Materials Management:

Most manufacturing concerns spend more than 60% of the money they take in, for materials,
i.e., materials soak up a substantial portion of the capital invested in an industrial concern. This
emphasizes the need for adequate materials management and control because even a small
saving in materials can reduce the production cost to a fair extent and thus add to the profits.

Materials Management may be thought of as an integrated functioning of the different sections

of a company dealing with the supply of materials and other related activities so as to obtain
maximum co-ordination and optimum minimum expenditure on materials. Materials
Management involves controlling the type, amount, location, movement, timings of purchase of
various materials etc., used in an industrial concern.

Functions of Materials Management:

(i) Materials planning.
(ii) Procurement or purchasing of materials.
(iii) Receiving and warehousing.
(iv) Storage and store-administration.
(v) Inventory control.
(vi) Standardization, Simplification and Value-analysis.
(vii) External transportation (i.e., traffic, shipping, etc.) and materials handling (i.e., internal
transportation).
(viii) Disposal of scrap, surplus and obsolete materials.

Objectives of Materials Management:

(i) To minimize materials cost.

(ii) To procure and provide materials of desired quality when required, at the lowest possible
overall cost of the concern.
(iii) To reduce investment tied in inventories for use in other productive purposes and to develop
high inventory turnover ratios.
(iv) To purchase, receive, transport (i.e., handle) and store materials efficiently and to reduce the
related costs.
(v) To trace new sources of supply and to develop cordial relations with them in order to ensure
continuous material supply at reasonable rates.
(vi) To cut down costs through simplification, standardization, value analysis, import
substitution, etc.

(vii) To report changes in market conditions and other factors affecting the concern, to the
concern.
(viii) To modify paper work procedure in order to minimize delays in procuring materials.
(ix) To conduct studies in areas such as quality, consumption and cost of materials so as to
minimize cost of production.
(x) To train personnel in the field of materials management in order to increase operational
efficiency.

Purchasing or Procurement:
The purchasing department occupies a vital and unique position in the organisation of an
industrial concern because purchasing is one of the main functions in the success of a modern
manufacturing concern. Mass production industries, since they rely upon a continuous flow of
right materials, demand for an efficient purchasing division.

The purchasing function is a liaison agency which operates between the factory organisation and
the outside vendors on all matters of procurement. Purchasing implies – procuring materials,
supplies, machinery and services needed for production and maintenance of the concern.

Objectives of Purchasing Department:

(i) To procure right material.
(ii) To procure material in right quantities.
(iii) To procure materials of right quality.
(iv) To procure from right and reliable source or vendor.
(v) To procure material economically, i.e., at right or reasonable price.

(vi) To receive and deliver materials at:

a. Right place, and at
b. Right time.
Purchasing department has to perform certain activities, duties and functions in order to achieve
the above mentioned objectives.

Purchase Organisation:
Purchasing department is a staff function in the overall company structure.

The internal organisation of the purchasing department is on a line basis, with purchasing agent,
director of purchases or purchasing manager being the incharge of purchase department. He is
responsible for the overall efficient operation of the department. The purchasing manager is,
however, assisted in purchasing by a number of assistants and a few clerical staff (refer Fig.
23.1). The purchasing manager has the powers to execute purchasing contracts for the concern.
He divides the duties among the assistants according to the nature of purchases to be made. For
example, one assistant may purchase only electrical goods, another (major) raw material, third
plant equipment and so on. This functional division of efforts makes for increased specialisation
and gives a chance to the assistant to better feel and know the market, he is assigned. Fig. 23.1
shows an organisation of a typical purchasing department.

There are three main sections namely purchasing, purchase service and records:
1. Purchasing section places orders with the vendors.
2. Purchase service section follows the progress of the order at vendor’s end, its shipment by the
vendor and its final receipt in the company.
3. Records section maintains all records of quotations, costs, purchases, etc.

