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Inventory Manufacturing Tips Supply Chain 12 min read

Materials Management – Definition, Benefits,

Best Practices
By Madis Kuuse Published: June 29, 2023

Implementing proper materials management practices allows businesses to make sure the correct
materials with the best price and quality reach the shop floor at the right time and in the correct
quantity. Follow these best practices to get more control over this essential segment of the supply
chain.

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Materials Management – Definition, Benefits, Best Practices

Table of Contents
1. What is materials management?
2. What is Sustainable Materials Management (SMM)?
3. Benefits of materials management
4. Materials management best practices
4.1. Set standards for material specifications and quality
4.2. Conduct regular quality checks and evaluate supplier performance
4.3. Know the exact amount and location of your direct/raw materials
4.4. Keep track of your direct/raw materials inventory costs
4.5. Create a plan and follow it
4.6. Use inventory control techniques
4.7. Minimize search time by using material kitting
4.8. Utilize technology to make processes more efficient

5. Key takeaways
6. Frequently asked questions

What is materials management?

Materials management refers to the strategic planning, coordination, and control of all activities
involved in the procurement, storage, handling, and utilization of materials within a manufacturing
organization. The process is aimed at managing the quality, sourcing, and price of materials, as well
as their location and movement within the manufacturing pipeline.

The goal of materials management is to ensure that the right materials are available in the right
quantities, at the right time, and in the right condition, while minimizing costs and optimizing
efficiency. The job of the materials manager is to achieve this goal by ensuring close coordination
between inventory, procurement, and production, and setting up procedures for communicating
material requirements and distributing raw materials down the supply chain.

While some organizations may consider materials management a subsection of overall procurement
management, other companies treat them as separate entities that serve different areas of a
business. Others still may divide the functions of materials management between many business
departments like procurements, supply chain, logistics, etc. This is often the case for larger
manufacturing or construction enterprises.

As part of procurement management, materials management includes everything related to the

sourcing and purchasing of materials. However, if treated as a separate subsection of supply chain
management, it becomes a link between procurement and production, dealing mostly with material
requirements planning, coordinating material deployment and replenishment, and conducting
quality control and inventory analysis for direct materials.

It is worth mentioning that the materials used in manufacturing are usually divided into direct and
indirect materials. Direct materials are the raw materials that are used in the products a company
produces: rubber in tires, sugar in soda, etc. Indirect materials are items and materials used in the
manufacturing process that do not make up the product itself. These may include adhesives,
staples, equipment, or spare parts. In most cases, materials management includes controlling the
flow of both.
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What is Sustainable Materials Management (SMM)?

Sustainable Materials Management (SMM) is an approach to promoting resource and energy

efficiency that considers the entire lifecycle of a product or material. This includes the design,
manufacture, use, and management of products and materials, as well as solid waste management,
in a way that minimizes their impacts on the environment, conserves resources, and reduces waste.

The SMM approach, as defined by the U.S. Environmental Protection Agency (EPA), is based on the
principle that our economic well-being and environmental health are intrinsically linked. It seeks to:

1. Use materials wisely, reducing the amount and toxicity of waste we generate.
2. Conserve resources and minimize the environmental impacts associated with the materials we
use.
3. Promote innovative products and processes that can significantly reduce environmental
impacts.

SMM involves a change in how a society views and uses materials, transitioning from a linear model
of ‘take-make-waste’ to a more circular model where materials are reused, recycled, or composted
at their end of life. The ultimate goal of SMM is to ensure that material use contributes to the
sustainable future of our planet, promoting not just environmental health, but also economic
prosperity and social wellbeing.

Benefits of materials management

Implementing effective materials management processes comes with an array of benefits that
could reverberate throughout your operation.

Streamlined procurement. Materials management ensures the procurement of the right

materials in the right amount, which allows companies to streamline procurement processes
and eliminate excess costs. Precise procurement prevents wastage and can result in significant
savings.
Efficient inventory control. One of the key aspects of materials management is maintaining
optimal inventory levels. This can prevent both overstocking and shortages, reducing the costs
related to unnecessary storage or rush ordering, leading to overall cost-effectiveness.
Effective warehousing: Proper organization and control of warehousing operations lead to
better space utilization and reduced costs. Materials management plays a key role in achieving
this operational efficiency.
 Accurate production schedules. Effective materials management enables precise planning
and execution of production schedules. By accurately forecasting the demand for and
availability of materials, businesses can ensure that production processes run smoothly and
without interruption. This on-time production not only reduces downtime but also boosts
overall operational efficiency and customer satisfaction, as on-time deliveries become the rule
rather than an exception.
Promotion of sustainability. With the concept of Sustainable Materials Management,
organizations can reduce environmental impacts and conserve natural resources. This life-cycle
approach promotes resource efficiency and contributes to corporate social responsibility
initiatives.
Enhanced quality control. Rigorous material management processes can help ensure the
quality of materials used in the production process. This not only improves the manufacturing
process but also enhances the final product quality, leading to better customer satisfaction.
Reduced waste. By adopting the principles of the circular economy and effective waste
management, materials management can contribute to reducing solid waste. It maximizes the
use and reuse of resources, which is not just cost-effective but also helps in conserving natural
resources.

