Introduction to Materials Management

Introduction to materials management

Impact of Globalization & Competition on Materials Management Global technological change and competition Across a wide and expanding spectrum of products and production capabilities from super conductivity to super computers, semiconductors to satellites, miracle materials to genetic engineering, technology has become the single most important factor driving the global industrial competition. Technological developments and innovations are engendering new businesses, transforming old ones and redefining rules of competitive success. Competitive success increasingly goes to enterprises that absorb, apply and co-ordinate new technological development faster. Global industrial competition leads to global technological change. The latter serves to expand and intensify the former. Both of them in turn have bought about a number of changes in the nature and structure of world industry.

Factors and their interactions further complicating the issue

Over capacity of production facilities in many industries. Saturation and increasing segmentation of markets. Changing customer values, and more exacting requirements of product cost, quality and performance of the users Need to lower breakeven point owing to increasing fractioning of markets. Emergence of unexpected competitors across the world. Unsteady currencies and fluctuating exchange rates. Unanticipated connections among industries owing to equipment and process technology changes in one branch of industry producing cascading impact on other branches and sectors. The forging picture of the state of global industrial competition brings out the exceedingly difficult and demanding nature of the requirements for coping with such a dynamic situation.

Sinhgad Management School

Page 1

Introduction to Materials Management

Some of the important observable changes in the world industry 1. Shorter product life cycles. 2. Shorter product change over cycles 3. Higher rate of new product development 4. Shorter production runs 5. Quality and productivity - quality integration, in terms of zero defect production.
6. Total quality control (TQC) or company wide total quality management (TQM)

7. Equipment and process technology as a strategic resource. 8. Flexible manufacturing systems. 9. Increasing importance of project management 10. Technological changes in information handling equipment and office automation. 11. Competitive strategy based on technology and training of employees in multiple work skills, participation and responsibility.
12. Computer aided designed (CAD), and manufacturing (CAM)

13. Increasing role of technological forecasting.

14. Increasing use of automated decision aids like decision support systems (DSS), expert

systems (ES), and simulation experiments.

15. Combination of technologies i.e. Technology fusion for development of hybrid technologies.

These related changes have led to certain ongoing trends that dominate the world industrial scene, presently. These trends are : Globalisation Automation

Sinhgad Management School

Page 2

Introduction to Materials Management

Knowledge intensive nature of production and service activities. Information technology based faster economic metabolism of organisations, markets and production systems in industrially advanced nations Transnational strategic alliances between firms, organisation network and interorganisational structures.

Evolution of materials management

The wealth of a country is measured by its gross national product - the output of goods and services produced by the nation in a given time. Goods are physical objects, something we can touch, feel, or see. Services are the performance of some useful function such as banking, medical care, restaurants, clothing stores, or social service. But what is the source of wealth ? It is measured by the amount of goods and services produced, but where does it come from ? Although we may have rich natural resources in our economy such as mineral deposits, farm land, and forests, these are only potential sources of wealth. A production function is needed to transform our resources into useful goods. Production takes place in all forms of transformation - extracting minerals from the earth, farming, lumbering, fishing, and using these resources to manufacture useful products. There are many stages between the extraction of resource material and the final consumer product. At each stage in the development of the final product, value is added, thus creating more wealth. If ore is extracted from the earth and sold, wealth is gained from our efforts, but those who continue to transform the raw material will gain more and usually far greater wealth. Japan is a prime example of this. It has very few natural resources and buys most of the raw materials it needs. However, the Japanese have developed one of the wealthiest economies in the world by transforming the raw materials they purchase and adding value to them through manufacturing. Manufacturing companies are in the business of converting raw materials to a form that is far more value and use to the consumer than the original raw materials. Logs are converted into tables, and chairs, iron ore into steel, and steel into cars and refrigerators.
Page 3

