Materials Management

Material Management: Overview

1. Definition: Material management refers to the process of planning, organizing, and

controlling the flow of materials and resources within an organization to ensure that the right
materials are available at the right time, in the right quantity, and at the right cost. It
encompasses the procurement, handling, storage, and distribution of materials required for
production and operational activities.

2. Functions:

 Procurement: Involves sourcing and purchasing materials from suppliers. This

includes identifying suppliers, negotiating prices, placing orders, and managing
supplier relationships.

 Inventory Management: Ensures optimal levels of inventory are maintained to meet

production and operational needs while minimizing holding costs. This includes
tracking stock levels, managing reorder points, and conducting regular inventory
audits.

 Storage and Warehousing: Involves the efficient storage of materials in warehouses

or storage facilities. This includes organizing storage space, ensuring material safety,
and managing warehousing operations.

 Materials Handling: Refers to the movement and transportation of materials within

the organization. This includes loading, unloading, and moving materials to and from
different locations in a safe and efficient manner.

 Demand Planning: Predicts material requirements based on production schedules,

sales forecasts, and market trends to ensure materials are available when needed.

 Quality Control: Ensures that materials meet required quality standards and
specifications. This involves inspecting materials, managing quality issues, and
coordinating with suppliers for quality assurance.

 Supplier Relationship Management: Develops and maintains relationships with

suppliers to ensure a reliable supply of materials. This includes evaluating supplier
performance and addressing any issues that arise.

3. Importance:

 Cost Efficiency: Effective material management helps in minimizing material costs

through bulk purchasing, negotiated discounts, and efficient inventory practices. It
also reduces waste and lowers holding costs.
  Operational Efficiency: Ensures that materials are available when needed,
preventing production delays and downtime. This leads to smoother production
processes and increased productivity.

 Quality Assurance: Proper management ensures that only quality materials are used
in production, which is critical for maintaining product quality and customer
satisfaction.

 Customer Satisfaction: By managing materials effectively, organizations can meet

production deadlines and fulfill customer orders on time, enhancing customer
satisfaction and trust.

 Risk Management: Helps in identifying potential supply chain disruptions and

developing contingency plans to mitigate risks, such as supplier failures or material
shortages.

4. Relationship with Other Departments:

 Production: Works closely with the production department to ensure that the
required materials are available for manufacturing. Coordination helps in scheduling
production runs and avoiding delays due to material shortages.

 Finance: Collaborates with the finance department to manage budgets for material
procurement, track expenditures, and assess cost implications of material management
decisions.

 Sales and Marketing: Provides input on material needs based on sales forecasts and
marketing campaigns. Effective communication ensures alignment between
production plans and market demand.

 Logistics: Coordinates with the logistics department for the efficient transportation
and distribution of materials. Ensures that materials are delivered to the right locations
on time.

 Quality Assurance: Works with the quality assurance department to ensure that
materials meet quality standards and specifications. Any issues with material quality
are addressed collaboratively.

 Supply Chain Management: Integrates with supply chain management to optimize

the flow of materials from suppliers to production facilities and ultimately to
customers. Effective supply chain coordination supports overall material management
goals.
Purchasing: it’s Meaning, Definition, Importance and
Objectives
Meaning and Definition:

Purchasing is the first phase of Materials Management. Purchasing means procurement of

goods and services from some external agencies. The object of purchase department is to
arrange the supply of materials, spare parts and services or semi-finished goods, required by
the organisation to produce the desired product, from some agency or source outside the
organisation.

Importance of Purchasing:

1. Purchasing function provides materials to the factory without which wheels of machines
cannot move.

2. A one present saving in materials cost is equivalent to a 10 percent increase in turnover.

Efficient buying can achieve this.

3. Purchasing manager is the custodian of his firm’s is purse as he spends more than 50 per
cent of his company’s earnings on purchases.

4. Increasing proportion of one’s requirements are now bought instead of being made as was
the practice in the earlier days. Buying, therefore, assumes significance.