Tenders:
A tender or a quotation is in the form of a written letter or a published document (in
newspapers). The aim is to find the price for procuring certain materials or to get a particular
work done within the desired period and under specified conditions.

Types of:
The tenders may be of the following three types:
1. Single tender.
2. Open tender.
3. Closed tender or limited tender [Please refer to section 23.4(b)].

1. Single Tender:
Tender is invited from one reliable supplier only. Single tender is called under following
conditions:
a. Proprietary items.
b. High quality items.
c. ‘C’ class items such as clips, pins, pencils, etc.
d. When items are required comparatively urgently.

2. Open Tender:
Open tender which is also called press tender is published in Newspaper, Trade Journals etc., for
procuring materials of desired specifications.
a. It is open to everybody; any vendor (reliable or unreliable) can furnish the quotations.
b. Open tender gets very wide publicity.
c. A vendor has to deposit an earnest money with the tender information. This is just to ensure
that the vendor does not back out from the rates etc., which he submits.
3. Closed Tender:

A closed tender is when only selected persons or organisations are invited to submit a tender for
a property. 

Stores Management:

Stores management takes care:

1. That the required material is never out of stock;
2. That no material is available in (much) excess than required;
3. To purchase materials on the principle of economic order quantity so that the associated costs
can be minimized; and
4. To protect stores against damage, theft, etc.

This can be achieved through:

1. A proper purchasing practice (i.e., when to order materials).
2. An adequate procedure of receipt and issue of materials.
3. Proper methods of storing materials.
4. An effective system of physical control of materials.
5. A proper method of keeping store records.

Functions of Stores Department and the Duties of the Storekeeper:

1. To receive materials, goods and equipment, and to check them for identification.
2. To receive parts and components which have been processed in the factory.
3. To record the receipt of goods.
4. To correct positioning of all materials and supplies in the store.
5. To maintain stocks safely and in good and condition by taking all precautions to ensure that
they do not suffer from damage, pilfering or deterioration.
6. To issue items to the users only on the receipt of authorised stores requisitions.
7. To record and update receipts and issues of materials.
8. To check the bin card balances with the physical quantities in the bins.
9. To make sure that stores are kept clean and in good order.
10. To prevent unauthorized persons from entering the stores.
11. To make sure that materials are issued promptly to the users.
12. To plan store for optimum utilisation of the cubic space (i.e., length, breadth and height).
13. To ensure that the required materials are located easily.
14. To initiate purchasing cycle at the appropriate time so that the materials required are never
out of stock.
15. To coordinate and cooperate to the full extent with the purchasing, manufacturing,
inspection and production planning and control departments.
Location and Layout of Stores:
Location:
1. Location of the stores should be carefully decided and planned so as to ensure maximum
efficiency.
2. The best location of stores is one that minimizes total handling costs and other costs related
to stores operation and at the same time provides the needed protection for stored items and
materials.
3. Store location depends upon the nature and value of the items to be stored and the frequency
with which the items are received and issued.
4. In general, stores are located close to the points of use.
Raw materials are stored near the first operation, in-process materials close to the next
operation, finished goods near the shipping area and tools and supplies in a location central to
the personnel and equipment served.
5. All departments should have easy access to the stores and especially those which require
heavy and bulky materials should have stores located nearby.
6. In big industries having many departments, stores department possibly cannot be situated
where it is convenient to deliver materials to all departments and at the same time be near the
receiving department; thus it becomes often necessary to set up sub-stores conveniently
situated to serve different departments.
This leads to the concept of decentralized stores.
7. In decentralized stores system, each section of the industry (e.g., foundry, machine shop,
forging, etc.) has separate store attached with it; whereas in centralised stores system, the main
store located centrally fulfills the needs for each and every department.
Advantages of centralisation of stores:
(i) Better supervision and control.
(ii) It requires less personnel to manage and thus involves reduced related costs.
(iii) Better layout of stores.
(iv) Inventory checks facilitated.
(v) Optimum (minimum) stores can be maintained.
(vi) Fewer obsolete items.
(vii) Better security arrangements can be made.
Advantages of decentralisation of stores:
(i) Reduced material handling and the associated cost.
(ii) Convenient for every department to draw materials, etc.
(iii) Less risk of loss by fire or theft.
(iv) Less chances of production stoppages owing to easy and prompt availability of material, etc.
An idea about the disadvantages of centralised and decentralised stores can be had from the
advantages of decentralised and centralised stores.
Layout:
1. A good stores layout practice is one which usually brings the point or origin, store-room and
point of use in adjacent and proper sequence for best flow of material.

