1.

INTEGRATED MATERIALS MANAGEMENT

Objectives, Scope and Advantages: Any management function must strive to achieve the general objectives of the organization. Materials Management is no exception to this rule. With a view to achieving the overall company objectives we can list in detail the objectives of Materials Management. If the contribution to the achievement of overall company objective is made directly by the materials function, we shall call it a primary objective. If it is indirect and results from the materials management departments assistance to another department in achieving its objectives, we shall call it a secondary objective. Primary Materials Objectives: Almost every materials department has at least nine primary objectives. These are low prices, high inventory turnover, low cost of acquisition and possession, continuity of supply, consistency of quality, low payroll costs, favorable relations with suppliers, development of personnel and good records. Low Prices This is the most obvious materials objective and certainly one of the most important. If the materials department reduces the prices of the items it buys, operating costs are reduced and profits are enhanced. This objective is important for all purchases of materials and services, including transportation. High Inventory Turnover When inventories are low in relation to sales (inventory turnover = sales + average inventories), less capital is tied up in inventories. This, in turn, increases the efficiency with which the companys capital is utilized, so that return on investment is higher. Also, storage and carrying costs of inventories are lower when turnover is high. Low Cost Acquisition and Possession If materials are handled and stored efficiently their real cost is lower. Acquisition and possession costs are low when the receiving and stores departments operate efficiently. They also are reduced when shipments are received in relatively large quantities (thereby reducing the unit cost of handling) but naturally are increased if average inventories are boosted with the large shipments.

Continuity of Supply When there are disruptions in the continuity of supply, excess costs are inevitable. Production costs go up, excess expediting and transportation costs are likely, and so on. Continuity of supply is particularly important for highly automated processes, where costs are rigid and must be incurred even when production stops because of lack of material. Consistency of Quality The materials departments is responsible for the quality only of the materials and services furnished by outside suppliers. The manufacturing department is responsible for quality control of manufacturing processes. When materials purchased are homogeneous and in a primitive state (e.g. sand and gravel), quality is rarely a big problem for materials personnel. But when the product is in a highly advanced stage of manufacture and specifications are a tremendous challenge for suppliers to meet consistently (e.g. components of interplanetary rockets), then quality may become the single most important objective of materials management. Low Payroll Costs This objective is common to every department in the company. The lower the payroll, the higher the profits all other factors being equal. But because no department can do its job without a payroll, the objective of low payroll must be viewed in proper perspective. It pays to spend Rs.1.00 on additional payroll if earnings can thereby be boosted Rs.1.01 through achieving other objectives. Favorable Supplier Relations Manufacturing companies rely on outside suppliers to a far greater degree than is generally recognized. This makes favorable relations with suppliers extremely important. A companys standing in the business community is to a considerable degree determined by the manner in which it deals with its suppliers. A company with a good reputation in supplier relations is more likely to attract customers than one with a bad name. Suppliers also can make a direct contribution to a companys success. Their product development and research efforts can be of tremendous assistance to their customers. Although such efforts naturally help the supplier too, it is important to remember that suppliers are human beings and respond to fair treatment. If a company has good relations with its suppliers, it will be far more successful in its efforts to stimulate superior performance from supplier personnel extra service, cooperation on cost reduction projects, a willingness to share new processes and ideas and so on.

One of the major problems of materials management is a sudden shift in the demand for materials, requiring either rapid cancellation of existing commitments or extra output to prevent shortages. Cooperative suppliers can do much to help the materials manager with such problems. Development of Personnel Every department in the company should be interested in developing the skills of its personnel. And each department head should devote special effort to locating men in junior posts who have the leadership potential the company needs for continued success and growth. They should try to develop the high potential men as the companys future executives; the companys future profits will depend on the talents of its future managers. Good Records Paper work is a means to an end, not an end in itself. So it may be surprising that good records are considered a primary objective of materials management. How can they contribute to the companys survival and profits? The fact is that records and paper work contribute only indirectly to the materials departments contribution to profits. They are necessary and useful; they help materials personnel do a better job. This can also be said of office equipment, yet the maintenance of the materials departments stock of typewriters, adding machines, and the like would hardly be considered a primary objective. Good records, however, must be considered a primary objective in the purchasing and traffic phases of materials management for the same reason that they are a primary objective in the accounting department. Buyers spend company money and can be subject to tremendous temptation. Suppliers may wine and dine them and give them gifts for functions and other holidays. Although perhaps 99% of all buyers are above corruption, the opportunity does exist. Good records, along with well-planned administrative controls and periodic audits, can discourage corruption. They also partly remove the onus of suspicion from a completely honest individual working at a job that is popularly associated with graft and corruption. Secondary Objectives: The secondary objectives of materials management are not nearly so limited in scope and variety as the primary objectives. Since they represent the materials departments contribution to the achievement of the primary objective of some other department, they can vary widely from industry to industry.