Sinhgad Management School

Introduction to Materials Management

This conversion process called manufacturing or production, makes a society wealthier and creates a better standard of living. To get most value out of our resources, we must design production processes that make products most efficiently. Once the processes exist we need to manage their operation so they produce goods economically. Managing the operation means planning for and controlling the resources used in the process: labour, capital, and material. All are important, but the major way in which management plans and controls is through the flow of materials. The flow of materials control the performance of the process. If the right materials in the right quantities are not available at the right time, the process cannot produce what it should. Labour and machinery will be poorly utilized. The profitability, and even the existence of the company will be threatened. As a discipline, materials management was rather slow to evolve and generally lagged behind production and marketing functions. Discrete elements of the function were sporadically practiced across organizational levels, but the birth of materials management, as a serious field of study and one of great relevance to business performance, is of recent origin and has its root in the U.S. economy. As resources on the input side grow scarce, materials management will grow in importance and stature. In the past three centuries, the human civilization developed from supply constrained handicraft economy, to todays service economy. Over the years the simple mechanism of exchange of goods and services has transformed into complex linkage of industrial production and commercial system. The shortages during the war and heavy inventorying during the great depression of 1930s both contributed to a better understanding of inventory problem. This only helped to highlight the importance materials management. With the advent of industrial revolution, as a result of improved technology coupled with economic prosperity, the focus shifted to mass production and marketing. There was a premium on resources. The population explosion along with income revolution further fuelled the demand for a whole range of products. Conservation and effective resource utilization became a necessity. The 1970s witnessed significant changes in the character of materials management.
Page 4

Sinhgad Management School

Introduction to Materials Management

The Indian scenario of materials management is even bleaker. Cost consciousness is conspicuous by its absence in majority of the Indian industries. The armed forces were the first one to introduce materials management, by the name logistics management Unfortunately, over the years materials has been equated to purchasing, stores etc. With forces of liberalization and globalization sweeping through the Indian economy, homegrown corporate are feeling the pinch of a lackadaisical (unenthusiastic) approach to materials management. The intricate linkages of local and global business issues today impose complex demands on our organisations. The management challenges of the coming millennium will be far more different than the issues of the past. Today management faces unparalleled challenges from a society more educated, more informed, more demanding, affluent, and more concerned than ever before. In a dog eat dog business environment, the costs of failure can be catastrophic. The silver lining to the cloud is that, never before had management had such diverse tools and techniques to deal with circumstances. The complexities of our contemporary world have only helped to underline our dependence on organisations and the people who manage these. It also serves to highlight the implications of failure due to an unprofessional approach. Today, the time is ripe for a professional approach towards materials function. Else it may be too late. B A S IC C A P A B IL IT IE SF O RT H EG L O B A L C O M P E T IT IV E N E S SO F IN D U S T R IA LE N T E R P R IS E E S
T H EB A S IC O RG E N E R IC C A P A B IL IT IE SR E Q U IR E DB YAC O M P A N YF O RC O M P E T IN G IN T H EG L O B A LM A R K E T P L A C EM A YB ES E E NT OB EB R O A D L YD IV IS IB L E IN T OT W O M A J O RC A T E G O R IE S: T E C H N O L O G IC A LA N DO R G A N IS A T IO N A L G L O B A LC O M P E T IT IV E N E S SO F IN D U S T R IA LE N T E R P R IS E

T E C H N O L O G IC A LC A P A B IL IT IE S

[ +]
S E N E R G Y

O R G A N IZ A T IO N A L C A P A B IL IT IE S

W O R L DC L A S S M A N U F A C T U R IN G T O T A LQ U A L IT Y M A N A G E M E N T (T Q M ) JU S T IN T IM E (JIT ) C O M P U T E R IN T E G R A T E D M A N U F A C T U R IN G (C IM ) W H IC HH E L P S IN A D O P T IN G , S M A L L B A T C HM A N U F A C T U R IN G , H IG H E RS T O C K T U R N O V E R

