Definition: Materials Management is one of the main functions of SCM i.e. supply chain management. It is concerned with all the activities related to the flow of material. It covers – planning, sourcing, procurement, scheduling, storing, providing, and controlling appropriate materials. By the term ‘materials’ here we are referring to both – Direct Material and Indirect Material.
It plays a crucial role in industries like construction, manufacturing and production. This is because in such industries any sort of shortage of material, or supply of low-quality materials may result in loss. And this loss will be of both profits as well as customer satisfaction.
Further, the material should be of the right quality, and quantity and at the right place at the right time. This is going to ensure coordination and scheduling of the activity of production in a comprehensive manner. It aims to:
- Maximize the use of the resources of the firm.
- Supply the desired level of customer service
Materials Management helps in achieving a competitive edge over rivals. this is possible by timely delivering quality products or services to customers, at a reasonable cost.
Objectives of Material Management
The first and foremost objective of material management is obviously buying materials and transporting them at low prices. This will result in an overall reduction in the cost of operations.
High Inventory Turnover:
If inventories are low in relation to sales then it symbolizes less capital is blocked in inventories. This results in an improvement in the efficiency. Resultantly, the capital invested by the company is utilized effectively. And so the return on investment is going to be higher. Moreover, when the turnover is high, the storage and carrying cost of inventory is low.
Low cost of procurement and possessing:
When the firm handles and stores materials in an appropriate manner its real cost is reduced. Meaning that the cost of procurement and possession of materials is low when the receiving and stores departments operate efficiently.
Continuous supply of materials:
If there is any shortage of material during the production, the cost of production will go up. And this cost will be unavoidable. So, continuity in the supply of materials is very important, especially for highly automated processes. This is because in such processes costs are fixed and they incur even when the production stops due to a lack of materials.
Consistency of quality:
When the firm maintains consistency in the quality of materials used in production. This may result in the retainment of the customers in the long run.
Low payroll costs:
The lower the payroll cost of the material department, the higher will be the profits.
Favourable Supplier Relations:
The relationship of the firm with its suppliers determines its position in the industry. A company that builds good relationships with its suppliers gets timely delivery of goods at low prices. This will reduce the cost of production. As a result, the company will be able to attract more customers.
Favourable Reciprocal Relations:
Reciprocity is the process in which the company buys goods in the maximum possible quantity from its own customers knowingly. Good reciprocal relations involve maintaining a balance between the pros and cons of using the purchasing power as a tool to generate sales
New Materials and Products:
The materials department of the concern assists in the development of new materials and products. Its employees deal with the suppliers on a regular basis. When they get to know anything of interest, they can convey it to other interested parties.
Economic make or buy decision:
Because it is the material department that has to deal with the supplier on a regular basis. They have to choose the supplier considering various factors. Also, they have to take a make or buy or outsourcing decision.
If the items to control and suppliers to deal with are fewer, the process of material management will be efficient. For this purpose, they promote standardization and simplification of the specification. It is the design departments that are responsible for standards and specifications. However, the material department also contributes to it. The material department can:
- Review the inventory timely
- Eliminate non-standard items and
- Promote the integration of standard components into the design of the product to reduce cost.
It is an important objective of the design department. But, here too the material department assists them. In short, it uses both – the economic knowledge of the material personnel and the technical knowledge of the design personnel. This is to boost profits by way of product change. Material personnel can assist the design personnel in achieving the design objectives in a more economic manner. This is possible by providing the equivalent material and components that will perform the same job but at a low cost.
As you know, the materials department of the concern has to deal with all the departments of the firm. while the material department can assist other departments in their success, the success of the materials department rests upon how much cooperation it receives from the other departments.
It is necessary to make predictions about the future prices, costs and general business operations. It helps in the efficient management of materials. In big corporations, there are expert economists are present. They make forecasts about the purchase and sales planning. It is the materials personnel who convert these general forecasts into specific ones for purchased materials.
Achievement of Objectives of Material Management
Now the question arises how the companies will be able to achieve the objectives? Well, the company can achieve these objectives by:
- Holding down prices
- Assuring reliability
- Regulating inventory
- Reducing operating cost
A word from Business Jargons
Materials Management is a distinct field of management that is concerned with the management of material inputs. Its objective is to reduce cost and handle the materials efficiently at different stages and that too in all the sections of the enterprise.