MATERIAL MANAGEMENT

Definition

It is concerned with planning, organizing and controlling

the flow of materials from their initial purchase through
internal operations to the service point through
distribution.
OR
Material management is a scientific technique,
concerned with Planning, Organizing &Control of flow
of materials, from their initial purchase to destination.
 AIM OF MATERIAL MANAGEMENT
To get
1. The Right quality
2. Right quantity of supplies
3. At the Right time
4. At the Right place
5. For the Right cost
 PURPOSE OF MATERIAL MANAGEMENT
•To gain economy in purchasing
•To satisfy the demand during period of replenishment
•To carry reserve stock to avoid stock out
•To stabilize fluctuations in consumption
•To provide reasonable level of client services
Material management = Purchase
+ Planning = Procurement+
Process
Procurement concentrates on the strategic process of product or
service sourcing, for example researching, negotiation and
planning, whilst the purchasing process focuses on how products
and services are acquired and ordered, such as
raising purchase orders and arranging payment.
• Procurement involves the process of finding and selecting vendors, establishing
payment terms, negotiating, finalizing contracts, finalizing purchase guidelines, cost
control etc.
• Procurement is a wider term for sourcing and fulfilling various material and service
needs of the organization.
• For practical purposes, procurement or purchase serve essentially the same objective.
• Purchasing is a very important activity within a company because of its impact on the
cost of the company’s goods.
• Top management must monitor this very important activity closely and regularly review
its performance.
• Typical purchase requirements are related to raw material, consumables, logistics and
other business support services, etc.
• Purchasing ensures timely delivery of materials from vendors. It generates and tracks
purchase orders and works alongside the receiving department and the accounts
payable department to ensure that promised deliveries were received in full and are
being paid for on time.
• Purchasing is an important function of the material’s management. In any
industry purchase means buying of equipments, materials, tools, parts, etc.
required for industry. The importance of the purchase function varies with
nature and size of industry. In small industry, this function is performed by
works manager and in large manufacturing concern; this function is done by a
separate department. The moment a buyer places an order he commits a
substantial portion of the finance of the corporation which affects the
working capital and cash flow position.

Objectives of Purchasing
The basic objective of the purchasing function is to ensure continuity of supply
of raw materials, sub-contracted items and spare parts and to reduce the
ultimate cost of the finished goods. In other words, the objective is not only to
procure the raw materials at the lowest price but to reduce the cost of the final
product. This activity is done by the Purchase Manager in the company.
Objectives and Skill of Purchasing Professionals & Department Must
Have
• Detailed Orientation
• Time Management
• Judgment and Decision Making
• Persistence
• Flexibility and Adaptability
• Relationship Building
• Communication and Active Listening
• Negotiation
To avail the materials, suppliers and equipment at the minimum
possible costs:
These are the inputs in the manufacturing operations. The minimization
of the input cost increases the productivity and resultantly the
profitability of the operations.

To ensure the continuous flow of production: through continuous

supply of raw materials, components, tools etc. with repair and
maintenance service.

To develop an alternative source of supply:

Exploration of alternative sources of supply of materials increases the
bargaining ability of the buyer, minimization of cost of materials and
increases the ability to meet the emergencies.
To establish and maintain the good relations with the suppliers:
Maintenance of good relations with the supplier helps in evolving a favourable image
in the business circles. Such relations are beneficial to the buyer in terms of changing
the reasonable price, preferential allocation of material in case of material shortages,
etc.
To achieve maximum integration with other departments of the company:
The purchase function is related with production department for specifications and
flow of material, engineering department for the purchase of tools, equipments and
machines, marketing department for the forecasts of sales and its impact on
procurement of materials, financial department for the purpose of maintaining levels
of materials and estimating the working capital required, personnel department for
the purpose of manning and developing the personnel of purchase department and
maintaining good vendor relationship.
To train and develop the personnel:
Purchasing department is manned with varied types of personnel. The company
should try to build the imaginative employee force through training and development.
Parameters of Purchasing

The success of any manufacturing activity is largely dependent on the procurement of raw materials of right quality, in the
right quantities, from right source, at the right time and at right price popularly known as ten ‘R’s’ of the art of efficient
purchasing. They are described as the basic principles of purchasing.

