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Materials management
Materials management
Materials management
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Materials management is a core supply chain function and includes supply chain planning and supply chain execution capabilities. Specifically, materials management is the capability firms use to plan total material requirements. The material requirements are communicated to procurement and other functions for sourcing. Materials management is also responsible for determining the amount of material to be deployed at each stocking location across the supply chain, establishing material replenishment plans, determining inventory levels to hold for each type of inventory (raw material, WIP, finished goods), and communicating information regarding material needs throughout the extended supply chain.

Supply chain materials management areas of concentration

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Goals

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The goal of materials management is to provide an unbroken chain of components for production to manufacture goods on time for customers. The materials department is charged with releasing materials to a supply base, ensuring that the materials are delivered on time to the company using the correct carrier. Materials is generally measured by accomplishing on time delivery to the customer, on time delivery from the supply base, attaining a freight, budget, inventory shrink management, and inventory accuracy. The materials department is also charged with the responsibility of managing new launches.

In some companies materials management is also charged with the procurement of materials by establishing and managing a supply base. In other companies the procurement and management of the supply base is the responsibility of a separate purchasing department. The purchasing department is then responsible for the purchased price variances from the supply base.

In large companies with multitudes of customer changes to the final product there may be a separate logistics department that is responsible for all new acquisition launches and customer changes. This logistics department ensures that the launch materials are procured for production and then transfers the responsibility to the plant materials management.

Materials management

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The major challenge that materials managers face is maintaining a consistent flow of materials for production. There are many factors that inhibit the accuracy of inventory which results in production shortages, premium freight, and often inventory adjustments. The major issues that all materials managers face are incorrect bills of materials, inaccurate cycle counts, unreported scrap, shipping errors, receiving errors, and production reporting errors. Materials managers have striven to determine how to manage these issues in the business sectors of manufacturing since the beginning of the industrial revolution.

Materials management in construction

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Materials typically account for a large portion of a construction project's budget. Materials may account for more than 70% of a construction project's cost.[1] Despite these statistics, when project budgets and efficiency are considered, labour and cost reduction are discussed.[2] Materials management often gets overlooked, even though successful projects are a result of a successful blend of labour, materials and equipment management.  When materials are tracked efficiently project time can be optimized, costs can be saved and quality can be maximized.[3]

There is a lack of efficient materials management in capital and investment construction projects, because each project is typically viewed as an individual effort, with each project needing a unique plan. The geographical location and technology needed for different projects will present distinctive challenges,[2] but in general all projects will have elements that can be predicted from previous construction projects.

Types of construction projects and how this effects materials management

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Typically, the more technically challenging a project is, the more difficult materials management becomes; however, the need for transparent materials tracking is highlighted in these types of projects.

Residential construction projects: residential projects can be homes or apartment buildings, that are intended for living.[4] Managing material flows in these projects is usually easier, because typically engineering and construction teams as well as budgets are smaller,[4] in comparison to projects listed later in this article. Also, technical specifications for residential projects do not vary as much as, for example, in heavy-industry construction projects.

Commercial construction projects: these types of projects include retail stores, restaurants and hotels.[4] The complexity of the project and the needs for thorough material tracking will typically depend on the size of the project.

Specialized industrial construction projects: these projects are large-scale and technically complex. Examples of these types of projects include nuclear power plants, chemical processing plants, steel mills, pulp mills and oil refineries. The materials procured for these projects require specific engineering knowledge (i.e. piping, valves, motors, industrial tanks, fans, boilers, control valves etc.).[5] The importance of material tracking in these types of projects is extremely high, because the project network is large, materials are procured from all over the world and the construction sites are typically in remote locations with poor infrastructure.

Industrial construction projects: examples of industrial construction projects include warehouses and manufacturing facilities.[4] These types of projects tend to be slightly more complex than residential or commercial construction projects and they require more technical knowledge. This increases the need for efficient materials management.

