CHAPTER ONE: INTRODUCTION TO MATERIALS MANAGEMENT

The concept of having one department responsible for the flow of materials, from supplier
through production to consumer, thereby minimizing total costs and providing a better level of
customer service, is known as materials management. Other names include physical
distribution, distribution planning and control, supply chain management, and logistics
management. Despite numerous names, however, the trend in recent years has been for
companies to adopt the materials management or logistics management title. Increasingly,
companies are recognizing the need to implement this type of organization to maximize profits,
improve customer service, establish needed controls, and reduce costs. Such diverse
organizations as hospitals, the military, manufacturers, railroads, food distributors, newspapers,
universities, and insurance companies are creating materials/ logistics management departments.

1.1 Definition of Materials Management

There are different ways to define the term materials management.

 “Materials management is managing flow of materials into, through, and out of

the system.”
 “Materials management pertains to decision making with respect to materials to ensure right
quantity of materials of right quality at right time at right place in right price to get most out
of every dollar invested in them.
 Materials management is defined as “the function responsible for the coordination of
planning, sourcing, purchasing, moving, storing and controlling materials in an optimum
manner so as to provide a pre-decided service to the customer at a minimum cost”.
 ”Materials management is "planning, coordinating, and controlling the acquisition, storage,
handling, and movement of raw materials, purchased parts, semi-finished goods, supplies,
tools, and other materials that are needed in the production process. James R. Evan
 Materials management is "the grouping of management functions supporting the complete
cycle of materials flow, from the purchase and internal control of production materials to the
planning and control of work in process to the warehousing, shipping, and distribution of the
finished product.” The American Production and Inventory Control Society (APICS)

Some of the other variants of definitions are as follows:

 Materials management is “a coordinating function responsible for planning and controlling
materials flow. Its objectives are to maximize the use of the firm‟s resources and provide the
required level of customer service.” Chapman, et al., 2017
 “Materials management is concerned with design, specification, procurement, transportation,
inspection, storage, retrieval, use, disposal, and accounting of materials to maximize return
on investment in materials.”
 “Materials management is to ensure adequate supply of materials to meet the anticipated
pattern of demand in a system.”
 Ballot (2006) defines material management as the process of planning, acquiring, storing,
moving, and controlling materials to effectively use facilities, personnel, resources and
capital.
 Beekman-Love (1998) states that a material management structure should be organized in
such a way that it allows for integral planning and coordination of the flow of materials, in
order to use the resources in an optimal way and to minimize costs.
 Baily and Farmer (2009) define material management as a concept concerned with the
management of materials until the materials have been used and converted into the final
product. Activities include cooperation with designers, purchasing, receiving, storage, quality
control, inventory control, and material control.
 Cavinato (1994) states that material management involves the control of the flow of goods in
a firm. It is the combination of purchasing with production, distribution, marketing and
finance.

Materials defined
Materials are considered as the lifeblood and heart of any manufacturing or service system.
Material is defined as the physical materials that are purchased and used to produce the final
product and does not suggest that materials are the final product. In other words, materials are
the parts used to produce the final product. Stukhart (2007) defines materials as the items that are
used to produce a product and which include raw materials, parts, supplies and equipment items.
For our purpose, material is defined as any commodity used directly or indirectly in producing a
product or service.

Industrial materials can be classified into several categories based on how they enter the
production process and their relative costliness.

