Q: What is Material Management? Discuss its scope.

Ans: Materials management is a core supply chain function and

includes supply chain planning and supply chain execution capabilities.
Specifically, materials management is the capability firms use to plan
total material requirements. The material requirements are
communicated to procurement and other functions for sourcing.
Materials management is also responsible for determining the amount
of material to be deployed at each stocking location across the supply
chain, establishing material replenishment plans, determining inventory
levels to hold for each type of inventory (raw material, WIP, Finished
Goods), and communicating information regarding material needs
throughout the extended supply chain.

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”. From the
definition, it is clear that the scope of materials management is vast.

(i) ‘Materials Management’ is a term used to connote “controlling the

kind, amount, location, movement and timing of various commodities
used in production by industrial enterprises”.

(ii) Materials Management is the planning, directing, controlling and

coordinating those activities which are concerned with materials and
inventory requirements, from the point of their inception to their
introduction into the manufacturing process.
It begins with the determination of materials quality and quantity and
ends with its issuance to production to meet customer’s demand as per
schedule and at the lowest cost.

(iii) Materials Management is a basic function of the business that adds

value directly to the product itself

(iv) Materials Management embraces all activities concerned with

materials except those directly concerned with designing or
manufacturing the product.

(v) Materials Management deals with controlling and regulating the

flow of material in relation to changes in variables like demand, prices,
availability, quality, delivery schedules etc.

Thus, material management is an important function of an organisation

covering various aspects of input process, i.e., it deals with raw
materials, procurement of machines and other equipment’s necessary
for the production process and spare parts for the maintenance of the
plant. Thus in a production process materials management can be
considered as a preliminary to transformation process.

It involves planning and programming for the procurement of material

and capital goods of desired quality and specification at reasonable
price and at the required time.

It is also concerned with market exploration for the items to be

purchased to have up to date information, stores and stock control,
inspection of the material received in the enterprise, transportation
and material handling operations related to materials and many other
functions. In the words of Bethel, “Its responsibility end when the
 correct finished product in proper condition and quantity passes to the
consumer.

Scope of materials management

1. 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.
2. 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.
3. Stores management or 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.
4. Inventory control or management:
Inventory generally refers to the materials in stock. It is also called
the idle resource of an enterprise. Inventories represent 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.
5. Other related activities

a. 3S

i. Standardization: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.
ii. Simplification: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.
iii. Specifications:It refers to a precise statement that
formulizes the requirements of the customer. It may relate to a
product, process or a service.
Example:
Specifications of an axle block are Inside Dia. = 2 ± 0.1 cm, Outside
Dia. = 4 ± 0.2 cm and Length = 10 ± 0.5 cm.
b. Value analysis: 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.
c. Ergonomics (Human Engineering): The human factors or
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.” Each of the above
functions is dealt in detail.
Q: Discuss the purchasing /procurement procedure for
Nestle

Ans: The procurement life cycle followed by Nestle is broken up into

several integrated components in the business and involves large
number of intermediary processes like purchase requisition, purchase
order, vendor involvement, goods receipt and inventory management
and accounts payable. All this processes make together the life cycle of
procurement process.

Each time an inventory item is received or issued from the inventory at

one of the Nestle locations, the system automatically updates stock
quantities and values, and reduces inventory. Time consuming tasks are
simplified through determining optimum source of supply, analyzing
and comparing vendor pricing, issuing purchase orders, managing the
authorization for purchase requisitions, processing invoices for
payment and recording the same. The efficient supply chain at Nestle
requires all stock planning and operational activities to be integrated
into a uniform business-process flow.

At the inventory management there are three types of Goods

Movements namely goods receipt, goods issue and transfer posting. As
soon as the goods movement is entered stocks are updated, material
documents are created to record the event and accounting documents
are created when change in valuation area occurs.

A purchase requisition is an internal request at Nestle to purchasing. 

You ask the buyer to provide a certain quantity of a material or service
on a certain date. A purchase requisition can be created automatically
by MRP or manually created.  The MRP controller can also convert a
planned order into a purchase requisition. Source determination is a
separate function.  The buyer receives proposals if, for example, fixed
vendors or outline agreements exist for the material.
The material requirements planning, inventory, production, and
procurement processes all work together to orchestrate a smooth flow
of high quality material. Workflow events are configured to Nestlé’s
requirements by taking into consideration the degree to which
automated or manual controls are required. Vendors quotation and
selection processing is also done with great focus on the SAP
implemented for that purpose at Nestle.  The materials requirement
planning system at Nestle usually makes good a calculated definition
about the requirements for a particular territory and at all locations
over the enterprise. The stock management system collaborates with
the inventory system in the SAP system to manage its products.

Procurement
As strategic partner of the business, our procurement team helps the
company achieve sustainable growth. Procurement professionals at
Nestlé, ensure responsibly-sourced supply and create value. Located in
hubs in Switzerland, Panama and Malaysia, the division provides a
range of services, including the management of procurement for
specific raw materials, packaging, indirect materials and other services.
The hubs also support markets with managing local spend.

Procurement Vision
Procurement will be a strategic Business partner delivering a
competitive advantage and sustainable value to all Nestlé spends;
working with the Business for the Business.

Procurement Mission
Procurement will deliver sustainable value to the Business through a
focus on, service, total cost advantage and innovation. This value will
be delivered through the right people working and behaving as ONE
team, applying the Procurement best practices in line with the 7 Nestlé
Procurement Best Practices Handbook and leveraging spend at the
appropriate level:

• Service Listen, understand, align, engage early, with transparency and

flawless execution with the Business.

• Cost Advantage Beat competition, aggregate spend with one voice to

the vendor, compliance with 7 Best Practices; effective 7 Step Strategic
Sourcing process and strong support for and involvement in Nestlé
Continuous Excellence.

• Innovation Be the highest priority for suppliers innovations; ensure

pro-active multi-functional supplier engagement and continuous
scouting of the supply environment.