Material Management Functions

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Edited By: Jaytirmoy Barmon Materials Management
Lecturer, Pharmacy, Varendra University
Materials Management
Prepared by:
Kushal Biswas
Md. Sanowar Hossain &
Jaytirmoy Barmon
Q. What is material management?
The term material management is the concern with the determination of policy regarding
procurement of materials as regard to quality, quantity, price and disbursement of the
same to different productions or departments as and when required.
Material management is an approach for planning, organizing, and controlling all those
activities principally concerned with the flow of materials into an organization.
Materials management can thus also be defined as a joint action of various materials activities
directed towards a common goal and that is to achieve an integrated management approach to
planning, acquiring, processing and distributing production materials from the raw material
state to the finished product state.
According to L. J De Rose “Material management is the planning, directing, controlling and
co-ordination of all those activities concerned with material and inventory requirements
from the point of their inception to their introduction into manufacturing process”.
Q. What are the necessities of studying materials management in Pharmacy?
All the pharmaceutical manufacturing industries and other organizations procure raw
materials, components and new plant machinery etc. the major investment of any company is
on the raw materials and machinery which ranges from 50-80% depending on industry to
industry. The cost of material directly affects the cost of production and ultimately the profit
of the organization. Therefore, material management is important for the economic success of
any pharmaceutical company.
Basic needs of materials management (Spring-18, Summer-18)
i. To have adequate materials on hand when needed
ii. To pay the lowest possible prices, consistent with quality and value requirement for
purchases materials
iii. To minimize the inventory investment
iv. To operate efficiently

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Q. Why material management is important?
The benefits received from an efficient system of material management are as follows:
i. It can be used as the cost reducing device since it is easy to handle and control materials
as compared to labor.
ii. It minimizes the inventory lost.
iii. Due to available materials, the production time is also minimized.
iv. The available equipment is properly and effectively utilized.
v. The time of direct labor is not wasted.
vi. The immediately tackles the problems related to overstocking and under stocking.
Q. What are the objectives of material management? (Spring-18, Summer-18)
The objectives of material management are as follows:
1. To ensure un-interrupted production:
The main objectives of material management are to ensure that the materials are readily
available and machines are in working order so that the production process does not suffer.
2. To ensure the good quality of materials:
The quality of the finished product mainly depends on the quality of raw materials used in the
production. Therefore, material management ensures good quality of raw materials by
exercising strict control and supervision of purchases, storage and handling of materials.
3. To minimize wastage:
An efficient material control system would pug the possible points of loss of material on
account of moisture, bad and careless handling, poor packing etc. or due to defective machines
and tries to minimize wastage.
4. To fix responsibilities:
An efficient material management will help in identifying the operating units and individuals
concerned with purchase, storage and handling of materials to fix the responsibility in case of
loss.
5. To provide information:
An efficient material control system shall provide accurate information regarding material cost
and stock position whenever required by the management. It is possible only if the material
control department is maintaining proper, accurate and up-to-date records.

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Q. Write down the basic principle of material management. (Spring-18, Summer-18)
(From Sharmin Shila & Sumsun Naher Assignment)
The system principle states that all material movement and storage activities should be
integrated to form a coordinated operational system. This should include the following things.
Wherever possible, all material handling operations should be mechanized or automated. So,
the basic principles of material management are as follows—
 Orientation Principle: It encourages study of all available system relationships before
moving towards preliminary planning. The study includes looking at existing methods,
problems etc.
 Planning Principle: It established a plan which includes basic requirements, desirable
alternates and planning for contingency.
 Systems Principle: It integrates handling and storage activities, which is cost effective
into integrated system design.
 Unit Load Principle: Handle product in a unit load as large as possible.
 Space Utilization Principle: Encourages effective utilization of all the space available.
 Standardization Principle: It encourages standardization of handling methods and
equipment.
 Ergonomic Principle: It recognizes human capabilities and limitation by design
effective handling equipment.
 Energy Principle: It considers consumption of energy during material handling.
 Ecology Principle: It encourages minimum impact upon the environment during
material handling.
 Mechanization Principle: It encourages mechanization of handling process wherever
possible as to encourage efficiency.
 Flexibility Principle: Encourages of methods and equipment which are possible to
utilize in all types of condition.
 Simplification Principles: Encourage simplification of methods and process by
removing unnecessary movements.
 Gravity Principle: Encourages usage of gravity principle in movement of goods.
 Safety Principle: Encourages provision for safe handling equipment according to safety
rules and regulation.
 Computerization Principle: Encourages of computerization of material handling and
storage systems.
 System Flow Principle: Encourages integration of data flow with physical material
flow.
 Layout Principle: Encourages preparation of operational sequence of all systems
available.
 Cost Principles: Encourages cost benefit analysis of all solutions available.
 Maintenance Principle: Encourages preparation of plan for preventative maintenance
and scheduled repairs.
 Obsolescence Principle: Encourages preparation of equipment policy as to enjoy
appropriate economic advantage.