T E C H N O L O G Y M A N A G E M E N T IN C R E M E N T A L IN N O V A T IO N S T E C H N O L O G Y A B S O R P T IO N T E C H N O V A T IO N T E C H N O L O G Y F U S IO N

F L E X IB L EO R G A N IS A T IO N& C R E A T IV EH U M A NR E S O U R C E S R E O R G A N IS A T IO NO FS T R U C T U R E , P R O C E S S E S , M E T H O D S&S Y S T E M S A SN E E D E D S IM U L T A N E O U S L O O S E & T IG H T P R O P E R T IE S F A S TR E S P O N S EC A P A C IT Y C U L T U R EO FP R O D U C T IV IT Y& IN N O V A T IO N S C R E A T IV IT YA SAC O M P E T IT IV E R E S O U R C E

1 5

Sinhgad Management School

Page 5

Introduction to Materials Management

C U R R E N TT R E N D S IN F L U E N C IN G M A T E R IA L SM A N A G E M E N T
E L E C T R O N IC D A T A IN PU T (E D I) V E N D O RD E V EL O P M E N T Q U A L IT YF U N C T IO N SD E P L O Y M E N T (Q F D ) JU S T IN T IM E (JIT ) IS O

B E N C H M A R K IN G
F O R W A R D T OT H E F U T U R E

S U P P L YC H A IN M A N A G E M E N T M A N U F A C T . R E SO U R C EP L A N N IN G (M R P II) T O T A LQ U A L IT YM A N A G E M E N T (T Q M ) E N T E R P R IS ER E S O U R C EP L A N N IN G (E R P ) F A IL U R EM O D E &E F F E C TA N A L Y S IS (F M E A ) K A IZ E N V A L U EA N A L Y S IS 16

Basic capabilities technological capabilities : These relates to the firms productive prowess in providing goods and / or services to the customers worldwide in terms of the globally competitive criteria of cost, quality, and performance. This prowess, moreover, has also to be future - oriented. The firm has not only to match and excel the technological competence of its leading competitors during the current period, but also maintain and improve its technological edge and position in the face of a changing environmnt.

Organisational capabilities :

These are related to the firms capacity to reconfigure its structure, systems, and business processes effectively, and as often as necessary. Such a capacity is crucial for its strategic readiness in the face of emerging and / or unexpected developments and crises. It denotes the organizations systematic flexibility in deploying its resources and positioning its strategic response effectively with minimum lag i.e. its ability to compete in time . The capacity for flexibility and strategic readiness, in turn, implies the prerequisites of certain organisational strengths. Foremost among the latter are its integrative culture, and creative human resources.

Sinhgad Management School

Page 6

Introduction to Materials Management

Introduction to materials management Materials management is one function that although was neglected till date, is now assuming greater importance and attention throughout all types of organisations. Society has only what it produces that is to stay, the consequence of an increase in output is a higher standard of living. Every enterprise, private or public, manufacturing or service has a productive system. Every organisation, is concerned with conversion of a set of inputs to a set of outputs through a conversion process. The inputs may be hard resources such as machines, equipments, money, materials etc. Or inputs may be soft resources such as human resources, entrepreneurial skills and managerial skills, information, procedures etc. The outputs normally take the form of finished products or services. However, intangible effects such as customer satisfaction, service to society, etc. Accompany these outputs. The conversion of inputs into outputs varies considerably with the technology used. The term technology means the level of scientific sophistication in procedures, techniques, plant, equipment, skills, and in the product / service conversion process. A conversion process that includes manufacturing or production, yields a tangible output - a product. In contrast, a conversion process that includes service, yields an intangible output - a deed, an act, an effort, or a performance. The conversion process links the inputs to outputs and adds value and generates form utility.
AS C H E M A T I CM O D E LO FT H E I N P U T O U T P U TP R O C E S S
T H EE X T E R N A LE N V I R O N M E N T S U P P L I E R S
I N P U T S M E N M A T E R I A L S C A P I T A L I N F O R M A T I O N T E C H N O L O G Y

