Chapter One

Introduction to Materials
Management
 What do you think about the
importance of studying 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 and 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.
 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
 The importance of materials management was highly recognized during the
two world wars.
 To organize and facilitate the flow of consistent material supply.

 During WWI & WWII managing large inventories to economize inventory and
to eliminate shortage of materials.
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 were
recognized formally, not yet centralized organizationally.
Third phase: the 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 Forecasting: creates “the basis for materials planning. There

are quantitative and qualitative forecasting.
 Functions of Materials management… Cont’d

Materials Planning: is the scientific way of deciding the requirements of

raw materials, components and other items needed for production.

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.
 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 short distance movement of goods or materials within a storage
area, involving loading, unloading, palletizing, de-palletizing, etc.
 Functions of Materials Management…Cont’d
Dispatch or Shipping and logistics:
• 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.
Materials Forecasting,
Materials Planning,
Materials Budgeting and Programming
Purchasing
 Scope of Material Managements …Cont’d

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 are 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 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 ensure continuous material supply economically.

• 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.
 Objective of material management ...cont’d

• The overall purpose of material management is to satisfy the following five right:-

To get
Right quality

 Right cost

Right quantity

Right time

Right supplies
 Importance of Material Management
• Reducing operating costs and timely production.

• Creating satisfaction for stakeholders.

• Maintaining reserve stock and avoid stock out.

• Maximizing space utilization.

• Ensuring effective material distribution.

• Enabling 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
applicable for materials management.
Economy: General economic conditions influence the company’s products
demand and the availability of inputs.
Competition: communication is fast, transportations becoming cheap and global
competition is hard and this make it open for global competition.
Customers: customers are much more demanding, high quality, low price,
speed, and flexibility.
Quality: companies expected to provide quality that exceeds their expectation.
Materials management and its Environment
… cont’d
2. Internal factors
Within an organization, the material management function
is expected to be integrated with other functional areas.
I. Materials Management and Finance
• The finance section is responsible for maintaining cash flow and providing advice in
preparing operating budgets.
• Materials management should spend only reasonable costs for materials related cost.
• Their should be smooth relationship between finance and materials management.
Materials management and its Environment … cont’d

II. Materials Management & Manufacturing

• Material management section supplies all the necessary materials to

manufacturing section.

• They should supply the right quantity materials/part with the right quality
at the right time and at a reasonable price.

• Manufacturing team required to provide proper requests.

• Their should be smooth relationship between materials management and

manufacturing.
Materials management and its Environment … cont’d

3. Marketing with Materials Management

• Materials requirement planning made based on the sales forecast of

marketing.

• Effective marketing activities happen with uninterrupted supply of

materials.

• Their should be smooth relationship between materials management

and manufacturing.
 Problems Associated with Material Management
Lack of qualified managers

Insufficient upper management support

Improper planning and implementation

Lack of credibility
T h a n k Yo u