Introduction to Integrated Systems Approach to Materials Management

This chapter sets the tone for an integrated approach to materials management. The importance of materials management is highlighted due to material cost being the most dominant cost component in the overall cost of production or service as well as due to the fact that materials comprise very critical resource input to any productive activity and their timely availability is important for the production schedules to be met. Inventory is the most important barometer indicating the efficiency with which a company manages its material resources. Inventory is defined as the “necessary but idle resource having economic value.” High inventory turnover ratio signifies better management of materials and vice versa. Symptoms of poor materials management include low turnover ratio, high materials waste, long lead time, uncertainty of demand and lead times, high percentage of dead stock, poor storage and warehousing methods, excessive variety of parts due lack of standardization, disabling organization structure, poor purchasing practices, and unreliable vendors. Among the reasons of low productivity of materials are lack of systems approach, ignoring hidden costs in preference to visible costs, not employing scientific approaches to inventory control, poor demand forecasting, and high degree of uncertainty in the demand and supply environment. An integrated approach is proposed to look at all these issues in totality to get the maximum value out of every dollar invested in materials.