C U S T O M E R S
O U T P U T S

I N F O R M A T I O N & C A P I T A L F L O W S

P R O D U C T S ( G O O D SA N DS E R V I C E S ) P R O F I T S C U S T O M E RS A T I S F A C T I O N S E R V I C ET OS O C I E T Y

O P E R A T I O N S

I N T E R N A LR E S O U R C E S F I N A N C E ,P E R S O N N E L ,M A R K E T I N G ,M I S ,P R O D U C T I O N ,M A T E R I A L S 2 1

Materials management definition and scope

Sinhgad Management School

Page 7

Introduction to Materials Management

Materials management may be defined as the grouping of management functions that support the entire material flow cycle, right from, material planning, purchase, inventory control, stores, warehousing and dispatch.

In other words it encompasses an entire array of functions which impinge the flow, conservation, utilization, cost and quality of materials. The aim therefore is to ensure the 5 Rs approach i.e. :

1. Supply of right quantity of materials, 2. At the right time, 3. Of the right quality, 4. At the right price, 5. From the right sources Materials management

Sinhgad Management School

Page 8

Introduction to Materials Management

AM ATER IA L FLO W SYSTEM

W OR K IN PR O C ESS

R A W M A TERIA LS

R A W M A TER IA LS

W OR K IN PR OC ESS

FINSH ED G OO D S

FINISH ED G OOD S

FIN ISHED GO ODS

W OR K IN PR O C ESS

SUPPLIERS

M A NUF A CTURING PLA NT

DISTRIBUTIO N

26 R ET A ILERS

Materials management is also defined as the concept which brings together under one manager the responsibility for determining the manufacturing requirements, scheduling, the manufacturing process, and procuring, storing, and dispersing materials. As such it is concerned with the activities involved in the acquisition and use of all materials employed in the production of a finished product. It is the single manager organization concept embracing and planning, organizing, motivating, and controlling of all those activities and personnel principally concerned with the flow of materials into an organisation. Materials management represents, that aspect of management activities which deals with the supply of materials, accounting, storing, issue and movement as also such other allied activities which seek to achieve maximum coordination for optimum utilization of materials. The greek term Rheochrematics very precisely explains the scope of materials management. Rheo meaning a flow, Chrema meaning products, things or materials, Ics meaning science or knowledge conveys properly the meaning of materials management. Materials management is responsible for planning acquisition, storage, movement and control of materials and finished goods so as to optimize production efficiencies, customer service levels, capacity utilization and return on investments. Materials management can be seen as an integrated process of management that coordinates, supervises and executes the tasks associated with the materials flow, to - through and out, of the organisation. This integrated approach is effective in coupling the disparate controls. Materials management has traditionally been a perplexing problem to many organisations and to the top management.

Sinhgad Management School

Page 9

Introduction to Materials Management

Although the importance of various sub elements of materials function - purchasing, stores, inventory - has been appreciated over the years, there has been no significant attempt to integrate and unify this body of knowledge into an organised mass. This related recognition of materials management has resulted in a very slow growth of the function. However, it is an infant discipline with an immense potential for growth. Materials management, essentially, is an integrative function of purchasing and allied activities. As a management function, materials management is very extensive in scope.

It deals with the following areas ; 1. Corporate policy and materials department. 2. Materials planning and budgeting. 3. Materials research 4. Source selection and development 5. Purchasing research 6. Inventory control 7. Value engineering / analysis 8. Import purchases and import substitution 9. Legal aspects in purchasing and store management 10. Stores procedures and store management 11. Material handling 12. Logistics management Objectives of materials management Following are the objectives of materials management:

1. To maintain steady flow of materials to ensure uninterrupted production. Any disruption affects cost of the product. 2. To achieve economy in cost of materials by adopting cost reduction techniques like value analysis, variety reduction, JIT, MRP, import substitution etc. 3. To ensure consistency of quality by providing right materials, of the right quality, in the right quantity and at the right time. 4. To reduce inventory investment through scientific inventory control techniques. 5. To improve corporate image by improving good buyer seller relations.
Sinhgad Management School Page 10

