Chapter One

Introduction to material
management
 Chapter Outline
 What is materials management
 Importance of material management
 Scope/Function of material management
 Objectives of Materials Management
 Organization for material management
 Relationships between material management and other business
functional units
 What is Materials Management?
• Material management is the process of planning, organizing,
implementing and controlling the tasks associated with the flow
of materials to through and out of an organization in an integrated fashion.
• The main points of the definition is that, Material management as other
management branch employs the basic functions of management: planning,
organizing, directing and controlling.
• All these functions target at the optimum use and allocation of materials.

• Materials should be managed before, during and after the process.

Inputs process outputs

 Types of Materials
• Materials: any commodities used directly or indirectly in producing a product or
service such as raw materials, component parts, supplies and equipment items.

• Types of materials are usually classified based on accounting purpose and based
on their use.
• Materials classified based on accounting purpose includes:

a) raw materials: basic inputs, components, and sub assemblies

b) work-in process:raw materials in semi-finished stage.
c) Finished goods: final products which are ready for final delivery or distribution.
d) Supplies: short-term goods that facilitate developing or managing
the finished product.
 Types of Materials

• Materials classified based on their use includes:

a) Production items: materials that become part of the produced item,

they can be fabricated part or component items.

b) Capital items: are items that are used to produce the physical
product are supposed to use for any period of time are classified as:

i. installation items: major capital that require huge investment.

E.g. machines, tools, computer, equipment

ii. Accessory: equipments-required relatively less investment

 Types of Materials

c) Operating items used to facilitate production and other operations.

E.g. maintenance, repair and operating supplies to be used as needed for
operations and maintenance.
 Importance of materials management
• In general, materials management (MM) is important for three reasons:
1. Customer service:
 Material management (MM) serves other units/departments of the organization.
These services support the goal of fast process throughout the organization, and
include:
• Un interrupted flow of materials
• Assistance to customers-repair, replants or delivery
• Reduction in parts shortage
• Average transit from warehouse to customer
• Minimum of transportation delays
• Accurate inventory counts
• Good forecast accuracy
 Importance of materials management
2. Cost reduction:
Cost reduction effort related to profit and effective material management
certainly make deference. Specific cost reduction measures include:
• reduction in material costs

• reduction in storage space

• reduction in physical inventory

• increase in inventory turn over

• reduction in transportation cost

• reduction in setup time

 Importance of materials management
3. Administrative efficiency

• The last area is administrative efficiency which covers quality of

measures related to department efficiency in operation and

development of people. These measures include:
• Material management budget vs. actual

• Ratio of material budget to sales

• Ratio of key people among functional

• Installation of productivity- enhancing systems

 Scope/Functions of material management
• The function or activities of materials mgt. depend on the size of the

organization, type of the organization and complexities of the products and

process.

• The main functions that come under the umbrella of material management are:

1. Materials demand forcasting: follows from sales forcast

2. Purchasing acquisition of the kinds and quantities of materials required by

department.

3. Inventory control: planning and maintains stocks of raw materials, tools,

 Scope/Functions of material management

4. Traffic/transportation: includes both incoming and out going transportation

also called logistics management (physical distribution)

5. Store and material handling: is responsible for activities related to

receiving, storing, handling, issuing, and controlling materials.

6. Disposal of scrap and surplus materials

 Scope of Material
Management

Materials Stores Inventory Other Related Functions

Purchasing Management
Planning Management
Materials handling
& disposal

Transportation

Standardization

Simplification

Value analysis, etc.

Figure 1.1 The Functions of Matrials Management
 Objectives of Materials Management
 Based up on their importance, the above objectives and functions of materials
management can be further categorized in two ways as follows:
 Primary objectives  Secondary objectives

• Efficient materials planning •Efficient production scheduling

• Buying or Purchasing •To take make or buy decisions

• Procuring and receiving •Prepare specifications and standardization of materials

•Forecasting demand and quantity of materials
• Storing and inventory control
requirements
• Supply and distribution of materials
•Quality control of materials purchased
• Quality assurance
•Material handling
• Good supplier and customer relationship •Developing skills of workers in materials management
• Improved departmental efficiency •Smooth flow of materials in and out of the organization
 Organization for materials
management
• Organizational structure of materials mgt. can be either fragmented or integrated

organizational Structure.