5. Purchasing can contribute to import substitution and save foreign exchange.

6. Purchasing is the main factor in timely execution of industrial projects.

7. Materials management organisations that exist now have evolved out or purchasing
departments.

Objectives of Purchasing:

The purchasing objective is sometimes understood as buying materials of the right quality, in
the right quantity, at the right time, at the right price, and from the right source. This is a
broad generalisation, indicating the scope of purchasing function, which involves policy
decisions and analysis of various alternative possibilities prior to their act of purchase.

The specific objectives of purchasing are:

1. To pay reasonably low prices for the best values obtainable, negotiating and executing all
company commitments.

2. To keep inventories as low as is consistent with maintaining production.

3. To develop satisfactory sources of supply and maintain good relations with them.

4. To secure good vendor performance including prompt deliveries and acceptable quality.
5. To locate new materials or products as required.

6. To develop good procedures, together with adequate controls and purchasing policy.

7. To implement such programmes as value analysis, cost analysis, and make-or-buy to

reduce cost of purchases.

8. To secure high caliber personnel and allow each to develop to his maximum ability.

9. To maintain as economical a department as is possible, commensurate with good

performance.

10. To keep top management informed of material development which could affect company
profit or performance.

11. To achieve a high degree of co-operation and co-ordination with other departments in the
organisation.

Purchase Procedure
 Requirement Identification:

o Identify the need for materials, goods, or services based on production

schedules, inventory levels, or project requirements.

 Supplier Selection:

o Research and evaluate potential suppliers based on criteria such as price,

quality, reliability, and delivery terms.

 Request for Quotation (RFQ):

o Send out RFQs to selected suppliers to obtain quotes for the required items.

 Quotation Analysis:

o Compare and analyse quotations received to choose the best option based on
price, quality, and other relevant factors.

 Purchase Order (PO) Creation:

o Issue a purchase order to the selected supplier detailing the items, quantities,
prices, delivery dates, and terms of purchase.

 Order Confirmation:

o Confirm receipt of the purchase order with the supplier and verify that they
acknowledge the terms and delivery schedule.

 Goods Receipt:
 o Inspect and receive the delivered goods, ensuring they match the purchase
order in terms of quantity and quality.

 Invoice Processing:

o Review and process the supplier’s invoice for payment, ensuring it aligns with
the purchase order and goods received.

 Payment:

o Execute payment to the supplier based on the agreed terms, often managed by
the finance department.

 Record Keeping:

o Maintain records of all purchase transactions, including purchase orders,

invoices, and receipts for auditing and analysis.

Terms and Forms Used in the Purchase Department:

Purchase Requisition (PR):

Description: An internal document used to request the purchase of goods or services. It
details the required items, quantities, and reasons for the purchase.

Purpose: To initiate the purchasing process and obtain approval before creating a purchase
order.

Request for Quotation (RFQ):

Description: A document sent to suppliers requesting them to provide price quotes for
specific items.

Purpose: To obtain competitive pricing and terms from multiple suppliers.

Purchase Order (PO):

Description: A formal document issued to a supplier specifying the items, quantities, prices,
delivery dates, and terms of purchase.

Purpose: To confirm and formalize the purchase agreement with the supplier.
Goods Receipt Note (GRN):
Description: A document used to acknowledge the receipt of goods from a supplier, including
details of the quantity and condition of the items.

Purpose: To verify that the goods received match the purchase order and to update inventory
records.

Invoice:
Description: A document issued by the supplier requesting payment for the goods or services
provided.

Purpose: To detail the amount due and terms for payment.

Payment Voucher:
Description: A document used to authorize and record payments made to suppliers.

Purpose: To ensure proper documentation and approval of payments.

Purchase Agreement/Contract:
Description: A formal agreement outlining the terms and conditions of the purchase,
including price, delivery schedules, and quality requirements.

Purpose: To provide a legal framework for the transaction and ensure both parties understand
their obligations.

Supplier Evaluation Form:

Description: A form used to assess and rate suppliers based on criteria such as quality,
delivery performance, and service.

Purpose: To aid in selecting and managing suppliers effectively.

 Storekeeping: Overview
1. Functions of Storekeeping:

 Inventory Management: Maintain accurate records of stock levels, manage reorder

points, and ensure optimal inventory levels to meet operational needs while
minimizing holding costs.