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Section of material management
Or, Q. Describe the functions of material management.
The functions of material management are divided into 3 different sections-
A. Purchase section
B. Storage section
C. Inventory Control section
A. Purchase section / Purchasing:
Purchasing means procurements of right type of materials and supplies in the right quantities,
at the right time and at a right price.
Functions:
1. Market information:
The purchase dept. should keep up-to-date information regarding to fluctuations in prices,
technological factors, delivery schedule, reliability of suppliers etc.
2. Purchasing procedure:
A systematic purchasing procedure is very important which is explained as follows:
i. Determination of purchase budget
ii. Determination of raw material requirement
iii. Finding the sources of supply
iv. Calling the quotations, tenders etc.
v. Placing of orders
vi. Receipt of materials and inspection
vii. Checking the bills and payment
3. Control of quality and quantity:
On receiving the goods, the purchase dept. should ensure the quality and quantity of goods
received as that of ordered.
4. Selecting sources of supply:
The purchase dept. should ensure that the suppliers selected can supply the right goods at right
time.
5. Price fluctuation:
The purchase dept. must visualize the price fluctuations. Therefore, it should keep in touch
with the market trends.
Types of purchasing:
Centralized purchasing: When the entire raw materials requirement is purchased at one central
point for the whole company, in is known as centralized purchasing.
Decentralized purchasing: Under this method, each different user department makes its own
purchasing.

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B. Storage section:
It is that aspect of material management which is concern with the preserving of raw materials,
semi-finished or finished goods in the stores.
Objectives of Storage section:
i. Drugs and raw materials are stored to ensure un-interrupted supply of materials without
delay to the production and service dept. of the organization.
ii. To ensure that the materials are stored in proper quantities. There should not be
overstocking or under stocking of materials.
iii. To protect the materials from the risks of thief, fire and pilferage.
iv. To reduce the storage costs to the minimum.
v. To keep proper control over the materials.
Functions of storage section:
There are four sections in the store department,
1. Receiving department: They will receive goods.
2. Storage section: They will store goods.
3. Account section: They are concerned with the keeping proper records of receipt & issue of
materials
4. Issue section: They will issue the material to the user department, on the presentation of a
proper indent or requisition slip sent by the authorized persons.
C. Inventory Control Section:
Inventory control is an effective way to control over losses from misappropriation, damage and
carelessness. This is necessary because investment in materials constitutes a major portion of
the production and therefore a strict control has to be kept. It can be defined as the systematic
control over maintenance of a stock in the store department.
ABC Method of Inventory control: (ABC=Always Better Control)
According to this method, the manufacturing organizations divide their materials into three
categories according to their respective values:
a) Group A
b) Group B
c) Group C
Group A constitutes costly items which are 10% of the total items but has more than 70% of
total values of goods.
Group B consists of items which constitutes about 20% of the total items and represent 20%
of total values of stores.
Group C consists of about 70% of items but having only 10% or less percentage of the total
value.

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Group A goods are preserved with a greater degree of control, while Group B items are given
a reasonable care, whereas Group C is only given a routine care.
Table given below gives, in a summary form, how an organization treats the various categories
of items according to their consumption value
No. A Items B Items C Items
1. It covers 10% of the total
inventories.
It covers 20% of the total
inventories.
It covers 70% of the total
inventories.
2. It consumes about 70% of
total budget.
It consumes about 20% of
total budget.
It consumes about 10% of
total budget.
3. It requires very strict control. It requires moderate control. It requires loose control.
4. It requires either no safety
stocks or low safety stocks.
It requires either low safety
stocks.
It requires high safety stocks.
5. It needs maximum follow up. It needs periodic follow up. It needs close follow up.
6. It must be handled by senior
officer.
It can be handled by middle
management.
It can be handled by any
official of the management.
Advantages:
i. The investment in inventory can be regulated and funds can be utilized in the best
possible manner.
ii. It ensures better control over costly items.
iii. It helps to develop scientifically method of controlling inventories.
iv. It helps in maintaining the stock in a better way.
v. It helps in reducing storage costs.
vi. It helps in maintaining enough stocks of group A, B, C items.
vii. It help in maintaining enough safety stock of C categories of items.
Disadvantages:
i. The balance of stock cannot be readily known.
ii. It does not ensure reliable check.
iii. Only costly items get higher priority of control.
Q. Classify materials with example according to material management. (Summer-18)
(From Sharmin Shila & Sumsun Naher Assignment)
The materials management are classified into four categories, these are—
a. Purchased materials: These are the raw materials, components, spare parts and items that
are used and usually do not appear in the end product.
b. Work-in process materials: These are the materials that are in the semi-finished stage.
c. Finished goods: These are the final products which are ready for final delivery or
distribution.
d. Supplies: These are the consumable goods.
(Give example from a product manufacturing)

