Materials Management

Summary

The script discusses the pivotal role of materials management in the manufacturing sector, emphasizing its impact on organizational costs and supply chain efficiency. It highlights challenges like fluctuating markets, supply discontinuity, and inventory issues. The objectives of materials management include cost reduction, inventory turnover, supply continuity, quality maintenance, staff development, and forecasting to balance future risks and opportunities.

Takeaways

• 🌐 The manufacturing sector is a significant driver of global economies, with materials management playing a crucial role in organizational expenditure and supply chain control.
• 📈 Materials management costs can account for 50-60% of total organizational costs, highlighting its impact on financial metrics.
• 🔄 In the face of fluctuating demands, costs, and globalization, materials management is essential for survival and growth in the manufacturing industry.
• 🛒 The function of materials management has expanded beyond manufacturing to service organizations and non-trading entities like hospitals and schools.
• 📉 Effective materials management is vital for reducing costs, improving profits, and maintaining a competitive edge in the market.
• 🚧 Materials management faces challenges such as supply discontinuity, inaccurate forecasting, and inventory issues in a complex global supply chain.
• 🎯 The primary objectives of materials management include low-price buying, high inventory turnover, supply continuity, and maintaining material quality.
• 🤝 Building strong relationships with external parties like vendors and freight forwarders is a key objective to ensure supply chain reliability.
• 💼 Development of staff within the materials management department is essential for handling diverse responsibilities and contributing to the company's future profits.
• 📊 Keeping accurate records is crucial for materials management to avoid errors that can lead to excess orders and increased costs.
• 🔮 Secondary objectives include assisting in product development, supporting make-or-buy decisions, ensuring material standardization, and cooperating with internal departments.

Q & A

What is the impact of materials management on an organization's financial metrics?

Materials management significantly impacts an organization's financial metrics as it is responsible for a large portion of the total costs, ranging from 50 to 60 percent. Effective materials management can lead to reduced expenditure, improved profit margins, and better control over the supply chain.

How has the global context influenced manufacturing and materials management?

The global context has influenced manufacturing and materials management by introducing high competition, global business models, diverse customer requirements, fluctuating markets, and extensive use of internet and communication technologies. This has made supply chains more complex and vast, increasing the importance of effective materials management.

What are the primary objectives of materials management?

The primary objectives of materials management include obtaining materials at the lowest possible cost without compromising quality, maintaining high inventory turnover, ensuring supply continuity, maintaining material quality, enhancing the firm's goodwill, developing staff, and keeping accurate records.

Why is inventory turnover important in materials management?

Inventory turnover is important because it indicates how efficiently a company is managing its inventory. A higher turnover rate means that inventory is being sold and replaced more frequently, which can lead to better cash flow and reduced storage costs.

What challenges does materials management face in a global scenario?

Materials management faces challenges such as supply discontinuity, breakdown of information flow, inaccurate forecasts, demand and supply uncertainty, excess and obsolete inventory, lower inventory turnovers, and poor information flow and data management.

How does materials management contribute to an organization's profit?

Materials management contributes to an organization's profit by identifying and implementing cost reduction programs, profit improvement programs, and integrated function approaches. It also ensures efficient use of resources and minimizes wastage, which directly impacts the bottom line.

What is the role of materials management in supply continuity?

Materials management plays a critical role in ensuring supply continuity by managing lead times, safety stocks, advanced planning, and continuous monitoring of supply. It helps prevent stock-outs and maintains a steady flow of materials, which is essential for production and customer satisfaction.

Why is maintaining quality of materials important for materials management?

Maintaining the quality of materials is important because it ensures that the materials meet customer demand and service requirements. Consistent good quality helps in maintaining the reputation of the organization and can lead to customer loyalty and repeat business.

How does materials management assist in the development of new materials and products?

Materials management assists in the development of new materials and products by working closely with suppliers, understanding market needs, and collaborating with internal departments like engineering and research and development. It helps in identifying profitable opportunities and ensuring the efficient use of resources.

What is the significance of forecasting in materials management?

Forecasting is significant in materials management as it helps in managing future demands and risks. It includes forecasting requirements, prices, sales, and competition, which allows organizations to plan ahead and balance their operations with future market conditions.

How does materials management support the 'make or buy' decision?

Materials management supports the 'make or buy' decision by evaluating all feasible solutions, considering factors like cost, time, expertise, and quality. It provides data and insights that help the organization decide whether it is more efficient to produce materials in-house or to purchase them from external suppliers.

