Page 7 - DMGT525_MATERIALS_MANAGEMENT

Materials Management

Notes to the price. These costs are called ‘cost in materials’ as distinct from ‘cost of materials’. When we
speak of materials management, we are not merely referring to the control of the cost of materials
but of each and every type of cost that is incurred on materials, as indicated above, which have
to be reduced and controlled.

1.1 Meaning and Scope of Materials Management

Materials management is an essential business function. It is concerned with planning, acquisition
and flow of materials within the supply chain. Material is one of the four basic resources.

Example: Labor, Material, Equipment and Capital of any industrial or business activity.
For a long time, it was regarded as a routine function with less importance. But over the years,
with accelerating economic, technological, societal and environmental changes, this function
has become more important, more complex, and more professional.

Notes Materials management creates a competitive edge by delivering quality product(s)
or service on time and offering lower cost by cutting its own cost as well as cutting
purchased item costs, which account for over fifty per cent of the sales revenue, thus
imparting superior value.

However, it is complex as it confronts various issues including outsourcing, global sourcing,
size of supply base, shorter Lead time, smaller lot size, price determination, mode/carrier
selection, maintaining long-term relationship with suppliers, choosing the right type of
information technology, legal issues, etc. The following definition of Materials Management
has been accepted by the International Federation of Purchasing and Materials Management.
“The materials management is a total concept involving an organizational structure unifying
into a single responsibility, the systematic flow and control of material from identification of
the need through customer delivery.”
Included within the concept are the material functions of planning, scheduling, buying, storing,
moving and distributing. These are logically represented by the disciplines of production and
inventory control, purchasing and physical distribution. The objective of materials management
is to contribute to increased profitability by coordinated achievement of least materials cost.
This is done through optimizing capital investment, capacity and personnel, consistent with the
appropriate customer service level.
Another definition adopted by the National Association of Purchasing Management (USA)
reads as follow:
Materials Management: It is an organizational concept in which a single manager has authority
and responsibility for all activities principally concerned with the flow of materials into an
organization. (Purchasing, production, planning and scheduling, incoming traffic, inventory
control, receiving and stores normally are included.)

In these definitions of materials management one will notice the concept that all authority and
all responsibility for the acquisition and control of materials should be coordinated through
one executive authority, the materials manager. The different scopes of materials management
can be viewed from three perspectives as discussed below:

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