1. RIGHT PRICE
It is the primary concern of any manufacturing organization to get an item at the right price. Price negotiation also
helps to determine the right prices.

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

3. RIGHT TIME
For determining the right time, the purchase manager should have the lead time information for all the products
and analyse its components for reducing the same. While determining the purchases, the buyer has to consider emergency
situations like floods, strikes, etc. He should have ‘contingency plans’ when force major clauses become operative, for
instance, the material is not available due to strike, lock-out, floods, and earthquakes.

4. RIGHT SOURCE
The source from which the material is procured should be dependable and capable of supplying items of uniform
quality. The buyer has to decide which item should be directly obtained from the manufacturer. Source selection, source
development and vendor rating play an important role in buyer-seller relationships. In emergencies, open market purchases
and bazaar purchases are restored.
5. 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 item, favourable reciprocal relations, and
make or buy consideration.
6. RIGHT ATTITUDE
• Developing the right attitude, too, is necessary as one often comes across
such statement: ‘Purchasing knows the price of everything and value of
nothing’; ‘we buy price and not cost’; ‘when will our order placers become
purchase managers?’; ‘Purchasing acts like a post box’. Therefore,
purchasing should keep ‘progressing’ as it’s the key activity and should be
future-oriented. The purchase manager should be innovative and his long-
term objective should be to minimize the cost of the ultimate product. He
will be able to achieve this if he aims for the techniques, such as, value
analysis, materials intelligence, purchases research, SWOT analysis,
purchase budget lead time analysis, etc.
7. RIGHT CONTRACTS
• 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.

8. RIGHT MATERIAL
• Right type of material required for the production is an important parameter
in purchasing. Techniques, such as, value analysis will enable the buyer to
locate the right material.
9. RIGHT TRANSPORTATION
• Right mode of transportation has to be identified as this forms a 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.
10. RIGHT PLACE OF DELIVERY
• Specifying the right place of delivery, like head office or works, would often
minimize the handling and transportation cost.
Procedure of purchase
 Objective of material management
Primary
•Right price Secondary
•High turnover •Forecasting
•Low procurement •Inter-departmental
•& storage cost harmony
•Continuity of supply •Product improvement
•Consistency in quality •Standardization
•Good supplier •Make or buy decision
relations •New materials & products
•Development of •Favorable reciprocal
personnel relationships
•Good information
system
Economy in material management

•Containing the costs

•Improving efficiency in all activities

 Four basic needs of Material management

1.To have adequate materials on hand when needed

2.To pay the lowest possible prices, consistent with quality and
value requirement for purchases materials
3.To minimize the inventory investment
4.To operate efficiently
 Basic principles of material management
1. Effective management & supervision
It depends on managerial functions of
• Planning
• Organizing
• Staffing
• Directing
• Controlling
• Reporting
• Budgeting
2. Sound purchasing methods
3.Skillful & hard poised negotiations
4.Effective purchase system which Should be simple
5.Must not increase other costs
6.Simple inventory control programme
 Elements of material management
1.Demand estimation
2.Identify the needed items
3.Calculate from the trends in Consumption
during last 2 years.
4.Review with resource constraints
 Objectives of procurement system
•Acquire needed supplies as inexpensively as possible
•Obtain high quality supplies
•Assure prompt & dependable delivery
•Distribute the procurement workload to avoid period of
idleness & overwork
•Optimize inventory management through scientific
procurement procedures
 Open tender
•Public bidding, resulting in low prices
•Published in newspapers
•Term - 4 weeks
•Quotations must be sent in the specific forms
that are sold, before the time &date mentioned in
the tender form
•In technical items, ‘two packets or two bins’
system is followed. Offers are given in two
separate packets.
•Technical bid
•Financial bid
Cont……
•First technical bid is opened & short listed
•Then financial bid of selected companies are opened & lowest is
selected
•Delayed tenders & late tenders are not accepted. But if, in case of
delayed tenders, if the rate quoted is very less, then it can be
accepted.
•Quotations are opened in presence of indenting department,
accounts & authorized persons of party
•Validity of tenders – generally 90 days
Earnest money
2 % of the tender amount or as decided has to be paid along with all
quotations. In case of default 1/5 is withheld
Restricted or limited tender
From limited suppliers (about 10)
Lead-time is reduced
Better quality
Negotiated procurement
Buyer approaches selected potential Suppliers & bargain directly Used in
long time supply contracts
Direct procurement
Purchased from single supplier, at his quoted price
Prices may be high Reserved for proprietary materials, or low priced,
small quantity & emergency purchases
Rate contract
Firms are asked to supply stores at specified Rates during the period
covered by the Contract

