Materials are the key resources without which production is not possible. They are also major constituent of the cost of product & hence proper control over materials function is necessary. Materials management is concerned with material planning, market research for purchase, procurement of materials & capital goods, receiving, store keeping, warehousing, inventory control, packaging & packing of materials, materials movement, disposal of scrap, surplus & obsolete materials etc.

Material planning

Material economic s

Purchasing Waste managemen t Store keeping

Inventory control

Functions of materials management


Disposal of surplus material

Stores accounting

Increase profit keeping capital constant  Increase units sold  Increase units produced  Increase unit price  Reduce unit cost  Reduce capital keeping profit constant

Indirect materials Tools, consumables, accessories

Direct materials

Raw materials


Purchased parts

COSTS INVOLVED IN MATERIALS          Basic cost of materials Government levies & taxes Ordering cost Inventory carrying costs Packaging & packing cost Material handling costs Freight cost Insurance cost Wastage cost .

at right time.  To ensure consistency of quality by providing right materials.OBJECTIVES OF MATERIALS MANAGEMENT To maintain steady flow of materials to ensure uninterrupted production.  To reduce inventory investment  . of right quantity.  To achieve economy in cost of materials by adopting cost reduction techniques. in right quality.

 To preserve materials in stock to reduce losses due to pilferage. traffic etc.  All this at lowest possible cost  . stores.OBJECTIVES OF MATERIALS MANAGEMENT To improve buyer – seller relationship  To maintain good records of purchase.  To minimise wastage & improve productivity by reducing operating cost. deterioration. obsolescence etc.

consumables etc. parts.) Receiving & inspection (incoming)  Storage (right storage.ACTIVITIES RELATED TO MATERIALS MANAGEMENT  Materials planning (forecasting. theft) . proper preservation. security against pilferage. sales projection into production planning & requirements as per quantities & time)  Make or buy decision (making in or purchasing from outside)   Purchasing (raw materials. components.

MRP I. JIT.ACTIVITIES RELATED TO MATERIALS MANAGEMENT   Inventory control (by selective inv. MRP II) Distribution of materials (fastest)  Transportation (cost effective & efficient)  Disposal of surplus. obsolete & scrap materials  Developing new sources of supply  Import substitution . Techniques.

line of balancing. lead time analysis etc. critical path analysis.)   Waste management (minimum rework/rejection by design reviews. market. methods improvement ) Materials research (systematic formal & continuous analysis of all factors eg. JIT. variety reduction. suppliers. MRP etc. learning curve.ACTIVITIES RELATED TO MATERIALS MANAGEMENT   Insurance management (for materials in transit & stored) Materials cost reduction & cost control (various techniques like value analysis.) . price. economic. transportation models.

pan card no.  Comparatively codes are shorter & can minimise errors. tools T.CODING OF MATERIALS While purchasing wrong descriptions or identifications results in wrong purchases. WIP W. for raw material R.  . spares S etc.  Eg. roll no.s. pin code etc  In industry for eg.  Word descriptions are usually too long & can cause errors.

price levels etc. Earlier trend was to use copper as raw material for cables. It provides continuous flow of info on various aspects of materials like sources of supply.  Eg. market trends.  .MATERIALS RESEARCH It is a systematic & continuous analysis of all factors affecting material function. Now a days aluminium or alloys or cu-al combination is used to reduce cost.

To develop substitute materials – imports To organise & maintain purchasing library. lead time etc.FUNCTIONS OF MATERIALS RESEARCH      To identify alternative sources minimising supplier problems. . labour. To locate cheaper source of supply maintaining quality standards. Eg. To reduce variety among materials. components. parts etc.

right price. right source.  . quality. reliability  5R‟s of buying : right time.SOURCE SELECTION Indigenous/ foreign  Local/distant  Manufacturer/traders  Own employees  Sister companies  Lead time. right quality. price. right quantity.

at right time with minimum inventory. .MATERIALS PLANNING  It is the scientific way of determining the requirements of raw materials. BOC & others & ensuring their availability in right quantities.

receiving.LACK OF MATERIALS PLANNING CAUSES : Causes over or under ordering.  Increases workload on departments like purchase. stock outs.  . incoming etc.  Leads to unwanted emergency orders which cause high costs. overinvestment or shortages.

credit policy. storage facilities. lead time. working capital available.FACTORS AFFECTING MATERIAL PLANNING Internal factors Eg.  . National economy. Technology. direct & indirect taxes etc. inventory norms etc. price trends. market demand & supply.  External factors Eg.

Linear programming. Decision theory. Time series analysis etc.TECHNIQUES OF MATERIALS PLANNING Bill of materials  Materials Requirement Planning(MRP I)  Inventory control techniques  Past consumption analysis technique  Operation research techniques : Exponential smoothing.  .

quantity required. each product is split into its basic requirements. This technique is best suited for the industries having large no. The quantity required per item is multiplied by the quantity of the product to be produced to arrive at the total requirement of each item. description. material specifications etc. For determining the materials requirements. . of components. Bill of materials BOM is the detail structure of the product which provides details such as part number.

electric supplies etc as well as direct materials. lubricants.Materials Requirement Planning It is the scientific technique for planning the ordering & usage of materials at various levels of production for monitoring the stocks during these transactions.  Past consumption analysis technique This technique is used for planning of indirect materials such as tools. stationary.  .

VALUE ANALYSIS It is one of the major techniques of cost reduction & cost prevention. system or service by analysis of function & efficiently eliminating them. functional reliability or its capacity to give service.  . component. without impairing the quality. material part.  Definition: Valve analysis is an organised approach to identify unnecessary costs associated with any product.

