Materials management is important as most manufacturing concerns spend more than 60% of the money they take in, on materials. That means materials soak up a substantial portion of the capital invested in the industry.
This emphasizes the requirement for adequate materials management and control because even small savings in materials can reduce the production cost very effectively, thus profit increases.
Materials management makes sure the required materials available are available with the consumer’s demands, thus giving a schedule of costs and resources that the company needs. Material management involves controlling the type, amount, location, movement, timing of the purchase of various materials, etc.
Materials management definition can be expressed as “Materials Management is the planning, directing, controlling and coordinating of the activities which are concerned with materials and inventory requirements, from the point of their origination to their introduction into the manufacturing process. It starts with the inspection of materials quality and quantity and ends with its issuance to production to meet customer’s demand as per the schedule and at the lowest possible cost.”
What you are going to learn?
Functions of material management
Materials Planning is the scientific way of deciding the requirements of raw materials, components and other items needed for production within the production enterprise. Planning for materials management is aimed at determining the demand for the end finished products. This is possible only by forecasting methods. Therefore, forecasting creates “the basis for materials planning.
Procurement or purchasing of materials
The procurement or purchasing department occupies a vital and unique position in the organization because procurement or purchasing is one of the main function in the success of modern manufacturing industries.
Mass production industries rely on the continuous supply of the right raw materials, therefore there is a demand for efficient purchasing division.
Purchasing implies – procurement of materials, supplies, machinery and services needed for manufacturing and maintenance of concern.
Receiving and warehousing
The importance of warehousing is to receive the right product, in the right quantities, in the right condition, weight, and dimensions all at the right time.
The proper receiving of goods in warehouse will have a direct impact on all subsequent production processes.
Storage and store administration
Storage refers to the place where materials are kept under custody. Store is an important element of materials management since it is a place that keeps all the materials in a way, by which the materials are well accounted for, are maintained safe, and are available at the time of requirement.
The main activities involved in the store management are receiving materials, quantity verification and visual inspection, preservation of materials.
Inventory control is the process of maintaining a business’s stock level which is materials in our case, to meet customer demand and minimize costs. Inventory control involves inventory tracking and maintenance of goods. It also includes decision making to get the most profit out of your materials and planning purchases.
The primary objectives of inventory control are guarding the inventory against damage or theft and reporting inventory in the financial statements.
Standardisation, simplification and value-analysis
Meaning of Standardization is producing a maximum variety of products from the minimum variety of raw materials, tools and operations. It is the process of setting up standards or units of measure to which extent, quality, quantity, value, performance etc. can be compared and measured.
The concept of simplification is nearly related to standardization. Simplification is the process of reducing the variety of products produced, assemblies, number of parts, materials and complicated designs.
Value analysis is concerned with the costs added due to inefficient or unnecessary specifications and features of the products. It makes its contribution in the maturity stage of the product life cycle. At this stage research and development no longer make any positive contributions in improving the efficiency of the functions of the product or adding new functions to it.
External transport means any of the different kinds of transport facilities used to carry goods, raw materials, people outside the manufacturing plant. Some of the examples are truck, aeroplane, ship, etc.
Material handling is the movement, protection, storage and control of materials and products throughout the manufacturing plant, warehousing, distribution, consumption and disposal. As a materials management process, material handling merged a wide range of manual, semi-automated and automated equipment that support logistics and make the supply chain work very easily.
Disposal of scrap, Surplus and Absolute materials
Disposal of scrap, when handled in a creative manner, can result in big returns to the organization. Disposal action follows when the scrap cannot be used within the organization anymore.
Before disposal action it is necessary that the scrap is separated according to metal, size, etc. when the scrap is mixed, the return can be even lower than the lowest element present in the mixture.
Objectives of Materials Management
- Effective material management minimizes the material cost so that profit can be maximized.
- To procurement and purchase materials of desired quality and quantity when required, at the lowest possible overall cost.
- Materials management try to reduce investment tied in inventories for use in other productive purposes and develop high inventory turnover ratios.
- To purchase, receive, transport and store materials efficiently to reduce the storage and warehouse related costs.
- To trace the new source of supply and to develop cordial relations with the suppliers, in order to ensure continuous material supply at reasonable rates.
- To cut down costs through simplification, standardization, value analysis, import-substitution, etc.
- To modify and improve the paperwork procedure in order to minimize delays in procuring materials.
- To conducts studies in the domain such as quality control, consumption and cost-estimation of materials so as to minimize the cost of production.
- To train personnel in the field of material management in order to increase the operational efficiency of the manufacturing firm.
Steps in Materials Management
There are five steps involved in the work undertaken by the materials management. They are as follows:
1. Materials Requirements Planning
This is one of the most important steps in the material management process as the inventory of materials costs acquire around 60% of the total investment of a manufacturing plant. The amount of material used is inversely proportional to the profit gained by the business. Less investment in materials with proper planning increases the profit.
At present days some industries considering “Just in Time ” (JIT) strategy to avoid inventory. However, this strategy requires careful planning to maintain continuous production without impacting the operation schedules.
The profit margin of a business increases by efficient and economical purchasing. It is the set of functions associated with procuring the goods and services that an organization requires. Purchasing process includes activities like ordering, expediting, receiving, and fulfilling payment.
3. Inventory Planning and Control
Inventory includes finished goods, goods ready for sale, goods used in production, etc. During inventory planning the company follows a JIT strategy, which means materials are purchased from vendors and brought in the warehouse just before they enter the production process or just before their delivery time. This reduces the cost of maintenance of inventory. For better material management, close to zero inventories are beneficial.
4. Flow and Supply of Materials
During the distribution of materials in various production plant, make sure that continuous supply of the materials should be maintained. Otherwise, a lack of inventories can lead to huge losses to the organization. So, Materials management is a very important part of supply chain management.
5. Quality Control of Materials
The quality of raw materials is one of the deciding factors of the quality of finished goods. The importance of using good quality material is huge in any production system. So inspection of materials before purchasing is necessary to control the quality.
Types of Materials
There are two types of material –
1. Direct Materials
Direct Materials represents the raw material or goods necessary to produce or manufacture a product. The cost of direct material varies according to the level of output of the production system.
For example, Milk is the direct material of butter, Iron ore is direct material of steel.
2. Indirect Materials
Indirect materials are the materials that are necessary for the production process but it’s not directly used in the product itself, which means these materials does not become an integral part of the product.
Examples- cotton waste, sandpaper, oil, greases, etc.