The efficiency of any manufacturing organisation depends on the availability of component parts and materials in the proper quantity, quality, price, range and time. Failure in any of these areas increases costs and decreases profit as certainly as outmoded production methods or ineffective selling techniques. This simple but obvious point has only recently come to be properly understood. This book presents the principles, methods and strategies that represent the modern approach to materials management in all sectors of the economy.
In analysing business operations, the phrase “Value-added concept1′ is often used to characterise the difference between the cost of component materials and the selling price of the finished product. This difference in value represents the unique contribution of each organisation to the production process. Many companies produce component parts and materials for other firms manufacturing specialised products Remanded by the customers. On an average, a manufacturing firm buys slightly more than half of the rupee value of its sales. In other words, the value added is typically less than 50 per cent of its sales.
Conversely, the average company purchases materials valued at more than half of what it sells. Therefore, a firm’s profit is to a large extent determined by how effectively it procures and manages these materials. The organisational approach known as materials management has gained validity in recent years. Production and operations managers found it necessary to develop an organised body of knowledge related to planning, acquisition and utilisation of materials in the process of production and it has resulted in the discipline known as “mate-rials management”.
All activities involved in bringing materials into and through the plant are combined under one head known as “materials manager”. By giving the materials manager overall authority, responsibility is centralised to assure that the overall cost of materials is kept at the low’est possible level. The basic rationale for this organisational change is to overcome the problems of conflicting objectives. For cample, purchase department’s concern to ensure continuous supply of component materials may conflict with he inventory control department’s objective to minimise inventory levels or the objective of shipping in full car load lots.
Today organisations view procurement as a professional activity including activities involved in obtaining materials at minimum cost, transporting them and providing storage and moving toward the production process. It also includes economic analysis of supply (i. e. , purchase economics), demand and prices and the assessment of international events that affect materials. * evolution of materials management Historically, the five ‘M’s of manufacturing firms viz. Men, Materials, Machines, Money and Methods have shifted their positions from time to time in their relative importance.
In the early days of industrialization, the focus was on men (labour) as they were the main source of productive power. Over a period of time, the emphasis shifted towards machines, which became the main source of industrial power after the Industrial Revolution. As the methods of production became more and more complex due to the increased customer demand for sophisticated products of high quality, there was greater need of efficient management to manage the complex production systems.
In the early 1920s, purchasing and maintaining stock of materials was the responsibility of purchasing managers or “chief controllers of purchasing and stores” in many industries. During and immediately after World War II the focus shifted on various functions associated with materials such as purchasing, receiving, inspecting, storing, preserving, handling, issuing, accounting, transporting and disposing surplus and obsolete materials. These functions grouped under one common head known as materials manager and the department responsible for all these activities came to be known as “materials management department”.
But the head of materials management department performed a staff function to support the production department and had to report to the production head (director of production) in the organizational hierarchy. The oil crisis of the 1970’s changed the priorities of industries all over the world. The exorbitant hike in oil prices and the heavy budget allocations on oil made the industries to control their expenditure on the inputs, mainly materials of all kinds because of the large scope to reduce the expenses on materials.
Since the beginning of 20th century, materials have been getting more and more attention and will continue to do so in the future also. Now a days material has* become an important and inevitable input of a production system since the cost of materials and cost on materials (cost incurred in purchasing and storing the materials) put together account for 50 to 85% of the production cost depending on the nature of the product and the type of the production system. Modern manufacturing organisations adopted systems approach to management, which resulted in the integrated materials management concept.
All functions related to materials such as materials planning, purchasing, storing and inventory control were integrated under materials management function. The position of the head of the integrated materials management department was elevated to be on par with heads of other functional areas viz. production, finance and human resources. * importance of materials in manufacturing organisations Materials are any commodities used directly or indirectly in producing a product or service such as raw materials, component parts, assemblies and supplies. In the manufacturing organisations, the important inputs are referred to as 5 Ms viz. Men (Labour), Machines, Money, Materials and Methods.
The relative importance among these five Ms have shifted from time to time. In the beginning of industrialisation the focus was on machines, men (labour) and methods, but from around 1970 onwards the emphasis is on materials. Material is an important and inevitable input gi J production system since the cost of materials and cost on materials (cost incurred in purchasing and storing the materials) put together account for 50 to 85’* of the production cost depending on the nature of the product and the type of the production system * importance of materials management
Management of materials in most organisations is crucial to their success because the cost of purchasing, storing, moving and shipping materials account for over half of the product’s cost. Improving productivity is a crucial factor in facing the challenge of competition and this involves driving down the cost of all aspects of business activities. Since there is maximum scope of cost reduction in the area of materials, doing the job of efficient and effective management of materials is seen as the key to higher productivity.