravanavel, Entrepreneurship Development (Principles Policies and Programmes), by ESS
PEE KAY Publishing House, Chennai, 1997.
C B Agarwal, Materials Management, by Forward Publishing Company, New Delhi, 1997.