Materials management in capital-heavy construction projects

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Materials management is the process of planning and controlling material flows. It includes planning and procuring materials, supplier evaluation and selection, purchasing, expenditure, shipping, receipt processes for materials (including quality control), warehousing and inventory, and materials distribution.[6] After the construction project finishes, maintenance of materials can also be looked as a part of materials management.

Material management processes and functions in large-scale capital projects encompass multiple organizations and integrated processes. Capital project supply networks typically include project owners, main contractors, EPC/M contractors, material suppliers, logistics partners and project site contractors.

Digital tools for materials management in construction

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It is very common to use digital tools for materials management in capital projects. Materials requirement planning systems and procurement systems are well-liked in the industry.[5] Minimizing procurement costs through comparing bids is an essential part of reducing projects costs. Computer-based systems are an excellent tool during the purchasing process, because equipment specification, supplier selection, delivery time guarantees, shipping fees and multiple other aspects of procurements can be automatically compared on one platform.[5]

Material deliveries from the supplier to the construction site can be tracked using various tools.[6] For example, project freight forwards will typically have precise information on containers and deliveries sent to the construction site, but typically their systems lack insight into the specific materials and components within those deliveries. Details on packing lists will be attached to the packages in the delivery and they will typically be sent to the purchaser via email. Other ways of tracking deliveries include RFID-tagging packages or components. The downfall with this method is that suppliers or purchasers have to invest in RFID-tags.[7] Common materials data-bases for the project network can also be implemented to share data on material deliveries.[8]

Once the materials arrive at the construction site, receipt processes for the goods should be followed. The storage locations should be recorded, so that individual components are easy to locate as construction sites. Inventory of the goods should also be monitored (when goods are taken for assembly).[9] Storing procured materials appropriately is crucial for saving costs. For example, if electronical equipment is procured and delivered to the construction site in one lot to save costs on multiple delivery fees, the electrical equipment that is not needed for assembly immediately has to be stored in water-proof locations.[5] Digital tools can be used to plan for incoming deliveries and how to store them. The need for digital tools is furthermore highlighted, if materials are stored for example in contractor warehouses rather than the construction site. This way all project parties will know, where goods can be located.

See also

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References

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Further reading

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Revisions and contributorsEdit on WikipediaRead on Wikipedia

Materials management

View on Grokipedia
from Grokipedia
Materials management is the planning, organizing, and controlling of all activities involved in the flow of materials from suppliers to consumers, encompassing , , , and distribution to ensure efficient operations. This discipline integrates physical supply, operations planning and control, and physical distribution to balance , capacity, and costs while minimizing and lead times. As a core function of , it focuses on meeting material requirements through systematic assessment of , availability, quality, pricing, and delivery schedules. Key components of materials management include purchasing, which secures raw materials and components at optimal costs; inventory control, which maintains appropriate stock levels of raw materials, work-in-process, and finished goods using techniques like ABC classification and inventory turns; and transportation and warehousing, which optimize material movement and storage to reduce costs and delays. Additional processes involve material requirements planning (MRP), which schedules component needs based on bills of material and lead times, and just-in-time (JIT) strategies, such as Kanban systems, to eliminate waste and enable pull-based production flows. These functions often distinguish between direct materials, essential for production, and indirect materials, such as maintenance supplies, to prioritize resource allocation. Effective materials management is critical for organizations, as purchased materials typically account for about 50% of sales revenue, and a 10% reduction in material costs can boost profits by up to 60% in a typical firm. It enhances , supports through reliable delivery, and promotes by minimizing waste and enabling for material reuse. In industries like , , and healthcare, robust materials management reduces inventory holding costs, improves throughput by identifying bottlenecks, and fosters supplier partnerships to ensure quality and timely supply.

