1. INTRODUCTION TO MATERIALS
MANAGEMENT

2. Materials as an input in production has been receiving much attention recently
Globalization has created a market system in which goods are constantly moving from one destination to the other either in the form of raw materials or in the form of finished products.
It has become one of the crucial M’s in an industrial organization

3. Importance of Materials
Rapid increase in materials budget
The total revenue spent on acquisition of materials has been gradually increasing in almost all the manufacturing industries
The same trend is found in retail and other tertiary industries also.
Apart from this, the material suppliers are becoming more and more specialized as many companies procure goods through BPO

4. Importance of Materials
Materials offer considerable scope for reducing the cost and thereby improving the profit.
Since major cost of production is the material costs in many industries ( 75% and above in fabrication and construction, 65% to 75% in wool, sugar etc), it offers opportunity to increase the profit by reducing the costs.
The example given in the next slide help us to know the impact of cost reduction on overall profitability of a concern.

5. Example of Cost Reduction
Suppose A & Co., has turnover of Rs.100,000. Its total cost amount is Rs.90,000 which includes materials cost of Rs.50,000. The net profit earned by the company is Rs.10,000 which works out as 10% of the turnover. If the company achieves a saving of 5% in materials costs (other costs remaining the same), the profit position of the company will change as follows:
Profit as 10% on Rs.100,000 …………………………. Rs.10,
Savings in materials costs (Rs.50,000 x 5/100) ………Rs. 2,
Profit Rs. 12,500.00
The profit has increased by 25% due to a decrease of 5% in materials costs

6. 3. Materials form an important form of current assets
The return on investment depends on the manner of utilization of materials by an organization.
The relationship can be expressed as follows:
Fixed assets is already sunk and the only scope for improving return on investment lies, in the efficient management of materials which constitute the bulk of CA
ROI =
PROFIT x
SALES
FIXED ASSETS + CURRENT ASSETS
SALES

7. 4. Materials add value to the product.
The margin between the value of raw materials and the finished product is known as ‘the value added in manufacture’.
There are three functional areas in an industrial establishment that add value to the product- manufacturing, marketing and materials.

8. 5. Materials contribute to the quality of the end product.
The quality of the finished products depend on, among other things, the quality of the materials used.
Great care is always taken by the production planning and control department to specify the required quality materials to be procured

9. 6. Materials management is one of the centers of accountability for performance
The materials manager is individually responsible for whatever happens in regard to all materials requirements, whether for purchasing, handling materials, maintaining appropriate inventory levels, storage conditions or any other material management functions.

10. 7. Conservation of materials is one of the focused areas of Corporate Social Responsibility (CSR) of firms.
It is the duty of every organization to see that the scarce materials are preserved for the posterity and unhealthy exploitation should be avoided.

11. Materials Management
Materials management is defined by Bailey and Farmer as “ the management of the flow of materials into an organization to the point, where , those materials are converted into the firm’s end product (s).
Put in simple words, materials management involves organizing, and coordinating all management functions that are responsible for every aspect of materials movements, storage and transformation

12. Materials Management, PDM and Logistics Management
Generally, materials management, physical distribution management and logistics management are the expressions that are used synonymously but, there is difference between the terms.
Materials management refers to the movement of production materials from the stage of their acquisition to the stage of their consumption.
Physical Distribution refers to the distribution of finished goods to the customers or to the users. Physical distribution starts where materials management ends.
Logistics Management is a combination of both materials management and physical distribution management

13. Procurement Activities
LOGISTICS MANAGEMENT
MATERIALS MANAGEMENT
Physical Distribution Management
Procurement Activities
Inventory Decisions
Materials Specifications
Value analysis
Market Research on Supply
Negotiation
Buying
Quality Assurance
Inbound Transportation
Raw Materials
Sub-assemblies
Manufactured parts
Packing Materials
Storage
materials
handling
Production scheduling &
Controlling
Transportation
Transportation
Work in progress & inventory
Finished Goods Inventory
Customer
Field Inventory

14. Objectives of Materials Management
The objectives can be broadly categorized into primary objectives and secondary objectives
PRIMARY OBJECTIVES
Low prices
High inventory turnover
Low cost acquisition and posession
Continuity of supply

15. 5. Consistency of quality 6. Low payroll costs 7
5. Consistency of quality 6.Low payroll costs 7.Favorable supplier relationship 8. Development of personnel 9.Good records

16. SECONDARY OBJECTIVES
1. Reciprocal relationship
2. New materials and products
3. Economic make or buy
4. Standardization
5. Product improvement
6. Interdepartmental harmony
7. Forecasts

17. Importance of Materials Management
Lower prices for materials and equipments
Faster inventory turnover
Continuity of supply
Reduced lead time
Reduced transportation costs
Less duplication of efforts
Elimination of buck-passing
Reduced materials obsolescence

18. Importance of Materials Management
Improve supplier relationship and better records and information
Better inter-departmental cooperation
Personnel development

19. Materials Management Information System (MMIS)
MMIS provide information about stock levels for raw materials, work in progress, finished goods and stores and spares.
But the MMIS should be an intelligent system
It should provide the right information in right time
It should also help to rapid access of information, detect errors and help in prompt decisions.