Introduction to Materials Management

6. To maintain good records of purchase, stores, traffic, etc. To eliminate possibility of corruption. 7. To preserve / conserve materials in stock so that losses due to pilferage, deterioration, obsolescence etc. are kept at minimum. 8. To reduce operating cost by minimising / eliminating wastage and improving productivity of materials. 9. To improve competitive strength of the firm by producing the best quality products using quality materials at the lowest possible cost. 10. To trace and develop new source of supply.

Function Of Materials Management An effective materials management function ensures that the right items are at the right place at the right time. It is responsible for effective co ordination of materials planning, sourcing, purchasing, logistics, stores and materials control, keeping in mind the ultimate objective of total cost optimization, so as to consistently provide quality service to its customer departments, mainly production and marketing. Broadly speaking we may categorize the materials function into three basic category :

A. Materials planning and control B. Sourcing and purchasing C. Stores and inventory management
A. Materials management materials planning and control

Overall corporate planning and control system sets the objectives and operating environment of materials planning and budgeting. The basic input to this function is that of various sales forecasts generated by the marketing manager through his market research team. Once the sales forecasts for the end products are finalized, the materials planning exercise can be initiated. The materials man also bases his plans on inputs from other departments, suppliers etc. The basic technique used is the bill of materials (BOM) explosion with the help of computers. A BOM is document that incorporates the details of an items product build up, including its components, subassemblies etc. And their chronological build up sequence, quality required per item and respective work centers at every stage of production. A series of bill of materials combined together in a matrix is an explosion chart.
Page 11

Sinhgad Management School

Introduction to Materials Management

Material planning can be done across different time horizons. Normal time frames are a quarter, half year, annual. As the time horizon extends the reliability of planning deteriorates. The logical sequence to material planning is material budgeting, the end result of which is the purchase budget. Once the material plan is ready, the materials budget is worked out taking into consideration the inventory on hand, inventory in transit and orders placed but not fulfilled. Budgets are formulated both in monetary terms and in volume of units required. Budgets have to be periodically reviewed and suitably modified in the light of changing circumstances. However, frequent revision does not serve any purpose. The frequency of revisions will be dictated by the assumptions made in the first place and the extent of dynamic component of the environment. A very important aspect of the entire procedure is the control and review of performance. Material budget is the tool of control for allocation of financial and other resources. It also acts as a performance evaluation tool. Material planning and budgeting contribute towards effective materials management in the following manner :
1. Gather up to date information and help long term vision. 2. The prices are forecasted and serve to highlight deviations.

3. Help financial planning to take a more objective view. B. Materials management sourcing and purchasing This comprises of : Source identification, Source evaluation and selection, Vendor development Pricing research Negotiations Purchase orders placement Follow up Vendor relations
Page 12

Sinhgad Management School

Introduction to Materials Management

Basically deals with having the right materials, at right time, at the right place and at the right cost.

C. Materials management stores and inventory management Often looked down by many as an operative level or clerical function, this aspect of materials management has a vital importance from the view point of production efficiency and cost control. It deals with inbound logistics, codification, standardization, storage, materials handling, record keeping, issuing, inventory planning and maintenance, obsolescence and scrap, wastage management etc. Inventory management deals with aspects such as EOQ (economic order quantity), ABC analysis, lead time, safety stock levels, reorder levels etc.

