What is Materials Management?
Materials management is a systematic way of managing goods from planning to, packaging, storage, and distribution. In layman’s term, it is a set of methods for planning and controlling material flows. It involves several steps:
- Planning: Materials managers plan to ensure the right production level to meet demand.
- Protection and Packaging: They also ensure that goods are properly packaged and protected during transport.
- Handling: Then they confirm to move goods carefully from one place to another.
- Storage: Next, managers strategically store goods in a safe and organised manner.
- Control: Finally, they monitor and manage the flow of goods from storage to distribution.
These steps are supported by different types of equipment, such as automated, semi-automated, and manual tools, to help manage these activities efficiently.
In addition, the main goal of material management is to reduce production costs and improve the flow of material movements. It also helps to optimise storage space, ease plant traffic, and ensure safety conditions for operators. To achieve this, it is important to follow established rules and know specific strategies, techniques, and tools.
5R Objectives of Production and Materials Management
Once you know what materials management is all about, you need to know its objectives. These 5R objectives are worth knowing for the effective management of materials in your organisation:
- Right Quality: Ensure that the materials purchased are of the correct quality and meet the required standards. This includes checking quality labels and material specifications.
- Right Quantity: Make sure that the correct quantity of material is ordered and received. This includes checking the container invoice and checking the volume against the order.
- Right Time: Confirm that materials are delivered at the right time to avoid production delays. This includes liaising with suppliers and managing stock levels to meet production schedules.
- Right Sources: Ensure that materials are sourced from the right suppliers, considering factors like price and reliability.
- Right Price: Make sure that materials are purchased at the right price, considering government taxes, transportation costs, and other price-determining factors to minimise overheads.
These objectives are critical to maintaining a smooth production process, ensuring customer satisfaction, and reducing costs.
Importance of Materials Management
Imagine a spice company experiencing a peak in demand for its high-value product. Suddenly, its distribution grinds to a halt – not because of a logistics failure but because of internal inefficiencies in managing the movement of materials.
This scenario, albeit dramatic, highlights the importance of materials management in any organisation. Like a well-running logistics team, a business thrives when it has the right materials, in the right quantities, and at the right time.
Here, we look closer at why material management should be a top priority.
1. Ensure Uninterrupted Production
Here’s the deal:
If you don’t want to run out of the raw materials needed to manufacture, you need to manage the flow of those supplies.
Failing to do this can disrupt your entire supply chain and cause production to stop.
Fortunately, effective materials management isn’t as hard as it sounds to maintain a steady flow of raw materials, components, and supplies.
In addition, uninterrupted production is only possible if you have a robust supply chain. According to a study by the National Institute of Standards and Technology (NIST), 75% of companies that experienced supply chain disruptions reported significant financial losses. So, you need to focus first on the internal supply chain to ensure the production line runs smoothly.
2. Proper Use of Capital
Is your warehouse overflowing with stocks that you might need someday but not today?
Excess inventory ties up valuable capital, hindering your ability to invest in new opportunities. They are unable to be used for more productive purposes.
We don’t need Warren Buffett to tell us that capital is the lifeblood of any business. Therefore, it must be managed efficiently. Excellent materials management allows you to avoid tying up capital in excessive inventory.
In short, proper production and material management help to achieve a delicate balance: having enough materials to avoid production delays but not so much that capital gets choked off.
3. Maintain Lean Inventory Levels
There are two scenarios:
- Too little inventory and you risk stockouts that can make customers angry and lose sales.
- Too many stocks and you face storage costs, potential obsolescence, and the risk of damage.
Lack of visibility often leads to such imbalances. Therefore, implementing forecasting models with a material management strategy helps you optimise inventory levels. You can also ensure you have the exact volume of material you need through forecasting techniques and real-time data analysis.
In fact, a study by the Harvard Business Review proves that companies with effective inventory management practices have a 15% higher return on assets (ROA) compared to those without such practices.
4. Cost Reduction
Material costs are often a significant part of the total cost of a product. Materials management helps reduce these costs in several ways.
By streamlining procurement processes, you can negotiate better deals with suppliers. You can also optimise warehouse processes and implement cost-saving measures such as reducing waste, shortening lead times, and improving delivery efficiency. Gartner suggests that companies can reduce these costs by 5–10% per year through better material management.
5. Material Quality
The quality of your materials affects the quality of your finished product. Defective raw materials can ruin your brand’s reputation when they reach customers’ hands.
Hence, materials management becomes crucial! Effective management involves conducting regular quality checks and implementing safety measures throughout the supply chain.
The International Association of Supply Chain and Logistics Professionals has proved this in a study. They found that 80% of companies that implement quality control measures in their supply chain report a significant reduction in defects and rework.
Therefore, quality checks of materials minimise the need for rework, reduce overheads, and simply protect your brand reputation.
Important Tools for Materials Management
Production and material management becomes so easy when you use the right tool. Let’s take a closer look at three essential tools that seem to be accurate for managing materials from scratch.
1. Production Management Software
The first step in material management is production management. When you use production management software, the planning and control of manufacturing processes become more effective. Further, this valuable tool will help you to:
- Accurately allocate resources.
- Information on the right material requirements.
- In-depth knowledge of production schedules.
Thus, this software enables companies to optimise their production cycles and deliver an average annual improvement of 22.5% in total cost per unit produced.
In addition, with features such as real-time production tracking, resource planning, and performance analysis, production management software enables companies to identify bottlenecks and improve overall operational performance.
2. Inventory Management Software
Every company on Earth will better manage their materials when they have complete visibility into their inventory. That’s where Inventory Management Software comes in as an essential tool. This tool is invaluable for businesses with complex supply chains and massive inventories. This software works as a right hand that:
- Tracks inventory levels.
- Monitor stock movements.
- Provide data on demand forecasting.
- Optimise reorder points to prevent stockouts and overstocking.
With these functionalities that provide complete visibility into inventories, the software helps businesses reduce carrying costs and improve order fulfilment rates. According to Webinarcare, using integrated order processing for their inventory system can increase productivity by 25%. That’s huge!
Additionally, with features such as barcode scanning, automatic reordering, and inventory forecasting, this tool empowers companies to make effective materials management strategies by allowing them to maintain optimal inventory levels.
3. Warehouse Management Software (WMS)
Most of us have confusion between inventory management software and warehouse management software (WMS).
Here’s a simple distinction:
Inventory management software helps a company manage its internal materials, while warehouse management software handles tasks like storing, packing, and shipping materials.
Getting back to the point!
The global warehouse management system market will grow at a CAGR of 16.92%, from a value of USD 2.93 billion in 2022 to USD 13.98 billion in 2032.
These figures show that companies are realising the potential of WMS!
Further, WMS software minimises material handling errors by automating tasks such as order routing, inventory tracking, and shipment verification. Fewer errors translate directly into lower material management costs. Moreover, with features such as real-time inventory updates, batch tracking, and cross-docking capabilities, WMS software enables companies to increase warehouse productivity to improve material management.
How Can NYGGS ERP Help You?
ERP is an all-in-one tool that represents the foundation of your materials management roadmap.
NYGGS ERP combines all three of the above tools, so you do not have to juggle between dozens of screens. This software provides production data, tracks inventory levels, and integrates warehouse management tools to deliver comprehensive information about material on a single screen.
Undoubtedly, this 360-degree view in one place enables you to develop better management strategies.
To find out more about how the NYGGS ERP system can help you with production, materials, and overall supply chain management, please request a demo.