CHAPTER ONE

INTRODUCTION
1.1. Introduction
There are various types of materials that are used by enterprises. Commonly
materials can be classified as raw materials, work-in-process, finished goods
and supplies. It is possible to differentiate materials between production
items (raw materials, fabricated parts, and component parts), capital items
(installation and equipments), operating items (maintenance, repair,
operating supplies), and industrial services (services).There are so many
problems attached with the management of these materials such as
investment in materials, idle funds, storage and obsolescence, wastage of
materials in handling etc. which require immediate attention of management
so that the cost of production may be reduced to the minimum and the
quality of the product may be maintained. In recent years, the concept of
materials management is being widely accepted by industrially advanced
countries for more effective coordination and control over materials because
materials costs (including investment in materials, handling cost,
transportation and storage costs, insurance, wastage and obsolescence costs
etc.) constitute a major part of the total cost of the finished product.
So, the control over material is essential to arrest the increasing cost of
finished product since it constitutes a major component of the total cost of
goods sold. This can be achieved through integrated and effective materials
management. Thus, material management would embrace all activities
concerned with material such as materials-planning and programming,
purchasing, inventory control, receiving and inspection, stores, traffic and
physical distribution. This makes it an indispensable core activity of all types
of organizations since organizations are continuously involved in
procurement, storage, and stock replenishment of different types of
materials. In some of the industries the cost of materials input ranges

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between 45% to 85% of the product cost. Thus, the slightest efficiency in the
materials management releases substantial gains to the organization in
terms of cost and capital requirement. Due to such strategic role materials
management has assumed greater importance in the modern management.
In fact, along with other areas of management like production, marketing,
finance and personnel, materials management has been recognized as fifth
key area of management of the organizations.
1.2. Definition and Scope of Materials Management
Complete cycle of material flow, form the purchase and internal control of
production materials to the planning and control of work-in progress, to the
warehousing, shipping and distribution of finished products. It differs from
the materials control in that the latter term traditionally is limited to the
internal control of production materials. The material management would
embrace all activities concerned with material except those directly
concerned with designing or manufacturing the product or maintaining the
facilities, equipment and tooling. It would embrace the activities performed
by major departments such as purchasing, Inventory control, receiving and
inspection, stores, traffic and physical distribution.
Material management views material flow as a system. Thus, it includes:
anticipating materials requirements scientifically; sourcing, obtaining and
inspecting materials; introducing materials into organization; storing and
handling materials, and disposal of scraps and unserviceable items;
monitoring the status of materials; replenishment of stocks; and
strengthening materials information system.
 It is an idea of an integrated management approach to: planning,
acquisition, conversion, flow, and distribution of production materials from
raw material state to finished product state.
 It is a function responsible for coordination of planning, sourcing,
purchasing, moving, storing, and controlling materials in an optimum

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 manner so as to provide a pre-decided service to the customers at a
minimum cost.
 Materials management is a coordinating function responsible for planning
and controlling materials flow. Its objectives are as follows:
 Maximize the use of the firm’s resources.
 Provide the required level of customer service.
From the above definitions, it is clear that the scope of materials
management is vast. Broadly, the coverage of materials management
include forecasting and planning of material requirement,
purchasing, receiving, storing and warehousing, inventory control,
material handling and value analysis.
1.3. Objectives of Materials Management
As explained above the objective of materials management can be stated as
maximizing the use of firm’s resources or rationalizing the material costs
provide better service to customers. The following specific objectives of
material management fall in either of the above broad objectives:
 Provide an uninterrupted flow of materials suppliers, and services
required to operate the organization.
 Keep inventory investment and loss at a minimum
 Maintain adequate quality standards.
 Purchase required items and services at least possible price.
 Maintain the organization’s competitive position
 Find or develop competent vendors.
 Standardize, where possible, the item bought.
 Achieve harmonious, productive working relationships with other
departments within the origination.
 Accomplish the purchasing objectives at the lowest possible level of
administrative cost.
1.4. Importance of Material Management