1. Raw materials
These are the materials that have been delivered to an organization, but are not yet being used.
Raw materials fall into two major groups: farm products (e.g., wheat, cotton, livestock, fruits,
and vegetables) and natural products (e.g., fish, lumber, crude petroleum, iron ore). Farm
products are supplied by many producers and their perishable and seasonal nature gives rise to
special marketing practices. On the other hand, natural products are limited in supply. They
usually have great bulk and low unit value and must be moved from producer to user. Fewer and
larger producers often market them directly to industrial users. Because the users depend on
these materials, long-term supply contracts are common.
2. Manufactured components and parts
Most manufactured materials and parts are sold directly to industrial users. Manufactured
materials and parts fall into two categories: component materials and component parts.
Component materials are usually fabricated further (e.g. iron, yarn, cement, wires). The
standardized nature of component materials usually means that price and supplier reliability are
key purchase factors. Component parts enter the finished product with no further change in form,
such as bolts & nuts, small motors, engines, tires and castings.
3. Capital items
Capital items are long-lasting goods that facilitate developing or managing the finished product.
They include two groups: installations and equipment. Installations consist of buildings
(factories, offices) and heavy equipment (generators, drill presses, mainframe computers,
elevators). Installations are major purchases. They are usually bought directly from the producer,
with the typical sale preceded by a long negotiation period. The producer's sales force includes
technical personnel. Producers have to be willing to design to specification and to supply post
sale services. Equipment comprises portable factory equipment and tools (hand tools, lift trucks)
and office equipment (personal computers, desks). These types of equipment do not become part
of a finished product. They have a shorter life than installations but a longer life than operating
supplies. Although some equipment manufacturers sell direct, more often they use
intermediaries, because the market is geographically dispersed, the buyers are numerous, and the
orders are small.
4. Supplies
Supplies are short-term goods that facilitate developing or managing the finished product.
Supplies are of two kinds: maintenance and repair items (paint, nails, brooms), and operating
supplies (lubricants, coal, writing paper, pencils). Together, they go under the name of MRO
goods. Supplies are usually purchased with minimum effort on a straight re-buy basis. They are
normally marketed through intermediaries because of their low unit value and the great number
and geographic dispersion of customers.

Another classification of materials includes:

1. Purchased materials - these are the raw materials, components, spare parts, and items that
are used in the production process.
2. Work-in process (WIP) - these materials are in the semi-finished stage. It refers semi-
finished products found at various stages in the production process (i.e. assembled
motherboard).
3. Finished goods - these are the final products (consumable goods) that are ready for final
delivery or distribution to consumers.
4. MRO Supplies- these are maintenance, repairing, and operating supplies used in the
manufacturing process but are not part of the final products (i.e. soap, lubricating oil).

1.2 The Functions (Scope) of Materials Management

From the definition of materials management, it is clear that the scope of materials management
is vast. Materials management depends upon the close cooperation and coordination of all its
sub-functions. The primary functions of materials management can be categorized in the
following ways:

1. Material Planning and Control

2. Purchasing
3. Stores Management
4. Inventory Control
 5. Materials handling
6. Transportation/shipping
7. Other functions or activities
 Standardisation
 Simplification
 Value Analysis
 Erogonomics
 Just-in-Time(JIT)

Materials planning and control: Based on the sales forecast and production plans, the materials
planning and control is done. This involves estimating the individual requirements of parts,
preparing materials budget, forecasting the levels of inventories, scheduling the orders and
monitoring the performance in relation to production and sales.

Purchasing: This includes selection of sources of supply finalization in terms of purchase,

placement of purchase orders, follow-up, maintenance of smooth relations with suppliers,
approval of payments to suppliers, evaluating and rating suppliers.

Stores management: This involves physical control of materials, preservation of stores,

minimization of obsolescence and damage through timely disposal and efficient handling,
maintenance of stores records, proper location and stocking. A store is also responsible for the
physical verification of stocks and reconciling them with book figures. A store plays a vital role
in the operations of a company.

Inventory control: Inventory generally refers to the materials in stock. It is also called the idle
resource of an enterprise. Inventories represents those items, which are either stocked for sale or
they are in the process of manufacturing or they are in the form of materials, which are yet to be
utilized. The interval between receiving the purchased parts and transforming them into final
products varies from industries to industries depending upon the cycle time of manufacture. It is,
therefore, necessary to hold inventories of various kinds to act as a buffer between supply and
demand for efficient operation of the system. Thus, an effective control on inventory is a must
for smooth and efficient running of the production cycle with least interruptions.

