MATERIALS MANAGEMENT -An Overview

MATERIALS MANAGEMENT

Definition It is concerned with planning, organizing and

controlling the flow of materials from their initial purchase through internal operations to the service point through distribution.

OR Material management is a scientific

technique, concerned with Planning, Organizing &Control of flow of materials, from their initial purchase to destination

IMPORTANCE OF MATERIALS MANAGEMENT

In many organizations materials form the largest single expenditure item.

Significant contribution made by the materials Manager in reducing material cost will go a long way in improving the profitability & rate of return on the investment.

EXAMPLE

An organisation with annual turnover of Rs.10 million.

Manager is given a work of improving the profitability by say Rs.0.3 million

He has two ways: 1.To increase the sales by 30% in specific span of time such that the overall profit will be Rs.1.3 million. 2.To reduce the materials cost by 5% in a certain time dimension so as to result in an increased profit margin of Rs.0.3 million.

WHAT TO SELECT?

Result of the efforts in reducing the material cost by 5% = Marketing efforts of increasing the sales by 30%

Increasing the sales calls for a lot of additional marketing & advertising expertise, efforts, time and expenses.

Whereas efforts can be made in saving amount in Materials Cost in existing infrastructure.

It will go a long way in not only improving the profits but also in raising the corporate image of the company.

OBJECTIVES

The objectives of materials management can be categorized in

two ways:

PRIMARY OBJECTIVES

SECONDARY OBJECTIVES

PRIMARY OBJECTIVES

Which can be classified as:

(i) Efficient materials planning

 (ii) Buying or Purchasing

 (iii) Procuring and receiving

 (iv) Storing and inventory control  

(v) Supply and distribution of materials

 (vi) Quality assurance

 (vii) Good supplier and customer relationship

 (viii) Improved departmental efficiency

SECONDARY OBJECTIVES

(i) Efficient production scheduling

(ii) To take make or buy decisions (iii) Prepare specifications and standardization

of materials

(iv) To assist in product design and development

(v) Forecasting demand and quantity of materials requirements

(vi) Quality control of materials purchased

(vii) Material handling

(viii) Use of value analysis and value engineering

(ix) Developing skills of workers in materials management

(x) Smooth flow of materials in and out of the organization

COSTS INVOLVED IN MATERIALS MANAGEMENT

Ordering Costs

o Cost of placing an ordero Loading and unloading of goodso Transportation costo Insurance for goods in transito Cost of receiving and inspectiono Administrative costo Taxes and Duties

Carrying Costs

Warehouse charges Pilferage

Insurance Breakage

Lighting Preservatives

Heating Supervision costs

Cold storage and Refrigeration

INTEGRATED APPROACH TO MATERIALS MANAGEMENT

Various functions of Materials Management include the materials planning, purchasing, receiving, stores, inventory control, scrap and surplus disposal

If some of the functions were to be separately handled, normally a conflict of interests occur.

For e.g. Purchase Department buying raw material in bulk to avail discount without considering warehousing facilities and carrying cost.

In other words we need to balance the conflicting objectives from total organisation point of view

For e.g. An expansion will require planning for the increased sources, developing new sources, revision in inventory levels, apart from the increased load in receipt of material, inspection and storing.

In an integrated set up, the materials manager is in position to exercise control and coordinate to ensure proper balance of the conflicting objectives of the individual functions.

Integration also helps in rapid transfer of data through effective and informal communication channels.

ADVANTAGES IN INTEGRATED MATERIALS MANAGEMENT CONCEPT. Better Accountability

Better co-ordination

Better performance

Miscellaneous advantages -Team spirit -Better morale and cooperation -Better opportunities for growth and

development -Exposure to the broader aspect of the

materials functions.

ORGANIZING MATERIALS MANAGEMENT

Organization based on Commodities

Organization based on Location

Organization based on Functions

ORGANISATION BASED ON COMMODITIES

Items are classified according to their nature such as raw materials, spares, imported items, finished goods etc.

Depending upon the importance of the commodity group with respect to company operations workload varies.

This helps in determining the staff determination in each commodity group.

Example of Commodity Grouping

Materials Manager ------------------------------------------------------------

Sores Manage

r

Manager Traffic and

Receiving

Purchase

Manager

Inventory Control

and information manager

Buyer Casting

s

Buyer Raw Materials

Buyer Production PartsBuyer Forgings

Buyer Production Parts

Buyer Civil Engineering

Materials

ADVANTAGES OF ORGANISATION BASED ON COMMODITIES

There is no wasteful duplication of efforts as each commodity is separately handled.

The group is intimately in touch with its respective commodity market and hence it becomes specialized.

ORGANISATION BASED ON LOCATION

When an organization has several plants located in different parts of the country there are two alternatives.

1.To have centralized organisation located at the headquarters.

2.To have a decentralized materials

management set up in each location.

ADVANTAGES OF CENTRALIZED MATERIALS MANAGEMENT DEPARTMENT

Combining requirements of plants and buying in bulk leads to substantial reduction in cost.

Interplant transfer of materials in an emergency is possible.

Surplus materials in one plant can be utilized in meeting the requirements of another plant.

Since there is only one department dealing with various sources of supply, a higher order of skills can be expected.

ADVANTAGES OF DECENTRALIZED MATERIALS MANAGEMENT SET UP

When distance between the plants are significant, the materials management function is impaired when controlled from the centre both in terms of cost and time.

Each plant may require unique materials and materials management department located at the plant will be in a much better co-ordination with the plant’s production, finance and marketing departments.

EXAMPLE OF DECENTRALIZED SET UP:

Director, Materials

Materials Manager

(Rubber Product Division)

Materials Manager

(Textile Division)

Materials Manager

(Electronic Division)

Executive Staff to Director Materials

Plant at Chennai

Plant at Mumbai

Plant at Delhi

COMPARATIVE STUDY OF CENTRALIZED AND DECENTRALIZED SET UP

Centralized Decentralized

Material Cost Low High

Transportation Cost

High Low

Space Low High

Inventory Carrying

Low High

Automation Cost Low High

Set Up Cost Low High

ORGANISATION BASED ON FUNCTIONS

The materials management department is structured on the basis of functions such as stores, transport, receiving, purchase and so on.

Stores of different manufacturing divisions will be under one individual who will report to the materials manager.

This system permits specialisation in each function.

INTERDEPARTMENTAL RELATIONSHIPS

Materials Management department will have to work in close co-ordination with production, marketing and finance department.

Mutual trust is essential to ensure that all departments will work towards the total organisational objectives.

EXAMPLES Production department will have to keep

materials management department informed about its plans and schedules so that materials requirement can be planned in advance.

The materials management department must keep the production department informed about the lists of suppliers, availability of new materials, and anticipated delays so that re-scheduling of production could be done and costly stock outs avoided.

Thank You!