What is Material Management?
Materials management is a core function of supply chain management, involving the planning and execution of supply chains to meet the material requirements of a company or organisation.
These requirements include controlling and regulating the flow of material while simultaneously assessing variables like demand, price, availability, quality, and delivery schedules.
Material managers determine the amount of material required and held in stock, plan for the replenishment of these stocks, create inventory levels for each type of item (raw material, work in progress or finished goods), and communicate information and requirements to procurement operations and the extended supply chain.
Materials management also involves assessing material quality to make sure it meets customer demands in line with a production schedule and at the lowest cost.
Material management systems embrace all of the activities related to materials and are a basic business function that adds value to a finished product.
It can also include the procurement of machinery and other equipment needed for production processes as well as spare parts.
Typical roles in Materials Management include inventory analysts, inventory control managers, materials managers, material planners, and expediters as well as hybrid roles like buyer/planners.
Regardless of role, the main objective of Materials Management is assuring a supply of material with optimised inventory levels and minimum deviation between planned and actual results.
Types of Material Management
Material management if of different types:
#1. Materials Requirements Planning.
It is one of the most important steps in material management as the inventory of materials costs around 60% of the total investment.
The amount of material utilized directly affects the profit earned by the organization. Lesser the amount of material used, the more the profit gained.
Nowadays, few industries are considering a new strategy to gain maximum profit. It is termed as Just in Time (JIT), which involves practically no inventory. However, it is not possible to avoid the inventory of materials required for production.
#2. Purchasing.
The profit gained by any organization depends on the efficient and economical purchasing of its various materials from the suppliers as around 60% of the total capital investment is done for the purchasing of the various materials.
There is a simple rule: lesser the cost of purchasing material, more will be the profit gained.
#3. Inventory Planning and Control.
Inventory is the term used to denote various kinds of goods industry has at a particular time. It includes finished goods, goods ready for sale, goods used in production, etc.
Nowadays, the company follows a simple strategy: materials are purchased and brought in the stores just before they enter the production stage or just before they are sold out.
This cuts the cost of maintenance of inventory. For ideal material management, zero inventories are considered.
There are three types of inventories.
- Raw materials
- Purchased goods
- Finished parts and components
#4. Flow and Supply of Materials.
Material Management is a vital part of Supply Chain Management. During the distribution of materials to various production ceters, their continuous supply must be maintained.
Lack of inventories creates situations of stock-outs which lead to huge losses to the organization.
Poor storage of materials is also sometimes responsible for the disruption of material supplies. The material management department must have alternatives supply systems so that production work continues.
#5. Quality Control of Materials.
The quality of material used in production is of great importance. It is the quality of a starting material that determines the quality of finished goods.
That’s why it is necessary to examine the quality of materials before purchasing. Durability, dimensional accuracy, dependability, high performance, reliability and aesthetic value are some of the parameters used for determining the quality of the material.
Do you intend to shape your career in the field of material management? If so, then you can pursue courses offered by MIT School of Distance Education (MIT-SDE).
Currently, this distance learning institute offers an 18-month Post Graduate Diploma in Management (PGDM) and a 24-month Post Graduate Diploma in Business Administration (PGDBA) with specialization of Material Management.
The courses equip you with the right skills to execute material management strategies. So, apply for the course to gain a competitive edge.
What Are The Core Elements Of Material Management?
There are five core elements of this process. These align together to constitute the management of materials from purchase to utilisation. These are the five elements:
Materials requirements planning
This is one of the most important steps in this process, as it accounts for a major portion of the total investment of money.
It directly influences the profits of an organisation as the number of materials a company procures is directly proportional to the amount of money it spends.
The amount of materials utilised requires careful planning. Nowadays, companies are adopting the JIT (Just in Time) model, which significantly reduces the size of the inventory.
Inventory planning and control
Inventory refers to the different types and volumes of goods a company holds at a particular time. It may include finished products and raw materials, items that are ready for the market and materials used in the production process.
The optimum practice of this prices aims to reduce the size of the inventory as far as possible. This significantly reduces the costs associated with maintaining an inventory.
Professionals in the industry achieve this by purchasing materials right before production or before moving a product into stores.