Outlines

00:00

🌐 Global Impact of Materials Management

This paragraph emphasizes the critical role of materials management in the manufacturing sector, which significantly influences global economies. It discusses how global business models have evolved due to increased competition, diverse customer requirements, and the widespread use of internet and communication technologies. Materials management is highlighted as a key function that contributes to organizational expenditure and internal costs, with costs ranging from 50 to 60 percent of total costs. The importance of materials management is expanding beyond manufacturing to service and non-trading organizations, necessitating effective purchasing, storage, and usage of materials to minimize costs and wastage, directly impacting profits. The paragraph also outlines the challenges faced in global supply chains, such as discontinuity, information flow breakdowns, inaccurate forecasts, and inventory issues, and sets the stage for discussing the objectives of materials management.

05:01

📈 Objectives and Strategies of Materials Management

Paragraph 2 delves into the objectives and strategies of materials management, focusing on primary and secondary goals. Primary objectives include low-price buying to reduce costs without compromising quality, maintaining high inventory turnover for efficient stock management, ensuring supply continuity to avoid production and customer penalties, and maintaining material quality to meet customer demands. It also stresses the importance of enhancing firm's goodwill through good relationships with vendors and developing staff skills for diverse responsibilities. Secondary objectives cover assisting in new material and product development, supporting make-or-buy decisions, ensuring material standardization, cooperating with internal departments, and accurate forecasting to manage future demands and risks. The paragraph underscores the importance of these objectives in achieving a smoothly running business with continuous growth and expansion.

10:02

🎯 Summary of Materials Management Goals

This brief paragraph serves as a conclusion, summarizing the primary and secondary objectives of the materials management department discussed in the previous paragraphs. It encapsulates the comprehensive approach required for effective materials management, emphasizing the need for a strategic balance between cost reduction, quality maintenance, supply chain continuity, and staff development to ensure the overall success and profitability of an organization.

Keywords

💡Materials Management

Materials Management refers to the function or department within an organization that oversees the planning, acquisition, storage, and control of materials required for production or direct use. It is a critical aspect of supply chain management, with a significant impact on an organization's expenditure and overall costs. In the script, it is highlighted as a key function that contributes to the financial metrics of an organization, with costs involved in materials management ranging from 50 to 60 percent of total costs.

💡Global Supply Chain

The Global Supply Chain encompasses the complex network of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer. It is characterized by its vastness and complexity, which are influenced by factors like diverse customer requirements, fluctuating markets, and the extensive use of internet and communication technologies. The script discusses how the supply chain is becoming more complex due to these factors, making materials management a crucial function for managing this complexity.

💡Inventory Turnover

Inventory Turnover is a measure of how many times a company's inventory is sold and replaced over a certain period. It is an indicator of the efficiency of inventory management and is directly related to the performance of materials management. A higher turnover rate suggests that inventory is being managed effectively, reducing storage costs and ensuring that products are available when needed. The script emphasizes the importance of maintaining a high inventory turnover to ensure good inventory management.

💡Supply Continuity

Supply Continuity refers to the uninterrupted flow of materials and goods from suppliers to the organization. It is essential for maintaining production and meeting customer demands. Disruptions in supply continuity can lead to production delays, customer dissatisfaction, and financial losses. The script mentions supply continuity as a primary objective of materials management, highlighting the need for effective supply chain planning and management.

💡Quality of Materials

Quality of Materials is the degree to which materials meet the required specifications and standards. It is crucial for ensuring that products meet customer expectations and regulatory requirements. The script underscores the importance of maintaining the quality of materials as one of the objectives of materials management, which helps in enhancing customer satisfaction and the organization's reputation.

💡Cost Reduction Programs

Cost Reduction Programs are initiatives aimed at identifying and implementing strategies to reduce costs within an organization. These programs are particularly relevant to materials management, as it involves significant expenses in procurement, storage, and inventory management. The script mentions that materials management can improve a company's bottom line by identifying and implementing cost reduction programs, which can lead to increased profitability.

💡Inventory Accuracy

Inventory Accuracy is the extent to which the recorded quantities of inventory items match the actual quantities on hand. It is vital for effective inventory management and financial planning. Inaccurate inventory records can lead to over-ordering, stock-outs, and increased costs. The script highlights the importance of maintaining inventory accuracy as a primary objective of materials management, which directly impacts the organization's operational efficiency and cost control.

💡Forecasting

Forecasting in the context of materials management refers to the process of predicting future demand, sales, prices, and other relevant factors to make informed decisions about inventory and production planning. Accurate forecasting helps organizations to balance supply and demand, manage risks, and capitalize on opportunities. The script emphasizes forecasting as a critical objective of materials management, which is essential for maintaining a competitive edge in a dynamic market.