Materials handling: Materials handling involves both design and physical movement. It is the
function of developing and implementing appropriate manual, mechanized, and automated
systems to provide movement of materials throughout the company. Major activities include:
analyzing company operations to determine the need for improved materials handling , designing
and justifying new materials handling systems that will provide increased production capacity,
improved materials flow, reduced costs, improved working conditions, and reduced waste,
providing user-oriented materials handling systems and transporting materials to and from
storage areas and the point where they will be used.

Transportation/shipping: Transportation of materials encompasses all the operations involved

in the movement and flow of products (materials and finished goods) from the time they are
received to the time they are shipped to the customer. Major activities include: receiving finished
goods from manufacturing departments or outside suppliers, verifying quantity, and identifying
and moving materials to the warehouse, determining and arranging for the most economical
method to transport incoming and outgoing materials and products and loading trucks, freight
cars, and so on for shipment to customers.

Other related functions include the 3S‟s (standardization, simplification & specifications),
value analysis, ergonomics and Just-in-Time (JIT). Standardization means producing maximum
variety of products from the minimum variety of materials, parts, tools and processes. It is the
process of establishing standards or units of measure by which extent, quality, quantity, value,
performance etc. may be compared and measured. The concept of simplification is closely
related to standardization. Simplification is the process of reducing the variety of products
manufactured. Simplification is concerned with the reduction of product range, assemblies, parts,
materials and design. Specifications refer to a precise statement that formulizes the requirements
of the customer. It may relate to a product, process or a service. For example, specifications of
an axle block are inside diameter. = 2 ± 0.1 cm, outside diameter. = 4 ± 0.2 cm and length = 10 ±
0.5 cm. Value analysis is concerned with the costs added due to inefficient or unnecessary
specifications and features. It makes its contribution in the last stage of product cycle, namely,
the maturity stage. At this stage research and development no longer make positive contributions
in terms of improving the efficiency of the functions of the product or adding new functions to it.
Ergonomics (human engineering) is concerned with man-machine system. Ergonomics is “the
design of human tasks, man-machine system, and effective accomplishment of the job, including
displays for presenting information to human sensors, controls for human operations and
complex man-machine systems.” Just-in-time (JIT) is viewed as a production technique which
aims to improve overall productivity through elimination of waste and which leads to improved
quality. JIT provides an efficient production in an organization and delivery of only the
necessary materials and parts in the right quantity, at the right time and place while using the
minimum facilities”.

1.3 Objectives of Materials Management

Materials Management is that aspect of management function, which is primarily concerned with
the acquisition, control, and use of materials needed and flow of goods and services connected
with the production process having some predetermined objectives in view.

The main objectives of material management are to:

 Minimize materials cost.

 Procure and provide materials of desired quality when required, at the lowest possible
overall cost of the concern.
 Reduce investment tied in inventories for use in other productive purposes and to develop
high inventory turnover ratios.
  Purchase, receive, transport (i.e., handle) and store materials efficiently and to reduce the
related costs.
 Trace new sources of supply and to develop cordial relations with them in order to ensure
continuous material supply at reasonable rates.
 Cut down costs through simplification, standardization, value analysis, import
substitution, etc.
 Report changes in market conditions and other factors affecting the concern, to the
concern.
 Modify paper work procedure in order to minimize delays in procuring material.
 Conduct studies in areas such as quality, consumption and cost of materials so as to
minimize cost of production.
 Train personnel in the field of materials management in order to increase operational
efficiency.

1.4 Importance of Materials Management

Materials management should have high degree of importance in the overall management of an
enterprise for the following reasons:

(a) Materials account for a very substantive proportion of the total cost of goods and services,
and in many cases they account for more than half the cost of doing business. Therefore, the
effective and efficient management of materials become a very powerful potential area for cost
reduction and value enhancement. It is estimated that in cotton textiles, silk yarns, rubber goods,
sugar, automobile, and electric goods industries, 60–70 % of total expenditure may be
on materials alone. For engineering goods, nonferrous metals, and pharmaceutical industries, it
may be between 50 and 60 %.

