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Material Management
Unit-1
Definition
• Materials management is a total concept having its
definite organization to plan and control all types of
materials, its supply, and its flow from raw stage to
finished stage so as to deliver the product to
customer as per his requirements in time. This
involves materials planning, purchasing, receiving,
storing, inventory control, scheduling, production,
physical distribution and marketing. It also controls
the materials handling and its traffic.
- The International Federation of Purchasing and
Materials Management
Objectives of Materials Management
• The objectives and functions of materials
management can be categorized in two ways
• as follows:
• (I) Primary objectives
• (II) Secondary objectives
(I) Primary objectives
• (i) Efficient materials planning
• (ii) Buying or Purchasing
• (iii) Procuring and receiving
• (iv) Storing and inventory control
• (v) Supply and distribution of materials
• (vi) Quality assurance
• (vii) Good supplier and customer relationship
• (viii) Improved departmental efficiency
(II) Secondary objectives
• (i) Efficient production scheduling
• (ii) To take make or buy decisions
• (iii) Prepare specifications and standization of materials
• (iv) To assist in product design and development
• (v) Forecasting demand and quantity of materials
requirements
• (vi) Quality control of materials purchased
• (vii) Material handling
• (viii) Use of value analysis and value engineering
• (ix) Developing skills of workers in materials management
• (x) Smooth flow of materials in and out of the organization
Functions of Material Management
• (I) Primary Functions To meet the primary
objectives, the primary functions of the materials
management are given as follows:
• (i) Materials Requirements Planning (MRP)
Planning of materials requirements in
manufacturing is a necessary function in any
organization, as inventory of materials involve
about 60% of the total investment of the
organization. The profit earned depends on the
utilization of these materials and reducing the
inventory of the materials.
(ii) Purchasing
• The materials management department has to
perform this function of purchasing and
procurement of materials very efficiently. Since
50% to 60% of sales turnover is spent on the
purchase of various materials, the amount of
profit earned on this sales very much depends
how economically the materials are purchased
and utilized in the organization. The profitability
depends on the efficiency by which this particular
function of purchasing and procuring the requisite
materials at appropriate time will be done and its
availability is assured.
(iii) Inventory Planning and Control
The modern concept of inventory planning is
that the materials should be purchased and
brought in the stores just before it enters the
production or sold out so that inventory cost is
negligible. The zero inventories are the ideal
planning. There are three types of inventories.
• (i) Raw materials
• (ii) Purchased goods
• (iii) Finished parts and components
iv) Ascertaining and Maintaining the Flow and
Supply of Materials
•Distribution of materials requisitioned by the
various production centers and other departments
must be ascertained and its flow and continuity of
supply must be maintained by the materials
management department. Insufficient or zero
inventories many times create9 the situations of
stock-outs and leads to stoppage of production.
Failure of materials handling devices is also
responsible for disruption of material supplies.
Alternatives or emergency supply systems can be
used for assuring production lines to continue
(v) Quality Control of Materials
The quality of the product manufactured by the
organization depends upon the quality of the
materials used to manufacture that product. It is
a very important and necessary function of
materials management to purchase the right
quality of materials. The inspection, quality
control, simplification, specification, and
standardization are the activities which are to be
followed for the measurement of quality of the
materials
(vi) Departmental Efficiency
The objective of this function is to ensure the
efficiency of the system adopted. If the system and
procedure adopted for materials management are
inefficient or faulty. In order to maintain the things in
proper way as per planning an efficient control is
necessary in the department over each and every
process. Management Information System (MIS) and
feedback control at every stage of working must be
adopted to control and make the management and
employee work as efficiently as possible to achieve
the best results.
(vii) Make and Buy Decisions
These types of decisions are the policy decisions of
the management. The capacity of the organization
and the various facility developed by the organization
to manufacture various items is the main objective of
every organization. This is the important planning
activity of every undertaking. But when a company
grows fast, its sales increases at rapid rate then it
becomes an important matter to decide whether the
company should buy the parts and components or
increase and establish its facilities to cope up with
the increased demand and sales.
(viii) Forecasting and Planning
Materials requirements planning is based on correct
forecasting of sales and demand of the products in
the market. The market fluctuations are to be
observed to control production of the organization.
The various methods of forecasting are available and
the materials management department can choose
the one which gives the best results to the company.
Forecast of future demand of sales sets the planning
of materials supply. Analytical methods are adopted
for systematic forecasting and planning to procure
the various materials required for production.
Integrated Materials Management
Concept
All the materials related activities such as material
planning & indenting, purchase systems & procedure,
variety reduction through standardization &
rationalization, reducing uncertainties in demand &
supply, handling & transportation, inspection, proper
storage & issue of materials to the internal customers,
inventory management, vendor management & finally
disposal of obsolete, surplus & scrap materials etc.
taken together is termed as Integrated Materials
Management
MATERIALS PLANNING
Material planning Is the way of determining the
requirements of raw materials that go Into meeting
the production needs within the economic
investment policies. Factors which affect materials
planning are price trends, business cycles, credit
policy, production capacity, lead times, inventory
levels, working capital, season, communication
system etc. The material planning is based on the
forecast for the end products. Once the demand
forecast Is made, it is possible to go through the
exercise of materials planning.