In conclusion, materials management, when executed properly, can provide economic, operational,
and environmental benefits. It ensures efficiency and sustainability in the use of materials, aids in
meeting customer demand effectively, and plays a crucial role in the performance of any
manufacturing company.

Materials management best practices

Effective materials management involves several best practices that can significantly enhance
operational efficiency and sustainability. Here are some key best practices:

Set standards for material specifications and quality

The materials manager is the ultimate decision-maker when it comes to quality control and
approving raw materials for purchasing. However, the materials manager cannot be at the helm of
every purchasing process and every quality check, so they need to set standard operating
procedures to be followed by those participating in the process. That includes putting material
specifications as well as quality and sourcing requirements in place. This is the basis for maximizing
product conformity and minimizing non-conformity.

Conduct regular quality checks and evaluate supplier

performance

Effective quality control starts before the production process. Of course, no company is capable of
assessing the quality of every unit of raw materials they receive, but quality control checks should be
done on a regular basis, as often and as thoroughly as financially viable. In most cases, failures due to
bad quality (especially internal failures, i.e. those detected by the customer, the ones necessitating
returns, repairs, etc.) are more expensive than measures taken to ensure good quality. Partner with
suppliers that can reliably provide the right materials, in the right amounts, at the right time. Evaluate
suppliers based on factors such as cost, quality, reliability, and sustainability practices.

Read more about Supplier Performance Management.

Know the exact amount and location of your direct/raw materials

In order to provide the factory floor with the needed materials at the right time, you will have to
know where and in which quantity the materials are. Correct markings and good warehouse
organization are imperative in every company dealing with physical inventory. Physical counts should
be conducted periodically to detect inconsistencies or misplacements, but technological solutions
such as inventory management software or MRP software should be used to account for inventory
in the day-to-day.

Keep track of your direct/raw materials inventory costs

A substantial portion of the average manufacturer’s expenses comes from direct material costs.
Therefore, it is absolutely essential to make sure that excess inventory is not tying up cash that could
be put into good use elsewhere. Furthermore, holding inventory for too long could result in perished
or damaged goods. This is especially true in the case of materials that have an expiry date.
Manufacturers should consider different inventory valuation methods (e.g. FIFO, LIFO, Weighted
Average) according to the nature of their business.

Create a plan and follow it

Material planning is a vital part of materials management. After demand planning, i.e. predicting the
product quantities you will sell during a set period, you can use the bills of materials of your products
to calculate your material requirements for the period. Then, looking at the material quantities you
already have available in stock, you can determine the amount of materials you have to order and
create a material delivery schedule to make sure that raw materials are constantly fed into
production and work would not stop because of a material stockout.

Use inventory control techniques

Using proven inventory control techniques might give you better insight into the performance of
your SKUs and provide you with the knowledge that would help you minimize your inventory costs.

ABC (+XYZ) analysis

By applying the Pareto principle (or 80/20 rule) to inventory management, ABC analysis allows you
to prioritize your SKUs according to their consumption value. Conducting an ABC analysis will divide
your materials into three categories:

– A for about 20% of the total SKUs that make up about 80% of the total consumption value. These
items will receive the most attention: higher service levels, more review time, etc.
– B for about 30% of the SKUs making up around 15% of the total consumption value. These will
receive less attention than A-category items and more attention than C-category items.

– C for about 50% of the SKUs that make up only 5% of the total consumption value. These will have
the least amount of resources allocated to them.

In case only one parameter proves to be too basic in prioritizing your items, adding XYZ analysis into
the mix also lets you account for fluctuations in the consumption patterns of the SKUs.

Read more from this article about ABC and XYZ Analysis.

Safety Stock and Reorder Point

Safety stock is the buffer of materials you hold to avoid stock-outs and continue production in case
irregularities occur in the supply chain due to shifting supply or demand.

