Materials management, or material management, is an essential function in construction, manufacturing and other critical industries, where a disruption in material flow or quality can result in a loss not only in profits, but also in customer confidence. As part of a successful supply chain strategy, skillful material management plays a key role in the success of any project where tangible components are required.
What is material management?
According to the nonprofit Construction Industry Institute, a basic material management definition is “the planning and controlling of all material and equipment so they are requested in advance, obtained at a reasonable cost and are available when needed.” This definition includes not only materials that go directly into the product and the equipment to produce it, but also the spare parts needed for maintenance, in order to ensure uninterrupted operations.
It is worth noting that the question“What is material management?” may differ among organizations. In some businesses, the material handling process might include sourcing, procuring, transporting, storing and all other aspects of material flow. In other organizations – particularly large construction companies or manufacturers – separate departments might exist for procurement, supply chain, logistics and other functions.
Direct materials are those that go directly into the product being sold, and therefore represent the cost and benefit of the product itself. These materials may include items such as wood, cement, pipes, glass, etc. Availability and quality of direct materials are vital for project success. Poor planning for direct materials can cause significant losses and repercussions to the business.
Indirect materials are those that are part of the process, but do not go into the product itself. These materials may include items such as equipment and spare parts, staples for staple guns, drill bits, etc. Their value to the product cannot be easily quantified, but their absence or breakdown will negatively impact the process and results.
Importance of material management
The importance of the material management process is often overlooked, but its poor execution will have severe, negative consequences. To appreciate this, it helps to understand the weight of a material manager’s responsibilities. As described in Introduction to Materials Management by J.R. Tony Arnold, Stephen Chapman and Lloyd Clive, the material manager must ensure the following:
- The right materials
- In the right quantities
- At the right time and place
- From the right source
- At the right price
Failure to achieve any of these can result in operational disruptions, cost overruns and wasted materials, not to mention loss of profits, market share and professional reputation.
Objectives of material management
The objectives of an effective materials plan fall into three general categories:
- Lower operating costs
- Optimal material selection
- Ideal inventory control
We will explore each of these objectives below.
Lower operating costs
Operational disruptions cause significant losses in profits, and material management errors can easily throw a wrench in the process. Conversely, an uninterrupted flow of materials lowers cost by helping to maximize productivity and efficiency. Material managers play a key role in controlling costs with their choices and control of both direct and indirect materials.
Optimal material selection
An experienced material manager will get the best price possible on high-quality materials to maximize profits. This involves keeping up with changing variables, such as material availability and price fluctuations, and adjusting the plan accordingly. Businesses rely on material requisition of suitable, low-cost options without compromising quality or supply.
Ideal inventory control
Maintaining an ideal inventory is key to an effective material management plan. A savvy material manager minimizes storage requirements and waste, while ensuring direct and indirect materials are available when needed. This means establishing re-ordering plans and projecting inventory levels to hold for work in progress and remedial needs.
How to develop a material management system
Regardless of whether the tools being used are manual, digital, or a hybrid of the two, the requirements of a useful system remain the same. Again, one may ask “What is material management?”in the context of a specific organization. In the broadest terms, the system must include:
- Identification of reliable, alternate sources for direct and indirect materials. Having alternate sources promotes healthy competition in cost and quality.
- An appropriate method for determining the optimal combination of price, quantity, quality and purchasing schedule of direct and indirect materials.
- Multiple options for shipping materials, including for materials with shipping restrictions.
- A plan for cost-effective inventory storage that minimizes waste without compromising supply.
- Relationships of trust and goodwill with suppliers and transport companies.
- Streamlined procurement procedures and operations to ensure a smooth flow of materials.
- Appropriate training for all workers who handle or make decisions about materials.
- An impeccable record-keeping system of purchases and inventory with an audit trail that can be validated.
- Good relationships with colleagues in departments throughout the organization.
Future of material management
Currently, as in all industries, business processes are undergoing a digital transformation aimed at increasing productivity and profits, reducing waste and ensuring sustainability. The use of integrated digital tools enables decision-makers to access critical information on material availability, cost, order status and inventory.
Historically, the importance of an unbroken supply chain has been undervalued, with minimal attention paid to the vulnerabilities inherent in “just-in-time” inventory models. The COVID-19 epidemic brought this to light, accelerating digital innovations that save costs and make “just in case” models more feasible. These innovations include automated software applications for tasks like material procurement and tracking, inventory management, analytics and more. Eventual end-to-end digitization of business processes will be critical in balancing efficiency and resilience.
Material management, like much of the supply chain, is vulnerable to changing variables and unforeseeable conditions. Xalt mobile technology digitizes and streamlines the material management process for cost-effective results that guard against disruptions. Visit hexagonxalt.com, request a demo or call toll free at +1 800-939-6812.