Fundamentals

Definition and Scope

Materials management is the coordinating function responsible for planning, organizing, and controlling the flow of materials from suppliers to the point of consumption within an , with the aim of maximizing resource utilization and meeting requirements efficiently. This process ensures that materials of the appropriate , , and timing are available to support production and operations without excess costs or disruptions. At its core, it integrates activities such as forecasting demand, procuring raw materials, and managing to align material availability with organizational needs. The scope of materials management primarily encompasses inbound , which involves the acquisition and movement of into the organization, optimization to balance stock levels and avoid shortages or overstocking, and coordination with production processes to ensure seamless integration. Key components include planning (such as and capacity assessment), (supplier selection and ), (using techniques like and ), storage (warehousing and layout optimization), and handling (internal movement of ). It focuses on the internal and upstream aspects of material flow, distinguishing itself from outbound , which deals with the distribution of to end customers. In relation to broader , materials management supports key objectives such as through efficient and practices, by ensuring reliable supply, and enhanced supply reliability to minimize production delays. By optimizing material flows, it contributes to overall and serves as a foundational element in integration, linking with downstream activities like .

Historical Development

Materials management as a formalized emerged in the early 20th century during the height of the , when manufacturing shifted toward and necessitated systematic approaches to and material flow. The introduction of Henry Ford's moving in 1913 at the Highland Park plant revolutionized automobile production by integrating materials handling directly into the manufacturing process, reducing assembly time from over 12 hours to about 90 minutes and emphasizing efficient inventory movement to minimize waste and costs. This innovation laid foundational principles for materials management by highlighting the need for coordinated , storage, and distribution in large-scale operations. Post-World War II advancements further scientificized materials management through the development of inventory optimization models. A pivotal contribution was the (EOQ) formula, introduced by Ford W. Harris in 1913 in a paper published in Factory, The Magazine of Management, which calculated the ideal order size to balance ordering and holding costs using the equation EOQ = √(2DS/H), where D represents annual demand, S is the ordering cost per order, and H is the holding cost per unit per year. Although Harris's work reached thousands of manufacturing managers, it gained widespread adoption in the 1930s through R.H. Wilson's refinements and applications, including its integration into curricula by the early 1920s, establishing EOQ as a cornerstone for in post-war reconstruction efforts. The 1960s marked a shift toward integrated systems with the advent of (MRP), first developed by J.I. Case in collaboration with to automate tracking and production scheduling based on demand forecasts. By the 1980s, MRP evolved into (MRP II), expanding to incorporate , shop floor control, and financial integration, which facilitated broader coordination across functions. This period also saw the rise of (ERP) systems, which by the late 1980s unified materials management with other enterprise processes like finance and , enabling real-time data sharing and more responsive supply operations. In the late 20th and early 21st centuries, materials management was profoundly influenced by the adoption of Just-in-Time (JIT) principles, originally developed by Toyota in the 1970s as part of the Toyota Production System to synchronize material deliveries with production needs and eliminate excess inventory. JIT's global expansion in the 1980s, particularly in Western manufacturing, combined with lean principles to emphasize waste reduction and continuous improvement. Entering the 21st century, globalization amplified these approaches, as companies integrated lean and JIT into extended supply chains to manage complex international sourcing and distribution, adapting to volatile markets and just-in-time demands across borders.

