UNIT IV MATERIALS MANAGEMENT

Materials Management – Objectives, Planning, Budgeting and Control. Purchasing – Objectives,Functions,

Policies, Vendor rating and Value Analysis. Stores Management – Nature, Layout, Classification and Coding.
Inventory – Objectives, Costs and control techniques. Overview of JIT.

4. 1 Introduction

Materials management is an essential business function. It is concerned with planning, acquisition and flow of
materials within the supply chain. Material is one of the four basic resources. However, it is complex as it
confronts various issues including outsourcing, global sourcing, size of supply base, shorter Lead time, smaller
lot size, price determination, mode/carrier selection, maintaining long-term relationship with suppliers,
choosing the right type of information technology, legal issues, etc.

Materials management is an integrated management approach to planning, acquiring, processing and

distributing production materials from the raw material state to the finished product state. Materials
management is a key business function that is responsible for the coordination of planning, sourcing,
purchasing, moving, storing and controlling materials in an optimum manner, so as to provide pre-determined
service to the customer at a minimum cost.

According to International Federation of Purchasing and Materials Management, “The materials management
is a total concept involving an organizational structure unifying into a single responsibility, the systematic flow
and control of material from identification of the need through customer delivery.”

Planning and control of the functions supporting the complete cycle (flow) of materials, and the associated flow
of information. Materials management is concerned with the control of materials in such a manner which
ensures maximum return on working capital. Materials management is concerned with the location and
purchase of materials needed, their storage and movement. It also arranges to keep an account of them. It is
also responsible for planning their movement through manufacturing processes, store rooms and distribution
channels.

Material management integrates all materials functions

 Planning for materials

 Demand estimation
 Purchasing
 Inventory management
 Inbound traffic
 Warehousing and stores
 Incoming quality control
 Goals of materials management
Materials management function must achieve a number of basic objectives. The aim is to develop a system
that will ensure right quality of stocks at all times, properly stored, easily retrievable, and available whenever
required to meet the ultimate goal of good patient care in an effective, efficient and economical manner.

4. 2 Goals of Materials Management

The goals include the following:

Optimum materials acquisition The purchase of materials must be governed by the most effective purchase,

storage, handling and usage practices,

Optimum inventory turnover Inventories of all items must be maintained at the optimum level.

Good vendor relationship The organization‘s relationship with its suppliers has a direct bearing on its ability to

procure materials on the best possible terms.

Materials cost control Materials purchase process must be economical. There must be a continuous cost

reduction programme.

Effective issue and distribution The system of issues and distribution must cater to economical holdings at the

point of usage with no possibility of accumulation of large quantities of stock.

Elimination of losses and pilferage Wastage and pilferage should be controlled by a system of internal audit. To

summarize, the materials management function caters to planning for materials, its demand, estimates,
procurement, stocking, and issue to ensure availability of right material, in Right quantities, at right time, at
right price, from right sources, at least cost.

4. 3 Objectives of Materials Management

Materials management’s considerable effect on profits demands that its objectives be derived from the general
business objectives “maintaining competitiveness” and “satisfactory profitability”.

The fundamental objectives of the materials management function are acquisition of materials and services of
the right quality in the right quantity at the right time from the right source.

The key objectives of material management are as follows:

 Buying at the lowest price, consistent with the desired quality and service
 Maintaining a high inventory turnover, by reducing excess storage, carrying costs and inventory losses
occurring due to deteriorations, obsolescence and pilferage
 Maintaining continuity of supply, preventing interruption of the flow of materials and services to users
  Maintaining the specified material quality level and a consistency of quality. This permits efficient and
effective operation
 Developing reliable alternate sources of supply to promote a competitive atmosphere in performance
and pricing
 Minimising the overall cost of acquisition by improving the efficiency of operations and procedures
 Hiring, developing, motivating and training personnel and providing a reservoir of talent
 Developing and maintaining good supplier relationships in order to create a supplier attitude and
desire furnish the organisation with new ideas, products, and better prices and service
 Achieving a high degree of cooperation and coordination with user departments
 Maintaining good records and controls that provides an audit trail and ensures efficiency and honesty
 Participating in 'Make or Buy' decisions

Primary Objectives Secondary Objectives

Right price Forecasting

High turnover Inter-departmental harmony
Low procurement and storage cost Product improvement
Continuity of supply Standardization
Consistency in quality Make or buy decision
Good supplier relations New materials and products
Development of personnel Favourable reciprocal relationships
Good information system

4. 4 Material Planning

Material planning is the scientific way of determining the requirements that goes into meeting production
needs within the economic investment policies. It is the starting point for the whole material management
function. Material planning is a scientific way of determining the requirements starting with raw materials,
consumables, spare parts and all other materials that are required to meet the given production plan for a
certain period. Material planning is derived from overall organisational planning and hence, it is always a sub-
plan of the broad organisational plan. What it does is forecast and initiates the procurement of materials.

Aim of material management planning

Material Planning aims to get the Right quality and right quantity of supplies at the Right time, at the Right
place, for the Right cost.

Purpose of material management planning is

 To gain economy in purchasing

 To satisfy the demand during period of replenishment
 To carry reserve stock to avoid stock out
 To stabilize fluctuations in consumption
 To provide reasonable level of client services
 Factors affecting material planning
The factors affecting material planning are:

Macro factors Global factors such as price trends, business cycles, government’s import and export policies

etc., are called macro factors. Credit policy of the government is a critical factor as banks follow these
guidelines only while extending financial support to a business entity.

Micro factors These are essentially the factors existing within the organisation such as corporate policy • on

inventory holding, production plan, investments etc., For any organisation, factors such as lead time of
procurement, acceptable inventory levels, working capital, seasonality, delegation of power are micro factors.