MATERIALS MANAGEMENT

WEALTH of a country is measured by its

Gross National Product ( GNP) - the output of goods and services produced by the country in a given time.
economy such as mineral deposits, forests, etc. but these are only potential sources of wealth.

We may have rich natural resources in our

MATERIALS MANAGEMENT
A production or manufacturing function is

required to transform the natural resources into useful products.

Production takes place in all forms of

transformation - extracting minerals from earth, farming, lumbering, fishing and using these resources to manufacture useful products.

MATERIALS MANAGEMENT
Value is added at each stage in the development of the final product. Manufacturing firms are in the business of converting raw material to a form that is of far more value and use to the consumer than the

original raw material.

In order to obtain most value out of our resources, we must design production processes

that make products more efficiently.

MATERIALS MANAGEMENT
Once the production processes are in place, we need to manage their operations so that they

can produce the goods most economically.

Managing the operations entails planning for and controlling the resources used in the process: labor, capital and material The major ways in which a firm plans and

controls is through the flow of MATERIALS.

MATERIALS MANAGEMENT
The

flow of materials controls performance of the process.

the

If the right materials in the right quantities

are not available at the right place at the right times at the right price the process will not produce what it should. Labor and machinery will be poorly utilized.

MATERIALS MANAGEMENT
Materials are any commodities used directly or indirectly in producing a product such as raw

materials, component parts or assemblies.

Materials management is the grouping of management functions supporting the complete

cycle of material flow, from the purchase and internal control of production materials to the planning and control of work in process to the warehousing, shipping, and distribution of the finished product.
Thomas F. Wallace & John R. Dougherty

MATERIALS MANAGEMENT
Materials management involves planning,

programming, organizing, directing, controlling, and coordinating the various activities concerning the materials.
The production managers found it necessary to develop an organized body of knowledge on this subject. The resulting set of related

disciplines is management.

known

as

materials

MATERIALS MANAGEMENT
Materials

management is the management of the flow of materials into an organization to the point, where, those materials are converted into the firms end product(s)
Bailey & Farmer

SIGNIFICANCE OF MATERIALS
The amount spent on materials is higher than

other inputs Materials offer considerable scope for reducing cost and improving profit Improving return on investment depends on the effective utilization of materials. Materials add value to product Quality of end product depends on materials Increasing demand for ensuring environmental safety

SIGNIFICANCE OF MATERIALS
Materials

management assumes responsibility for whatever happens in purchasing, storing, inventory or any other area connected with materials.

Need for preservation of scarce resources for posterity

The efficiency of any organization depends upon the

availability of right materials, in right quantity, at right time and at right price.

Materials are life-blood of mans development

OBJECTIVES OF MATERIALS MANAGEMENT

Maximize the use of the firms resources Provide the required level of customer

service

MATERIALS MANAGEMENT
We need to plan the flow of materials into,

through and out of production process.

Three basic elements in a material flow system:
Supply Manufacturing

Distribution

Materials Management and Profits

Income = Revenue - Expense

Need to increase income with:

Best customer service

Lowest production costs

Lowest inventory investment Lowest distribution costs

Materials Management and Profits

Direct labor Direct material
Varies with volume sold

Overhead
Does not vary with volume sold

Materials Management and Profits

Dollars $1,000,000
$500,000 $200,000 $200,000

Sales Revenue Cost of Goods Sold

Direct Material Direct Labour Overhead

% of Sales 100
50 20 20

Total Cost of Goods Sold Gross Profit

$ 900,000 $100,000

90 10

Materials Management and Profits

Reduce materials by 10% and labor by 5%

Sales Revenue Cost of Goods Sold

Direct Material Direct Labour Overhead

Dollars $ 1,000,000
$ 450,000 $ 190,000 $ 200,000

% of Sales 100
45 19 20

Total cost of goods sold Gross Profit Profit has increased by 60%

$ 840,000 $160,000

84 16

Materials Management and Profits

To get the same result (+ 60% profit) through sales

Sales revenue Cost of goods sold

Direct Material Direct Labour Overhead

Dollars $ 1,200,000
$ 600,000 $ 240,000 $ 200,000

% of Sales 100
50 20 20

Total cost of goods sold $ 1,040,000 Gross Profit $160,000 Sales must increase by 20 %

87 13

Manufacturing Planning and Control

Planning and controlling the flow of materials

through the manufacturing process with:

Production Planning

Implementation and Control

Inventory Management

Production Planning
To meet the demands of the marketplace Establish priorities Ensure capacity Activities
Forecasting Master Planning Materials Requirements Planning Capacity Planning

Implementation and Control

Putting into action and achieving the plans

(made by production planning)

Production Activity Control
Procurement / Purchasing

Inputs to the Manufacturing Planning and Control System 1. Product description 2. Process specifications 3. Time needed 4. Available facilities 5. Quantity required

Product Description
Engineering Drawings
Specifications

Bill of Material
Components used to make the product Sub-assemblies at stages of production

Process Specifications
Recorded on a Route Sheet Describes how the product is made

Operations

required

to

make

the

product Sequence of operations Equipment and accessories required Time to perform each operation

Time Needed to Perform Operations

Expressed as standard time

An average operator, working at a

normal pace Obtained from the routing file

Available Facilities

What equipment is available What labor is available

Obtained from the Work Center File

Quantities Required
Information from
Forecasts Customer Orders Production Planning

Expressed in the Shop Order

Physical Supply / Distribution

All the activities involved in moving goods
From the supplier to the beginning of

the production process

From the end of the production process

to the customer

Physical Supply / Distribution

Receiving & inspection Material handling Inventory management & control Store keeping and warehousing

Physical Supply / Distribution

Packaging, marking and labeling Transportation Distribution Reverse logistics / disposal of scrap / surplus

Materials Management A Balancing Act

Inventory
Transportation

Customer Service

Cost of the Service

The role of TQM & JIT in Material Management

The JIT & TQM philosophy
Continuously improve process & systems Maintain respect for all workers Minimize waste in all forms

The integrated approach in Material Management

Integration of the material management functions under one roof has numerous advantages

Better accountability Better coordination Better performance Adaptability to EDP Team spirit / teamwork