Friday, August 14, 2015

Materials Management

Materials Management

Materials Management is an approach for planning, organizing, controlling, all those activities, principally concerned with the flow of materials into an organisation.

It is a business function of planning, purchasing, movement, storage and distribution of materials in an optimum way which help the organisation to minimize the various costs like inventory, purchasing, materials handling and distribution costs.

5 R's of Materials Management

1) Right Quality
2) Right Quantity
3) Right Price
4) Right Place
5) Right Time

Key objectives of Materials Management

To buy at lowest price, consistent with desired quality and service.

To maintain high inventory turnover, by reducing excess storage and employing methods like JIT.

To reduce inventory carrying costs and inventory losses occurring due to deterioration, obsolescence and pilferage.

To maintain continuity of supply, preventing interruption of the flow of materials and services to users.

To develop reliable alternate sources of supply to promote a competitive atmosphere in performance and pricing.

To minimize the overall cost of acquisition by improving the efficiency of operations and procedures.

To hire, develop, motivate and train personnel and to provide a reservoir of talent.

To achieve a high degree of cooperation and coordination with the user departments.

To develop and maintain good supplier relationships in order to build supplier trust and desire, and furnish the organisation with new ideas, products, better prices and services.

To maintain good records and controls that provide an audit trail and ensure efficiency and honesty.

To participate in Make or Buy decisions.

Materials Management thus can be defined as that function of business that is responsible for the coordination of planning, sourcing, acquisition, moving, storing and controlling of materials in an optimum way so as to provide service to the customer, at a pre-decided level at minimum cost.

Basic Areas of Materials Management

1) Materials Planning & Control 

Materials required for any operation are based on sales forecast and production plans.

Materials planning is a scientific way of determining the requirements of raw materials, consumables, spare parts and all other materials that are required to meet the given production plan for a certain period.

It also involves estimating the individual requirements of parts, preparing the materials budget, forecasting the levels of inventory, scheduling the orders and monitoring the performance of supplies in relation to production and sales.

2) Sourcing / Acquisition 

The basic objective of materials management is to provide material resources to the user departments so as to meet the production schedules at minimal cost.

To meet these objectives the activities undertaken include selection of sources of supply, finalization of terms of purchase, placement of purchase orders, follow up, maintenance of relations with vendors, approval of payments to vendors, evaluating, rating and developing new sources of supply.

3) Storage

Once the material is delivered, its physical control, preservation, handling, minimization of obsolescence and damage, maintenance of records, stocking at proper locations is done at Stores.
Controlling the usage of materials, and avoiding the inappropriate and unauthorized flow of the materials can be achieved by efficient storage. 

4) Inventory Control 

It is a set of policies and controls that monitors the levels of inventory and determines what levels should be maintained.
When stocks should be replenished and how large the orders should be. It determines the time and quantity of various items to be procured.

The basic objective of inventory control is to reduce the investment on inventory and at the same time to ensure that the work does not suffers for the want of materials.

It covers aspects such as setting inventory levels, performing various analysis such as ABC, XYZ etc, fixing economic order quantities (EOQ), setting safety stocks, lead time analysis and reporting.

Materials Management thus can be defined as a joint action of various materials activities directed towards a common goal and that is to achieve an integrated management approach to planning, acquiring, processing, and distributing materials from raw materials state to the finished product state.