 .USES OF VALUE ANALYSIS Reduces cost of product.  Creates cost consciousness among operating personnel.  Provides information regarding function wise expenditure.  Generates new concepts & ideas for the R & D work.  Helps employees in better understanding their jobs.

in the right quantities.  Purchasing is the task of buying goods of right quality.PURCHASE MANAGEMENT Purchasing is a function of procuring goods & services from sources external to an organization.  . at right time & at right place from right source.

IMPORTANCE OF PURCHASING Materials cost is almost 50 to 60 % of company‟s income.  For an organization. to earn a rupee is to save a rupee.  A rupee saved before manufacturing is equal to a ten rupee sale.  A sale is a one time sale while saving is a repetitive saving.  .

Same buying policies & guidelines can be used. If plant has some unique requirements then prefer this type . go for decentralization. Process is fast if purchased from local suppliers If distance between two plants is more.CENTRALIZED PURCHASING  DECENTRALIZED PURCHASING       The ordering is done for cumulative requirement Get quantity discounts Had single buying policy & procedure Purchasing experts are required Purchase department may not be located near the plant Modern techniques of communication is necessary for effective operation     For effective & profitable operation. this type is preferred by companies.

CENTRALIZED PURCHASING   DECENTRALIZED PURCHASING    More control on quality Material transfer from one plant to another is easy. Larger plant can get quantity benefits . Obsolescence cost is less Inventory control is easy & less costly. quick & economical.

FUNCTIONS OF PURCHASING Primary functions  Secondary functions  Optional functions  .

PRIMARY FUCTIONS OF PURCHASING        Receipt. scrutiny of purchasing items & determination of method of buying Search for suppliers Acquisition & analysis of suppliers proposals Selection of suppliers Follow up with suppliers for timely receipts of materials Performance evaluation & feedback Disposal of surplus. obsolete & scrap material .

Sundaram  Capital equipment & construction purchases  Inventory control  Purchase research  Management reports  .SECONDARY FUNCTIONS Make or buy decision eg.

OPTIONAL FUNCTIONS Traffic  Stores  .

METHOD OF BUYING Hand to mouth buying  Scheduled buying  Forward buying  Speculative buying  Contract buying  Blanket orders  Tender buying  .

METHOD OF BUYING Seasonal buying  Group purchasing  Subcontracting  Purchasing through commission agents  Central purchase  DG & D – Directorate General of supplies & disposal  .

5R’S OF BUYING Right quality  Right quantity  Right price  Right time  Right source  .

 Right quantity Quantity decisions are influenced by replenishment methods & buying methods.Right quality It includes „Quality of design‟ & „Quality of conformance‟ Quality of design refers to the quality specified by design department. Quality of conformance refers to the extent to which the goods & services purchased complies with the laid down specifications.  .

learning curve etc. two bin system hand to mouth buying. The techniques used to determine price are negotiation.  Right price Right price does not mean the lowest price but the price which minimizes the overall cost. forward buying etc. reorder level. tender system.Right quantity Eg.  .

It requires decisions as to what items should be purchased directly from the manufacturers.Right time It implies the time at which the goods requested should be received. at the right price & at the right time. which items from dealers & which items from open market. It also requires analysis of transportation costs(distant & local supplier)  .  Right source Only right source can give goods of right quality. in the right quantities.

BOM – Bill of materials  Scrutinising purchase indents  Market research & selection of sources of supply  Order preparation  Follow up with suppliers  .PURCHASE CYCLE It includes nine elements Establishing & communicating need of procurement 1. Purchase requisition 2.

Journal entries 4. Scrutiny of the invoices 3. Payment  . Receipt of supplier‟s invoice 2.PURCHASE CYCLE Receiving & inspection  Inspection of goods  Storage & record keeping  Invoicing & payment 1.

 It helps in decision making & planning the future.  .FORECASTING Forecasting is the estimation of the value of a variable at some future point in time.

APPLICATIONS OF FORECASTING Inventory control/Production planning  Investment policy  Economic policy  .

FORECASTING METHODS Qualitative methods  Regression methods  Multiple equation methods  Time series methods  .

.MAKE OR BUY DECISION  The decision whether to make the product at the home plant or to be purchased from outside vendors is refered as “Make or buy” decision.

WHEN MAKE OR BUY DECISION?????? New products  Unsatisfactory vendor performance  Fluctuating demands  Cost reduction studies  .

FACTORS AFFECTING MAKE OR BUY DECISION Cost analysis  Availability of production capacity  Supplier‟s performance  Quantity requirements  Quality requirements  More than one supplier policy  Physical location (easily available)  .

IMPORT SUBSTITUTION  It refers to replacements of materials imported from overseas supplier by material from indigenous sources. .

MATERIALS ARE IMPORTED BECAUSE Non.availability of quality material  Lower cost of imported goods????????????  Imports under phase manufacturing programme of a new venture  Spares of imported machines  .availability in the country  Shortfall in supply & demand  Non.

BENEFITS OF IMPORT SUBSTITUTION Ease of procurement  Reduced cost of production  Short lead time for procurement  Saving of valuable foreign exchange  Development of country‟s own industry & trade  Self reliance & lesser impact of international events  .

 . umbrella  The commodities manufactured seasonally & consumed throughout the year. eg.  The commodities manufactured throughout the year & consumed seasonally.SEASONAL COMMODITIES Basically there are two types in seasonal commodities. Eg. grains  The inventory levels are high for seasonal commodities.

CAPITAL PURCHASING  It includes purchasing of capital equipments such as machines. . inspection equipments etc. service equipments.

Strategic decisions Large money & sanction of funds Committee decisions Requires detailed technical specifications Source selection is complex More lead time Negotiations Taxes After sales service .CHARACTERISTICS           Purchasing is nonrecurring as life is realtively strong.