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Basically, material
is considered a vital input for any business concern, more so
for a manufacturing one where inputs are converted into some
kind of output, through the use of certain technological
processing. Often called the 5 Ms to be managed ,management of
business , especially that of manufacturing type, is concerned
with getting the optimum results through employing the following :
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Men
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Machine
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Money
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Material
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Minute
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In many
manufacturing organisations, the cost of materials alone
happens to range from 40 % to 60 % of the total expenditure.
Obviously, a better management of material is
expected to ensure reduction in overall cost of
operation and smoothness in supply of inputs. |
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The
main concern of any Business management is to maximise the Return
on Investment (ROI). The relationship of various entities here
can be expressed as:
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Profit
Sales
ROI = ----------
X
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Sales
Current Asset + Fixed Asset |
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Thus ROI = profit margin + asset turnover rate
A firm's profit margin reflects management's ability to
control costs in relations to revenue. The asset turnover
rate reflects management's ability to effectively utilize
the firm's productive assets. Hence a firm can improve ROI
in three ways:
1) By reducing cost
2) By getting more sales from available assets or
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3) By some combination of the two
The relationship clearly establishes the place where efforts
can be expected to yield result. In an era of
globalisation and stiff competition, a firm can not
control profit or sales ,although it can put in
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all its
energy to do that. However, it is the management of
assets that if done in a way that reduces the overall
cost can fetch much better results. Thus , it is the
cost control that holds the key. Obviously, Materials
happens to be a critically important aspect that needs
to be managed well.
Materials Management as such is a key business function
that is responsible for co-ordination of planning,
sourcing, purchasing, moving , storing and controlling
materials in an optimum manner so as to provide a
pre-decided service to the customer at a minimum cost.
Materials Management's scope is vast. Its sub
functions include Materials planning |
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and control, Purchasing,
Stores and Inventory Management besides others.
Materials management can 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. In its process of
managing , materials management has such sub fields as
inventory management , value analysis, receiving, stores
and management of obsolete , slow moving and non moving.
The various activities represent these four functions:
-Planning and control- |
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-Purchasing ,
-Value analysis and
-Physical distribution |
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The planning and control functions are inventory
management , production planning and scheduling.
Purchasing functions are buying, subcontracting, value
analysis and follow ups. Distribution functions are
receiving , packaging, shipping, transportation and
storage. |
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