Chapter One

1. Introduction to Materials Management

1.1. The concept of Material Management

Materials management is not clearly understood concept in many organizations.
Materials management department or Materials manager are not common titles. The units
given such responsibilities are usually called store section or purchasing division. In your
organization you may notice that there is no such department or section called materials
management which may have equal status with other departments/ sections. Such
responsibility is some times given to a property section or some times to Administration,
or Finance. This shows us that there is no clear understanding as to what is meant by
materials management.

Materials management is a subject, a discipline, a body of knowledge, a function/process

consisting of two words, materials and management. Materials are goods or items that
can be acquired, purchased, processed, stored and used for production, consumption or
conversion. Materials in manufacturing organizations may include raw materials, tools,
spare parts, semi-finished goods, maintenance and operating supplies. Management can
be defined as the process of planning, organizing, directing and controlling to accomplish
organizational mission and objectives through the coordinated use of resources.

Materials management can, there fore, be defined as the planning, organizing, directing,
controlling and coordinating those activities which are concerned with various material
requirements from the point of their inception to the point of their utilization and
disposal. It includes all activities performed by purchasing, inventory control, stores,
transportation and physical distribution.

Different scholars have defined materials management in several ways. The following are
some of the definitions:
“ materials management…. as the function responsible for the coordination of planning,
sourcing, purchasing, moving, storing and controlling materials in an optimum manner so
as to provide a pre-decided service to the customer at a minimum
cost.”(P.Gopalakrishman and Sundaiesan, 2002).

Materials management is the planning, organizing and controlling of the flow of

materials from their initial purchase through internal operation to the distribution of
finished goods (Monks, 1987).

Materials management is the integrated function of purchasing and allied activities so as

to achieve the maximum coordination and optimum expenditure in the area of materials.
(Niat, 1990)

Materials management is an idea of integrated management approach to planning,

acquisition, conversion, flow and distribution of production material from raw material
state to finished product state.(Dobler,1996)

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One of the most famous definitions of materials management has been given by
American Production and Inventory Society (APIS).

“Materials Management are the management functions related to the complete cycle of
material flows from them purchase and internal control of materials to the planning and
control of working process to the warehousing, shipping, and distribution of the finished
product.”(APIS) dictionary (6th ed.1978)

Development stages of Materials Management

The first stage of the development of materials management is the reactive stage whose
major function is paper processing and clerical. This is the early stage of this field. The
second stage is mechanical. At this stage the primary focus is keeping the production line
running. The process is based on transactions. The third stage proactive which focuses on
long- term contracts and considers suppliers as resources of an organization. The fourth
stage is strategic materials management which gives due consideration to department
integration, business environment analysis, use of Management Information System and
use of professional personnel.

There fore, the four stages of materials management development stages can be described
as follows:
Stage 1: Reactive stage
 Paper work
 Clerical work
 Reports at very low level
 After crises
Stage 2: Mechanical
 Price reduction
 Transaction
 Keep production line running
 Poor data availability
 Reports at low level
Stage 3: Proactive
 Professional staff
 Long-term contracts
 Suppliers are considered as resources of the organization
 Reports to higher management
 Training and education offered
Stage 4: Strategic Materials Management
 Supply as competitive weapon
 Integration with other strategies/departments
 Environment analysis
 Manager-supplier relation ship
 Continuous improvement and value addition
Terms interchangeably used with materials management

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Purchasing: is the process of buying the necessary goods and services and includes
identifying need, identifying sources, selecting suppliers, negotiating prices and delivery.

Procurement: is a broader term and includes purchasing, stores, transportation, receiving,

inspection and disposal.

Supply management:

Logistics: has a military connotation. It had its origin in 17 th century when a new staff
structure was proposed for the French army “Marechal General Deslogis.”It is the
function of obtaining and distributing material and product in the proper place and proper
quantities.

1.2 The Importance and Scope of Materials Management

1.2.1 The importance of materials management

The importance of materials management arises mainly from the cost of materials
benefit. The following are some of the importance of materials management:
 Ensuring the regular supply materials.
 Minimizes the procurement and transportation costs associated with materials.
 Efficient stores and stock control minimizes wastage of materials: It reduces
the damage of materials obsolescence problem, etc.
 Inspection of materials at the time of procurement minimizes the possibility of
finished goods being rejected by customers.
 It assures better utilization of labor, capital and equipment.
 Congestion at stores and at different stages of production can be avoided by
effective materials management system.
- Over estimation of inventory causes obsolescence problems, and other
inventory costs.
- Underestimation of inventory causes the shortage of materials and
interrupts the operation in the organization.
1.2.2 The Scope of materials management

The scope of materials management covers:

 Planning or anticipating the materials requirement (materials forecast, budget).
 Identifying the source and acquiring it to the firm (Purchasing).
 Introducing the materials to the organization and control materials as a current
asset (Transporting, storage, inventory control).