2. Stores layout should be planned with the following objectives:

(i) To achieve minimum wastage of space.
(ii) To achieve maximum ease of operating.

 Before planning the stores layout:

(a) Classify all store items as follows:
(i) By measurement (i.e., size).
(ii) By quantities (i.e. No. and weight) to be stored.
(iii) By frequency of handling.
(iv) By (material) handling arrangements.
(v) By possibility of perishing the items and the susceptibility to damage.

(b) List the available storage space:

(i) Platforms,
(ii) Floor space,
(iii) Racks,
(iv) Shelves,
(v) Bins,
(vi) Trays,
(vii) Drums, and
(viii) Barrels.

(c) Determine the sequence of laying out storage space for locating the materials:
(i) A Unit. It is the smallest space for storage which is given a particular identity.
(ii) A Tier. A Tier consists of a number of units placed vertically.
(iii) A Row. A row consists of a number of units joined together and spread horizontally.
(iv) A section. A section is made up of a group of rows.
(d) Study the size and shape of the space available for laying out the stores.
4. The following factors should be considered while planning the stores layout:
(a) A section adjacent to the store-room should be kept reserved for the receipt of materials and
for its inspection before storage.
(b)Store layout should be such that it provides for easy receipt, storage and disbursement of
materials, preferably, nearest to the point of use.
(c) Store-room layout should minimise handling and transportation of materials.
(d) An ideal store-room layout makes optimum utilisation of the floor space and height.
(e) Shelves, racks, bins, etc., should be situated in clearly defined lanes, so that items are quickly
stored and located for physical counting or issuing.
(f) Main lanes or aisles should usually be between 1.5 and 3 metres wide, depending upon the
type of material and the amount of traffic involved. Sub-aisles between racks and bins may be a
minimum of 80 cm wide.
(g) Storage spaces should be clearly marked to ensure easy and quick identification.
(h) Storage space should be adequately protected against waste, damage, deterioration and
pilferage.
(i) A place for storing a material should be decided depending upon the material characteristics,
e.g., fuels and flammable gases will require separate locations, cement, welding electrodes and
ferrous parts need a dry place for storing, etc. Portable and salable items should be stored in
areas enclosed with wire-mesh partitioning so that all unauthorized persons can be kept outside
that area.
(j) Store layout should be such that for its efficient operation it can make use of modern material
handling equipment such as fork-lift conveyor’s, etc.
(k) Store layout should be such that the storekeeper is not compelled to put newly arrived
material on the top of the old. As a rule, all the old stock should be consumed first before using
the new one.
(l) Due space (20 to 25%) should be left in each portion of the store to allow for expansion.

Location and Layout of Stores

(a) Centralized Store

In small factories, it is desirable to centralize the materials so that they may be brought under
the control of one store-keeper and the store-room should be as far as possible near the place,
where material is to be used.

If there are several manufacturing departments, the store-room will be most conveniently
situated, where it is near to all departments. This will reduce handling and a lot of manual work
is eliminated. This type is called Centralized Store.
(b) Decentralized Store

In large factories, where there are several departments, each using different type of materials, it
becomes beneficial to separate the stores.

For example, near the welding department, store the materials required for welding; near the
foundry department, store the items which are used there; near assembly department, store the
parts that are required there and so on.

Some stores that are common to several or all departments, as for example, soap, stationary,
printed forms, cotton waste etc., should be kept at a central place.