The reorder point is the set level of inventory at which an order for an SKU is triggered when it is time
to replenish its stock.

Having only a reorder point set means that when delivery times exceed the expected time to a
stock-out, your materials will be exhausted and production will stop until new materials arrive.
However, having a safety stock will prevent that from happening as well. Both of these values need
to be mathematically defined, however, in order to ensure that they provide the most value to your
business.

You can find out more about these techniques from our blog posts about Safety Stock and Reorder
Point.

Just in Time

Just in Time is not just an inventory control method but also a general approach to manufacturing
that aims to minimize the time a product spends in the supply chain – from the supplier of the
materials to the end consumer. This way, manufacturers can avoid overproduction, reduce
bottlenecks and waiting time in production processes, and avoid holding excess inventory.

When talking about materials management, the general idea of JIT is to provide materials as they
are needed, as closely according to demand as possible. As a consequence, the movement of
materials is streamlined while inventory levels along with holding space and costs are drastically
reduced.

Read more about Just in Time Manufacturing.

Minimize search time by using material kitting

Material kitting means bundling the components of a BOM into a ready-to-consume set before
arriving on the production floor. This technique simplifies line-side inventory and improves picking
speed, reporting, and quality control processes.
As a general rule, the practice of kitting would be most beneficial when dealing with large varieties of
small components, customized products with different variables, or a lack of space on the shop floor
that does not allow for much line-side inventory.

Read more about how to set up kitting processes.

Utilize technology to make processes more efficient

There are loads of technological solutions available that can aid manufacturers and materials
managers in improving their business processes. Barcoding, RFID and IoT devices, and warehouse
management software aid in managing and closely tracking your inventory. But what complements
all areas of materials management along with all the other departments of a manufacturing
company is a manufacturing ERP system.

A good manufacturing ERP allows manufacturers to coordinate their whole business in one single
program. This includes material management processes like material requirements planning,
material deployment and replenishment, supplier management, quality control, inventory control
and analysis, kitting, etc.

In addition, a manufacturing ERP system streamlines other manufacturing operations management

processes, including production planning and scheduling, order management, return merchandise
authorization (RMA), and much more, improving management practices and efficiency across the
company.

Make sure quality materials reach production at the right

time
MRPeasy allows you to easily plan material requirements, manage quality inspections
for incoming goods, and much more.

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Key takeaways

1. Materials management involves the strategic planning, coordination, and control of activities
involved in the procurement, storage, handling, and utilization of materials. It aims to provide the
right materials, in the right quantities, at the right time, and in the right condition, while
minimizing costs and optimizing efficiency.
2. Sustainable Materials Management (SMM) is an approach that promotes resource and energy
efficiency, taking into account the entire lifecycle of a product or material.
3. Effective materials management can streamline procurement, control inventory efficiently,
improve warehousing operations, and maintain accurate production schedules.
4. Best practices include setting standards for material specifications and quality, conducting
regular quality checks and supplier performance evaluations, keeping track of direct/raw
 materials inventory and its costs, and having a comprehensive material plan.
5. Inventory management software or MRP/ERP software can assist in tracking, organizing, and
planning for inventory, thereby increasing material management efficiency.

Frequently asked questions

What is an example of materials management?

An example of materials management is a car manufacturer organizing the procurement, storage,

and usage of specific raw materials like steel, rubber, and glass, ensuring they are available in the
right quantities and at the right time to produce a particular model of a car. They might use
manufacturing ERP software to accurately forecast demand, manage inventory levels, and schedule
procurement, ensuring a smooth production process.

What is the difference between SCM, OM, and MM?

Supply Chain Management (SCM) involves managing the entire flow of goods and services, from
raw materials procurement to delivering final products to customers. Operations Management (OM)
oversees the day-to-day production processes within a company, focusing on the efficiency and
effectiveness of operations. Materials Management (MM), on the other hand, specifically handles
the sourcing, acquisition, storage, and allocation of materials required in the production process.

Is materials management part of logistics?

Yes, materials management is a part of logistics as it involves the storage, control, and movement of
materials within and from an organization, which are crucial aspects of the logistics process.

You may also like: Material Planning – Definition, Tools, and Tips

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Madis Kuuse
Madis is an experienced content writer and translator with a deep interest in
manufacturing and inventory management. Combining scientific literature
with his easily digestible writing style, he shares his industry-findings by
creating educational articles for manufacturing novices and experts alike.
Collaborating with manufacturers to write process improvement case
studies, Madis keeps himself up to date with all the latest developments and
challenges that the industry faces in their everyday operations.

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