Thursday, 4 September 2014

Evolution of Material Management

Authored by  Junaid Khan

Material management is an essential business function and it is concerned with planning, acquisition and flow of materials within the supply chain. Material is one of the four basic resources (labor, material, equipment and capital) of any industrial of business activity. For a long time, it was regarded as a routine function with less importance but over the years, with accelerating economic, technological, societal and environmental changes, this function has become more important, more complex and more professional.

The evolution of material management can be grouped in three separate periods, early part of twentieth century; the function of materials management was largely reactive and clerical. Its contribution to profit was not perceived as significant and management did not attach much importance to it.

In the second period, two important developments took place. After second world was, demand for consumer goods increased greatly. This created a shortage of raw material, leading to innovative concepts like substitution of material and value engineering. Then the oil crisis of the 1970s occurred. Petroleum products and their derivatives become scarce. There was sharp rise in the cost of raw material and this led to the increase in cost of inventory.

Purchase managers were forced to adopt innovative and proactive measure such as looking for new sources of supply, finding substitute products, applying value analysis in purchased products, specification change that allowed use of less costly and scarce materials, use of scientific methods of inventory control policies, partnerships, involving carefully chosen suppliers at an early stage in design and development, and increasing integration of information system.

All of the above action allowed purchasing to fulfill its role as an expense controller for the organization and helped to increase regard for the purchase department as a contributor to profit. Towards the end of twentieth century firms believed in purchasing fewer items. Generally, they were purchasing raw material and converting these into end products. Consequently, the concept of outsourcing emerged and firms tried to outsource items which did not fall under their core competency. Responsibility of outsourcing fell on the purchase managers; this responsibility makes material manager as key role player in all organizations.