There are three types of inventories:
- Inventory for raw materials
- Inventory for purchased goods
- Inventory for finished parts and components
Purchasing
Most companies derive their profits from the economical purchase of various materials. Sometimes, a company may invest a large portion of its total capital for purchasing materials.
Hence, the primary aim of this process is effective purchasing. This helps in increasing profits by reducing the cost of purchasing.
Flow and supply of materials
Material management plays a crucial role in supply chain management. Material managers try to maintain an uninterrupted supply of materials during the production process.
They distribute these materials to various production centres. Poor management or lack of inventory disrupts the production process and the availability of material supplies.
Lack of stock can cause financial losses, delays in sourcing replacement materials and disruption of production schedules.
Quality control of materials
Ensuring that the materials used in production are of high quality is very crucial. If the quality of initial raw materials is high, then it reflects in the quality of the finished products.
Hence, it is necessary to source the best materials for any form of production. There are multiple factors for which professionals may employ quality control.
This may include durability, thermal and weather performance, dimensions, reliability and visual appeal. All of these are important factors that can determine the value of the end product.
What Are The 5 Primary Objectives Of Material Management?
The following are the five primary objectives of material management:
#1. Right Material.
The first objective of material management is to ensure that suitable materials are available for production. It involves identifying the materials required for production and ensuring that they are of the correct quality, specification, and quantity.
By ensuring that the right materials are available, companies can minimize the risk of production delays and ensure customer satisfaction.
#2. Right Time.
The second objective of material management is to ensure that the right materials are available at the right time. It involves managing the movement of materials within the warehouse, reducing lead times, and improving the efficiency of delivery processes.
#3. Right Amount.
The third objective of material management is to ensure that the right amount of materials are available for production. It involves determining the optimal inventory level to maintain and implementing processes to manage the movement of materials within the warehouse.
By ensuring that the right amount of materials are available, companies can minimize the risk of stock shortages, reduce the cost of storage and handling, and increase efficiency.
#4. Right Price.
The fourth objective of material management is to ensure that materials are purchased at the right price.
It involves negotiating with suppliers to obtain the best possible prices and implementing cost-saving measures, such as reducing waste, reducing lead times, and improving the efficiency of delivery processes.
#5. Right Sources.
The fifth objective of material management is to ensure that materials are sourced from the right sources. It involves identifying reliable suppliers, developing partnerships with suppliers, and ensuring that materials are purchased from approved suppliers only.
By sourcing materials from the right sources, companies can reduce the risk of defective materials, minimize the risk of production delays, and ensure customer satisfaction.
Importance of Material Management
Materials management aims to ensure an unbroken supply chain for production purposes to meet customer demands.
It involves purchasing, logistics and inventory management, making it vital for raw materials, machinery and maintenance processes.
Materials management also ensures manufacturers don’t waste components while optimizing inventory maintenance and management.
Effective materials management may improve production efficiency by ensuring the appropriate materials are available when manufacturers require them.
It may also help improve product quality by verifying the organization purchases the best materials and follows the necessary processes.
What do Material Managers do?
The overriding aim of material managers is to maintain a consistent flow of materials for production.
This seemingly straightforward task has a range of potential difficulties to overcome including incorrect bills of materials, inaccurate stock-taking, shipping and receiving errors, unreported scrap, and production reporting issues.
Planning, organising and controlling the flow of materials means it is possible to manage purchasing and shipping to coincide with a manufacturing process and the final delivery of products.
While material managers oversee the inventory management needs of a company, the actual procurement of materials may be undertaken by a separate purchasing team.
Material managers don’t just manage the flow of materials to ensure on-time delivery, but also seek to manage costs and quality through the supply chain.
Keeping track of the availability of raw materials and products can also deliver cost savings and ensure a maximum return on working capital.
Materials are usually classified as either direct or indirect materials. Direct materials are those that are required for a finished product, while indirect materials are those that do not directly generate the final product.
#1. Facility Management.
A material manager is also responsible for managing the facilities used for storing and handling materials. This includes ensuring that storage areas are secure, accessible, and compliant with safety regulations.
