1_introduction to materials management

7/29/2019 1_Introduction to Materials Management

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Materials Management

Materials Management is concerned withplanning, acquisition and flow of materialswithin the supply chain. Material is one of thefour basic resources (labour, material,equipment and capital) needed in anyindustrial or business activity.

Materials management creates a competitiveedge by delivering quality product(s)


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It is complex as it confronts various issuesincluding outsourcing, global sourcing, size ofsupply base, shorter lead time, smaller lotsize, price determination, mode/carrierselection, selecting and maintaining long-term relationship with suppliers, choosing the

right type of information technology, legalissues etc.


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It has evolved out of common sense and ruleof thumb approach. It has organizedprinciples and a wealth of knowledge in theform of tools, techniques, models, heuristics,systems and procedures, methodology and ahuge database.

Today, it finds an important place inorganization and is manned by highlyqualified persons.


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Role of Materials Management in

a Business As a basic function of the firm

As a manager of outside manufacturing:Materials manager is answerable for purchase of

items manufactured outside as productionmanager is answerable for parts produced in-house. Hence, materials manager is rightly calledmanager of outside manufacturing.

As a controller of cost: Major costs withmaterials include ordering or set-up costs,carrying costs, logistics costs (transportation andwarehousing) and shortages or surpluses costs,besides the cost of purchased items.


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Objectives of Materials

Management Maintaining continuity of supply: It is achieved

through greater insight of purchase portfolio anda smaller number of carefully selected and

nurtured suppliers. Contribution to cost reduction: This is achieved

through life cycle costing, value engineering,purchasing tools, vendor selection procedure,

inventory control models etc. Innovation in product/process: This is achieved

by involving purchase at the research/designstage and associating supplier in the team.


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Functions of Materials

Management: MRP-I Material Requirement Planning (MRP-I): Based

on the production schedule of end items, MRP-I

determines how much of sub-assemblies, parts

and raw materials are needed and how and whento buy them. To do so, a large number of

inventory models are available which try tominimize the total cost comprising all relevant

costs and associated uncertainty. Depending on

organizations need/situation, as suitable model

can be selected.


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Functions of Materials

Management: Buying/Purchasing Buying or Purchasing: Industrial buying (for

consumption and conversion) differs frombuying for direct trading (resale).

Industrial Purchasing: (i) Cash purchase (ii)Purchase by tender

Purchasing process has several phases including purchase requisition, selection of suppliers,

ordering (pricing, terms & conditions, orderplacement), follow-up, receipt of inspection,maintaining records, supplier management(supplier relations, evaluation and development)


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Functions of Materials Management:

Logistics (Transportation and Warehousing)

Logistics is concerned with the management ofwarehousing (receiving, storing and issue ofmaterials) and flow (transportation) of materials,service and information in a supply chain with a view

to enhance the products value. There are primarily five modes of transportation

including, road, rail, air, water and pipelines. Besidesthese we have inter-modal combination and thirdparty logistics (3PL) and fourth party logistics (4PL).

Warehousing includes receipt of materials,inspection, physical control of stored materials,physical verification of inventory, valuation of stock,and issue.


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Evolution of Materials

Management Early part of 20th century: Clerical and

reactive, just a function in the organization

Most part of 20th

century: Expense control,proactive, increased regard for purchase.

Towards end of 20thcentury: Manager ofoutside manufacturing, paradigm shift incoping with uncertainties, supply chain,greater importance


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Importance of Materials

Management Expenditure on materials management:

Materials cost comes around 50% of revenuein many organizations, operations and otherexpenses come around 47% of revenue.

Profit impact of materials management: Seethe problem of improved purchase vs.

increased sales.


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Integrated Materials Management

Integrated with respect to various functions involved in therelated departments, multiple production facilities, anumber of distribution centers and warehouses, a largenumber of retail outlets

Within a production facility in a location, many parts/sub-parts are same or similar and they may be procured in anintegrated way for overall cost-effectiveness

There may be conflicting goals in between operations dept.and purchase dept.

Conflicting interests between Purchase Manager (orderingmore qty for bulk discount) and Inventory manager(ordering less to reduce inventory carrying cost)


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Functions/issues in Integrated

Materials Management MRP-I and MRP-II (Manufacturing Resource Planning)

through ERP system

Challenges in implementing ERP: generally after BPR

General Procedures for effective procurement

Vendor selection, rating and development

Cost competitiveness in supply chain

Lean philosophy of waste elimination

JIT and inventory control

Contract management and legal aspects Import management and foreign trade rules/regulations

1_introduction to materials management

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