UNIT 1

NATURE OF MATERIALS MANAGEMENT

 Introduction

 Materials Management Defined

 objectives and functions of materials management

 Types of Materials

 Organization of Materials Management

INTRODUCTION

 Organizations, either private or public exist to satisfy some needs and wants of the
society by producing goods and services.

 The production process involves the use of organizational resources popularly referred to
as 5M; men, machines, money, method and material.

 Management must plan, organize, and control the flow of these resources from point-of
source to the point-of –consumption in order to produce want satisfying products.

 An important part of the flow, referred to as materials management consists of

organizational function responsible for the:

 materials planning, material forecasting, sourcing, purchasing, inbound traffic,

incoming quality control, inventory control, receiving, storing, production
scheduling, manufacturing, control and distribution activities of materials used in
the internal and external fulfillment of demand.

 It also involves the management of recovering and recycling of waste materials, scrap
and surplus disposal.

1.2. Definition of Materials Management

 Materials Management: - is concerned with the inflow of materials and outflow of

finished products through channels of distribution centers to the end users/beneficiaries.

 Materials Management: - function responsible for the coordination of planning,

sourcing, purchasing, moving, storing, and controlling materials in an optimum manner
so as to provide a pre- decided service to the customer at a reasonable cost.
  Materials Management is the process of planning, organizing, procuring, storing and
providing the appropriate material of right quality, right quantity at right place in right
time so as to co-ordinate and control the production operation effectively and efficiently.

 According to Stock et al (2001), materials management activities can basically be

categorized into four activities:

 Anticipating materials requirements.

 Sourcing and obtaining materials.

 Introducing materials into the organization.

 Monitoring the status of materials as a current asset.

Objectives of Materials Management

I. Efficient materials planning

II. Buying or Purchasing

III. Storing and inventory control

IV. Supply and distribution of materials

V. Quality assurance

VI. Good supplier and customer relationship

VII. Improved departmental efficiency

1.3. Types of Materials

1.3.1 Purchased Materials

 These are stocks or materials purchased from other organizations for production process.

 They form part of the product being produced.

They are classified as raw materials, fabricated materials and parts, installations (capital items),
accessory equipment, operating supplies, etc.

1. Raw materials: Raw materials are the unprocessed items that are broken down,
processed or combined with other materials to create an end product.

Raw materials are converted in to semi finished/work-in-process and finished products

depending on the objective of the organizations
Raw materials can be categorized into two:

I. Agricultural Products: : Agricultural products are obtained from farms

and most are highly perishable.

II. Mineral Resources: These are the natural resources which cannot be
renewed.

2. Fabricated Materials and Parts:

 These are purchased materials that become part of another finished product after
undergoing further processes.

 These materials are not processed further but fixed as part of final product.

 E.g. Tyre, seats used in automobile, computer parts, zips

3. Installations (Capital materials):

 These types of materials do not become part of any finished products and are not
used up in production process

 Examples are machines and major equipment, factory building, vehicles, big
generators, etc.

Operating Supplies:

 These materials are industrial convenience materials in which the purchasing process is
less cumbersome and the time spent in procuring them is limited.

 They are consumed as operating activities but do not form part of any finished products.

 Examples of operating supplies are petrol, diesel, lubricating oil, grease, broom, staplers,
pens, etc.

1.3.2 Work-in-Progress Materials

 These are semi-finished and finished parts and components required for production
operation.

 These work-in progress materials include items, which enter into final production.

 They can be single component, sub assembly, assembly, sub system and system that form
part of the products.
  The computer manufacturers or engineers purchase motherboards, central processing unit
and monitors to assemble a desktop computer system.

1.3.3 Finished goods

2. These are the final products either waiting to be assembled, packaged or in stores which
are stocked for final delivery waiting for customers.

3. Finished goods are products organizations send to society for consumption.

Integrated Concept of Materials Management

Functions served by materials management include:

 Materials planning

 Purchasing

 Receiving and storage

 Inventory control

 Scrap and surplus disposal

If some of the functions were to be separately handled, a conflict of interests occurs.

For example if purchasing department is allowed to operate independently, it will make

decisions, which result in sub –optimization. Under the separate set –up the purchasing
department may treat discount at a very important factor and buy large quantities to avail of the
discount without taking into account its impact on the warehousing and carrying costs.

Advantages an integrated materials management

 Better accountability: through centralization of authority and responsibility for all aspects
of materials functions, a clear – cut accountability is established.

 Better Coordination: - when a central materials manager is responsible for all functions,
the departments under the materials manager create an identity that is common.

 Better Performance: as all the inter-related functions are integrated organizationally,

greater speed and accuracy results in communication.

Adaptability to EDP: the centralizations of the materials functions have made it possible to
design data processing systems

1.4. Organization of Materials Management

Purchasing: - purchasing involves acquiring the kinds and quantities of materials to be
issued required by different organizational units, such as production scheduling/planning,
inventory control, engineering, maintenance etc.  

2. Traffic: - traffic involves transporting materials from supplies to a firm’s store and also to
user departments.

3. Receiving: receiving involves the following functions

 Physical handling of incoming shipments

 Identification of materials

 Verification of quantities

 Preparation of reports and

 Routing of materials to sore for final utilization

Store: - store is responsible for physical control and maintenance of all items. It also
maintains records to immediately show locations, damage obsolescence, theft etc.

5. Inventory control:

 Inventory control involves aggregate planning of materials requirements to meet

production plans.

It includes keeping detailed records of materials, maintenance of physical stocks, issuing of

requisitions to purchasing, checking materials requirements against inventory records.

Bases of organization

1.Organization Based on Commodities

 Under this system of organization, items are classified according to their nature such as
raw materials, spare parts, components, finished goods, imported items, and so on, and
they are assigned to individuals.

2. Organization Based on Function

 Here the materials management department is structured on the basis of functions such as
stores, transport, receiving, purchasing and so on

3. Organization Based on Location

 When an organization has several plants located in different parts of the country, there
are two alternatives.

 Centralized organization located at the head quarters

 Decentralized materials management set-up in each location

 Advantages of Centralized organization for Multi-Plant Operation

 Combining the requirements of plants and buying in bulk leads to substantial

reduction in costs

 Inter – plant transfer of materials in an emergency is possible

 Surplus materials in one plant can be utilized in meeting the requirements of

another plant.

 High order of skill can be expected

 If decentralized, however, advantages will be:

 Minimization of transportation cost and also time on condition that distance

between plants are significant

 The head quarters may lay down policies, procedures, and systems for all plants.
A periodic reporting system may be established between the plants and the head
quarters