 Receiving and Inspection: Receive and inspect goods upon delivery to ensure they
match the purchase order specifications in terms of quantity and quality.

 Storage: Organize and store materials in a manner that maximizes space utilization,
maintains product safety, and facilitates easy retrieval.

 Issuing: Facilitate the distribution of materials to various departments or production

areas as needed, ensuring proper documentation and tracking.

 Stock Control: Monitor and manage stock movements, including tracking usage,
managing stock levels, and preventing loss or theft.

 Record Keeping: Maintain detailed records of inventory transactions, including

receipts, issues, returns, and adjustments.

 Maintenance: Ensure the upkeep of storage areas and equipment to maintain a safe
and efficient storage environment.

 Reporting: Generate reports on inventory levels, usage patterns, and stock valuation
to support decision-making and strategic planning.

2. Classification of Stores:

 Centralized Stores:

o Description: All inventory is stored in a single central location. This central

store supplies materials to various departments or branches of the
organization.

o Advantages:

 Economies of Scale: Bulk purchasing and centralized storage often

lead to cost savings.

 Better Control: Easier to manage inventory, maintain records, and

implement standardized procedures.

 Reduced Duplication: Minimizes the risk of redundant inventory and

excess stock in different locations.
  Streamlined Operations: Simplifies logistics and reduces complexity
in managing inventory.

o Disadvantages:

 Transportation Costs: Higher costs and logistics challenges for

transporting goods to different locations.

 Delays: Potential for delays in material availability due to distance

from production or operational areas.

 Overhead Costs: Centralized facilities might have higher overhead

costs due to the need for large storage spaces and equipment.

o Application in Practice:

 Large Organizations: Suitable for organizations with multiple

branches or production facilities, where centralized control helps in
managing large volumes of inventory efficiently.

 Examples: Manufacturing companies with multiple production plants

or retail chains with a central distribution center.

 Decentralized Stores:

o Description: Inventory is stored in multiple locations, such as individual

departments, branches, or production sites.

o Advantages:

 Proximity: Materials are closer to their point of use, reducing

transportation costs and lead times.

 Flexibility: Departments or branches have more control over their

inventory levels and can respond quickly to local needs.

 Reduced Downtime: Minimizes production or operational delays due

to quicker access to needed materials.

o Disadvantages:

 Increased Costs: Higher costs due to duplication of inventory and

storage facilities across various locations.

 Complex Management: More challenging to manage inventory levels

and maintain accurate records across multiple sites.

 Risk of Redundancy: Higher potential for overstocking or stock outs

at different locations due to less centralized control.
 o Application in Practice:

 Organizations with Specific Needs: Suitable for organizations that

require high responsiveness to local needs or operate in geographically
dispersed locations.

 Examples: Retail chains with local warehouses or distribution centers,

or production facilities with on-site storage for critical materials..

Storekeeping: Detailed Overview

1. Functions of Storekeeping:

 Inventory Management:

o Maintain accurate records of stock levels, manage reorder points, and ensure
optimal inventory to prevent stockouts or excess stock.

 Receiving and Inspection:

o Inspect goods upon receipt to verify they match purchase orders in terms of
quantity and quality. Address any discrepancies or damages.

 Storage:

o Organize and store materials in a manner that maximizes space, ensures

safety, and facilitates easy retrieval. Use appropriate storage conditions to
preserve material quality.

 Issuing:

o Process and record the distribution of materials to various departments or

production areas. Ensure proper documentation and tracking of issued
materials.

 Stock Control:

o Monitor inventory movements, track usage, and perform regular stock counts.
Adjust inventory records to reflect accurate stock levels.

 Record Keeping:

o Maintain comprehensive records of all inventory transactions, including

receipts, issues, returns, and adjustments.

 Maintenance:

o Ensure that storage areas and equipment are well-maintained, safe, and
organized to support efficient operations.
  Reporting:

o Generate regular reports on inventory levels, usage patterns, stock valuation,

and other metrics to support decision-making and strategic planning.

2. Types of Records Maintained by Store:

 Stock Register:

o Description: A primary record that details all stock items, including

quantities, descriptions, and locations.

o Purpose: To provide an overview of current inventory levels and facilitate

stock tracking.

