5 M’s

 Men
 Machines
 Methods
 Money
 Materials
 Reasons for popularity of materials

 Materials offer considerable scope for reducing cost

and improving profit
 Improving return on investment depends on the
effective utilisation of materials.
 Materials add value to product
 Quality of end product depends on materials

 The efficiency of any organisation depends upon the

availability of right materials, in right quantity, at right
time and at right price.
 Materials are life-blood of man’s development
 Materials management involves planning,
programming, organising, directing,
controlling, and co-ordinating the various
activities concerning the materials. The
production managers found it necessary to
develop an organised body of knowledge
on this subject. The resulting set of
related disciplines is known as materials
management.
 Materials Management
 Materials are any commodities used directly or
indirectly in producing a product such as raw
materials, component parts or assemblies.

 Thomas F. Wallace & John R. Dougherty

 Materials management is the management
of the flow of materials into an
organisation to the point, where, those
materials are converted into the firm’s end
product(s)
 Bailey & Farmer

The executive who engage in materials

management are concerned with three
basic activities: buying, storage of
materials and movement.
 Functions of Materials
Management
 Materials planning and programming
 Raw material purchase
 Receiving, store keeping, and warehousing
 Issuing of material
 Inventory control
 Value engineering
 Transportation of materials
 Vendor development
 Vendor rating
 Disposal of scrap and surpluses
Focus of Material Management
 To procure right materials
 In Right Quantity
 Of Right Quality
 At Right Time
 From Right sources
 At Right prices
 5 R’s, principles of purchasing
 Primary Objectives
 Buying the best item at the lowest cost
 Reduction in inventory cost and High
inventory turnover
 Maintaining the flow of production
 Maintaining the consistency of quality
 Optimisation of acquisition and possession,
resulting in lower cost
 Advantages or benefits of M M
 Risk of inventory loss minimised (theft,
pilferage )
 Reduction in loss of time of direct labour
 Cost of material used in different department
ascertained
 Control of manufacturing cycle
 Material congestion in storage places avoided
 Improvement in delivery of the product
 Phases in M M
 Planning (Plans for capacity or production
levels and required inventory levels
 Material utilisation (efficiency of the flow of
materials through the plant)
 Physical (storing, receiving and issuing of
materials and physical checking of
inventory of raw materials, work in
process, finished goods, record keeping)
 Control or follow up (feedback and
corrective action involved)
 Challenges of M M
 Selection of appropriate vendors
 Land and storage cost increase
 Difficulty in forecasting demand accurately
 Scarce capital for investment in materials
inventory
 Diversification of product lines
 Optimising time and quantity for products
 Management of information
 Main depts. Of M M
 Materials planning
 Purchase
 Stores
 Inventory control
 Purchasing
 Purchasing is to procure the materials,
supplies, tools, equipment etc.
 5 R’s – Material, Quantity, Source, Time, Price

 Procurement – purchase, material supervision

and management as inventory control,
receiving and salvage operations.
 Importance of Purchasing
 Purchasing function provides materials to the
factory without which the machines cannot move
 Purchasing manager is the custodian of his firm’s
purse as he spends more than 50% of his
company’s earnings on purchases
 Can contribute to import substitution and can
save foreign exchange
 Objectives of Purchasing
 Procurement of required quantity and quality of
materials at the most economical price
 Procuring the material well in advance to meet
the needs of the production dept., to save
production losses from lack of materials
 Buying an optimum quantity, neither too much
nor too less, not affecting capital or holding up
production.
 Functions
 Obtaining prices
 Selecting vendors
 Awarding purchase orders
 Following up on delivery promise
 Adjusting and settling complaints
 Selecting and training of purchase
personnel
 Vendor relations
 Kautilya in Arthasastra
 “Stores and purchase personnel should
definitely be expert in his job, adept in the
art of negotiations, intelligent, loyal to the
organisation’s goals, suppressing personal
greed.”
 Value analysis ( value
engineering)
 Purchasing & methods engineering
 This activity is aimed at modifying the
specifications of materials, parts, and products
to reduce their costs
 Focus is on the value of the product- what
function is to be performed by the product- and
how that value can be achieved at the lowest
cost.
 Primary attention is devoted to the materials.
 Suppliers – suggest improvement & cost
reduction ideas.
 Inventory Management
 The term inventory includes materials – raw, in
process, finished packaging, spares and others
stocked in order to meet an unexpected demand
or distribution in the future.
 Inventory can be used to refer to the stock on
hand at a particular time, of raw materials,
goods-in –process of manufacture, finished
products, merchandise purchased for resale, and
the like, tangible assets which can be seen,
measured and counted.
 Types
 Finished goods inventories
 Stock in trade –ready for shipment
 Maintenance, Repair and Operating
inventories
- cutting tools , grinding wheels, jigs
 Maintenance inventory
 Electrical – switches, fuses, lamps, lubricants, safety
goggles
 Stationary inventories
 Canteen provisions, medical supplies, uniforms
 Objectives of Inventory
 To facilitate smooth operation of the
manufacturing process.
 To minimise investment in inventory
 To reduce material handling costs
 Reasonable utilisation of people
 Inventory costs
 Ordering cost
 Carrying cost
 Out of stock or shortage cost
 Capacity cost
 Ordering Costs
 Cost of placing an order with a vendor of
materials
 Preparing a purchase order
 Processing payments
 Receiving and inspecting the material
 Ordering from the plant
 Machine set up
 Start up scrap generated from getting a
production run started
 Carrying costs
 Costs connected directly with materials
 Obsolescence
 Deterioration
 Pilferage
 Financial costs
 Taxes
 Insurance
 Storage
 Interest
 Capital costs
 Interest on money invested in inventory
 Interest on money in land and building
 Storage space costs
 Building rent
 Depreciation
 Cost of maintenance
 Out of stock costs
 Lost sales, transportation
 Capacity costs
 Overtime when capacity is low
 Idle time when capacity is large
 Benefits of Inventory
management
 Inventory control ensures an adequate supply of
materials, stores, etc. minimises stockouts and
shortages, and avoids costly interruptions in
operations.
 It keeps down investments in inventories,
inventory carrying costs and obsolescence losses
to the minimum
 It facilitates purchasing economies through the
measurement of requirements on the basis of
recorded experience
 It eliminates duplication in ordering or in
replenishing stocks by centralising the source
from which purchase requisitions emanate
 It permits a better utilisation of available stocks
by facilitating inter departmental transfers
within a company
 It provides a check against loss of materials
through carelessness or pilferage
 It serves as a means for the location and
disposition of inactive and obsolete items
of stores
 Perpetual inventory values provide a
consistent and reliable basis for preparing
financial statements.