This type is known as Decentralized Store.

Examples of both the types are shown with the help of sketches below:
 Location of Materials

In small factories, where there is one small store, the Store-keeper may remember the location
of materials but in large factory where several thousand items are handled by him, memory
would become unreliable.

Hence to facilitate the work of Store-keeper, it is necessary to set up a system of numbering the
locations. Under this system, all locations in a Store-room are numbered and these numbers are
entered in the Index register against the items which are located there.

Suppose code number for any item is 28-18 E-35. This means, the location is in store room 28,
Rack 18, Shelf E and Bin 35. By this system, man approaches at the correct place for correct
material, and issuing becomes quick and easy.

Layout of Stores: It depends on the following factors:

1. Flow of Materials

According to this factor, materials should move minimum possible distances.

2. Character of Materials

The materials that are not damaged by weather can be stored outside in shed.

Materials like cement, plaster etc., must be placed in dry place. Tools and machines etc., should
also be placed in dry places and coated to prevent rusting.

3. Quantity, Weight etc. of Materials

It is necessary to find the space required for different purposes.

4. Frequency of Handling

Handling consists of the following four stages:

(a) Receipts
(b) Inspection
(c) Storage and
(d) Issue of materials.

The following are general hints to carry out these stages of handling smoothly and correctly:

1. Layout is such that material may be quickly received in stores.

2. Unloading platforms are built of suitable height.
3. All around the stores there is thorough siding. If trucks are used for transporting the
materials, sufficient parking space is provided.
4. For heavy material, suitable equipment for internal transport is provided.
5. It is to be seen that each section of the store has sufficient allotting space. The mate rial is
to be arranged in such a way that inward and outward movement of supplies can be carried out
smoothly.

Storage and Handling Equipment

Storage equipment is usually limited to non-automated examples, which are grouped in with
engineered systems. Storage equipment is used to hold or buffer materials during “downtimes,”
or times when they are not being transported. These periods could refer to temporary pauses
during long-term transportation or long-term storage designed to allow the buildup of stock. The
majority of storage equipment refers to pallets, shelves or racks onto which materials may be
stacked in an orderly manner to await transportation or consumption. Many companies have
investigated increased efficiency possibilities in storage equipment by designing proprietary
packaging that allows materials or products of a certain type to conserve space while in
inventory.
Examples of storage and handling equipment include:

 Racks, such as pallet racks, drive-through or drive-in racks, push-back racks, and sliding
racks, are a basic but important method of storage, saving floor space while keeping their
contents accessible.
 Stacking frames are stackable like blocks, as their name implies. They allow crushable
pallets of inventory, such as containers of liquid, to be stacked to save space without
damage.
 Shelves, bins, and drawers. Shelves, another basic storage method, are less open than
racks. Used with bins and drawers, they’re more able to keep smaller and more difficult
to manage materials and products stored and organized. Shelving types can include
boltless, cantilever, revolving, and tie-down.
 Mezzanines, a type of indoor platform, help to create more floor space in a warehouse or
other storage building for offices or more storage. Typical types include modular,
movable, rack supported, building supported, and free-standing versions.
 Work assist tooling enables safe and efficient product handling across numerous
industries in applications that require the movement of products, enhancing the
efficiency of assembly and manufacturing operations.

Engineered Systems

Engineered systems cover a variety of units that work cohesively to enable storage and
transportation. They are often automated. A good example of an engineered system is an
Automated Storage and Retrieval System, often abbreviated AS/RS, which is a large automated
organizational structure involving racks, aisles and shelves accessible by a “shuttle” system of
retrieval. The shuttle system is a mechanized cherry picker that can be used by a worker or can
perform fully automated functions to quickly locate a storage item’s location and quickly retrieve
it for other uses.

Other types of engineered systems include:

  Conveyor systems come in a variety of types, depending on what they are meant to
transport, including vibrating, overhead, chain, vertical, and apron conveyors.
 Automatic Guided Vehicles (AGV) are independent computer-operated trucks that
transport loads along a predetermined path, with sensors and detectors to avoid
bumping into anything.