1.3 The Objectives of Materials Management

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The objectives of materials management include the following:

I. To provide uninterrupted flow of materials, supplies and services required to

operate the organization: This is the key reason for the existence of materials
management department /section. Organizations may face problems of shortage or
stock-out materials. Stock-out or shortage means cost to an organization. It
includes costs of not having inventory such as machine down time costs,
personnel down time, and decreased productivity. Due to interruption of
operation, organizations and companies may lose customers. Materials
management should provide continuous supply of materials and services. This
objective can be achieved through effective organizational integration, good
planning and good coordination with all departments/sections. Regular
production/ operation process is ensured by avoiding the chances of any
interruption in supply of materials.
II. To keep inventory investment at an optimum and loss at a minimum: A large
amount of capital can be tied up in inventories. Inventories require valued space
and consume rents, taxation and insurance charges. This leads to considerable
investment and results in considerable opportunity loss. This capital invested in
inventories remains idle still items present in stocks are used. On the other hand, it
is not possible to work with out keeping some inventories. Costs of having
inventories include opportunity costs, storage costs, handling cost, obsolescence,
spoilage, shelf life, taxation and insurance. This objective can be achieved by a
reasonable balance between the level of inventory required to support operations
and the cost of carrying out the inventory. Inventory control and just-in- time
production systems can also be used.

III. To maintain adequate quality standard: Quality is one of the most important
factors to be considered for materials acquisition. Reduced quality or materials
with sub standard leads to maintenance or replacement costs and lose of
customers. Quality must first be defined in terms of relation ship to a need, i.e.,
conformance with the stated requirements.
This objective can be achieved by coordinated efforts of purchasers, materials
managers, design engineers, users, quality control inspectors in developing
materials specification in which the quality characteristics of the specified materials
match closely with the quality characteristics needed to satisfactorily fulfill the
functional requirements and other works.
IV To develop effective and reliable sources of supply: Competent suppliers are
invaluable resources of organizations. Management must identify, investigate, select and
develop competent and responsive suppliers. This is used to obtain alternative sources of
supply. Potential suppliers are intangible assets to organizations. They are also important
sources of information regarding quality, market conditions, price trends, and
competition. Development of source is also important substitution, quality improvement
and cost reduction. This objective can be achieved by:
 Searching constantly for new suppliers and evaluate their qualifications,
 Conducting periodic evaluation of suppliers for their performance and

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  Monitoring continuously the costs, delivery and quality of purchased materials
and services.
V To obtain the required items and services at the lost possible price: Price is one of the
most important factors on which the final choice may be based. Price information can be
obtained from manufacturer’s catalogs, current price lists, negotiations and competitive
bid.

VI To improve the competitive position of the organization: Maintaining and improving

the competitive position of the organization is necessary to make it profitable and to keep
pace with changing technology.

VII To achieve maximum integration with other departments: Harmonious relation

ships between the materials management department and other departments are crucial
for the success of the above objectives. Materials managers must understand the user’s
requirement for materials.

1.4 Nature of Decision Making in Materials Management

The nature of decision making in materials management includes the following:
 Make or buy decision: This is one of the decisions to be considered at the top or
middle level management to determine whether an organization should make the
required items or buy/outsource/ them from suppliers. It is the responsibility of
the materials manager to collect and disseminate information concerning the
factors which may affect the decisions. The factors may include the organization’s
capability, cost considerations such as direct materials and human resource costs,
inventory costs, administrative costs, capital costs, purchase price, transportation
cost, receiving and inspection costs, and any follow-up costs related quality and
time.
 Supplier selection: Which of the supplier is the most competent and valuable
source of materials/ services? This needs proper decision from the materials
manager.
 Optimum level of inventory determination: How much inventory should the
organization maintain to meet requirements?
 Price determination: What factors affect the price of an item, material/service? Is
the lowest price the right price for the organization? Which price is reasonable
and fair?
 Economic order quantity: What should the economic order size be?
 Mode of transportation: Which mode of transport is appropriate and must be
chosen for carrying materials?
 Time of delivery: When should the materials be delivered?