Materials Management: Objectives, Scope and Functions

Materials Management: Objectives, Scope and Functions

Materials Management: Objectives, Scope and Functions

the complete materials function - By Diksha Kashyap Material Management


Materials Management: Objectives, Scope and Functions!

Materials management is concerned with management functions supporting the complete cycle of material flow, from the purchase and internal control of production materials to planning and control of work in process, to warehousing, shipping and distribution of the finished product. An effective materials management process ensures that the right kinds of materials are at the right place whenever needed.

Materials management is concerned with planning, directing and controlling the kind, amount, location, movement and timing of various flows of materials used in and produced by the process.


Objectives of Materials Management:

Materials management objectives are categorized into:

1. Primary objective

2. Secondary objectives
1. Primary Objectives:

“Making available (supply) of materials in specified quantity and quality at economic cost and maintaining the continuity of supply. Minimization of investments in materials and inventory costs, and assuring high inventory turnover.”
2. Secondary Objectives:

Secondary objectives help to achieve the primary objectives.

The secondary objectives can be stated as:

1. Purchasing the items from a reliable source at economic price.

2. Reduction of costs by using various cost reduction techniques such as variety reduction, standardization and simplification, value analysis, inventory control, purchase research etc.

3. Co-ordination of the functions such as planning, scheduling, storage and maintenance of materials.
Scope of Materials Management:

Materials management encompasses all the aspects of the materials i.e. material costs, material supply and material utilization. Materials management is concerned with material planning and materials control activities. The details of planning and control activities are represented in table 1.3.

Planning and Control Activities of Materials Management
Integrated Materials Management:

Materials required for production purpose are normally procured and stored in the plant and issued to manufacturing when there is a requisition. Materials are to be purchased in advance and stored to ensure uninterrupted supply.

There should be a proper co-ordination and co-operation among different functional heads of materials department to optimise the operations of materials management. The materials function to be effective, the objective must be to maximise materials productivity. An integrated approach to materials management i.e. materials planning and control must look in to the problem areas in a co- coordinated manner in order to maximise the effectiveness of materials management.

An integrated materials management will result in the following advantages:

a. Better accountability for materials and material concerned costs.

b. Better co-ordination within the materials functions and also other functional areas of business.

c. Better performance and effectiveness.

d. Adaptability to automated and computerised systems.

The important areas to improve materials planning and control are:

1. Value analysis and purchase price analysis.

2. Materials planning and control (Inventory Control).

3. Stores control.

4. Waste management.

5. Materials handling.

Various elements of integrated materials management are represented in table 1.4.

Table 1.4: Elements of Integrated Materials Management Elements of Integrated Materials Management

Elements of Integrated Materials Management
Flow of Materials in Manufacturing:

In any manufacturing organisation, there is a flow of materials at various stages of manufacturing i.e. from input to output. The flow of tangible materials from input through manufacturing to output of a manufacturing operation is represented in the fig (1.10).

The flow with reference to inputs involves such activities as purchasing, traffic control and receiving. The activities associated with flow within the factory include the material handling activities at different workstations as per the order of processing. Output related activities include packaging, shipping and distribution.

Irrespective of the type of the organisation, the basic material related functions performed at the organisation are:

1. Purchasing

2. Inbound traffic from suppliers to company

3. Receiving

4. Inventory Control

5. Production control

6. In plant storage

7. Material handling

8. Packaging and shipping

9. Outbound traffic

10. Warehousing and distribution.

Flow of Materials Through a Company
Purchasing:

Purchasing plays a crucial role in the materials management because it is concerned from input stage up to the consumption in manufacturing. Purchasing functions as a monitor, clearing house and a pipeline to supply materials needed for production.

Dr. Walters defines scientific purchasing as:

“Procurement by purchase of the proper materials, machinery and equipment and supplies of stores used in manufacturing of the product, adopted to marketing in the proper quantity and quality at the proper time and at the lowest price consistent with quality desired.”
Purchasing Cycle:

The purchase procedure followed varies from company to company and also from one industry to other. The purchasing cycle is represented as shown in fig (1.11).

The basic elements in purchasing are:

Purchasing Cycle

1. The origin of demand for materials and components based upon the requisitions made to purchase department by user departments with all the details like descriptions, quantity and quality specifications.

2. Specifications are checked and verified and purchase plan is made for items demanded

3. Selection of source of supply.

4. Preparation of purchase order by supplier (order acceptance) and acceptance of terms and conditions.

5. Follow up to ensure prompt delivery of right quality and quantity of materials.

6. Incoming inspection of materials (both to check quality and quantity) to ensure correct material as per specification.