(b) Materials constitute a very important resource input to production or service system, and
hence availability of the right quality in right quantity at the right place and right time becomes a
prerequisite for effective completion of production and/or service targets or timely completion of
projects. Shortages cannot only be irksome, these could be at times very costly or even
catastrophic.

(c) In the era of global competition, the pressure for customer satisfaction delivering value has
reduced margins of profit, and hence coordinating material flow across global locations
economically calls for managing material flow into, through, and out of the system efficiently
and effectively.
1.5 Some Indicators of Low Materials Management Effectiveness
The following checklists could be used to measure the level of materials management efficiency
and effectiveness in an organization.

 Excess inventories or low inventory turnover ratio

 Large amount of material wastage or high wastivity
 Long and uncertain procurement lead times
 Poor storage methods leading to excessive wastage, handling losses and longer retrieval
times to meet the demand
 Too much variety of parts and components due to lack of standardization and codification
 Tight tolerances on the parts and components due to lack of value analysis.
 Prescribing much thicker, costlier, better material than functionally required.
 Prescribing materials which have to be imported whereas a locally available substitute
could do adds to the costs
 Buying from a wrong source, at a higher price
 Large proportion of expenses on materials handling and poor choice of materials
handling equipment
 Unreliable vendors due to lack of proper vendor selection, monitoring, and rating
 Large proportion of dead stock or nonmoving items in the system
 Poor storage layout, resulting in storage space being wasted or the operating efficiency
being adversely affected
 Nonscientific approaches to inventory management, not matching with the degree of
uncertainty in the supply environment
 Frequent shortage of materials when required leading to delays in production or projects
or service system
 Lack of database to support decision making and non-computerization of inventory
system
 Inappropriate organization structure not conducive to holistic thinking in dealing with
materials or giving it a low importance in organizational hierarchy.

1.6 History and Evolution of Materials Management

Since prehistoric times, humans have been concerned with obtaining, moving, and controlling
materials. Materials management is the result of a natural evolution; it did not develop quickly
but instead grew as an obvious business solution to the need to achieve optimum effectiveness in
the various materials functions.

During the late 1800s and early 1900s, the science of managing work and organizations were
developed. at that time, management efficiency disciples made major contributions in time study,
motion study, job design, personnel selection and training, etc. For example, F.W. Taylor, the
father of scientific management, recognized the need for functional specialists. Modern
managers also recognize the need for functional specialists, such as purchasers, inventory
analysts, and master schedulers.

The term „materials management’, as well as the organizational philosophy, came into use after
World War II. Beyond an enormously increased production capacity, the military requirements
of the war demanded a means to reduce the time required to produce needed products. Through
the 1950s and 1960s, fluctuations in national and international market requirements and
economic conditions highlighted the need for total control of materials. Thus, total materials
management began to spread as an organizational concept during the 1950s and 1960s. Since the
late 1960s there has been a transition from the old concept of purchasing to a newer concept of
materials management. This normally includes activities such as inventory control, materials
logistics, distribution and purchasing.

Nevertheless, not until the 1970s did U.S. industries come to increasingly adopt this
organizational structure. The primary reason for this movement was a need to control costs and
operations. During the 1970s, businesses were confronted with still other problems, among them
scarcity of money, price controls, ecological concerns, energy shortages, and rapid increases in
energy costs. There was a need to return to centralized control of the overall functional
organization. Sub-functions such as purchasing, inventory control, production control, materials
handling, and physical distribution might report to numerous executives within an organization.
This fragmented organization of materials activities gave rise to many internal conflicts that have
led many companies to a total materials/logistics management structure.

Since the 1980s US companies have enhanced the role of materials management and called it
„supply chain management‟. Today, many organizations include logistics in their organizational
structure, often composed of the same sub-functions as materials management. These terms are
even used interchangeably by companies and professionals when viewing their operations.