Industrial Material Handling Trucks
Industrial trucks (material handling trucks) refer to the different kinds of transportation items
and vehicles used to move materials and products in materials handling. These transportation
devices can include small hand-operated trucks, pallet jacks, and various kinds of forklifts. These
trucks have a variety of characteristics to make them suitable for different operations. Some
trucks have forks, as in a forklift, or a flat surface with which to lift items, while some trucks
require a separate piece of equipment for loading. Trucks can also be manual or powered lift and
operation can be walk or ride, requiring a user to manually push them or to ride along on the
truck. A stack truck can be used to stack items, while a non-stack truck is typically used for
transportation and not for loading.
There are many types of industrial trucks:
 Hand trucks, one of the most basic pieces of material handling equipment, feature a
small platform to set the edge of a heavy object on, and a long handle to use for
leverage. Whatever is being moved must be tipped so that it rests on the handle, and is
carried at a tilt to its destination.
 Pallet Trucks, also known as pallet jacks, are a type of truck specifically for pallets. They
slide into a pallet and lift it up to move it. Pallet trucks come in both manual and
electrical types.
 Walkie Stackers transport and lift pallets like a forklift, though they don’t include a place
for the operator to ride in. They come in both powered or manual versions.
 Platform trucks are hand trucks low to the ground, with a wide platform for transporting
goods.
 Order pickers lift the operator several feet above the ground on a platform so they can
retrieve or store goods on high shelves.
 Sideloaders, also known as VNA (Very Narrow Aisle) trucks, are meant to fit in narrow
warehouse aisles, as they can load objects from different directions. They’re also good
for long, awkward products that need moving.
 Many types of AGV, or automatic guided vehicles, as discussed above, shuttle products
along a route automatically, without human guidance.

2. Character of Materials

The materials that are not damaged by weather can be stored outside in shed.
 Materials like cement, plaster etc., must be placed in dry place. Tools and machines etc., should
also be placed in dry places and coated to prevent rusting.

3. Quantity, Weight etc. of Materials

It is necessary to find the space required for different purposes.

4. Frequency of Handling

Handling consists of the following four stages:

(a) Receipts
(b) Inspection
(c) Storage and
(d) Issue of materials.

The following are general hints to carry out these stages of handling smoothly and correctly:

1. Layout is such that material may be quickly received in stores.

2. Unloading platforms are built of suitable height.
3. All around the stores there is thorough siding. If trucks are used for transporting the
materials, sufficient parking space is provided.
4. For heavy material, suitable equipment for internal transport is provided.
5. It is to be seen that each section of the store has sufficient allotting space. The mate rial is
to be arranged in such a way that inward and outward movement of supplies can be carried out
smoothly.

Principles of Purchase Managemnent:

 Principle of Right Quality:

Right quality implies that quality should be available, measurable and understandable as far as
practicable. In order to determine the Quality of a product, sampling schemes, will be useful.

ADVERTISEMENTS:

The quality particulars are normally obtained from the indents, and experience indicates that a
substantial portion of the indents prepared by the user departments are invariably incomplete.

Such incomplete indents often cause unnecessary delays in procurement as the indenter has to
be referred to, and if not referred, results in heavy rejection. Drawings are also attached to the
indents, particularly for spare parts.

Since the objective of purchasing is to ensure continuity of supply to the user departments, the
time at which the material is provided to the user department assumes great importance.

2. Principle of Right Quantity:

The right quantity is the most important parameter in buying. Concepts, such as economic order
quantity, economic purchase quantity, fixed period and fixed quantity systems, will serve as
broad guidelines.

But the buyer has to use his knowledge, experience and common sense to determine the
quantity after considering factors such as price structure, discounts, availability of the items,
favourable reciprocal relations, and make or buy considerations.