💡Materials Standardization

Materials Standardization is the process of streamlining and unifying the materials used in an organization's products to reduce complexity and increase efficiency. It involves simplifying the variety of materials and components, which can lead to cost savings, improved quality, and easier inventory management. The script discusses the importance of material standardization as a secondary objective of materials management, which can contribute to the overall efficiency and profitability of the organization.

💡Staff Development

Staff Development in materials management involves the continuous improvement of the skills and knowledge of employees in the materials department. This includes training in areas such as inventory control, supply chain management, and techno-commercial aspects of products. The script highlights the importance of staff development as a primary objective, emphasizing the need for materials management personnel to be versatile and capable of handling diverse responsibilities, which ultimately contributes to the organization's success.

💡Goodwill

Goodwill in the context of materials management refers to the positive relationships and trust established with external parties such as vendors, freight forwarders, and customers. Maintaining good relationships is crucial for ensuring smooth operations, dealing with urgencies, and managing critical situations. The script mentions enhancing the firm's goodwill as one of the objectives of materials management, which can lead to long-term benefits such as loyalty, repeat business, and a strong reputation.

Highlights

Materials management is a key function in organizations, influencing 50-60% of total costs.

Global competition and internet technologies have made supply chains more complex.

The manufacturing sector's ongoing influence drives global economies.

Service organizations and non-trading entities are recognizing the importance of materials management.

Materials management involves planning, acquiring, storing, and controlling resources and materials flow.

Global scenario challenges include supply discontinuity, information flow breakdown, and demand-supply uncertainty.

Materials management aims for low-price buying without compromising quality.

High inventory turnover is crucial for good inventory management performance.

Maintaining supply continuity is essential to avoid production and customer penalties.

Quality of materials must meet customer demand and service requirements.

Materials management focuses on developing staff skills and leadership qualities.

Good records are necessary to avoid errors in planning and transactions.

Materials management assists in designing and developing new materials and products.

Supporting make or buy decisions is a significant objective of materials management.

Material standardization and simplification are key for efficient manufacturing.

Collaboration with internal departments is vital for enhancing the firm's goodwill.

Forecasting future demands, prices, and market trends is crucial for business balance.