7. Checking supply invoice against purchase order and goods received and payments are made.
Methods of Buying:

Methods of purchasing will vary according to the nature of demand and the market conditions.

The principle methods of buying are:

1. Purchasing by requirement (Hand to mouth buying).

2. Purchasing for a specified future period.

3. Market purchasing.

4. Speculative buying.

5. Contract buying.

6. Group purchasing of small items.

7. Forward buying.

8. Hedging.
Source Selection (Vendor Selection):

The selection of right source of supply is an important aspect in materials management. The vendor is to be examined with respect to his capability and competency to supply right quality of material at right time and at a competitive price.

The buyer looks for the following details before a decision regarding vendor selection is made:

1. Production Capabilities:

(a) Capacity to manufacture the products as per the specifications and required quantities.

(b) Availability of spare capacity.

(c) Capability to understand the needs of Buyer Company both technical and commercial.

2. Financial Position of the Vendor:

(d) The type of the company – Private limited, Partnership or Sole proprietorship.

(e) Company’s capital structure.

(f) Financial position and profitability of the company since last 3-4 years.

3. Technical Capabilities:

(g) Whether the available plant and equipment’s ere in a position to meet the quality and quantity specifications of the customer.

(h) Whether there are enough technically skilled and trained people.

(i) Whether R&D facilities are available.

(j) What is the market standing of the vendor with respect to quality and delivery commitments (Reliability of supply).

(k) Whether he has enough storing and warehousing facilities.

(l) Quality control procedures – whether an ISO-9000 certified supplier.

4. Other Conditions:

(m) Working conditions in the vendor company.

(n) Industrial relations and bargaining power of unions.

(o) Possible reasons for interruptions in supply.
Vendor Relations:

Purchase department should establish a sound relationship with vendors based on mutual trust and benefit to ensure smooth supply of materials/parts as per the quality and quantity required. So, apart from a formal commercial relationship as a customer, a long lasting and mutually rewarding relationship is to be established.

A strategic partnership between the buyer and supplier is defined as a continuing relationship involving a commitment over an extended time period, an exchange of information and acknowledgment of risks and rewards of the partnership. A sound relationship emerges from the proper help and co-ordination on the part of both buyer and supplier.

The expectations from buyers include:

a. Promptness in delivery.

b. Meets the quality and quantity requirements.

c. Entertains occasional rush orders.

d. Flexibility in quantity to be supplied.

e. Can wait for the bills.

f. Competitive pricing.

The expectations from the vendors:

a. Consistent orders

b. Prompt payment of the bills.

c. Extend help during difficulty both financial and technical.

d. Continuity of orders.
Vendor Rating (Evaluation of Suppliers):

The appraisal of the vendor performance is a continues process.

The vendor can be rated on various characteristics such as:

1. Delivery (To deliver as on time as per the order).

2. Quality (To delivery as per specifications).

3. Price.

4. Other factors such as capability to meet urgent/rush orders readiness to try out new designs or new methods etc.

In vendor rating, one usually gives weightage to these various characteristics and measures the performance of the vendors periodically on the basis of certain norms and procedures. Every company should have a formal vendor rating system. It is not only beneficial to the buyer company but also for the supplier company. Vendors will get the feed-back based on objective evaluation and can compare its own performance with that of competitors. It is a fair evaluation since the rating is based on facts and not on opinions or prejudices. Vendor Company’s can know their shortcomings and improve upon them.

Generally, there are three methods of vendor rating:

1. Categorical plan

2 Weighted point method

3. Cost ratio method.
Just In Time (JIT) Purchasing:

Just in time purchasing is a major component of JIT manufacturing system. The basic concept of JIT purchasing is to establish agreement with vendors to deliver small quantities of materials/parts just in time for production. This approach is quite contrast to traditional approach of bulk buying.

The features of JIT purchasing are:

a. Reduced lot sizes

b. Frequent and. reliable delivery schedules.

c. Reduced and highly reliable lead times.

d. High quality level of purchased parts.

The JIT purchasing aims at a single reliable source for each item and consolidation of several items from each supplier.

The reduction of number of suppliers in JIT purchasing has the following advantages:

1. Consistent quality

2. Minimum investment and resources such as buyer’s time, travel and engineering

3. Focused attention on vendors

4. Savings on tooling

5. Establishment of long-term relationship.

For making JIT work, the following conditions are put on purchasing department:

1. Reduction in number of suppliers.

2. Locating the suppliers who are nearby.

The success of JIT purchasing depends on how well the firm establishes the strategy of single sourcing. The suppliers should be seen as “Outside” partners who can contribute to the long run well fare buying firm.

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