A material manager must also be able to manage the maintenance of facilities to ensure that they are in good condition and ready for use at all times.
#2. Inventory Management.
A material manager is also responsible for managing the movement and storage of materials within the warehouse. This involves determining the optimal level of inventory to be maintained, monitoring stock levels, and ensuring that materials are stored safely and efficiently.
#3. Operations Management.
A material manager ensures that operations are running smoothly and efficiently. This involves coordinating with production and logistics teams, monitoring performance metrics, and ensuring that materials are delivered to production on time and in the correct condition.
#4. Production Planning.
A material manager is also responsible for supporting production planning by ensuring materials are available when needed. This involves managing inventory levels, monitoring lead times, and ensuring that materials are delivered to production in the proper condition.
#5. Cost Management.
A material manager is responsible for managing the cost of materials, including reducing the cost of purchasing materials and reducing the cost of storage and handling. This involves negotiating prices with suppliers, reducing lead times, and improving the efficiency of delivery processes.
Challenges in Material Management
#1. Supply Chain Disruptions.
Numerous factors can cause disruptions to supply chains that hamper the efficiency of the materials management process. The primary ones are as shown below:
Natural disasters: Hurricanes, earthquakes, and floods can cripple supply chains, leading to shortages and price hikes.
Economic fluctuations: Recessions, inflation, and currency exchange rates can impact material availability and costs.
Geopolitical tensions: Trade wars, embargoes, and political instability can disrupt supply routes and increase lead times.
Pandemics: The COVID-19 pandemic underscored the fragility of global supply chains, exposing vulnerabilities in production and logistics.
#2. Inventory Management.
Maintaining optimal inventory levels is a delicate balancing act that poses significant challenges for materials managers. Key factors contributing to this challenge include:
Demand fluctuations: Unpredictable changes in customer demand can lead to either excess or insufficient inventory.
Lead times: Extended lead times for procuring materials can create stockouts and disrupt production schedules.
Storage capacity constraints: Limited warehouse space can restrict inventory levels and impact overall efficiency.
Product obsolescence: Rapid technological advancements or changes in consumer preferences can render inventory obsolete.
Storage Criteria: Non adherence of right storage conditions and storage techniques results in product quality deterioration.
Cost pressures: Carrying excess inventory incurs storage and holding costs, while stock outs can result in lost sales and expedited shipping expenses.
#3. Cost Management.
Material costs often represent a significant portion of an organization’s expenses. Factors such as raw material price fluctuations, transportation costs, and currency exchange rates can impact the bottom line.
Supplier relationship management: The lack of strong relationships with suppliers hampers pricing agreements and terms.
Access to Supplier eco system: Lack of access to the Supplier eco system results dearly due to lesser options, higher costs and TAT.
Cost reduction initiatives: The lack of process optimization, waste reduction, and material substitution leads to cost escalation
Supply chain visibility: Gaining visibility into the entire supply chain is often a challenge due to technological and personnel based short comings.
#4. Quality Control.
Maintaining stringent quality standards is essential for customer satisfaction and brand reputation. The factors hindering effective quality control are:
Supplier quality inconsistencies: Variations in product quality from different suppliers can impact overall product quality.
Defective materials: Incoming materials with defects or non-conformances can disrupt production and lead to product recalls.
Complex supply chains: Multiple suppliers and intermediaries increase the risk of quality issues due to a lack of visibility.
Rapid product development: The pressure to bring new products to market quickly can compromise quality testing and validation processes.
Cost constraints: Investing in robust quality control measures can be seen as an expense rather than an investment.
#5. Technological Advancements.
Leveraging technology to optimize materials management processes is crucial in today’s competitive landscape. However, several challenges impede successful technology adoption:
- Data integration: Integrating data from various systems (ERP, WMS, TMS, etc.) can be complex and time-consuming.
- System compatibility: Ensuring compatibility between different software applications and hardware can be challenging.
- Resistance to change: Overcoming employee resistance to new technologies and processes requires effective change management.
- Cybersecurity risks: Protecting sensitive data from cyber threats is essential but can be resource-intensive.
- Cost considerations: The initial investment in technology and ongoing maintenance costs can be significant.