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Formulating Buying Policies in Material Managements
Q. Describe the formulating buying policies in Materials Managements.
The formulating buying policies can be divided into two categories. These are—
1. Determination of need &
2. Selection of source.
1. Determination of need:
Determination of quantity
The quantity of material needed to buy depends on:
a. How much material you will use in production
b. How much may be lost through damage or defects
c. What you have in inventory when you place the order, and
d. The average inventory you are willing to carry.
Quality specifications
When quality requirements are not obvious, or when there is a need to review what quality
level is best, quality requirements can be determined through value analysis which spells out
the design specifications for a product.
Quality specifications can be made in many ways. They can be in the form of acceptable
ranges for:
 Weight
 Shape
 Size
 Temperature resistance
 Strength
 Flexibility
 Color, etc.
It can include any physical aspect of the part to be made. They can also be expressed in terms
of number of pieces per hundred which do not operate properly or do not meet the
specifications.
Another aspect of quality that affects purchasing decisions concerns reliability or
appearance of a component. A less attractive switch or support that functions properly may be
fully adequate and therefore be preferable to more expensive model.
2. Selection of source
By procuring and providing right quality of required materials of the right quantity and at the
right price, the purchase department has the maximum scope to contribute toward corporate
profitability. So, competent suppliers capable of providing quality inputs are to be selected.
This is no doubt a very difficult task but at the same time the most important one. If a right
supplier is selected there may be hardly any problem regarding quality, price and delivery.

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A wrong choice of supplier will create regular problems such as-
 supply of inferior quality of materials
 failure to meet the supply schedule according to buyer’s need
 claim of higher price on flimsy ground
 stoppage of supply for bargaining, thereby putting the buyer in a difficult situation.
The ultimate objective of purchasing function is defeated if there is any interruption in
production schedule due to stock-out of certain items.
So, the right selection of source of inputs is very important. In any type of industrial purchasing
if the right source or the proper supplier is selected (after evaluation of his capability), there
may not be any major problem in fulfilling the ultimate objective of purchasing.
But if proper selection cannot be made with proper evaluation then at every stage the purchaser
may face problems with the supplier and cannot perform his allotted task properly.
Two things are important in this context-
Firstly, to ensure proper quality it is also necessary to ascertain the right quality.
Secondly, it is also necessary to properly evaluate the supplier to ensure his competence to
meet the requirement of buyer in respect of quantity and quality of materials.
Developing good and reliable alternative sources of supply is one of the most important
responsibilities of a purchasing manager. If the right supplier is selected, then all the benefits
of good purchasing such as competitive pricing, reliable quality, timely delivery and good
technical service can be assured and enjoyed.
After a competent supplier is selected, he must be motivated, assisted and periodically
evaluated so that a satisfactory service can be obtained in the short run.
Receiving & Stocking Materials
The typical procedures of receiving activities at least consist of the following steps
1. Unloading and checking the shipment: The number of containers or package of materials
unloaded from the carrier's vehicle is checked against the carrier's manifest to ensure that
all the full consignment or order has been delivered. All containers or package of materials
are also inspected for external damage; any damage found is inspected by the carrier's
representative and noted on the receipt where the receiving clerk signs.
2. Unpacking and inspecting the material: A receiving clerk is held responsible for three
verifications. First, he or she checks the material received against the supplier's packing
slip and against a copy of the firm's purchase order to verify that the correct items have
been shipped. Second, the quantity of the shipment is verified in the same manner. Finally,
the clerk inspects the general condition of the material to determine whether any external
damage was incurred during shipment.

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3. Completion of the receiving report: When the receiving clerk has finished the inspection,
he or she completes the form by recording the quantities of the items received, indicating
those that are still open, and noting any other useful information on the form. In other firms
that utilize a computerized purchasing/inventory system. Regardless of the system used,
four operating groups generally require notification that the material has been received: the
requisitioner, the purchasing department, the accounting department, and the inspection
department if technical inspection is required.
4. Delivery of the material: For non-stock materials, the receiving department is usually
responsible for delivery - directly or via an internal delivery service. In the case of inventory
materials, the practice varies. In some firms, the receiving department is responsible for
internal deliveries, while in others this function is performed by an internal transportation
service.
The following steps and procedures are performed during receiving any materials-
i. A visual inspection for damage to the carton or container at the time it is offloaded from
the carrier truck.
ii. Verify the number of packages indicated on the freight bill.
iii. Enter the item into the supply chain logic (SCL) tracking system, which will track the
item throughout the receiving and delivery process. The item is classified as "Docked"
at this stage in the process.
iv. Create a label in the tracking system and label the package so that it can be tracked
throughout the rest of the receiving and delivery process.
v. If visible damage is apparent, conduct a more thorough inspection of the contents of
the packages to look for obvious damage to the item in the carton or container.
vi. Enter the item, based on packing slip information, into the software system for
acquisition tracking.
vii. Alert delivery to the presence of the package and need for delivery to the requested
campus location.
Storage Location
There are three general ways in which goods are stocked as to reduce material handling and
increase prompt access. They are as follows:
 Fixed position in which specific area is located where designated goods are stored. If
the designated goods are not there, that space will remain empty. Fixed position
encourages easy and traceable access to the goods.
 Random Storage in which goods are stored where ever space is available. Here
maximum utilization of the space is achieved.
 Categorized fixed location in which particular set of products are placed randomly in
the allotted space.

