Materials Management

Materials Management is concerned with

planning, acquisition and flow of materials within the supply chain. Material is one of the four basic resources (labour, material, equipment and capital) needed in any industrial or business activity. Materials management creates a competitive edge by delivering quality product(s)

Materials Management
It is complex as it confronts various issues

including outsourcing, global sourcing, size of supply base, shorter lead time, smaller lot size, price determination, mode/carrier selection, selecting and maintaining longterm relationship with suppliers, choosing the right type of information technology, legal issues etc.

Materials Management
It has evolved out of common sense and rule

of thumb approach. It has organized principles and a wealth of knowledge in the form of tools, techniques, models, heuristics, systems and procedures, methodology and a huge database. Today, it finds an important place in organization and is manned by highly qualified persons.

Role of Materials Management in a Business

As a basic function of the firm As a manager of outside manufacturing:

Materials manager is answerable for purchase of items manufactured outside as production manager is answerable for parts produced inhouse. Hence, materials manager is rightly called manager of outside manufacturing. As a controller of cost: Major costs with materials include ordering or set-up costs, carrying costs, logistics costs (transportation and warehousing) and shortages or surpluses costs, besides the cost of purchased items.

Objectives of Materials Management

Maintaining continuity of supply: It is achieved through greater insight of purchase portfolio and

a smaller number of carefully selected and nurtured suppliers. Contribution to cost reduction: This is achieved through life cycle costing, value engineering, purchasing tools, vendor selection procedure, inventory control models etc. Innovation in product/process: This is achieved by involving purchase at the research/design stage and associating supplier in the team.

Functions of Materials Management: MRP-I

Material Requirement Planning (MRP-I): Based on the production schedule of end items, MRP-I

determines how much of sub-assemblies, parts and raw materials are needed and how and when to buy them. To do so, a large number of inventory models are available which try to minimize the total cost comprising all relevant costs and associated uncertainty. Depending on organizations need/situation, as suitable model can be selected.

Functions of Materials Management: Buying/Purchasing

Buying or Purchasing: Industrial buying (for consumption and conversion) differs from

buying for direct trading (resale). Industrial Purchasing: (i) Cash purchase (ii) Purchase by tender Purchasing process has several phases including purchase requisition, selection of suppliers, ordering (pricing, terms & conditions, order placement), follow-up, receipt of inspection, maintaining records, supplier management (supplier relations, evaluation and development)

Functions of Materials Management: Logistics (Transportation and Warehousing)

Logistics is concerned with the management of

warehousing (receiving, storing and issue of materials) and flow (transportation) of materials, service and information in a supply chain with a view to enhance the products value. There are primarily five modes of transportation including, road, rail, air, water and pipelines. Besides these we have inter-modal combination and third party logistics (3PL) and fourth party logistics (4PL). Warehousing includes receipt of materials, inspection, physical control of stored materials, physical verification of inventory, valuation of stock, and issue.

Evolution of Materials Management

Early part of 20th century: Clerical and

reactive, just a function in the organization Most part of 20th century: Expense control, proactive, increased regard for purchase. Towards end of 20th century: Manager of outside manufacturing, paradigm shift in coping with uncertainties, supply chain, greater importance

Importance of Materials Management

Expenditure on materials management:

Materials cost comes around 50% of revenue in many organizations, operations and other expenses come around 47% of revenue. Profit impact of materials management: See the problem of improved purchase vs. increased sales.

Integrated Materials Management

Integrated with respect to various functions involved in the

related departments, multiple production facilities, a number of distribution centers and warehouses, a large number of retail outlets Within a production facility in a location, many parts/subparts are same or similar and they may be procured in an integrated way for overall cost-effectiveness There may be conflicting goals in between operations dept. and purchase dept. Conflicting interests between Purchase Manager (ordering more qty for bulk discount) and Inventory manager (ordering less to reduce inventory carrying cost)

Functions/issues in Integrated Materials Management

MRP-I and MRP-II (Manufacturing Resource Planning)

through ERP system Challenges in implementing ERP: generally after BPR General Procedures for effective procurement Vendor selection, rating and development Cost competitiveness in supply chain Lean philosophy of waste elimination JIT and inventory control Contract management and legal aspects Import management and foreign trade rules/regulations