Developing the right attitude too is necessary as one often comes across such statements.
“Purchasing knows the price of everything and value of nothing.” We buy price and cost. “When
will our order placers become purchase managers”? “Purchasing acts like a post box.”
Purchasing should, therefore, keep ‘progress’ as its key activity and should be future-oriented.

The purchase manager should not follow the safe and well-trodden path, instead, he should be
innovative and his long-term objective should be to minimise the cost of the ultimate product.

He will be able to achieve this if he arms himself with techniques such as value analysis,
materials intelligence, purchase research, SWOT analysis, purchase budget, lead time analysis,
etc.

The buyer has to adopt separate policies and procedures for capital and consumer items. He
should be able to distinguish between indigenous and international purchasing procedures. He
should be aware of the legal and contractual aspects in international practices.

3. Principle of Right Source:

The source from which the material is procured should be dependable and capable of supplying
items of uniform quality. The buyers have to decide which item should be directly obtained from
the manufacturer. In emergencies, open market purchases and bazar purchases are resorted to.

Techniques such as value-analysis will enable the buyer to locate the right material. Right modes
of transportation have to be identified as this forms critical segment in the cost profile of an
item. It is an established fact that the cost of the shipping of ore, gravel, sand etc., is normally
more than the cost of the item itself.

Specifying the right place of delivery, say, head office or works, would often minimise the
handling and transportation costs. Similarly, packaging forms an important aspect in the cost of
an item; for instance, in toothpaste, the tube is costlier than the paste it holds.

4. Principle of Right Price:

It is the primary concern of any manufacturing organisation to get an item at the right price. But
right price need not be the lowest price. In this context it may be worth remembering John
Ruskin’s famous statement: “There is hardly anything in the world that somebody cannot make a
little cheaper and the man who considers price alone is the lawful prey, while it is very difficult to
determine the right price, general guidance can be had from the cost structure of the product.

The ‘tender system’ of buying is normally used in public sector organisations but the objective
should be to identify the lowest responsible bidder and not the lowest bidder. The technique of
‘learning curve’ also helps the purchase agent to determine the price of items with high labour
content. The price can be kept low by proper planning and not by rush buying. Price negotiation
also helps to determine the right prices.

5. Principle of Right Time:

For determining the right time, the purchase manager should have lead time information for all
products and analyse its components for reducing the same. Lead time is the total time elapsed
between the recognition of the need of an item till the item arrives and is provided for use.

Obviously, this covers the entire duration of the materials’ cycle and consists of pre-contractual
administrative lead time, manufacturing and transporting lead time, and inspection lead time.

Since, the inventory increases with higher lead time, it is desirable to analyse each component of
the lead time so as to reduce the first and third components which are controllable. While
determining the purchases, buyer has to consider emergency situations like floods, strikes etc.

He should have contingency plans when force majeure clauses become operative, for instance,
the material is not available due to strike, lock-out, floods, and earth-quakes. However, rush
purchase should be resorted to only in exceptional cases.
6. Principle of Right Place:
After all a buyer would like to have the products at the required place or at a place that is most
convenient to him from the point of view of the location of store houses and/or plant location.

7. Principle of Right Terms:

The terms and conditions governing the contract must be notified at the time of tendering. The
terms and conditions governing the contract, as finally accepted by the purchaser, must be
incorporated in the contract. They should be practical and unambiguous.

Sometimes, the terms stipulated by a buyer are too rigid. Usually, good suppliers will try to avoid
such buyers. In the bargain the company loses because business then has to be transacted with
such parties who accept the company’s terms.

Their prices, obviously, will not be quite competitive nor will their service be so satisfactory. The
company should, therefore, ensure that the terms stipulated are not one sided and are not
unreasonable. Otherwise good suppliers may move away.

It would be a good idea if the terms and conditions are reviewed periodically with reference to
the stipulations may by the vendors in their tenders to see whether it is essential in the
company’s interest to revise a few conditions to the mutual advantage of both the company and
the vendors.