Materials

Management
Materials Management
Planning and controlling
the flow of materials

 The fundamental objectives of the
Materials Management function
are acquisition of materials and
services, often called the famous 5
Rs of Materials Management:

of the right quality
in the right quantity
at the right time
from the right source
in the right form

Definition
 Materials Management thus can be defined as:

“ that function of business that is responsible for the
Coordination of planning, sourcing, purchasing,
moving, storing and controlling materials in an
optimum manner so as to provide service to the
customer, at a pre-decided level at a minimum cost”.

 Ballot (2006) defines material management as:

“the process of planning, acquiring, storing, moving,
and controlling materials to effectively use facilities,
personnel, resources and capital”

Objectives
 To buy at the lowest price , consistent with desired quality
and service

 To maintain a high inventory turnover , by reducing
excess storage , carrying costs and inventory losses
occurring due to deteriorations , obsolescence and
pilferage

 To maintain continuity of supply , preventing interruption
of the flow of materials and services to users

 To maintain the specified material quality level and a
consistency of quality which permits efficient and
effective operation

 To develop reliable alternate sources of supply to
promote a competitive atmosphere in performance and
pricing
Objectives
 To minimize the overall cost of acquisition by
improving the efficiency of operations and procedures

 To develop and maintain good supplier relationships
in order to create a supplier attitude and desire to
furnish the organisation with new ideas , products,
and better prices and service

 To achieve a high degree of cooperation and
coordination with user departments

 To maintain good records and controls that provide
an audit trail and ensure efficiency and honesty

Dobler and Burt (2009) classify
manufacturing materials into five categories.
These categories are:

 Raw Material

 Purchased Parts

 Manufacturing Parts

 Work in process

 MRO Supplies (Maintenance, repairing and
operating supplies)

Scope
Materials Management
 The role that a materials manager plays in an
organization is strictly economical since the materials
manager should keep the total cost of materials as
low as possible.

 The person in charge of handling materials should
keep in mind the goals of the company and insure
that the company is not paying extra money for
materials.

 The goal of every company is to make a profit.

 This is the basis for company’s survival, costs should
not exceed income, but keeping in mind customer's
expectations.
Activities for Materials
Management

 Procurement and purchasing
 Expediting
 Materials planning
 Materials handling
 Distribution
 Cost control
 Inventory management / Receiving/ Warehousing
 Transportation
BENEFITS OF MATERIAL
MANAGEMENT
 Reducing the overall costs of materials
 Better handling of materials
 Reduction in duplicated orders
 Materials will be on site when needed and in the
quantities required
 Improvements in labour productivity
 Improvements in project schedule
 Quality control
 Better field material control
 Better relations with suppliers
 Reduce of materials surplus
 Savings on Purchase and Procurement
 Better cash flow management
Inventory Management
 Inventory management or control refers to the
management of idle resources which have economic
value tomorrow.

 Inventory Management refers to maintaining, for a given
financial investment, an adequate supply of something to
meet an expected demand pattern. It thus deals with
determination of optimal policies and procedures for
procurement.

 In business management, inventory consists of a list
of goods and materials held or available in stock.

 Management of inventory or Inventory management is all
about handling functions related to the tracking and
management of material.


TECHNIQUES FOR MATERIALS
MANAGEMENT
ABC ANALYSIS
(ABC = Always Better Control)

This is based on cost criteria.
It helps to exercise selective control when confronted
with large number of items it rationalizes the number of
orders, number of items & reduce the inventory.

About 10 % of materials consume 70 % of resources
About 20 % of materials consume 20 % of resources
About 70 % of materials consume 10 % of resources
‘A’ ITEMS

Small in number, but consume large amount
of resources

Must have:
•Tight control
•Rigid estimate of requirements
•Strict & closer watch
•Low safety stocks
•Managed by top management
‘C’ ITEMS

Larger in number, but consume lesser amount
of resources


Must have:
•Ordinary control measures
•Purchase based on usage estimates
•High safety stocks
ABC analysis does not stress on items
those are less costly but may be vital
‘B’ ITEM

Intermediate


Must have:
•Moderate control
•Purchase based on rigid requirements
•Reasonably strict watch & control
•Moderate safety stocks
•Managed by middle level management
200000 500 20
199500 500 19
199000 500 18
198500 500 17
198000 500 16
197500 500 15
197000 500 14
196500 500 13
196000 1500 12
194500 1500 11
193000 1750 10
191250 2750 9
188500 4000 8
184500 4500 7
180000 5000 6
175000 7500 5
167500 7500 4
160000 20000 3
140000 50000 2
90000 90000 1
CUMMULATIVE CUMMULATIVE
COST COST [Rs.]
ANNUAL COST ANNUAL COST
[Rs.]
ITEM ITEM COST % COST %
ITEM % ITEM %
70 % 70 %
20 % 20 %
10 % 10 %
10 % 10 %
20 % 20 %
70 % 70 %
ABC
A
N
A
L
Y
S
I
S
WORK
SHEET
VED ANALYSIS

• Based on critical value & shortage cost of an item

–It is a subjective analysis. Items are classified into:

1. Vital: Shortage cannot be tolerated.

2. Essential: Shortage can be tolerated for a short
period.

3. Desirable: Shortage will not adversely affect, but
may be using more resources. These must be strictly
Scrutinized



 Just-in-time(JIT) Technique

 Materials Management Information system

 Etc.