Core Functions

Procurement and Sourcing

Procurement and sourcing form a critical component of materials management, focusing on the acquisition of raw materials, components, and supplies to meet organizational needs efficiently and cost-effectively. This process begins with identifying requirements and extends through supplier selection and contract finalization, ensuring alignment with operational goals while minimizing risks and costs. The procurement process unfolds in key stages including need identification, pre-solicitation, solicitation preparation, solicitation process, evaluation and award, contract administration, and contract close out. Need identification involves determining the specific materials required, including quantities, specifications, and timelines, to address gaps in production or operations. The solicitation process assesses potential vendors based on their capacity, track record, and compliance with standards, often via competitive bidding or requests for information. Negotiation refines terms such as pricing, delivery schedules, and quality assurances to achieve mutually beneficial agreements during evaluation and award. Contract administration and close out formalize the transaction, manage performance, authorize payment and delivery, and serve as legal documentation of the commitment. Sourcing strategies influence how materials are acquired, balancing , , and resilience. Single-supplier sourcing concentrates purchases with one to secure volume discounts, streamlined , and collaborative improvements, but it amplifies to disruptions such as strikes or failures, potentially causing significant operational . Multiple-supplier sourcing distributes across several providers, enhancing supply flexibility and , though it demands more coordination and may elevate administrative expenses. taps international markets for lower costs and specialized materials, yet it heightens exposure to currency fluctuations, tariffs, and geopolitical instability leading to delays. In contrast, local sourcing prioritizes domestic or regional suppliers to reduce transportation risks and support faster response times, mitigating disruptions from global events like pandemics. Effective vendor management underpins successful sourcing, relying on rigorous selection criteria and ongoing performance monitoring. Key selection factors include cost competitiveness, product quality consistency, and supplier reliability in fulfilling commitments. Performance metrics evaluate vendors post-selection, with on-time delivery rates—calculated as the percentage of shipments arriving by the agreed deadline—serving as a primary indicator, where rates below 95% often signal the need for corrective action. Other metrics encompass defect rates and order accuracy to ensure sustained value. A comprehensive view of costs in incorporates the (TCO), which extends beyond initial pricing to capture the full lifecycle expenses. The TCO is computed using the formula: TCO=acquisition cost+operating cost+maintenance cost+disposal cost\text{TCO} = \text{acquisition cost} + \text{operating cost} + \text{maintenance cost} + \text{disposal cost} Acquisition costs include the purchase price, shipping, and installation; operating costs cover ongoing usage such as energy and labor; costs account for repairs and upgrades; and disposal costs handle end-of-life recycling or . This approach aids in comparing suppliers holistically, avoiding short-term savings that lead to higher long-term burdens. Ethical dimensions in and sourcing prioritize sustainable practices to address environmental and social impacts. Sustainable sourcing seeks materials from suppliers adhering to , reduced emissions, and resource conservation, fostering long-term viability. Compliance with regulations like ISO 20400, introduced in 2017, provides guidance for integrating into decisions, covering principles such as and across organizational scales.

Inventory Control

Inventory control is a critical component of materials management that involves monitoring and regulating stock levels to ensure availability while minimizing costs associated with excess inventory. It aims to balance the between holding too much stock, which ties up capital and incurs storage expenses, and too little, which risks disruptions in production or . Effective relies on systematic tracking, analysis, and adjustment techniques to maintain optimal levels across various inventory categories. In materials management, is typically classified into three main types: raw materials, work-in-progress (WIP), and . Raw materials represent unprocessed inputs used in production, such as or chemicals, which require careful monitoring to avoid shortages that halt . Work-in-progress includes partially assembled products at various stages of production, demanding control to prevent bottlenecks in the assembly line. are completed products ready for sale or distribution, where overstocking can lead to , especially for perishable or trendy items. This classification helps managers prioritize control efforts based on the stage of the . To enhance , categorizes items based on their value and impact on operations, following the where a small of items account for most of the value. Category A items, typically 10-20% of , are high-value with tight control measures like frequent reviews; category B items, about 30% of , are moderate-value requiring standard monitoring; and category C items, the remaining 70%, are low-value but high-volume, managed with simpler procedures to reduce administrative burden. This method allows organizations to allocate resources efficiently, focusing intensive efforts on A items that drive profitability. Inventory control methods include perpetual and periodic systems, each suited to different operational scales. A perpetual system continuously updates inventory records in real-time using technology like barcode scanners, providing instant visibility into stock levels and facilitating just-in-time replenishment. In contrast, a periodic system updates records at fixed intervals, such as monthly, through physical counts, which is simpler and less costly for small operations but risks inaccuracies between reviews. The choice depends on factors like business size and technology availability, with perpetual systems increasingly preferred for accuracy in dynamic environments. Safety stock serves as a buffer against demand or supply variability, calculated using the formula: Safety Stock=Z×σ×L\text{Safety Stock} = Z \times \sigma \times \sqrt{L}
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