Materials management is a coordinated joint action of various materials-related activities to achieve the organizational goal, adopting the integrated approach to plan, acquire, process and distribute materials. Therefore, materials management is a key business function, and it coordinates various materials-related activities like planning, sourcing, purchasing, dispatching and storing, optimizing the cost and also to deliver the customers on time.
In today’s situation, scope of materials management function extends to new areas like supply chain management, Just-in-Time, value chain management, etc.
Operationally, a materials manager needs to perform various duties like inventory management, value analysis, receiving, storing, managing slow-moving and non-moving materials, etc.
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Based on the industry practices, we can categorize materials management functions into following four types:
i. Planning and control of materials
ii. Purchasing of materials
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iii. Value analysis of materials
iv. Physical distribution of materials
It is an approach for planning, organizing and controlling all those activities principally concerned with the flow of materials into an organization. The scope of materials management varies greatly from company to company and may include materials planning and control, production planning, purchasing, inventory control and stores, in-plant materials movement and waste management. Main issues in materials management are:
i. Manufacturing and process of value addition
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ii. Operation, keeping pace with the requirements of environment and competition
iii. Delivery lead time and manufacturing strategies
iv. Roles of material management functions in an organization
v. Supply chain management
vi. Manufacturing processes
Thus, materials management involves short-time horizon decisions on supplies, inventories, production levels, staffing patterns, schedules and distribution. Typically, materials management decisions are tactical and not strategic, detailed and not aggregate. Inventories are items of potential economic value, which are held ahead of demand.
Inventory control in any organization becomes necessary for avoiding diminishing economic value of inventory holding due to deterioration, obsolescence and pilferage. Moreover, excess inventory holding unnecessary blocks the capital of the organization, which cannot be utilized for other purposes, i.e., it creates a problem of liquidity (cash availability) for the organization.
On the other hand, inventory management becomes necessary for the organization to meet unpredictable demand, to hedge against poor quality, to guard against supply uncertainty and to avail economies of bulk purchase.
Depending on the nature of organization and its areas of activities, type of inventory holding varies. However, most general types of inventory are, raw materials, consumables, spare parts, etc. Organizations, whose production plans are independent of market demand also hold finished inventory for subsequent sales in the market. Cost of raw materials for many manufacturing organizations varies between 35 per cent and 40 per cent in India.
Taking into consideration other costs, i.e., general consumables, spare parts and even finished goods, inventory holding costs of many Indian organizations rise to a very alarming level of 30 per cent to 35 per cent. In many world class organizations, with the introduction of Just-in-Time (JIT) inventory control systems, inventory holding costs have reduced considerably.
Therefore, we can understand the importance of inventory control and management function in any organization. Benefits of inventory management are to optimize time and place utilities of stock and also to optimize investment in inventory. Wal-Mart, the largest retail chain in the world reduced their inventory holding to less than one per cent introducing RFID systems. RFID is radio frequency identification.
It is a device attached to an object that transmits data to an RFID receiver. RFID has advantages over barcodes, as it can hold more data, and it can change the stored data while processing occurs. In the process, RIFD helps in effective inventory control, generating automatic orders.
In the following table, we have explained various stages of material cycle to illustrate that inventory control functions encompass all these areas.
Planning function involves determination of categories of stock based on future demand. Future demand depends on past consumption, changing clientele, priorities of organizational activities. Also, while planning, an organization also requires to specify the quality and the quantity to be procured.
In procurement phase of inventory control, the organization requires to ensure right quality, right quantity, right price, right time and right source of supply. Decision-making areas consider issues like, vendor development, vendor evaluation, rate contract decision and distribution of financial authority of procurement.
At the receipt and inspection stage of inventory control, the organization does checking of quantity, physical condition and chemical testing (to verify physical and chemical properties of materials received). However, in all cases, chemical testing need not be necessary.
At the storage stage, areas like location, preservation, layout and materials issue are considered. Location means the exact place where stock piling is done to store the inventory. In some organizations, centralized storage space is used, and all departments draw their requirements from such centralized store.
However, for certain items, storage in the specific departments, where the production would be carried out, is considered more appropriate, either because of the size as it may create the problem for lifting heavy item and more from one place to another or because of preservation problem.
To take an example, storage of certain items requires environmental conditioning. Hence, preservation issue is also considered while storing the materials or the inventory. Layout is the physical arrangement of storage space. For quick retrieval, it is necessary to store the materials in such a way, so that materials issue can be done much easily and quickly.
The other important area of material storage is to determine the system of material issue. Many organizations follow the norms of material issue against the standard intends duly signed by the authorized representatives of the users’ section. However, where organizations are centrally controlled, such material issue may require the approval of a designated official, like a purchase controller, etc.
Another area of material issue is record keeping. Effective record keeping is done through bind card posting by the store clerk. However, with bar-coding and also with the availability of many inventory controls like ERP (enterprise resource planning) modules, such record keeping tasks have now become much easier.
At the final phase of material cycle, disposal and condemnation is done following methods like, mutilation, defacing, segregation, colour coding, etc. Whatever may be the approach for disposal and condemnation, the basic purpose is to separate such materials, so as to avoid its inadvertent use in production.