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 the 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...