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 In many organizations, materials form the largest single expenditure
item. For example, Average expenditure of materials for earth moving
equipments, sugar, wool, commercial vehicles etc industries is above 65
while it constitutes 60-65% in textile industries. In general, an analysis of
the financial statement of a large number of organizations indicates that
materials account for nearly 60% of the total expenditure. Accordingly,
effective materials management enables the organization to:-
 Minimize inventory losses from fraud, theft and the wastages of
materials
 Reduce loss of time and direct labor through effective planning and
utilization of one’s facility
 Have low or no cases of late deliveries as a result of delays in production
due to non-availability or lack of materials since these are prevented by
arranging the proper supply of materials in required quantities to the
production at the right time.
 Reduce the length of manufacturing cycle through effective utilization of
men, materials and machine and thus reduces the capital tied up in
inventories.
 Purchase right materials from the right supplier and at a right price
 Avoid congestion of materials in stores and/or at different points of
manufacturing
The importance of materials management, hence, lies in the fact that any
significant contribution made by the material manager in reducing material
cost will go long way in improving the profitability and rate of return on
investment. Such increase in profitability, no doubt, can be affected by
increasing sales. But with the increased competition and government
restrictions on expansions this alternative is not easily achieved. Consider
the following example to see the importance or significance of effective
material management for organizational profitability.

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 1.5. Essential functions of Materials Management
Forecasting and planning of materials demand
Sales – Production – Materials plan
Inventory control: responsible for supplying materials to fulfill operation
plans
- Determines how much and when
Production control: responsible for regulating materials flow.
Materials Handling
Purchasing: is responsible for the procurement of materials and/or other
items from outside suppliers in accordance with purchase requisition
specifications.
Receiving and stores: is responsible for activities related to receiving
(verifying quantity, inspecting, storing, handling, issuing, controlling)
materials.
Physical distribution (transportation): includes all operation involved in the
movement of materials and final products within and outside.
1.6. The Organization of Materials Function
In order to design the structure of materials management, one should learn
the relationships between materials management and the different functions
in an organization. Broadly, the materials management will have to work in
close coordination with production, marketing and finance departments. Only
an atmosphere of mutual trust will ensure that these departments will work
towards the total organizational objectives. The following examples will help
to understand the relationships between materials management and other
organizational units.
Materials Management Unit and Production Unit
The production department will have to keep the materials management
department informed about its plans and schedules so that materials
requirements can be planned in advance. Even the adjustments in sales

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forecasting, or the changes in schedules must be duly conveyed to material
management department. In the same way, the materials management
departments must keep the production department informed about the lists
of suppliers, availability of new materials and anticipated delays so that re-
scheduling of production could be done and costly stock-outs avoided. The
expertise of the materials management department could profitably used by
the production department in purchasing capital equipments.
This shows that the production department is highly dependent on the
supply of materials provided by the material management unit. This strong
interdependence between the two departments tempted the production
department to have the control of smooth flow of materials and want to
subordinates or structure material management under it.
Material Management Unit and Marketing Unit
Marketing department will have to give advance information on forecasts
and special requirements so that planning can be done effectively. Materials
management through efficient operations can keep the prices at a
competitive level and thus help the marketing department in its operations.
Because of the knowledge of the needs and wants of customers and
information on forecasted demand of products and special requirements, the
marketing department wants the materials management to be subordinated
under it.
Materials Management Unit and Finance Unit
The finance department also has to work in close coordination with materials
management department in anticipating funds requirements, payment of
bills to suppliers, insurance and so on. Such close coordination will ensure
prompt payment of bills and improve relationships with the suppliers. Since
the finance unit is the one that provides the fund for the purchase of items
(materials) and wants to exercise control of costs, they want to structure
materials management under their domain.

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As a matter of fact the question under which unit shall we structure material
management does not have a clear cut answer. Among other things, it
depends on
 The size of the organization
 Management Philosophy of the organization.
 They type of business