• In case of small size organization, using integrated organization structure is unwise

because its running cost is expensive so these type organization use fragmented
organizational structure.

• Fragmented/Differentiation/Defused organizational structure: is a very old

approach where individual material functions are assigned to other functional areas.

• This organization assignment of individual functions to other major functions will based

on “most use” criterion, critical relationship criterion and executive interest basis.
 General
Manger

Finance Manufacturing Marketing

Inventory Production Physical

Purchasing
Control Control Distribution

Figure 1. 2: Fragmented Organizational Structure

Benefits/Advantage Fragmented organizational
structure
1. no additional level of mgt is created

2. no need for additional employees, and other resources

3. avoids additional horizontal communications

 Draw Backs of Fragmented Structure
1. Unclear responsibility:- no clear cut responsibility for the overall flow of
materials.

2. Low status and lack of representation:- these functions are scattered and
assigned at a lower level in the organizational structure, and there is no
representative of them in the mgt. meeting to show their problems.

3. Lack of integrity:- the materials activities that are scattered are not under the
control of their integral or fundamental areas, and there is no mutual
understanding & coordination of activities.

4. Lack of Motivation:- Persons that are assigned to lower hierarchy are not much
motivated to perform in a good way and there may not be future prospect to get
promotion under those functional areas. e.g. a purchaser under finance can not
expect to be finance
 Integrated organization structure
• This is a modern approach where all activities of materials headed by a Materials

manager with other sub functions under him/her. It integrates of all materials
related activities.

• In large organization we usually have an integrated Organizational Structure

because one dept. should be responsible for materials mgt.

• To consolidate the whole material activities under one department (manager) who

has the responsibility to assign them may overcome the above draw backs.

• The integrated materials mgt. organization structure can be shown

diagrammatically as follows:
 General
Manager

Finance &
Marketing HR Material Operating Information
Account
Manager Manager Manger Manager Manager
Manger

Materials &
Store & Inventory Traffic &
Purchasing Purchasing Scrap & Surplus disposal
warehouse control Transportation
study

Figure 1. 3: Integrated Organizational Structure

 Benefits of the integrated approach
1. Equal status with other functional mangers

2. Can view the total commitment on his/her department.

3. Reports to higher level in the organization thus greater scope to influence board
divisions affecting his area of operations and interfacing ones.

4. Scope to evaluate the strengths and weakness throughout the whole of the materials
management department.

5. Better accountability: though centralization of authority and responsibility for all

aspects of materials function, a clear cut responsibility established.

6. Better performance: as all inter-related functions are integrated organizationally,

greater speed and accuracy, results in communication.

7. Better service
 R/Ship b/n Materials Mgt & other functional
units
• Generally the materials mgt unit is related to other functional units in a number of ways.
Inorder to use the synergic effect all organizational units have to work together.

 Materials Mgt. and Operation

• Materials management department must work with the operations department and

informed about the availability of raw materials, anticipated delays so that re-
scheduling of production could be done and costly stock outs avoided.

• The materials mgt. section should supply the right quantity materials/part with the

right of quality at the right time and at a reasonable price.

• Operation will have to keep materials management department informed about its

plans and schedules so that material requirements can be planned in advance.

 R/Ship b/n Materials Mgt & other functional units
Materials Mgt. and Finance:

• The finance department also has to work in close coordination with

material management department in:-

 anticipating the availability of funds

payment of bills of purchases

accurate record of purchases

source of accounting documents

 R/Ship b/n Materials Mgt & other functional units
 Materials Mgt. and Marketing

- Marketing department will give advance information on sales forecast on

which material forecast is based on:

- Materials management through efficient operation can keep product prices at a

competitive level and thus help the marketing department in its operation.

Materials Mgt. and HRM

- HRM perform the basic recruitment, selections, promotion and other
employees aspects of materials management department.
 Problems of materials Management
• Lack of qualified managers

• Lack of capable managers with broad experience and knowledge of various

sub-functions. This problem is alleviated through improved education and
cross training of personnel within the materials organization.

• Insufficient upper management support. Upper management’s understanding

and continuous support is vital.

• Improper planning and implementation

• Lack of credibility