Role of Material Management in Improving Productivity & Profitability

One perpetual problem faced by manufacturing companies is the rising costs of materials and services. How to ensure continuous production while keeping stringent control on production costs is a concern for a lot of manufacturing SMEs. Hence, this article aims to emphasize the role of material management in improving productivity & profitability of manufacturing companies 

What is Material Management?

Material management is a function responsible for appropriate planning, organizing, and controlling of activities concerned with the flow of materials required by a manufacturing company. 

Thus, the material management function encompasses a vast range of activities, right from the material requirement planning, to sourcing and purchasing materials. It also involves ensuring optimum stock & movement of materials within the company to ensure smooth production.  

What are the objectives of Material Management?

The primary objectives of material management are 5R which means the acquisition of materials & services of the right quality, in the right quantity, at the right time, at the right place, at the right price. 

At the same time, the secondary objectives are to ensure a reduction in procurement costs, reduction in inventory carrying costs, ensure high inventory turnover, minimize material handling and distribution costs.

While most companies focus on primary objectives, a majority of them largely struggle with meeting the secondary objectives.  

Why invest in ERP Software or Material Management Software?

Every manufacturing company should invest in a good ERP Software or a good Material Management Software Solution for setting up standard material management processes and ensuring effective material management. Material Management solution provides real-time visibility into materials, inventory, items in stock across multiple locations of the organization.

Similarly, with Material Management solution companies can implement various Material Requirement Planning (MRP) methods and define quality specifications to help plan inventory requirements accurately. Material management software will also enable us to define reorder points and send notifications/alerts when inventory reaches a certain point and has to be replenished. This will ensure just in time purchases and ensure optimum inventory. 

How Material Management Improves Productivity? 

Material management envelops planning for materials, procuring the right quantity as per the specified quality as well as storing the materials appropriately for smooth production. When each of these criteria is perfectly met, it helps reduce any delays, reorders time-lags and more. All this helps improve the productivity of the organization. Let us read more.

1. Optimum Material availability

Material Management solution makes use of various inventory classification methods for appropriate management of materials. The company can ensure vital & critical materials are available in stock by defining re-order levels for each category. Setting triggers & alerts for re-order points avoids any situations of stock-outs. Thus effective Material Management ensures a continuous and uninterrupted supply of materials for the smooth functioning of the production process. This ensures timely production.

2. Quality Management

Material Management solution enables keeping a very stringent control on the quality of materials being procured. At the planning stage itself, the various quality parameters and specifications are recorded in the purchase indents and purchase orders. Material Management policy also ensures inspection of incoming materials. All this ensures that only the appropriate quality materials are procured avoiding any chances of quality non-compliance. This ultimately contributes to maintaining the quality of the products. 

3. Efficient Material Storage & Distribution

Material management solution saves information about the number of items in stock in each warehouse of the company. The materials are distributed in warehouses in a manner that they can be easily accessed and made available for production in minimum time, without any delays. 

4. Plants, Workers Efficiency & Productivity 

When materials required are available in sufficient quantity, the chances of stock-outs are minimized. Naturally, plants and workers will not have to spend any idle-time waiting for materials to arrive. When the materials are stored at appropriate locations, any delay or wastage of time involved in moving the materials to the production site can be avoided. All this ensures that plant and workers do not lose any productive hours and hence maximum utilization & higher productivity are possible.   

How Material Management Helps Improve Profitability?

A penny saved is a penny earned!  Thus, reducing costs & achieving cost savings ultimately result in improved Profitability.

Material Management methods & systems help accurate material requirement predictions. This helps companies to save costs involved in:

1. Procurement costs 

Before placing purchase orders companies can cross-verify how much material is present at each location & whether it can be used or not. Companies can then aggregate indents and place orders for materials in bulk quantities, with staggered deliveries. This will provide a negotiation advantage & reduce purchase costs. This also helps minimize the need for emergency purchases and costs associated with it.  

2. Logistics costs

When the quantities to be delivered & time schedules are well planned, companies can select the best & most economic routes thus saving on transportation costs.  

3. Inventory carrying costs

With MRP & accurate inventory predictions, excess materials are not ordered. Just enough stocks are ordered as well as just in time. This ensures that there are no additional expenses for warehousing, storage 

4. Waste Costs

Real-time visibility of inventory, stock as well as appropriate material requirement planning methods ensures that the right quality materials are purchased in the right amount. Thus chances of materials being wasted due to non-compliance or expiry or pilferage are reduced. 

5. Manufacturing costs

When companies can save or reduce costs of purchase, inventory logistics, wastes, etc. this will automatically help in reducing the manufacturing cost per unit and ultimately help improve profitability.

6. Reduction of Working Capital

Working capital is an indicator of the availability of liquid assets, cash in hand as well as the short-term financial health of a manufacturing company. With proper material management companies can avoid over-stocking, order inventory just in time and so on. Hence, companies can save some of the above-mentioned costs which result in higher liquidity and more working capital in hand.   

Summary 

Now that we have seen how the Material Management Module of an ERP helps ensure effective material management and improves the efficiency, productivity, and profitability of a manufacturing company. Let us focus our efforts on effective material management.  

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