Chapter one
Introduction to materials management
Material management is defined as the planning, acquiring, storing, moving and controlling of materials as per
the requirement of the organization. Materials management is basically related with the smooth flow of
materials. The major activities covered under materials management are the anticipation of the materials
required in the organization from time-to time. It involves ordering and obtaining materials from the
suppliers, introducing the materials to the organization and monitoring the status of materials. It helps to
optimize the usage of facilities, personnel and funds and to provide service to the user in the line with the
organizational aims. Materials management is the coordination and control of the various material
activities. The key material activities are
Purchasing Activities: It involves mainly identification of materials needs, market research, maintaining
materials records etc.
Procurement Activities : It involves material specifications, materials studies, receiving materials etc.
Inventory Management:- It involves planning and controlling of materials handling, storing materials
and managing material supplies etc.
Supply Management:- It involves monitoring in-plant material handling, strategic planning of materials etc.
Objectives of Materials Management Department
Materials management’s considerable effect on profits demands that its objectives be derived from the general
business objectives “maintaining competitiveness” and “satisfactory profitability”. The main objectives of
materials management are as follows:
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To ensure continuous uninterrupted production or operation or project work by maintaining a
steady flow of materials;
To achieve the above objective in an efficient and economical manner;
To effect economies in the cost of materials by purchasing materials of the right quality, in the right
quantity, at the right time, from the right source, at the right price;
To affect economies in the costs incurred on materials after they have been purchased, through storage,
processing and warehousing, till the finished goods ultimately reach the customer. These economies
contribute towards cost thereby leading to higher profits;
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; and consequently;
To improve the quality of manufactured goods by use of better raw materials or components and thereby
the increase the competitiveness on such goods put of sale;
To increase the competitiveness of manufactured goods by making it possible to reduce their prices
through cost reduction, especially by value analysis;
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To ensure cooperation among all departments of the enterprise to meet materials management
objectives both at the corporate and functional levels and to ensure proper coordination in respect of
such activities;
To conserve materials resources within enterprise, thereby contributing to the conservation of national
resources.
Objectives of Materials Management
The objectives of material management can be classified into two categories viz; primary objectives and
secondary objectives.
Primary Objectives:
The following are the primary objectives:
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Low Prices: If materials department succeeds in reducing the price of items it buys, it contributes in not
only reducing the operating cost but also in enhancing the profits.
 Lower Inventories: By keeping inventories low in relation to sales, it ensures that less capital is tied up
in inventories. This increases the efficiency with which the capital of the company is utilized resulting
in higher return on investment. Storage and carrying costs are also lower.
 Reduction in Real Cost: Efficient and economical handling of materials and storage lowers the
acquisition and possession cost resulting in the reduction in the real cost.
 Regular Supply: Continuity of supply of materials is essential for eliminating the disruption in the
production process. In the absence of regular supply of materials, production costs go up.
 Procurement of Quality Materials: Materials department is responsible for ensuring quality of materials
from outside suppliers. Therefore, quality becomes the single most objective in procurement of
materials.
 Efficient handling of Materials: The effective material control techniques help the efficient handling of
materials resulting in the lowering of production cost.
 Enhancement of firm’s goodwill: Good relations with the suppliers of materials enhance the company’s
standing in the society as well as in the business community.
 Locating and developing future Executives: Materials manager must devote special effort to locate men
at lower position who can take up the executive posts in future. It helps in developing talented
personnel who are ready to undertake future responsibilities of the business relating to materials
management.
Secondary Objectives: The following are the important secondary objectives of materials management.
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Reciprocity: The purchase of raw materials from the organizations/customer’s by the concern and in
turn, sale of finished products to the above customers is known as reciprocity. It serves the twin purpose
of increasing purchasing as well as sales.
New Developments: The staff of the materials department deals regularly with the suppliers responsible
for new developments in material handling. These developments can be successfully applied in material
handling and management.
Make or Buy Decisions: The material manager with regular reviews of cost and availability of materials
can safely conclude that whether the material is to be purchased or developed in the organization itself.
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Standardization: Standardization of materials is greatly helpful in controlling the material management
process. With regular stock-taking, the non-standardized items can be rejected and standard components
may be brought into product designs to reduce the cost of production. It is further helpful in promoting
the standardization with suppliers.
 Assistance to Production department: By supplying the standardized materials or components to the
production department, quality products can be assured. It is helpful in imparting the economic
knowledge in bringing about the desired improvement in the product.
 Co-operation with other departments: Successful management of materials department contributes to the
success of every other department in the organization. At the same time the success of materials
department depends on how successful it is in getting the co-operation of the staff of the other
departments.
 Conception of future outlook: The materials manager must have some conception of future outlook for
prices, cost and general business activity. Forecasting can be made about the future trends in materials.
The materials manager should be able to foresee the prices and costs of the raw materials and general
business conditions through their daily contracts with the suppliers.
