All types of organizations, whether manufacturing, trading or even non-profit, are continuously involved in procurement, storage and stock replenishment of different types of materials. At different points of time many of the items are bought, stored and stocked either for immediate or future use. The function of buying or stocking is a result of decision making process which may be simple or complex, intuitive or analytical, hasty or deliberate. In the manufacturing organizations
Materials management is relatively more important as well as complex. The cost of materials in the different industries ranges from 50% to 85% of the product cost. On an average about one-third of the total assets of a company represents the investment in inventories. Due to these reasons materials management assumed a greater importance since the inception of manufacturing activities. Combined value of Materials used as production inputs and operating supplies form a fatty cost element. The slightest efficiency in its management results in substantial absolute cost advantage. With the growth of the specialized functions in the corporate organization materials management is given a distinct importance in modern management. In fact, it is recognized as one of the areas of management.
In the manufacturing organizations, the important inputs are — men, machines and materials which are the results of the monetary commitments. Materials being a key and inevitable input, directly affects the fundamental economic objective namely profitability of any manufacturing organization.
Efficient management of any of the input directly affects the output and results in the profitability of the organization. As materials consume lionâ€™s share of the investment and that too with a possibility of turnover, its efficient management directly contributes to the profitability of the organization.
APICS (American Production and Inventory Control Society). Dictionary defines materials management as under:
â€œMaterial Management is a term to describe the grouping of management functions related to the complete cycle of material flow, from the purchase and internal control of production materials to the planning and control of work-in-progress, to the warehousing, shipping and distribution of the finished product. It differs from the materials control in that the latter term, traditionally is limited to the internal control of production materials.â€?
Thus, materials management is concerned with those management functions circumscribed in the complete cycle of materials flow like purchasing, production and inventory control, material handling, packaging, traffic and distribution. All these related functions are grouped together and are put under the direct control of a line manager. All the sections of the materials management strive to attain the fundamental objectives of materials management. It should also be noted that inventory control is an integral part of materials management and it is confined to the internal control of the production materials.
In a small organization, production, servicing and control are handled by a single person. The larger the organization grows, the complex, the organization structure becomes and the functions are handled by different specialists. A typical factory may have the a organization structure like Services are provided by the human relations department and the maintenance department, Finance and accounts department provide the control ingredient, Materials department for procurement, storage and inventory control of materials and so on.