 Goods Receipt Note (GRN):

o Description: A document that confirms the receipt of goods and their

condition upon delivery.

o Purpose: To verify that goods received match the purchase order and to
document any discrepancies.

 Purchase Order (PO):

o Description: A formal request sent to suppliers for the purchase of goods or

services.

o Purpose: To record the details of orders placed, including quantities, prices,

and delivery terms.

 Stock Issue Voucher:

o Description: A record used to document the issuance of stock to various

departments or production areas.

o Purpose: To track the distribution of materials and maintain accurate records

of inventory movements.

 Stock Adjustment Form:

o Description: A document used to record adjustments to inventory levels due

to reasons such as stock losses, damages, or corrections.

o Purpose: To ensure inventory records reflect actual stock levels after

adjustments.

 Inventory Ledger:

o Description: A detailed record of all inventory transactions, including

receipts, issues, adjustments, and stock levels.
 o Purpose: To provide a comprehensive history of inventory movements and
assist in financial reporting.

 Reorder Point Report:

o Description: A report indicating items that have reached their reorder point
based on preset thresholds.

o Purpose: To trigger replenishment actions and prevent stockouts.

3. Types and Applications of Storage Equipment:

 Shelving Units:

o Types: Static, adjustable, or modular shelving.

o Applications: Suitable for organizing and storing various types of inventory,

from small parts to larger items. Adjustable shelves allow for flexibility in
storage configurations.

 Racking Systems:

o Types: Pallet racking, cantilever racking, and drive-in racking.

o Applications: Used for storing large quantities of bulk items or heavy goods.
Pallet racking is ideal for bulk storage, while cantilever racking is suited for
long items like pipes.

 Bins and Containers:

o Types: Plastic bins, metal containers, and stackable bins.

o Applications: Used for storing small parts, tools, and components. Stackable
bins save space and improve organization.

 Vertical Storage Systems:

o Types: Vertical lift modules (VLM) and vertical carousels.

o Applications: Used in environments with limited floor space. These systems

maximize vertical space and improve accessibility.

 Automated Storage and Retrieval Systems (ASRS):

o Types: Automated guided vehicles (AGVs) and robotic picking systems.

o Applications: Suitable for high-volume storage environments. Automates the

retrieval and storage of items, increasing efficiency and reducing labor costs.

 Cold Storage:
 o Types: Refrigerated units, freezers, and temperature-controlled rooms.

o Applications: Essential for storing perishable items such as food and

pharmaceuticals that require specific temperature conditions.

4. Need and General Methods for Codification of Stores:

 Need for Codification:

o Simplify Inventory Management: Streamlines the identification and tracking

of items, reducing errors and improving efficiency.

o Facilitate Record Keeping: Ensures consistency in record-keeping and

reduces ambiguity in stock records.

o Enhance Communication: Improves communication between departments

and with suppliers by providing a standardized method for identifying items.

 General Methods for Codification:

o Numeric Coding:

 Description: Assigns unique numeric codes to each item. Often used

in simpler inventory systems.

 Example: 001 for Item A, 002 for Item B.

o Alphabetic Coding:

 Description: Uses letters to represent categories or specific items.

Useful for categorizing items based on type or department.

 Example: A001 for Item A, B002 for Item B.

o Alphanumeric Coding:

 Description: Combines letters and numbers to create unique codes.

Provides more flexibility and specificity in item identification.

 Example: A001-01 for Item A in Category 1, B002-02 for Item B in

Category 2.

o Hierarchical Coding:

 Description: Uses a hierarchical structure to represent categories and

subcategories of items. Helps in organizing complex inventories.

 Example: 10-20-30 for a Category 10, Subcategory 20, and Item 30.

o Barcode/RFID Coding:
  Description: Uses barcodes or radio frequency identification (RFID)
tags for automated data capture and tracking.

 Example: Barcodes or RFID tags on items enable quick scanning and

real-time inventory updates.

o Descriptive Coding:

 Description: Uses descriptive codes that include details about the

item, such as its function or features.

 Example: WHT-50-10 for a white 50mm washer, where "WHT"

stands for color, "50" for size, and "10" for type.