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Material Management - B Com

how is material cost planned and organized?

Ref: https://edurev.in/question/677700/how-is-material-cost-planned-and-organized-Related-Materials-Control-Material-Costs-Cost-Management

Material Management: it’s Definition, Objectives and Organization!

Some Definitions of Materials Management:

(i) ‘Materials Management’ is a term used to connote “controlling the kind, amount, location, movement and timing of various commodities used in production by industrial enterprises”.

(ii) Materials Management is the planning, directing, controlling and coordinating those activities which are concerned with materials and inventory requirements, from the point of their inception to their introduction into the manufacturing process.

It begins with the determination of materials quality and quantity and ends with its issuance to production to meet customer’s demand as per schedule and at the lowest cost.

(iii) Materials Management is a basic function of the business that adds value directly to the product itself

(iv) Materials Management embraces all activities concerned with materials except those directly concerned with designing or manufacturing the product.

(v) Materials Management deals with controlling and regulating the flow of material in relation to changes in variables like demand, prices, availability, quality, delivery schedules etc.

Thus, material management is an important function of an organisation covering various aspects of input process, i.e., it deals with raw materials, procurement of machines and other equipment’s necessary for the production process and spare parts for the maintenance of the plant. Thus in a production process materials management can be considered as an preliminary to transformation process.

It involves planning and programming for the procurement of material and capital goods of desired quality and specification at reasonable price and at the required time.

It is also concerned with market exploration for the items to be purchased to have up to date information, stores and stock control, inspection of the material received in the enterprise, transportation and material handling operations related to materials and many other functions. In the words of Bethel, “Its responsibility end when the correct finished product in proper condition and quantity passes to the consumer.”

General Electric Company (G.E.C.) of U.S.A. who are pioneers in the field of Materials Management listed the functions of materials management under following heads:

(i) Planning and programming for materials purchase.

(ii) Stores and Stock control.

(iii) Receiving and issue of the material.

(iv) Transportation and material handling of the material.

(v) Value engineering and value analysis.

(vi) Disposal of scrap and surplus materials.

Objectives of Materials Management:

Materials management contributes to survival and profits of an enterprise by providing adequate supply of materials at the lowest possible costs.

The fundamental objectives of materials management activities can be:

(i) Material Selection:

Correct specification of material and components is determined. Also the material requirement in agreement with sales programme are assessed. This can be done by analysing the requisition order of the buying department. With this standardisation one may have lower cost and the task of procurement, replacement etc. may be easier.

(ii) Low operating costs:

It should endeavor to keep the operating costs low and increase the profits without making any concessions in quality.

(iii) Receiving and controlling material safely and in good condition.

(iv) Issue material upon receipt of appropriate authority.

(v) Identification of surplus stocks and taking appropriate measures to produce it.

The outcome of all these objectives can be listed as given below:

(i) Regular uninterrupted supply of raw-materials to ensure continuity of production.

(ii) By providing economy in purchasing and minimising waste it leads to higher productivity.

(iii) To minimise storage and stock control costs.

(iv) By minimising cost of production to increase profits.

(v) To purchase items of best quality at the most competitive price.

Organization of Materials Management Department:

To facilitate planning, direction, control and co-ordination of various activities related to material in an enterprise there should be a separate department of materials management. The organisational structure of the department can be.

Material Management - B Com

There can be more sub-sections of the department but in general, materials manager controls the four major sections and is responsible for reporting to the president of the organisation.

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FAQs on Material Management - B Com

1. What is material management and why is it important in the field of commerce?
Ans. Material management refers to the process of planning, organizing, and controlling the flow of materials from their acquisition to their final utilization. It involves activities such as inventory control, transportation, warehousing, and purchasing. Material management is crucial in commerce as it ensures an uninterrupted supply of materials, reduces costs, improves efficiency, and enhances customer satisfaction.
2. What are the key objectives of material management in a business organization?
Ans. The key objectives of material management in a business organization include: - Ensuring the availability of materials in the right quantity, quality, and at the right time. - Minimizing inventory holding costs while maintaining adequate stock levels. - Optimizing the utilization of resources and reducing wastage. - Streamlining the procurement process to obtain materials at competitive prices. - Enhancing coordination between various departments involved in the material flow.
3. How does effective material management contribute to cost reduction in a company?
Ans. Effective material management contributes to cost reduction in a company through various ways: - By minimizing inventory carrying costs, such as storage, insurance, and obsolescence costs. - By reducing the risk of stockouts and associated costs, such as production delays and lost sales opportunities. - By optimizing the usage of resources and reducing wastage, thereby reducing production costs. - By streamlining the procurement process and negotiating favorable terms with suppliers, leading to cost savings. - By improving operational efficiency and reducing lead times, resulting in lower production and transportation costs.
4. What are the challenges faced in material management and how can they be overcome?
Ans. Some common challenges faced in material management include: - Uncertain demand patterns: To overcome this challenge, companies can use forecasting techniques, collaborate with suppliers, and maintain flexible production capacities. - Supplier issues: Building strong relationships with suppliers, implementing effective supplier performance measurement systems, and diversifying the supplier base can help overcome supplier-related challenges. - Inventory management: Utilizing inventory management systems, implementing just-in-time (JIT) principles, and conducting regular inventory audits can help in effective inventory management. - Technology integration: Embracing technology solutions like enterprise resource planning (ERP) systems, barcoding, and automated inventory tracking can address technology integration challenges.
5. How does material management contribute to customer satisfaction?
Ans. Material management contributes to customer satisfaction by ensuring the availability of materials at the right time, in the right quantity, and of the desired quality. This helps in meeting customer demands promptly and efficiently. Effective material management also reduces the risk of stockouts and delays in production, leading to improved customer service levels. Additionally, by optimizing the utilization of resources and reducing wastage, material management helps in delivering products at competitive prices, further enhancing customer satisfaction.
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