Materials Management: Strategies for Success
Manufacturing contributes more than $8 trillion to the global economy and forms a vital link in the supply chain. As such, smart procurement leaders understand the practice of materials management and how it can impact their company’s bottom line further down the supply chain.
Materials management in manufacturing forms the foundation of an efficient, affordable supply chain for product managers, distributors, and procurement teams alike. Here’s what you need to know about this important practice.
What is materials management?
Materials management is a set of practices related to sourcing, procurement, storage and use of materials used in a manufacturing process.
Materials management is an important facet of supply chain management. Material management teams perform the vital role of purchasing, obtaining, and maintaining raw materials to use in production processes.
“The core idea behind this process is to control the movement of materials and equipment by requesting them in advance, purchasing or renting them at a reasonable price and making sure they are available when needed,” wrote the experts at Indeed.
Materials management consists of five key processes that help manufacturers — and their customers — align for success.
Materials management processes
These five processes make up the practice of materials management, from purchase to utilization in a manufacturing process.
First, a company estimates the quantity of materials needed. This step takes careful planning, as it is directly proportional to the amount of money the company spends — not only on materials, but also on inventory management, including warehousing costs, depreciation, and shipping. The internal focus of manufacturers is typically on inventory turns, minimizing inventory, and reducing the carrying costs associated with warehousing unsold goods and the raw materials responsible for their production.
To that end, many manufacturing companies rely on Just In Time procurement, meaning materials are ordered or received from the supplier as they are needed. This method aims to reduce inventory holding costs and increase inventory turnover.
Inventory planning and control
Materials management relies on strong inventory management practice related to:
- Inventory for raw materials
- Inventory for purchased goods
- Inventory for finished parts and/or components
Optimizing inventory planning and control requires reducing inventories as much as possible to minimize costs related to holding stock. This can be achieved, as mentioned, by Just in Time procurement or by moving a product to distributors efficiently.
Materials managers are briefed by production managers as to what materials are required for manufacturing. Then, the materials manager will source from their network of suppliers the right product or component at the right price.
Purchasing in materials management should follow the best practices of any procurement process. Nearly all successful manufacturers have their purchasing decisions informed by procurement software. This technology utilizes artificial intelligence (AI) to analyze vast amounts of data and prepare purchasing strategies based upon that data.
[Read more: Guide to procurement in manufacturing]
Flow and supply of materials
Materials managers are in charge of ensuring materials needed during the production process are in stock and available as needed. This requires distributing materials to the right factories on time and in the right quantity. “Poor management or lack of inventory disrupts the production process and the availability of material supplies,” wrote Indeed. “Lack of stock can cause financial losses, delays in sourcing replacement materials and disruption of production schedules.”
Enhancing collaboration between customers, suppliers, and partners is a key strategy for improving the flow of materials. This involves adopting an attitude of mutual benefit, as opposed to harboring an adversarial attitude toward those with whom materials and products are exchanged for money.
Finally, materials management is in charge of finding the best quality materials for production. “Best quality” is a somewhat subjective measure – ideally, materials managers are looking for the right amount of the right material for the right price; time and building supplier relationships are also a priority. The value of the product factors in so far as it meets a minimum standard as well as these other benchmarks for manufacturing success.
Materials management strategies
Materials managers often have a lot of competing priorities: balancing inventory costs with providing the right inputs at the moment they’re needed, for instance. To meet the needs of the organization while minimizing waste and reducing costs, there are a few best practices materials managers can use.
First and foremost: work with quality suppliers. Suppliers that provide key raw materials can make or break a manufacturing process. Look for “best value” suppliers who have a reputation for consistency, quality, and on-time delivery. Ultimately, you may pay more but avoid the far more costly delays from a supply shortage or delayed delivery.
In addition, digitizing and streamlining the order process can make materials management much easier. Utilize technology for inventory management as well as for procurement. Inventory management software can alert the manufacturing company when it’s time to reorder key materials; an integrated procurement software can automate the steps of sourcing and resupplying materials as needed.
Materials management teams should regularly analyze their metrics to track costs and process efficiency. “The companies must exploit an effective inventory system that keeps an account of the total purchase as well as the sale of every item for proper analysis,” wrote MIT. “The common goal should be to ensure that the cost of purchasing a material is less than its sales.”
And, finally, strategic materials management requires a rigorous approach to cost savings. Again, a sourcing tool like Fairmarkit can help regularly reevaluate vendor partnerships to ensure the best value. Procurement teams can get more out of their budget by automating sourcing events and increasing the number of competitive bids.
To learn more about materials management, check out our blog, The Source.