Transcripts

friends now we will focus discussion on

the materials management before we go to

actual concepts we all know that in a

global context manufacturing sector has

ongoing influence in driving global

economies aspects like globally business

models have undergone radical changes in

recent years due to high competition

globally reached networks diverse

customers with their diverse

requirements fluctuating markets and

also extensive use of internet and

communication technologies the supply

chain is becoming much complex and vast

function for each manufacturing

organization while materials management

is identified by many experts as one of

the key contributing function which is

playing an important role in

organizations expenditure growth

internal costs and keeping right control

in overall supply chain the cost

involved in materials management is

ranging from 50 percent to 60 percent of

the total costs and it depends on the

industry to industry and product nature

thus financial metrics of organizations

have major impact from materials

management function in today's

manufacturing scenario demands are not

constant but viable based on flexible

requirements of industry thus it is very

important to survive in fluctuating

demand costs and increased globalization

in a supply chain environment the need

for materials management was first felt

in manufacturing industry however

service organizations like retail stores

also started feeling the need for this

control and now into the era

globalization even non-trading

organizations like hospitals

universities schools and colleges have

realized the importance of materials

management functions thus every

organization uses a number of materials

hence it is necessary that these

materials are properly purchased stored

and used for business operations in this

process any avoidable amount spent on

materials or any lust due to wastage of

materials increases the cost and impacts

directly to the profit materials manager

don't have responsibilities of profit

but all materials management employee

must have a clear understanding of the

profit while bottom line of company's

profit and loss is considerably improved

by materials man

by identifying and successfully

implementing cost reduction programs

profit improvement programs and

integrated function approach in the next

portion we will see definitions of

materials management materials

management is defined by many authors in

different way let's define it in simple

language materials management is the

function or department of the

organization that plans acquires stores

moves and controls the resources and the

flow of materials required for

production assembly or for direct use of

customer or another way of defining it

is material management is the planning

directing controlling and coordination

of all those activities concerned with

material and inventory requirements from

the point of their inception till their

availability into manufacturing process

in a complex supply chain network

materials management in the global

scenario faces many challenges which are

supplied discontinuity and also referred

as stock-outs

breakdown of information flow throughout

supply chain partners and planning

systems in accurate forecasts demand and

supply uncertainty excess and obsolete

inventory lower inventory turnovers

inventory holding costs inflexible

capacity inventory accuracy wrong

inventory assortment and classification

methods and wrong inventory decisions

concerned with replenishment planning on

time deliveries from supplier poor

information flow and data management

every profit centered manufacturing

business in the world want to have

smoothly running processes benchmarking

operations profitable sales continuous

growth and expansion as a prime motto

but what if the functions like materials

planning procurement inventory planning

forecasting and distribution planning

goes wrong certainly no one would like

to have those interdepartmental pitfalls

occurring frequently and no one would

like to have high operating costs

customer loss customer dissatisfaction

and related business challenges let's

see what are the objectives of materials

management in accordance to overcoming

challenges that we have just seen there

are two

types of objectives of materials

management which are bifurcated as

primary objectives and secondary

objectives

let us discuss key primary objectives of

materials management first one is low

price buying it means obtaining

materials at lowest possible cost

without hampering customer requirement

in terms of quality this indirectly

helps reducing prices and keeping more

profit margins for the organization this

objective can be expanded as incurring

minimum possible expenditure on

administrative and other allied

activities related to purchase of

materials and also to keep the materials

in stock next is keeping high inventory

turnover inventory turnover is the

number of times a verage inventory is

turned into the sales

hence inventory turnover has to be more

and more to have good performance of

inventory management function next is

keeping supply continuity in case if

supply continuity fails it leads to cost

of production also cost of customer

penalties also it leads to customer loss

and idle production activities hence

this is one of the objectives where

intelligence is a prime factor of

materials personal to manage supply flow

effectively

this may include managing lead times

safety stocks advanced planning and

continuous monitoring of supply overview

next objective is maintaining quality of

the material to conformance of

requirements to ensure that material has

consistent good quality that meets

customer demand and service requirements

next objective is enhancing firm's

goodwill materials Department has one of

the major objectives to keep good

relationship with external parties like

vendors freight forwarders this

ultimately helps sufficing urgencies

critical situations and also trust

factor plays an important role next

objective is development of the staff it

is necessary to keep developing on skill

sets of the staff for any function in a

similar way materials management leaders

should also focus on developing staff

since materials management person is

diversely working on major areas

including external suppliers global

suppliers customs freight forwarders

insurance inventory controls

forecasting techno commercial aspects of

products hence it is necessary to

develop the staff in multiple ways and

also necessary to build the leadership

qualities within personnel and this

helps building the talent as well

developing company's future profits

another objective of materials

management function is keeping good

records many activities within materials

are dealing with a large data that

includes stock on hand demand and supply

figures each wrong error transaction

affects planning taking an example if we

have physical stock of 100 pieces and

system shows 95 pieces which was an

error by a concerned person but this

will allow the MRP to create new supply

of 5 pieces which is an excess order on

supplier and it incurs cost of not only

order values but transportation storage

custom admin cost and majorly lead time

thus it is one of the primary objectives

of materials department to keep all

transactions up to date in ERP or any

local systems that are used to monitor

or track the data along with those

primary objectives as materials

department is the department which is

external focused and it can help many

other departments in many ways and hence

this department also has certain

secondary objectives including first one

is to assist in designing and developing

new materials and products which may be

profitable for the organization then

next objective is to support make or buy

decision make or buy decision defines

either to make material in-house or to

buy it from external suppliers looking

at all feasible solutions like cost time

expertise quality and other parameters

next and one of the important object is

to ensure material standardizations as

manufacturing organization deals with

multiple parts some time even part has

major specifications very closely

similar but due to few other features

black design color or material they

become different items and

standardization fails in those cases

even it is necessary to have different

part numbers for closely similar

products there is always a scope for

standardization and simplification like

material coding storage assembly

planning keeping stock of similar

material and combining

requirements of similar sub assemblies

and many more opportunities even lies

with value analysis and value

engineering next objective of materials

function is to cooperate with an

internal department as mentioned in

primary objective enhancing firms

goodwill since materials management team

deals with external parties but they

also deal with in the organization with

department like customer service

production finance engineering and many

other and hence it is required to have

approach of good understanding

collaboration coordination with external

as well internal parties with whom

materials department works are last but

not the least objective is forecasting

it is always important to manage well in

future demands hence it is always

beneficial to forecast on timely basis

forecasting doesn't only mean forecasts

of requirement but forecasts of prices

forecasts of sales forecasts of new

customers competitors after doing a good

forecasting it helps organization to

keep business balanced with future risks

and opportunities so these are few

primary and secondary objectives of the

materials management department