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Supply Base Management
A supply base is defined as the portion of a supply network that is actively managed by a buying
company. The concept reviews effective business relationships with suppliers and ways to
facilitate better management of the supply base.
Supply Base Management (SBM) is a systematic dynamic approach for strategically managing
the whole supply base which might include current suppliers, minor suppliers and potential
suppliers (Melnyk et al., 2009).
SBM consists of the four main elements: management of major suppliers, management of
minor suppliers, scouting, and transition management.
Value chain
A value chain is a set of activities that a firm operating in a specific industry performs in order
to deliver a valuable product (i.e., good and/or service) for the market. The concept comes
through business management and was first described by Michael Porter in his 1985 best-
seller, Competitive Advantage: Creating and Sustaining Superior Performance.
A company conducts a value-chain analysis by evaluating the detailed procedures involved in
each step of its business. The purpose of value-chain analyses is to increase production
efficiency so that a company may deliver maximum value for the least possible cost.
Components of a Value Chain
In his concept of a value chain, Porter splits a business's activities into two categories,
"primary" and "support," whose sample activities we list below. Specific activities in each
category will vary according to the industry.
Primary activities
It consists of five components, and all are essential for adding value and creating a competitive
advantage:
1. Inbound logistics: Functions like receiving, warehousing, and managing inventory.
2. Operations: Procedures for converting raw materials into finished product.
3. Outbound logistics: Activities to distribute a final product to a consumer.
4. Marketing and sales: Strategies to enhance visibility and target appropriate
customers—such as advertising, promotion, and pricing.
5. Service: Programs to maintain products and enhance consumer experience—customer
service, maintenance, repair, refund, and exchange.
Support Activities
The role of support activities is to help make the primary activities more efficient. When you
increase the efficiency of any of the four support activities, it benefits at least one of the five
primary activities. These support activities are generally denoted as overhead costs on a
company's income statement:
1. Procurement: How a company obtains raw materials.

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2. Technological development: Used at a firm's research and development (R&D) stage—
designing and developing manufacturing techniques; and automating processes.
3. Human resources (HR) management: Hiring and retaining employees who will fulfill
business strategy; and help design, market, and sell the product.
4. Infrastructure: Company systems; and composition of its management team—
planning, accounting, finance, and quality control.
KEY TAKEAWAYS
 Value chains help increase a business's efficiency so the business can deliver the most
value for the least possible cost.
 The end goal of a value chain is to create a competitive advantage for a company.
 Value-chain theory analyzes a firm's five primary activities and four support activities.
Allience network/Strategic alliance
A strategic alliance is an agreement between two or more parties to pursue a set of agreed
upon objectives needed while remaining independent organizations. A strategic alliance will
usually fall short of a legal partnership entity, agency, or corporate affiliate relationship.
Typically, two companies form a strategic alliance when each possesses one or more
business assets or have expertise that will help the other by enhancing their businesses.
Strategic alliances can develop in outsourcing relationships where the parties desire to achieve
long-term win-win benefits and innovation based on mutually desired outcomes.
This form of cooperation lies between mergers and acquisitions and organic growth. Strategic
alliances occur when two or more organizations join together to pursue mutual benefits.
Partners may provide the strategic alliance with resources such as products, distribution
channels, manufacturing capability, project funding, capital equipment, knowledge, expertise,
or intellectual property. The alliance is a cooperation or collaboration which aims for
a synergy where each partner hopes that the benefits from the alliance will be greater than those
from individual efforts. The alliance often involves technology transfer (access to knowledge
and expertise), economic specialization, shared expenses and shared risk.
KEY TAKEAWAYS
 A strategic alliance is an arrangement between two companies that have decided to
share resources to undertake a specific, mutually beneficial project.
 A strategic alliance agreement could help a company develop a more effective
process.
 Strategic alliances allow two organizations, individuals or other entities to work
toward common or correlating goals.
Useful links
https://www.petersimoons.com/2010/02/strategic-alliance-development-process/
https://www.investopedia.com/terms/s/strategicalliance.asp

Material Management Functions

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Material Management Functions