Overall Functions Of Materials Management

Materials planning Purchasing Inventory control Store keeping Store accounting Transportation Internal (i.e. materials handling) & (i.e. traffic, shipping, etc. ) Disposal of scrap, surplus and obsolete materials Materials economics Waste management
M A T E R I A L P L A N N I N GA N DB U D G E T I N G
S A L E SF O R E C A S T F O R E C A S T I N GT E C H N IQ U E A ) O B J E C T I V E B ) J U D G E M E N T A L M A S T E RP R O D U C T IO N S C H E D U L E( M P S ) P R E S E N TI N V E N T O R Y S T A T U SF I L E F U T U R E R E Q U I R E M E N T P R I C EF O R E C A S T S B A S E DO NM A T E R I A L S R E S E A R C H A C T U A L P U R C H A S E M A T E R I A LT OB E P U R C H A S E DN O W B I L LO FM A T E R I A L S& E X P L O S IO NC H A R T E X P E R TO P IN I O N ( R E V I S E DF O R E C A S T )

O R D E RR E S C H E D U L I N G

P U R C H A S E B U D G E T

3 7

Need and importance of materials management

Sinhgad Management School

Page 13

Introduction to Materials Management

The standard of living of an economy or its stage of development has a direct correlation with the amount and variety of goods and services produced. According to various studies, an estimated 80 - 90 % of working capital is tied up in inventory, purchase account for about 50 % of the total expenditure, materials represent almost 40 6o % of the sales price or about 60 80 % of production cost, inventory carrying cost is 20 % of material cost. Crores of rupees are locked up in absolute materials. Low materials productivity is a prime element that contributes towards poor performance of production / operations function. In a resource scarce country such as India, it makes immense sense to utilize the existing resources professionally so as to get the maximum out of each resource. From the view point of national economic development materials management must endeavour to manage effectively resources in the wider context. Materials management as a function will be the nucleus of competitive strategy in the future. Using a manufacturing or service operation for competitive advantage is a relatively new concept that has yet to gain wide currency. Unfortunately over the decades the opposite thinking has been the standard in guiding organisational activities. Many problems that cause a company to be non competitive can be traced to the production, materials function poor quality and reliability, late deliveries, high costs of products and lack of proper inventory at the right place. Few managers think of the materials function as one that provides a competitive advantage. At the best the materials management function is considered to be a neutral one. The new strategic factors are : A new set of strategic factors is necessary to compete in todays dynamic, global market place.

1. Shorter new product lead times 2. More inventory turnover 3. A shorter manufacturing lead time 4. Higher quality 5. Greater flexibility 6. Better customer service 7. Less wastage 8. Higher return on assets
Sinhgad Management School Page 14

Introduction to Materials Management

It does not call for a wizard to understand the significant role that materials management can play in such an environment. There are several areas for competitive advantage including cost, time, quality, etc. The development of an effective materials strategy has to be done in conjunction with the corporate and marketing strategy. All practicing managers must essentially have a proper appreciation of behaviour of materials, if they are to estimate the response of a material in a given environment. Industries today operate in a fickle, ever changing environment of competition and intense struggle for growth. Materials management can make a mark on the broad canvass of industrial management and productivity, where production of goods and services at economic cost is the prime objective. Materials management is a profession in its own right and is above all a social technology. The importance of a scientific and professional approach towards materials management is underscored by the fact that a rupee saved is a rupee earned. a rupee saved is a rupee earned Any savings in materials cost will have a multiplier effect on the profitability of the organisation. Any enterprise can also improve its profitability by increasing its sales (sales revenue). But considering todays competitive business environment with continuous downward pressure on prices, high decibel advertising, etc. This will call for extensive marketing expenditure. Most firms today face the reality of operating in mature slow growth, competitive industries where gaining even a 1 % market share calls for a herculean effort. Organisations today must conquer costs; else they will conquer them. Herein lies the crucial role of the materials management function and the need for an integrated approach to materials management, to derive optimum benefits.