From the above it is clear that materials management serves two fold objectives viz., to strive for a reduction in
cost of production and distribution and to help the enterprise in attaining its objectives. These dual objectives of
the materials management further aim at maintaining the regular flow of production by purchasing materials of
right quality, in a right quantity at a right time from a right source, on right terms and conditions and at lower
price. It is helpful in efficiently controlling the inventories. It is further beneficial in developing good buyer
seller relations. Coordination with other departments is established and considerably helps the organisation to
grow and advance in technical field.
 Scope of Materials Management
1. Purchasing of Materials
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Materials should be of right quality- Fighting competition, Increase in market share,
Increasing awareness, Development of tools for measuring quality, Lasting impression created by
quality
 . Purchasing in right quantity- Supply pos, EOQ most adv. & least costly; Max qua permissible by fin
res
 Purchasing at a proper time- Seasonal products: crop season, Repeatedly purr items: reorder level
 Purchasing at a right price- total cost S.P, competitive strength; quality, durability, time, place, service
 Purchase at a right place- Centralized purchasing policy, Min redistribution cost
 . Purchase from the right source of supply- Continuity of supply, Main of quality, Timely delivery,
Quality of service .Materials management means planning, directing, coordinating & controlling of
activities related to acquisition, storage, & maintenance of materials needed for the purpose or
production with an objective of minimizing the cost & increasing the profitability
2. Storage (Store keeper)
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Weight & quality are inspected
Classified as R.M, semi-fini goods, fini goods, spare parts, electrical goods, engineering
chemical items
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goods,
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Stored properly, quality is maintained, proper safeguard against theft; cold storage facility, safety tanks,
underseal
 Storage should be scientific- Diff groups, coding of items, preparing of index showing code no & place
or room no or go down no or cupboard no; maximum use of space available, reduces wastage & cost,
protects quality, makes the item easily traceable
 Bincard
3. Inventory Control
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For maintaining the continuity of production & sale, minimizing the stock out cost, controlling the
investment of working capital in stock inventory control is essential, for scientific storing
 Techniques like EOQ, min & max stock levels, reorder level, ABC analysis, stock register
4. Clearing & Forwarding
 i.. Railway station, Airport- Undergoing the required procedure & completing necessary procedure
 Railway or Steamer- Clearing & forwarding sec observes necessary formalities for dispatch
 Import Export- Lengthy & complicated procedure: Expert forwarding agents
Importance/significance of Material Management
Material management is a service function. It is as important as manufacturing, engineering and finance. The
supply of proper quality of materials is essential for manufacturing standard products. The avoidance of
material wastage helps in controlling cost of production. Material management is essential for every type of
concern.
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Provides greater company profit or greater value for each birr the company spends.
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By making materials available wisely and competitively.
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By conducting value analysis and available substitutes.
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By insuring minimum investment in inventory.
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By proper handling and disposal of scraps and wastes.
Improves customer service.
By minimizing those conditions that can produce discontented customers like
 Stock out.
 Delay in delivery.
 Delivery of defective materials.
Leads to uninterrupted material flow.
 By proper material requirement forecast.
 By lead time fore cast.
 By determining ordering of quantity, time and level.
Fosters good vendor relationships.
The importance of material management may be summarized as follows:
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The material cost content of total cost is kept at a reasonable level. Scientific purchasing helps in
acquiring materials at reasonable prices. Proper storing of materials also helps in reducing their
wastages. These factors help in controlling cost content of products.
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The cost of indirect materials is kept under check. Sometimes cost of indirect materials also increases
total cost of production because there is no proper control over such materials.
 The equipment is properly utilized because there are no break downs due to late supply of materials.
 The loss of direct labor is avoided.
 The wastages of materials at the stage of storage as well as their movement is kept under control.
 The supply of materials is prompt and late delivery instances are only few.
 The investments on materials are kept under control as under and over stocking is avoided.
 Congestion in the stores and at different stages of manufacturing is avoided.
Functions of Material Management
Material management covers all aspects of material costs, supply and utilization. The functional areas involved
in material management usually include purchasing, production control, shipping, receiving and stores. The
following functions are assigned for material management:
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Production and Material Control: Production manager prepares schedules of production to be carried in
future. The requirements of parts and materials are determined as per production schedules. Production
schedules are prepared on the basis of orders received or anticipated demand for goods. It is ensured
that every type or part of material is made available so that production is carried on smoothly.
 Purchasing: Purchasing department is authorized to make buying arrangements on the basis of
requisitions issued by other departments. This department keeps contracts with suppliers and collects
quotations etc. at regular intervals. The effort by this department is to purchase proper quality goods at
reasonable prices. Purchasing is a managerial activity that goes beyond the simple act of buying and
includes the planning and policy activities covering a wide range of related and complementary
activities.
 Non-Production Stores: Non-production materials like office supplies, perishable tools and maintenance,
repair and operating supplies are maintained as per the needs of the business. These stores may not be
required daily but their availability in stores is essential. The non-availability of such stores may lead to
stoppage of work.