Definition of Materials Planning
Materials' planning is the scientific way of
determining the requirements of raw materials,
components, spars and other items that go into
meeting production needs within the economic
investment policies. Thus, by definition, it
follows that the materials planning function is a
sub- system in the overall planning activity. The
factors which affect materials planning can be
classified in two categories -macro factors and
micro factors.
Macro factors :
Some of the macro factors which affect materials planning ate price trends, business
cycles, government import policy, credit policy, etc. the recent credit squeeze followed
by the interim reports submitted by the study group to frame guidelines for follow -up
of bank credit is an excellent case in point. This study group headed by Mr.P.L. Tandon
of the reserve bank of India has already given guidelines for inventory levels of raw
materials, stock in process, finished goods as well as for receivables and bills
purchased and discounted. Industry wise details are furnished. Which is an extract of
the famous tendon committee reports of 1975. No materials planner can afford to
ignore these guidelines, as banks extend credit only as per these guidelines. Such
macro- level policy changes are bound to take place in future as well should be
considered while evolving the materials plan. Macro factors are also known as
external factors. Some of the macro factors are discussed below:-
I) National economy: - this is measured by gross domestic production in which
production of all sectors is added up by central statistical organization. It is one of the
indicatory of the health of the economy.
II) Price trend: - This follows law of demand and supply.
III) Monetary and fiscal policies of government: - A) credit regulation, B) guidelines,
imported comes under the open general license or a need for license, thought, with
liberalization, this constraint is relaxed to some extent.
IV) Business cycles: - These are the of recession or inflation in world economy.
Micro factors :-
• The materials planner also has to take various
factors into account at micro-level. They
include corporate objectives, plant capacity
utilization, rejection rates, lead times,
inventory levels, working capital, seasonality,
delegation of powers, and communication
system.
Importance of materials planning:-
Planning and control forms the core managerial
function. Hence, materials planning and budgeting is
given a prominent place in the integrated materials
managements set-up. This is so because planning for
materials and working out a realistic not only help
motivate people but also serve as a control device.
Planning is done at all levels of the organization. This is
illustrated in Fig
Importance of Material Planning
Unit 1
Material planning process
MATERIAL BUDGETING
The process of preparing material budget or
purchase budget in terms of quantity and
money value of materials to be procured in
given period of time.
•

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Unit 1

  • 2. Definition • Materials management is a total concept having its definite organization to plan and control all types of materials, its supply, and its flow from raw stage to finished stage so as to deliver the product to customer as per his requirements in time. This involves materials planning, purchasing, receiving, storing, inventory control, scheduling, production, physical distribution and marketing. It also controls the materials handling and its traffic. - The International Federation of Purchasing and Materials Management
  • 3. Objectives of Materials Management • The objectives and functions of materials management can be categorized in two ways • as follows: • (I) Primary objectives • (II) Secondary objectives
  • 4. (I) Primary objectives • (i) Efficient materials planning • (ii) Buying or Purchasing • (iii) Procuring and receiving • (iv) Storing and inventory control • (v) Supply and distribution of materials • (vi) Quality assurance • (vii) Good supplier and customer relationship • (viii) Improved departmental efficiency
  • 5. (II) Secondary objectives • (i) Efficient production scheduling • (ii) To take make or buy decisions • (iii) Prepare specifications and standization of materials • (iv) To assist in product design and development • (v) Forecasting demand and quantity of materials requirements • (vi) Quality control of materials purchased • (vii) Material handling • (viii) Use of value analysis and value engineering • (ix) Developing skills of workers in materials management • (x) Smooth flow of materials in and out of the organization
  • 6. Functions of Material Management • (I) Primary Functions To meet the primary objectives, the primary functions of the materials management are given as follows: • (i) Materials Requirements Planning (MRP) Planning of materials requirements in manufacturing is a necessary function in any organization, as inventory of materials involve about 60% of the total investment of the organization. The profit earned depends on the utilization of these materials and reducing the inventory of the materials.
  • 7. (ii) Purchasing • The materials management department has to perform this function of purchasing and procurement of materials very efficiently. Since 50% to 60% of sales turnover is spent on the purchase of various materials, the amount of profit earned on this sales very much depends how economically the materials are purchased and utilized in the organization. The profitability depends on the efficiency by which this particular function of purchasing and procuring the requisite materials at appropriate time will be done and its availability is assured.