There are literally hundreds of possible secondary objectives in materials management. Among the more common ones are reciprocity, new materials and products, economic make or buy decisions, promotion of standardization, product improvement, good interdepartmental relations, and accurate economic forecasts. Favorable Reciprocal Relations When a company deliberately buys from its own customers as much as possible, it is practicing reciprocity. Sound reciprocity involves a balancing of the advantages and disadvantages of using ones buying power as an instrument for getting sales. Similarly, suppliers will use their own buying power as a sales tool. In the consumer goods industries, reciprocity is rarely a problem; sales are spread among many users. In producer goods industries, however, reciprocity is a way of business life, particularly among industries where there is little product differentiation and prices are uniform. The materials department in such industries often coordinates its purchase with the sales department to make certain that company customers get favored treatment. New Materials and Products Engineering and manufacturing managers are always interested in new products and materials that will help them operate more efficiently and thereby achieve one of their primary objectives. The materials department can help. Its personnel deal regularly with the suppliers responsible for the new developments. Whenever they learn of anything of interest, they can call it to the attention of the interested parties in manufacturing, engineering, or other departments. Economic Make or Buy Make or buy decisions are often sparked by materials personnel since they are the group most intimately concerned with the selection of supply sources. But by no means are they solely responsible. Make or buy decisions should be a committee efforts, representing the points of view of all departments in the company. The materials department, in its regular reviews of cost and availability of materials, often will spot the need for new make or buy decisions and should refer them to the committee for action. Standardization The fewer the items that need be controlled, the simpler and more efficient the materials management process. Thus it is to the selfish interest of materials personnel to promote standardization and simplification of specifications. The engineering groups are primarily responsible for standards and specifications. But materials personnel can make a substantial contribution. They can periodically review stock to weed out nonstandard items; they can promote the

incorporation of standards components into product designs to reduce cost; and they can promote standardization with suppliers. Product Improvement This is perhaps the single most important objective of the engineering department. Materials personnel can assist, however, the economic knowledge can supplement the technical skills of the engineers on programs to boost profits through product change. The engineering of practically any product is basically a compromise between design and economic objectives. Materials personnel can help engineers achieve their design objectives more economically by suggesting materials or components that will do a better or equivalent job at lower cost. Interdepartmental Harmony The materials department deals daily with every other activity in the business. It not only can contribute to the success of every other department, but its own success depends on how successful it is in gaining the cooperation of personnel in other departments. In practice, most materials managers are fully aware of the importance of good interdepartmental relations. To prevent disputes, they are careful to define departmental responsibilities clearly and also try to familiarize others with materials objectives, policies and organization. Forecasts To manage materials well, one must have some conception of the future outlook for prices, costs and general business activity. Some sort of forecast is required. In large companies, professional economists make forecasts that are used for both sales and purchase planning. Materials personnel translate these general forecasts into specific forecasts for purchased materials. They may also provide the economists with raw material for forecasts because, more than any other group in the company, they are intimately familiar with the market and general business conditions through their daily contacts with suppliers. In the smaller company that cant afford a staff of professionals, the materials manager may double as company economist. In such a case, good forecasts become a primary, not a secondary, objective of materials management. Someone in every organization must make materials management decisions. Since, materials objectives are interrelated, it is desirable to give one-person authority over all activities concerned with materials management. Otherwise, no one other than the General Manager of the company can be held responsible for materials decisions.

Suppose, for example, that materials authority is dispersed among a number of departments in a company. A purchasing agent reporting to a finance manager is in charge of buying parts and materials. A traffic manager reporting to the sales manager buys transportation services. A production control manager reporting to the manufacturing manager schedules materials and controls inventories. Problem of Divided Responsibility: Now suppose that one of the companys immediate objectives is to reduce materials cost by 5%. If the object is actually achieved, the production control manager, purchasing agent and traffic manager and their respective bosses all can share the credit. But who is responsible if the objective isnt achieved? Each has a legitimate alibi. The production control manager is not responsible for negotiating prices of materials and services. The purchasing agent buys in amounts determined by the material control department, and his prices and bargaining power are determined by the quantities he buys. The traffic manager cant cut freight costs if purchasing insists on buying from suppliers in distant cities. This problem of divided responsibility is sometimes solved by making all materials management activities subordinate to manufacturing. The manufacturing manager then becomes a de facto materials manager. This organization is most likely to be found in companies where top management has not yet been convinced that materials management decisions have enough impact on profits to warrant top management representation. In some cases, this view is correct Materials management is not always so vital to the enterprise that its chief should be on the companys second level of organization responsible directly to top management. This is generally true of companies that do not use substantial amounts of production parts and materials. For example, materials management can quite legitimately be made subordinate to manufacturing in a mining firm where the materials management job is primarily concerned with procurement of spare parts and similar items needed to keep the mine operating. Unfortunately, the materials function is still subordinate to manufacturing in many companies where it could make a greater contribution to profits if it were independent. Increasingly, however, top managements are separating materials management from manufacturing. Automation is forcing the manufacturing manager to concentrate more of his energies on technological problems. He has less and less time for peripheral activities including materials management.

In addition, electronic data processing helps sharpen the distribution between manufacturing management and materials management. The typical EDP program automatically draws all related activities of materials management together. It is only natural that the company organization chart should reflect the way in which technology has regrouped activities. One activity, headed by a materials manager, is concerned with data on inventory, orders, shortages, and lead-time that is fed into the computer. Another group under a manufacturing manager dedicates its efforts to making machines and men meet schedules at lowest possible cost. Thus, automation in the factory and EDP are forcing many companies to integrate their materials management activities with a single executive responsible for all materials management decisions. Thus it is evident that there are many advantages in integrating all the functions of Materials Management in one department and entrusting the responsibility to one Materials Manager. This integration could be applied in any organization where the materials function constitutes a major function and where the integration of the several functions of materials management contributes to achieving the overall company objectives. Thus the scope and application of integrated materials management are wide and full of promise. However there are some limitations to the application of the concept of Integrated Materials Management. For example the purchase of cane in a sugar factory is such a specialized function that no significant advantage could be derived by integrating its purchase with that of other purchases like spares, consumables etc. stores and materials control.