Materials Management

Definition

Materials Management is a function responsible for

- coordination of planning, sourcing, purchasing,
moving, storing & controlling the materials in an
optimum manner
- so as to provide a pre-decided service level to the
customer at a minimum cost

Materials Management
Materials Management can also be defined as:
A term used to connote controlling the kind,
amount, location, movement and timing of
various commodities used an and produced
by the industrial enterprise
It involves all activities concerning materials right
from time need for the materials is

Materials Management
established until they are issued to production.
Materials Management is concerned with all
activities of management such as planning,
organizing, directing, controlling & coordinating
related to materials

Broad Functions

Materials Planning & Programming

- Purchasing
- Inventory Control
- Storekeeping
- Stores Accounting
- Transportation
- Internal (Materials Handling)
external (traffic, shipping)
- Scrap & Surplus Disposal

Objectives of Materials
Management
Primary Objectives
-

Right Price

High Turn-over

Low Procurement & Storage Cost

Continuity of Supplies

Objectives of Materials
Management
-

Consistency in Quality

Good Supplier Relations

Development of Personnel

Information System

Objectives of Materials
Management
Secondary Objectives
- New Materials & Products
- Make or buy decisions
- Standardization & Variety Reduction

Objectives of Materials
Management

- Product Improvement
- Forecasting
- Inter-department Harmony

Integrated Materials
Management Approach
This is essentially an organizational
concept that brings together, under one
organizational component i.e. Materials
Management Department, the
responsibility for planning, purchasing,
transportation, storing, disbursing and
controlling materials.

Need for integrated

concept
To avoid conflict among various functions
of materials management
Need to balance conflicting objectives
from total organization point of view so
as to achieve optimum results for the
organization

Need for integrated

concept
In the integrated set up, Materials
Manager is responsible for all interrelated materials functions
Integration helps in rapid transfer of data

Advantages of integration of
materials management functions:
Better coordination and reduction of interdepartmental conflicts. This is accomplished by
eliminating buck passing between subfunctions and providing a Central Figure (Head
of MMD) to balance conflicting objectives.
Reduction of inventory level and greater
assurance of materials availability by better
coordination and communication with user
departments and among sections of MMD

Advantages of integration of
materials management functions:
Improved supplier relation results from
ensuring delivery schedule on the basis of
latest inventory position and production
requirements
Paper work and duplication of work reduced
through better coordination and proper
communication among persons performing the
related functions.

Advantages of integration of
materials management functions:
Through centralization of authority for all aspects of
Materials function a clear-cut accountability is
established
Department under Materials Manager creates an
identity which results in better support and cooperation
in accomplishment of materials function
Integration of material functions made it possible to
design data processing system

Advantages of integration of
materials management functions:
Greater speed and accuracy results in
communication due to integration of all
inter- related functions organizationally
Improved customer services often results
from reduced delivery time.

Advantages of integration of
materials management functions:
Reduced overall cost of materials as a
result of using more scientific and
economical methods in planning,
acquisition, storage and control of
materials.
A team spirit is inculcated resulting in
better morale and cooperation

Organization structure of
materials functions

As subordinate function reporting to other

functional Head
Chief Executive

Production
Manager
Also
Production Control
& Stores

Purchasing
Manager
Also
Stock Control

Sales Manager
Also
Transportation

Other Manager

Organization structure of materials

functions
As independent management function at
par with any other management function
reporting to Chief Executive
Chief Executive

Production
Manager

Materials
Manager
Purchasing
Stores
Stock Control
Transportation

Sales Manager

Other Manager

Which of the two

organizational structure to be
adopted depends on the
factors:
- How important are MM activities to the unit and
for that matter to organization?
- Will Unit suffer substantially if MM does not
perform effectively as it ought to?
- How much funds blocked in inventory and
constraints of working capital?

Which of the two organizational

structure to be adopted depends
on the factors:
- How important it is that MM activities be closely
coordinated with O&M, others & Accounts
Department?
- Is it essential that materials cost be controlled tightly
and effectively?
- What is absolute value of purchases?
- What is the range and variety of materials
purchased?

Which of the two organizational

structure to be adopted depends
on the factors:
- What is the percentage of materials cost in
total production cost?

- What are the market conditions

- And last but not least, do we intend to
develop a professional team of Materials
personnel to effectively contribute in
overall organizational objectives?

Which of the two organizational

structure to be adopted depends
on the factors:
- Organization will certainly be benefited from a
higher caliber, creative MMD, should it be
treated as a profit- making
centre that
receives close attention of general
management.
- It is, however, realized that Accounts,
Production, Engineering or Maintenance
Deptts
have their own priorities, which are in conflict with
basic objectives of sound Material Management

Which of the two organizational

structure to be adopted depends
on the factors:
- Modern tendencies as such are to de-link
materials functions from these Deptts.
Integrated Materials Management function is
recognized as top management function
and
Head of MMD reports directly to head
of unit or organization.
Even if Materials is primarily treated as service
activity, it should report to that service head
that it serves most

Centralization Versus Decentralization of

Materials Functions:
A company with several operating plant faces one
additional organizational problem.
- To what extent should materials
management functions be centralized at
corporate level?
There may be complete centralization or complete
decentralization or develop an organization
somewhere between these two extremes.

Centralization Versus
Decentralization of Materials
Functions:
Factors to be considered:
Similarity of the classes of materials used in each of
plant. If a firms plants use different materials,
centralization offers only minimal benefits,
Size of each individual materials department.
Centralization is more advantageous when a firms
individual plants do not have large materials
department.

Centralization Versus
Decentralization of Materials
Functions:
Geographical dispersion of plants: Closure the firms
plant are located geographically, the feasible
centralization becomes.
Geographical dispersion of plants: Closure the firms
plant are located geographically, the feasible
centralization becomes.
No and size of plants: If there are large No of plant of
fairly big size, centralization will become difficult &
create more problems in availability of materials than
any gains.

Centralization Versus
Decentralization of Materials
Functions:
Advantages of Multi-plant Centralization:

Scope of greater specialization.

Consolidation of materials requirements and
economy through bulk purchases.

Better coordination with suppliers

Lesser buying cost.

Centralization Versus
Decentralization of Materials
Functions:
Advantages of Multi-plant Decentralization:
Better coordination with operating
departments.
Greater flexibility with operating departments.
Effective use of local suppliers and facilities.

Centralization Versus
Decentralization of Materials
Functions:
Greater autonomy and accountability.

Lesser lead- time and resultant reduction

in inventories.
Faster decision on purchases and
clarifications to vendors.

Centralization Versus
Decentralization of Materials
Functions:
Faster payment to the supplier.
Lesser stock-out and rush purchases.

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