  • 8. (iii) Inventory Planning and Control The modern concept of inventory planning is that the materials should be purchased and brought in the stores just before it enters the production or sold out so that inventory cost is negligible. The zero inventories are the ideal planning. There are three types of inventories. • (i) Raw materials • (ii) Purchased goods • (iii) Finished parts and components
  • 9. iv) Ascertaining and Maintaining the Flow and Supply of Materials •Distribution of materials requisitioned by the various production centers and other departments must be ascertained and its flow and continuity of supply must be maintained by the materials management department. Insufficient or zero inventories many times create9 the situations of stock-outs and leads to stoppage of production. Failure of materials handling devices is also responsible for disruption of material supplies. Alternatives or emergency supply systems can be used for assuring production lines to continue
  • 10. (v) Quality Control of Materials The quality of the product manufactured by the organization depends upon the quality of the materials used to manufacture that product. It is a very important and necessary function of materials management to purchase the right quality of materials. The inspection, quality control, simplification, specification, and standardization are the activities which are to be followed for the measurement of quality of the materials
  • 11. (vi) Departmental Efficiency The objective of this function is to ensure the efficiency of the system adopted. If the system and procedure adopted for materials management are inefficient or faulty. In order to maintain the things in proper way as per planning an efficient control is necessary in the department over each and every process. Management Information System (MIS) and feedback control at every stage of working must be adopted to control and make the management and employee work as efficiently as possible to achieve the best results.
  • 12. (vii) Make and Buy Decisions These types of decisions are the policy decisions of the management. The capacity of the organization and the various facility developed by the organization to manufacture various items is the main objective of every organization. This is the important planning activity of every undertaking. But when a company grows fast, its sales increases at rapid rate then it becomes an important matter to decide whether the company should buy the parts and components or increase and establish its facilities to cope up with the increased demand and sales.
  • 13. (viii) Forecasting and Planning Materials requirements planning is based on correct forecasting of sales and demand of the products in the market. The market fluctuations are to be observed to control production of the organization. The various methods of forecasting are available and the materials management department can choose the one which gives the best results to the company. Forecast of future demand of sales sets the planning of materials supply. Analytical methods are adopted for systematic forecasting and planning to procure the various materials required for production.
  • 14. Integrated Materials Management Concept All the materials related activities such as material planning & indenting, purchase systems & procedure, variety reduction through standardization & rationalization, reducing uncertainties in demand & supply, handling & transportation, inspection, proper storage & issue of materials to the internal customers, inventory management, vendor management & finally disposal of obsolete, surplus & scrap materials etc. taken together is termed as Integrated Materials Management
  • 15. MATERIALS PLANNING Material planning Is the way of determining the requirements of raw materials that go Into meeting the production needs within the economic investment policies. Factors which affect materials planning are price trends, business cycles, credit policy, production capacity, lead times, inventory levels, working capital, season, communication system etc. The material planning is based on the forecast for the end products. Once the demand forecast Is made, it is possible to go through the exercise of materials planning.
  • 16. Definition of Materials Planning Materials' planning is the scientific way of determining the requirements of raw materials, components, spars and other items that go into meeting production needs within the economic investment policies. Thus, by definition, it follows that the materials planning function is a sub- system in the overall planning activity. The factors which affect materials planning can be classified in two categories -macro factors and micro factors.
  • 17. Macro factors : Some of the macro factors which affect materials planning ate price trends, business cycles, government import policy, credit policy, etc. the recent credit squeeze followed by the interim reports submitted by the study group to frame guidelines for follow -up of bank credit is an excellent case in point. This study group headed by Mr.P.L. Tandon of the reserve bank of India has already given guidelines for inventory levels of raw materials, stock in process, finished goods as well as for receivables and bills purchased and discounted. Industry wise details are furnished. Which is an extract of the famous tendon committee reports of 1975. No materials planner can afford to ignore these guidelines, as banks extend credit only as per these guidelines. Such macro- level policy changes are bound to take place in future as well should be considered while evolving the materials plan. Macro factors are also known as external factors. Some of the macro factors are discussed below:- I) National economy: - this is measured by gross domestic production in which production of all sectors is added up by central statistical organization. It is one of the indicatory of the health of the economy. II) Price trend: - This follows law of demand and supply. III) Monetary and fiscal policies of government: - A) credit regulation, B) guidelines, imported comes under the open general license or a need for license, thought, with liberalization, this constraint is relaxed to some extent. IV) Business cycles: - These are the of recession or inflation in world economy.
  • 18. Micro factors :- • The materials planner also has to take various factors into account at micro-level. They include corporate objectives, plant capacity utilization, rejection rates, lead times, inventory levels, working capital, seasonality, delegation of powers, and communication system.
  • 19. Importance of materials planning:- Planning and control forms the core managerial function. Hence, materials planning and budgeting is given a prominent place in the integrated materials managements set-up. This is so because planning for materials and working out a realistic not only help motivate people but also serve as a control device. Planning is done at all levels of the organization. This is illustrated in Fig
  • 23. MATERIAL BUDGETING The process of preparing material budget or purchase budget in terms of quantity and money value of materials to be procured in given period of time. •