Complexities of Materials Management

The value addition that an efficient material management function brings to an organization though well and widely recognized, in principle, seldom in practice, conditions conducive to it are embedded in the body management that is notwithstanding the complexities of the present day business world that necessitate them, for it to serve the organizational interests the way it is capable of and destined to.

Let it be stated, at the outset, that I have no pretensions, whatsoever, for being a practicing materials manager, in the stricter sense that is, or much less an expert on the subject, for my experience is limited and my exposure is peripheral, and consequently have no intention of arrogating to myself the air of an author, in this which is essentially a maiden foray to try to conceptualize the fascinating concept of materials management. Lest it should be inferred that the stray thoughts on which this exercise is based, whether worthy of attention, not to speak of one’s contemplation, are common practices, if it were so, discussed at length in published articles or so prevalent as to suffer any new exposition, I may hasten to add, even at the expense of owning up my naivety, that I am no serious reader of, the so-called management journals, the medium of exchanging information and knowledge, as to be aware of the same.

A share in the blame - major one if you please - for this contradiction goes to the materials personnel themselves in that their performance, or lack of it, accentuated as it is by the mounting inventories on the one hand and stock outs on the other, increasing overheads but gaping lead times, is only matched, even explained-by the organizational apprehensions in according the materials management the premier role so essential for its effective functioning. The initiative for breaking this impasse so inimical to the functional vitality of the material management rests with the personnel manning the function and the only means available to them is to improve their performance, made possible by way of systems management, so as to make an impact on the management in their quest for a rightful place at the top.

For the purpose of examining the available opportunities for improving the function, material management can be broadly categorized as that which caters to mass production, that which sustains the made to order and that which serves the mechanized mining, depending on the functional features and constraints of each.

MM in mass production

The main offshoot and indeed the sustenance of the industrial revolution is the mass manufacturing industry, which thereby had the oldest and relatively the more streamlined of the organizational structures in general, not excluding the material management. The output though substantial quantitatively is yet limited in variety, conditioned as such by the considerations of product mix, which keeps the variables within the limits of manageable proportions. The inputs can be standardized and are amenable to advance planning and inventory control, by bringing into play such  tools as, ABC analysis, EOQ concepts, maxima-minima levels, reorder quantity methods, fixed review cycle periods etc., even where raw material availability is scare and erratic. In view of the product specialization, the concept of value analysis can be pursued for the reduction in the input costs thereby increasing the profitability.

However, the lack of a long term taxation policy, substituted by ad hoc measures from time to time, which inevitably affect the market conditions can be take the best planned function by surprise and throw it out o gear. Fortunately for the Indian Industry the current Government seems to be appreciating the issues involved, as evidenced by its various industrial policies, and it is hoped that it will soon address itself to the task of further streamlining the taxation and other policies to enable a steady and regular inflow of essential raw materials for attaining near zero inventory.

Be that as it may, the MM function here has accredited itself reasonably well for without it the phenomenal growth in the mass manufacturing industry, both in the public and private sector in India, could not have been what it is. Though I have no statistics to back up, and indeed it would be worthwhile compiling the same, the general observation reveals that it is these forms of industry that it best run, for a profit that too and handsome one at that. Won’t their stock worth at the bourses prove the point, if proof were ever required?

MM in made-to-order 

By the very nature of its scope of business activity, in the made-to-order category, jobs on turnkey and sub-contracting basis are taken up here, which are only repetitive in exception than by rule. As can be expected, the jobs vary in size, complexity and the time required for execution, and the contract also involves the design and engineering, but within the parameters of customer specifications and requirements, which invariably vary and preclude standardization of even basic raw materials and components. Thus, the benefits of long term planning are not available to the MM department in so far as the procurement aspect is concerned - even ‘C’ class items need to be procured piecemeal. The failure to procure even a single item in time, criticality of it notwithstanding, and even if it were the cheapest one, can block huge investments in work-in-progress which in turn impedes the liquidity so vital to the working capital required for the completion of jobs in the pipeline besides the ones awaiting the start. The improper inflow of materials, coupled with the delayed outflow of finished goods, can strain the financial resources of the concern. Whereas in the types of industries discussed above and that follow below, where the cash flow is steady, guaranteed as such by the regular outflow of finished products or goods as the case may be, the same is not true with the made- to-order establishments, where contracted works often require long time planning and execution; if anything the complexities of the jobs carry with them inherent time and cost overruns. Thus, the challenges facing the MM function here and the opportunities available to it are to be viewed from this background in any attempt to study and analyze the functional aspects involved therein.

The key to the efficiency of these enterprises lies in their ability to plan and regulate the inflow of raw materials so as to blend with the ongoing requirements on the shop floor, a job by no means easy, considering the constraints involved, but just the same should be aimed at and planned for. There is more to it than meets the eye in that the vendors normally form a firm’s credit base, though short term, and herein lies the all important question of timing - the timing of obtaining the credit, of course, in the form of materials when the production cycle is ready for its utilization.

MM in mechanized mining

Owing to the geographical location of mines in remote areas, for removed from market places, often inaccessible to them to start with, the attendant situational handicaps entail a major operational constraint on the MM function - lengthened lead times, communication hiccups and transportation hassles among others.

Barring Bearings, V Belts, Oil seals etc., the ‘C’ class of the inventory that can be decoded from the manufacturer’s part number monopoly to be procured from the competitive market, the equipment manufacturers or their agents continue to be the sole supply source for the bulk of the spares, and herein lies the lead time hurdle for not only the prices are uncompetitive but also the supplies are tagged with long delivery schedules. In such a scenario, the MM options get reduced to that of between the devil and the deep sea that is either to stock in anticipation, which pushes the inventory cost or to get prepared for shocking stock-outs with all its attendant production losses, both of which would hurt the business economics. Though numerous, if not adequate, theories such as service levels, under stocking and overstocking costs have been developed for the economic management of spare parts inventory, their practical application though is limited at present, at any rate, in the Indian context. Notwithstanding in vogue codification of the inventory that identify its common items, which in turn help reduces its carrying cost, still the task of the MM man remains daunting, and he often finds himself controlled by the compulsions than controlling them.

The obsession of the production department to keep the production going, at any rate that is, and even unmindful of the economics involved, which if not abetted, at least condoned by the management due again to various compulsions at play, results in excessively safe levels of inventory of spare parts, and insurance items, ill-defined as they are. In such a situation, the MM man is unable to stem the tide which, anyway, threatens to overtake him, for two very compelling reasons: his own lack of experience and expertise in respect of the equipment for which he is called upon to make provisions and often his relatively junior level in the organizational setup vis-a-vis the heads of production, servicing and finance departments with whom he has to interact for performing his procurement function.

This imbalance, though, can be corrected by suitably raising the position of the MM head in the management ladder while simultaneously placing experienced engineers under him to render advice on the procurement needs pertaining to the machinery and equipment spares and other materials. This obviates the necessity of involving the production and /service personnel in procurement process, thereby making the decision making unbiased and realistic. A look at the Inventory Mountains in the public sector mines shall drive home the point more than any spirited argument can. Once the service levels are fixed by the management, under this dispensation, the MM Department can plan the overall strategy for a purposeful inventory management and optimum inventory holding.