Introduction to Material

Management
 Introduction

• Material is one of the four basic resources-

Labor, Material, Equipment & Capital.
• Material Management is one function that
although neglected ,has gained importance
throughout all types of organisation as it plays
vital role in a business.
 Role of Material management in Business

1. As a basic function of the firm:

Any organisation has broad functions:
• Marketing Management,
• Material management,
• Production/operation Management,
• Finance,
• Human resource &
• Legal
Of these Material, Production & marketing are basic or core functions, while
the rest are support function
Input Activities Operation Output
•Purchasing •Marketing
•Stock Control Or •Sales
•Stores Management Production •Advertising
•Logistics •Distribution
Role of Material management in Business

2. As a manager of outside Manufacturing:

The parts that go into making of end products can come from two
sources: in-house production or purchase from outside. Earlier , firms
themselves produced all parts but now they have started identifying
core competencies and purchase the best parts from Market.
So Materials manager play vital role in purchase of raw material
which in turn help in getting best for organisation and reducing the cost
of the end product.
Thus Material manager is answerable for purchase of items
manufactured outside just as production manager is answerable for
parts produced in-house.
Role of Material management in Business

3. As controller of cost:
Ordering or set-up costs, carrying costs, logistics
costs(Transportation and warehousing) and shortages or
surplus costs, besides the cost of purchase were not
accounted and included in overheads so impact was not felt.

But now combined contribution is measured which is quite

significant & provides good scope for cutting costs.
 Definition & Scope of Material Management

It involves all activities concerning materials right from the time the need for
material is established until they are issued to production.
Definition:
Material Management may be defined as the grouping of management function
that support the entire material flow cycle right from material planning, purchase,
inventory control, stores, warehousing and dispatch.
Material flow cycle
Work in
process

Raw Raw Work in Finished Finished Finished

Material Material process goods goods goods

Work in
Process

Suppliers Manufacturing Plants Distribution Retailers

centers
Definition & Scope of Material Management

• Material management may also be defined as the concept

which brings together under one manager the responsibilty
for determining the manufacturing requirements ,scheduling
the manufacturing process & procuring, storing & dispersing
material.
• Material management according to Bethel:-
“Controlling the kind, amount, location, movement & timing
of the various commodities used in and produced by the
industrial enterprise”
Definition & Scope of Material Management

Scope:

In Greek term ‘Rheochrematics’ very precisely explains the

scope of materials management. ‘Rheo’ meaning a flow,
‘chrema’ meaning products, things or materials and ‘ics’
meaning science or knowledge conveys properly the meaning
of material management.

Thus, Scope of Material management is to cover all aspects of

Materials & their supply necessary for converting raw
materials into finished products
 Evolution of Material management
Period Nature of Purchase Management
Perception
Early Part of Twentieth Considered as : Contribution to
Century •Clerical profit was nor
•Reactive perceived--
•non-important Function

Most part of Twentieth •Expense Control Increased regard

century ** -Reduce price for purchase
-new source of supply
-Finding substitutes of products
-Specification change resulting in less costly
material
-Regulating ordering/delivery to have low
inventory
• Proactive

Towards end of Twentieth -Manager of outside manufacturing Greater

century --Paradigm shift in coping with uncertainities -’in importance
place of inventory, information technology is used’
--Supply chain

** --Increase in consumer goods (Shortage of Raw material)

--Petroleum products & their derivatives became scarce
--Sharp rise in cost of raw material & led to increase in cost of inventory
-- Purchase manager was forced to adopt innovative & proactive measures to find the
substitute of Raw material.
 Importance of Material Management
Materials Productivity has a significant and direct effect on company’s profitability
(Return-on-investment). Return on vestment is ratio of profit to capital .

Rate of Return on investment (R.O. R.)

Profit(P)/Capital(C)
Two basic ways to improve R.O.R.
a) Increase profit keeping capital constant
b) Reduce capital keeping profit constant

c) Increase profit keeping capital constant:

Profit is must to run an organization. Profit is the first test of the
management effectiveness.
Areas of control to improve profit:
i. Increase units sold
ii. Increase Production
iii. Increase unit price
iv. Reduce unit cost
 Importance of Material Management
i. Increase units sold:
Sales & production must be evenlybalanced to ensure whatever
is produced is sold,failing which the company will end up with
unsold stocks
ii. Increase Production:
Production can be increased by better management of existing
resources(i.e by improving productivity). Thus increase in
productivity is within the control of the management.
iii. Increase unit price:
Price generally is a function of demand & is controlled by the
forces of supply & demand. For company it becomes impossible
to make increase in price so it is left with the reduction of cost.
 Importance of Material Management
iv. Reduce unit cost:
Cost is composed of material cost, labor cost and overheads. Material
management has huge scope for cost reduction. By reducing the material cost.
A rupee saving on material cost is almost equivalent to ten rupee of sale. A
sale is one time while saving has recurring effect.
b) Reducing a capital:
ROR can be improved by reducing capital. Capital is fixed capital and working
capital. There is very less scope to reduce the fixed capital, hence working
capital may be reduced to increase ROR.

Working capital comprises 80% in inventory(Raw material, WIP, Finished

goods) which can be reduced by proper material management