Spot purchase
It is done by a committee, which includes an officer from stores, accounts
& purchasing departments

Risk purchase
If supplier fails, the item is purchased from other agencies & the
difference in cost is recovered from the first supplier
Points to remember while purchasing
•Proper specification
•Invite quotations from reputed firms
•Comparison of offers based on basic price, freight & insurance,
taxes and levies
•Quantity & payment discounts
•Payment terms
•Delivery period, guarantee
•Vendor reputation
(reliability, technical capabilities, Convenience, Availability, after-
sales service, sales assistance)
•Short listing for better negotiation terms
•Seek order acknowledgement
 Storage
• Store must be of adequate space
• Materials must be stored in an appropriate place
• in a correct way
• Group wise & alphabetical arrangement helps in
• identification & retrieval
• First-in, first-out principle to be followed
• Monitor expiry date
• Follow two bin or double shelf system, to avoid
• Stock outs
• Reserve bin should contain stock that will cover
• lead time and a small safety stock
Issue & use
Can be centralized or decentralized
 VED ANALYSIS
• Based on critical value & shortage cost of an item
–It is a subjective analysis.
•Items are classified into:
Vital:
•Shortage cannot be tolerated.
Essential:
•Shortage can be tolerated for a short period.
Desirable:
▪Shortage will not adversely affect, but may be using more
resources. These must be strictly Scrutinized

V E D ITEM COST

A AV AE AD CATEGORY 1 10 70%

B BV BE BD CATEGORY 2 20 20%

C CV CE CD CATEGORY 3 70 10%

CATEGORY 1 - NEEDS CLOSE MONITORING & CONTROL

CATEGORY 2 - MODERATE CONTROL.
CATEGORY 3 - NO NEED FOR CONTROL
SDE ANALYIS
Based on availability
Scarce
Managed by top level management
Maintain big safety stocks
Difficult
Maintain sufficient safety stocks
Easily available
Minimum safety stocks
FSN ANALYSIS
Based on utilization.
Fast moving.
Slow moving.
Non-moving.
Non-moving items must be periodically reviewed to prevent
expiry
& obsolescence
HML ANALYSIS
Based on cost per unit
Highest
Medium
Low
This is used to keep control over consumption
at departmental level for deciding the frequency of physical verification.
 PROCURMENT OF EQUIPMENT
Points to be noted before purchase of an
equipment:
•Latest technology
•Availability of maintenance & repair facility,
with minimum down time
•Post warranty repair at reasonable cost
•Upgradeability
•Reputed manufacturer
•Availability of consumables
•Low operating costs
•Installation
•Proper installation as per guidelines
 HISTORY SHEET OF EQUIPMENT :

History sheet

•Name of equipment •After sales arrangement

•Code number •Guarantee period
•Date of purchase •Warranty period
•Name of supplier •Life of equipment
•Name of manufacturer •Down time / up time
•Date of installation •Cost of maintenance
•Place of installation •Unserviceable date
•Date of commissioning •Date of condemnation
•Environmental control •Date of replacement
•Spare parts inventory
•Techn. Manual / circuit
diagrams / literatures
CONCLUSION

Material management is an important management tool which will be

very useful in getting the right quality & right quantity of supplies at
right time, having good inventory control & adopting sound methods
of condemnation & disposal will improve the efficiency of the
organization & also make the working atmosphere healthy any type
of organization, whether it is Private, Government ,Small
organization, Big organization and Household.

Even a common man must know the basics of material management

so that he can get the best of the available resources and make it a
habit to adopt the principles of material management in all our daily
activities