Material management is a coordinating function responsible for planning and controlling material

flow. it can do much to improve company’s profit, its objectives are to minimize the waste and reach
the required level of customer’s service.
Elementary factors of production – without them the company transformation process could not
happen
Derived factors of production – those who are in control of the company transformation process
Supplies are company’s tangible goods which were not used for any purpose yet. Supplies are
important as they ensure the continuous activity of the company, continuity of the transformation
process, they affect the company’s total costs and financial resources are stored in supplies.
Two types of supplies:
Purchased supplies
 products materials – primary material – that forms the subject of a product, secondary
material – needed for a product to be completed, package – protection of the product.
 technological materials – material needed for the operation of machinery
 purchased goods – material bought from suppliers to finalise the products
 livestock – animals used for breeding
Supplies of own production
 unfinished products – products that are incomplete and need an another operation, they
cannot be sold
 semi-finished products – products that are not fully assembled but can be sold
 finished products – finished goods intended to satisfy needs
 goods in stores – goods placed in stores
 livestock – breeding gains
Valuation of supplies
acquisition price – purchased supplies (supplies price + acquisition costs)
own costs – (direct + indirect costs)
fair value – supplies obtained for free
Technical aims of supplying – procure quantity, assortment and quality and required place and time
Economic aims of supplying – supplies require minimal storage costs, efficient use of supplies, bind
the smallest amount of financial resources
Main activities of the supplying department – purchasing and receiving of supplies, storing of
supplies, dispatching of supplies
Supplies planning
1. Material selection
- What is the required quality, quantity? What is the optimal price? Delivery and Payment
conditions? Is it environmentally friendly?
2. Material consumption planning
- consists of net proportion of material and waste
 primary consumption planning – expressed in one production unit
 secondary consumption planning – expressed in one consumption unit
3. Planning the supplies level
- company needs to decide whether it wants to store low or high level of supplies
 standard supply – ensures the estimated consumption between two deliveries
aggregate supply – when considering average length of delivery cycle
maximum supply – when considering full length of delivery cycle
minimum supply – safety + technological supply
 safety supply – ensures the continuous transformation process when delivery is late
 technological supply – ensures the ctp when material cannot be used right away
4. Creating the purchasing plan
- a balance between company resources (initial supply + required purchase) and needs
(consumption + final supply)
  initial supply – supplies from the previous period
 required purchase – required deliveries during the reporting period
 consumption – material to be consumed
 final supply – supplies at the end of the reporting period
- to determine the right time to order the delivery, company considers total procurement
time and quantity of material in storage
Procurement supplies
 choosing a procurement method
random procurement – material is procured after the need arises
storage procurement – material is procured and stored continuously
just in time – material is not stored, is delivered directly to the production
 market research – company prepares information about the suppliers according to the
market situation (assortment, prices, goodwill, quality...)
 selection of the supplier – company chooses the best suppliers according to the market
research
 legal protection of the delivery – a bill of sale is concluded when both parties confirm the
order
 delivery dispatching – company chooses the best transport mean and place of delivery
 delivery receiving – material is delivered, unloaded and stores in the storage, quantity is
checked and compared with the receipt card (differences are recorded and claimed)
 payment – the company pays for the delivery according to the agreed conditions
Supplies storing
Supplies are stored at a pre-defined place with required conditions (light, temperature…) unpacked,
placed, treated and sorted
Main functions of supplies storing
 spanning function – to eliminate the spatial and time inconsistency between delivery and
consumption
 transformation (processing) function – some materials acquire new features by storing
 security function – storage enables storing in case of delivery delays
Storing
centralized – one central storage, decentralized – several small storages, combined – one central and
several small
Storages
supplying storages – used for material and packages, production storages – used for semi-finished
products and spare parts, sales storages – used for finished products
covered storages – used for food, clothes etc., semi-covered storages – used for material that must
be protected from rain (wood, clay…), open storages – used for building materials, special storages –
used for special products (frozen food…)
Supplies registration and management
means keeping records of supplies level and movements. records are kept in documents
 receiving documents – receipt card, invoice, delivery note
 storing documents – storage card, label
 dispatching documents – issue card, transfer card
company regularly checks if the physical state of supplies is the same as recorded – inventory
control. supplies registration is provided by
 supplying department – registration of bills of sale, orders, receipt lists, suppliers and
carriers
 storage – registration of delivery notes, storage cards, receipt and issue cards
 accounting department – registration of invoices and claims

Methods of supplies registration

  visual control - book of records is used
 written records - – storage cards and labels not used
 computer processing – special storing application is used
Management of supplies
main aim is to ensure the continuous transformation process and to ensure that supplies bind the
smallest amount of financial resources. ABC method is used
the level system – company monitors minimum supply level and maximum supply level
ABC method
class A – share of value is 70-80%, share of species is 10-20%
class B – share of value is 15 to 20%, share of species is 20-40%
class C – share of value is 5-15%, share of species is 50-70%
Supplies management indicators
Number of turns – expresses how many times sort of supplies turns in a year
Turnover time – expresses the average number of days during which supplies are in storage
Return on supplies – expresses the rate of profability of the capital invested in supplies