Sinhgad Management School

Page 15

Introduction to Materials Management

IN T E G R A T E D/ S Y S T E MA P P R O A C H
C U S T O M E R S C O N T R O L M A N A G E M E N T F E E D B A C K E C O N O M IC R E S O U R C E S : P E O P L E M O N E Y M A T E R IA L L A N D F A C IL IT IE S E N E R G Y IN F O R M A T IO N IN F O R M A T IO NS Y S T E M S G O O D SA N D S E R V IC E S : P R O D U C T S S E R V IC E S P A Y M E N T S C O N T R IB U T IO N S IN F O R M A T IO N O T H E RE F F E C T S

IN P U T

O R G A N IS A T IO N A L P R O C E S S E S : P R O D U C T IO N M A R K E T IN G F IN A N C E P E R S O N N E L O T H E RP R O C E S S E S

O U T P U T

P R O C E S S IN G

S T O C K H O L D E R S

4 4

Integrated / system approach In a very broad sense, a system is defined as a collection of interrelated objects, dependent on each other through some known ways. A system approach to organisations identifies the subsystems or subcomponents that make up the organisation. These elements are interrelated in more than one vital ways. Not only do these elements interact with each other but they also interact with elements from the business environment. No organisation operates in isolation. It is not a close looped system, but an open one with an interplay of various forces. However it is not sufficient to identify the elements of the system. The real challenge is to operate the systems and subsystems effectively. Business organisations are systems that operate in the macro environment. An important fact is that, components of a system may themselves be systems with their own components. Marketing, finance, production, personnel, materials are various elements of this large system. From a departmental point of view, the materials function is a system comprising of various subsystems. A system approach focuses on optimization of the large organizational systems. Materials management means many things to many people. This is because of the organisational fragmentation and complete compartmentalization of some of the basic management functions concerned with materials in corporate activity.
Page 16

Sinhgad Management School

Introduction to Materials Management

Some people equate materials management with purchasing, some with stores and inventory control, some emphasize quality while some emphasize logistics. This confusion leads us nowhere The moment, materials management functions are dispersed among different functional areas, it leads to complete compartmentalization, which is a barrier to communication and lowers productivity. Materails management did not evolve in a vacuum. Rather it is an interdisciplinary subject. If different functions do not work towards a common goal, each of them would be severely constrained in its scope of activities and performance. Corporate goals would prove to be meaningless and progress could be hampered. Materials management has to achieve a number of basic operative objectives such as cost control. In order to contribute towards the corporate goals, a total systems approach goes a long way. Hence, the integration of materials management function is, thought to be of paramount importance at different levels within an industry. A system approach to materials function is essential, keeping in view both intra as well as, inter departmental relations. Being an integrator of various sub functions, a systems approach helps to balance intradepartmental conflicts from the perspective of materials department. It also results in optimization of results from the organizational view point; better co ordination and control, effective MIS. For such an integrative approach to be operationally effective, the prime prerequisite is top management support and understanding of the role and responsibilities of materials function. Successful implementation of the total materials management control concept requires not only new tools, but calls for active and appreciative role of top management.

Materials function as a profit center Essentially the basic task of materials department is to procure materials (based on the sales forecast and product design) and supply them to the production department, at optimum total cost, simultaneously meeting quality, quantity and delivery requirements. Apparently the materials function does not add value in the process. However, if we delve deeper, one immediately realizes that the materials function through its various processes such as value analysis, purchasing research, codification, standardization, etc. Adds significant value from the organisations perspective.
Page 17

Sinhgad Management School

Introduction to Materials Management

Thus it may be treated as a profit center.

S Y S T E M SA P P R O A C H T O M A T E R IA L SM A N A G E M E N T
M A R K E T IN G & P R IC IN G R E S E A R C H T O P M A N A G E M E N T M R P& P U R C H A S IN G P R O D U C T IO N

V A L U E A N A L Y S IS M A T E R IA L S M A N A G E M E N T W IP & R A W M A T E R IA L

M A R K E T IN G

S T A N D A R D IZ A T IO N

C O D IF IC A T IO N S IM P L IF IC A T IO N

F IN IS H E DG O O D S IN V E N T O R Y F E E D B A C KL O O P F O R E C A S T IN G 5 0

Sinhgad Management School

Page 18