The fundamental objectives of the Materials Management function are acquisition of materials and services, often called the famous 5 Rs of Materials Management:
- of the right quality
- in the right quantity
- at the right time
- from the right source or place
- at the right price
From the management point of view, the key objectives of MM are:
- To buy at the lowest price, consistent with desired quality and service
- To maintain a high inventory turnover, by reducing excess storage, carrying costs and inventory losses occurring due to deteriorations, obsolescence and pilferage
- To maintain continuity of supply, preventing interruption of the flow of materials and services to users
- To maintain the specified material quality level and a consistency of quality which permits efficient and effective operation
- 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 develop and maintain good supplier relationships in order to create a supplier attitude and desire furnish the organisation with new ideas, products, and better prices and service
- To achieve a high degree of cooperation and coordination with user departments
- To maintain good records and controls that provide an audit trail and ensure efficiency and honesty
- To participate in Make or Buy decisions
Definition & Scope of Materials Management
Materials Management thus can be defined as that function of business that is responsible for the
Coordination of planning, sourcing, purchasing, moving, storing and controlling materials in an optimum manner so as to provide service to the customer, at a pre-decided level at a minimum cost.
The broad Materials function has the following as identified and interlinked sub functions:
Materials planning and control: Materials required for any operation are based on the sales forecasts and production plans. Planning and control is done for the materials taking into account the materials not available for the operation and those in hand or in pipe line. This involves estimating the individual 10 requirements of parts, preparing materials budget, forecasting the levels of inventories, scheduling the orders and monitoring the performance in relation to production and sales.
Purchasing: Basically, the job of a materials manager is to provide, to the user departments right material at the right time in right quantity of right quality at right price from the right source.
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 vendors.
Stores: Once the material is delivered, its physical control, preservation, minimization of obsolescence and damage through timely disposal and efficient handling, maintenance of records, proper locations and stocking is done in Stores.
80:20An illustration of a company’s supply chain; the arrows stand for supplier-relationship management, internal SCM and customer-relationship management.
Supply chain modeling
There are a variety of supply chain models, which address both the upstream and downstream sides. The SCOR (Supply Chain Operations Reference) model, developed by the Supply Chain Council, measures total supply chain performance. It is a process reference model for supply-chain management, spanning from the supplier’s supplier to the customer’s customer. It includes delivery and order fulfillment performance, production flexibility, warranty and returns processing costs, inventory and asset turns, and other factors in evaluating the overall effective performance of a supply chain.
Supply chain management
In the 1980s the term Supply Chain Management (SCM) was developed to express the need to integrate the key business processes, from end user through original suppliers. Original suppliers being those that provide products, services and information that add value for customers and other Stakeholders. The basic idea behind the SCM is that companies and corporations involve themselves in a supply chain by exchanging information regarding market fluctuations, production capabilities.
If all relevant information is accessible to any relevant company, every company in the supply chain has the possibility to and can seek to help optimizing the entire supply chain rather than sub optimize based on a local interest. This will lead to better planned overall production and distribution which can cut costs and give a more attractive final product leading to better sales and better overall results for the companies involved.
Incorporating SCM successfully leads to a new kind of competition on the global market where competition is no longer of the company versus company form but rather takes on a supply chain versus supply chain form.
The primary objective of supply chain management is to fulfill customer demands through the most efficient use of resources, including distribution capacity, inventory and labor. In theory, a supply chain seeks to match demand with supply and do so with the minimal inventory. Various aspects of optimizing the supply chain include liaising with suppliers to eliminate bottlenecks; sourcing strategically to strike a balance between lowest material cost and transportation, implementing JIT (Just In Time) techniques to optimize manufacturing flow; maintaining the right mix and location of factories and warehouses to serve customer markets, and using location/allocation, vehicle routing analysis, Dynamic programming and, of course, traditional logical optimization to maximize the efficiency of the distribution side.
There is often confusion over the terms supply chain and logistics. It is now generally accepted that the term Logistics applies to activities within one company/organization involving distribution of product whereas the term Supply chain also encompasses manufacturing and procurement and therefore has a much broader focus as it involves multiple enterprises, including suppliers, manufacturers and retailers, working together to meet a customer need for a product or service.
Integrated Materials Management
Various functions served by materials management include the material planning, purchasing, receiving, stores, inventory control, scrap and surplus disposal. All these functions can have separate working norms including the one for performance.
Efficient management of input materials is of utmost importance in a business organization for maximizing materials productivity, which ultimately adds to the profitability of the organization
This requires well coordinated approach towards various issues involving decision making with respect to materials.
All the materials related activities such as material planning & indenting, purchase systems & procedure, variety reduction through standardization & rationalization, reducing uncertainties in demand & supply, handling & transportation, inspection, proper storage & issue of materials to the internal customers, inventory management, vendor management & finally disposal of obsolete, surplus & scrap materials etc. taken together is termed as Integrated Materials Management
While inventory manager would like to have minimum level of inventory to show off his performance, purchasing manager would like to place bulk orders in order to lessen his work load and show discounts as reductions. Both of these acts may be little contradictory from the organizational point of View. That is if some of the functions were to be handled separately, a conflict of interests may occur.
Therefore, the conflicting objectives need to be balanced and intertwined from a total organizational viewpoint so as to achieve optimum results for the organization as a whole.
In an integrated set up, one materials manager (usually the chief) is responsible for all suchinter related functions and he is in a position to exercise control and coordinate all the activities with a view to ensure proper balance of the conflicting objectives of the individual functions.
Integration also attains the synergetic advantage in terms of eliminating water tight compartments that set in a disjointed environment of working. The resulting benefits can be seen in terms of rapid transfer of data, through effective and informal communication channels.
This is crucial as the materials management function involves handling vast amount of data. Therefore, integrating the various functions identify themselves to a common materials management department which in turn results in greater coordination and better control.
Now days, in many traditions bound companies too, even the spare part planning which hitherto was done by the operation people has been brought under the umbrella of an Integrated materials Management.
Better accountability ,better coordination, better performance, better adaptability to EDP are some of the tangible advantages of the Integrated Materials Management besides a perceptible team spirit , morale and cooperation are the intangible gains.
Training and development of staff and executive through rotation of people is another great advantage because of a bigger canvas produced by integration of Materials function. To carry out these functions efficiently, it is essential to have a very good supplier base, order booking process & inventory management system as well as expert Materials Management (MM) professionals.