 Transportation: The transporting of materials from suppliers is an important function of materials
management. The traffic department is responsible for arranging transportation service. The vehicles
may be purchased for the business or these may be chartered from outside. It all depends upon the
quantity and frequency of buying materials. The purpose is to arrange cheap and quick transport
facilities for incoming materials.
 Materials Handling: It is concerned with the movement of materials within a manufacturing
establishment and the cost of handling materials is kept under control. It is also seen that there are no
wastages or losses of materials during their movement. Special equipment’s may be acquired for
material handling.
 Receiving: The receiving department is responsible for the unloading of materials, counting the units,
determining their quality and sending them to stores etc. The purchasing department is also informed
about the receipt of various materials.
Advantages of Material Management
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Reduced operating costs and timely production.
Greater job satisfaction on the part of both the workers and the employer.
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 Every inch of the space is properly utilized.
 The issue of materials is also facilitated.
 It helps in maintaining effective production planning and control.
Conclusion
Material management is an important management tool which will be very useful in getting the right quality &
right quantity of supplies at right time, having good inventory control & adopting sound methods of
condemnation & disposal will improve the efficiency of the organization & also make the working atmosphere
healthy any type of organization, whether it is Private, Government, Small organization, Big organization and
Household. Even a common man must know the basics of material management so that he can get the best of
the available resources and make it a habit to adopt the principles of material management in all our daily
activities.
 Relationship between Materials Management Department and other Departments
Materials Management Department plays a very important role in an organization and it must
have good relationship with other departments. The departments that are mostly involved are:
Production, Engineering design, Quality control, and Finance Department.
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Materials Management Department and Production Department
The materials management department must have good relationship with production department.
Materials Management is responsible for the purchase of all materials required by the
production department. If the needed materials are not supplied at right time then the production
process can halt and generate huge losses. So, for the smooth functioning of the production
department, the materials department must be vigilant about the latest requirements.
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Materials Management and Engineering Design Department
If both materials management and engineering design department work together then the much required
innovative strategies can be formulated and implemented. Both departments can work together for
standardization of materials. The suggestions of the materials management are very important for
engineering department.
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Materials Management and Quality Control Department
The selection and rejection of the materials purchased depends upon the parameters set by the quality
control department. So, if both the departments have cooperation and cordial relationship then the
delay in the purchasing of raw materials can be avoided
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Materials Management and Finance department
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Usually, finance department release fund to materials department for the materials purchased. It is
the responsibility of the both departments to clear payments to the suppliers smoothly, without much
delay unnecessarily.
 Risks to be Considered by Purchase Material Manager
The purchase and materials manager must avoid the following consequences:
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Receiving materials before they are required, causing more inventory cost and
chance of
deterioration in quality;
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Not receiving materials at the time of requirement, causing loss of productivity;
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Incorrect materials take off from drawing and design document;
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Subsequent design changes;
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Damage/loss of items;
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Failure on installation
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Selection of type of contract for specific material procurement;
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Vender evaluation criteria;
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Pilling up of the inventory and controlling of the same;
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Management of surplus materials; and
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Any one of the above or all of the above, or combinations
 Materials Requirement Planning (MRP)
Definition - Materials Requirement Planning (MRP)
Material requirements planning (MRP) is a production planning, scheduling, and inventory control system
used to manage manufacturing processes. Most MRP systems are software-based, while it is possible to
conduct MRP by hand as well. Material requirements planning (MRP) is a production planning and
inventory control system. An MRP takes important inputs from inventory and the bill of materials
(BOM) to give output in terms of planning purchasing and shipping schedules for the raw materials,
parts or components required for the production of a product.
A materials requirement planning (MRP) information system is a sales forecast-based system used to
schedule, order and track records of raw material, components required and manages deliveries and quantities,
helpful in systematic production planning.
A computerized system for managing dependent-demand inventory, calculate the demand for items, scheduling
replenishment orders, and meeting all the requirements for the production as given in the Master Production
Schedule.
Material Requirements Planning is a time phased priority-planning technique that calculates material
requirements and schedules supply to meet demand across all products and parts in one or more plants.
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The material requirements plan is a sophisticated computer generated calculation quantifying procurements and
production requirements from the relationships of the above four reference questions,
Basic Characteristics of MRP
The following are the features of MRP:
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MRP calculate the demand for components, subassemblies, raw-materials, spare parts.
MRP helps in systematic planning
MRP takes into account the lead time required for orders.
MRP helps in purchase orders planning and tracking
MRP is helpful in preparing production schedules
MRP ensures materials are available for production and products are available nfor delivery to
customers.
MRP maintains the lowest possible material and product levels in store.
MRP is helpful in planning manufacturing activities, delivery schedules and purchasing activities.
MRP is best suited for the control of purchased materials that exhibit the following
characteristics:
 Material that can be purchased on long term contracts with frequent releases for shipment in
relatively small quantities.
 Raw material or standard items for which lead item requirements are relatively short and seldom
vary appreciably.
 Material that can be purchased repetitively without requiring much creative
 purchasing analysis or for which value analysis, purchasing research and vendor
 studies have previously been completed. (Dobler & Burt, 1995)
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