Objectives of Materials Management:
Cost is a very important factor and perhaps the most important factor for materials management. But it will be wrong to presume that this is the only factor that induces a firm to build up materials management. One of the primary objectives other than the objective of cost control of materials management is to ensure as continuous or uninterrupted a supply as possible to production.
To achieve this objective, the materials management must set up appropriate service levels and re-order points, consideration of sourcing, planning and contracting of long or intermediate-term supply agreements, an effective physical distribution net work with adequate number of warehouses or distribution points and facilities for movement. These objectives have to be achieved by the materials management.
The ultimate object of material management is to ensure supply of proper quality and quantity of all materials as and where needed in the process of production at a minimum cost. To achieve this objective storage and inventory controls need be emphasized.
The material management must have in its view that efficiency in handling material; and connected functions are ensured.
The management must have the objective to provide the organisation with a fool-proof management picture which will infuse confidence in the top, management personnel that the organisation is in a position to cut down costs of materials to the maximum level and stand challenge of the competitive market.
To serve the customer as pre-determined at the least possible cost integrated materials management concept has emerged. The customer service objective is better achieved by integrated management through co-ordination.
A complete harmony among different departments is aimed at to reach the optimum level of materials management efficiency. A coordinated multipronged attack on all the loop holes o materials—right from its source selection up to the stage of its ultimate dispatch to the workshop, is the central theme of material management.
So, the objectives of materials management ate, in a nut-shall, to eliminate wastage and secure economy in all the functions that come within the purview of materials management.
The objectives of materials management as we discussed above, aim at giving integrated view of the management of materials, a very important item in the total mix of resources.
Efficiency, effectiveness and customer’s satisfaction are the weapons in the armory of materials management needed to reach the pre-determined goal of the organisation.
The materials management of an organization is obviously p concerned with materials needed for production but to say this only is, to simplify the functions of materials management.
To manage materials means a lot of activities — a lot of objectives to realise and achieve the ultimate objective of materials management—maximum possible utilization of materials to bring down their cost to the minimum to ensure an enviable position for the organization.
Importance of Materials Management:
Materials management is now a very critical area of management being an integral part of production management. Various functions involving a number of departments come within the purview of materials management. The cost of materials has to be brought down to the minimum as it constitutes over 65 percent of total production cost.
So, the Cost factor of materials is the most important and this has lent materials management significance and extra importance. Only saving the cost of inventories—that accounts for 60 per cent of the total cost, may result in the saving of 20 per cent of the total cost of production.
In the economic scenario of the present world every nation is more or less in the face of competition and to compete in the world market, cost reduction has become an imperative necessity.
Globalisation and liberalisation policy of the world today has all the more made it compelling for the manufacturing organizations to handle raw materials in the best possible way to ensure elimination of all wastages and minimum cost for raw materials.
Materials management can be said to be a union of major materials activities. Operationally, it utilizes an integrated management approach to planning, acquisition, conversion, flow and distribution of production materials from the stage of raw materials to the stage of finished product.
To assess correctly the importance of materials management, we should have a clear idea of the vast area of functions of materials management.
Materials management operates in procurement, inventory management, stores and warehousing in-plant materials handling, production planning, scheduling and control, traffic and transportation and in surplus and salvage management.
Such being the vast area covered by materials management, its importance does not need much elucidation. The activities related to materials management are obviously spread over a number of departments but the idea of watertight compartments of these departments is unrealistic.
They function individually with a collective bias—a coordinated and integrated approach underlying the whole operation. Materials management assumes a special significance and importance having the responsibility of pulling the vehicle of materials management—with all the components—enjoined, combined, integrated and coordinated,
The importance of materials management can also be traced to logistics management concept. Logistics management is an encompassing combination-of materials management and physical distribution management activities. A number of similarities exist between these two management areas.
In fact, as we have said before, with the market pressure intensifying, manufacturing organisations are forced to cut down costs and here the materials manager steps in to play his role. In this context, the materials management experts like Dean Ammer, claim rightly that efforts for saving a rupee in materials cost is almost equal to the efforts made for additional sale of Rs. 10. In India, materials management plays a very important role because of our shortage economy.
“Materials form an important part of the current assets in any organisation. The Return on Investment (ROI) depends a great deal on the manner of utilization of materials. The relationship is represented below:
ROI = Profit/ Sales × Sales/Fixed Assets + Current Assets
Fixed assets constitute capital already sunk and the only scope for improving the return on investment lies, therefore, in the efficient management of material which constitutes the bulk of the current assets. Therefore, in this context, the control of materials assumes great importance—Krishnan & Sundaresan.
Many U.S. firms to-day consider procurement in their materials management concept and integrate it in their day to day operation. The materials management approach to supply management has also been accepted widely throughout American business.
Responsible estimates indicate that approximately 70 per cent of the major U.S. manufacturing firms currently utilize some operating forms of the materials management concept.
In the day-to-day business operation, materials management looks after improved communication, co-ordination and control of the integrated material activities. Buck-passing possibilities are minimized—as are the possibilities for inter-departmental squabbles and the organization’s ability to plan efficiently and to react to problem quickly is improved immensely.
To sum up, “the importance of materials management lies in the fact that any significant contribution made by the materials manager in reducing materials cost will go a long way in improving the profitability and the rate of return on investment.”