In general materials management is concerned with
bringing materials from outside of an organization to the point of production
and moving in processes.

If we distinguish between the operational function
of customer service and the resultant goal of customer value and satisfaction,
this discussion leads us to conclude the consequences of materials management
are lower costs and improved customer value and satisfaction to achieve
competitive advantage. Industry reports support this contention (Performance
Management Group, 2001).

The fast developing and technologically changing
environment has placed before the materials manager a tremendously challenging
task and responsibility. The task is really herculean when we recognize the
importance of materials, equipments and components per annum that go into the
production channels. The challenges become tough because the money tied up in
inventory or materials and equipment are enourmous.In fact, in many organizations
(big and small), materials form the largest single expenditure item. According
to Subramanian (1974) an analysis of the financial statements of a large number
of private and public sector organizations indicates that materials account for
nearly 60% of the total expenditure. Consequently, the importance of materials
management lies in the fact that any significant contribution made by the
materials manager in reducing materials cost will go a long way in improving
the profitability and rate of return on investment. Such increase in
profitability, no doubt, can be affected by increasing sales.

While
most of the writing and discussion on materials management is on acquisition
and standards, much of the day to day work conducted in materials management deals
with quality assurance issues. Parts and materials are tested, both before
purchase orders are placed and during use, to ensure there are no short or long
term issues that would disrupt the supply chain. This aspect of material
management is most important to the heavily automated industries, since failure
rates due to faulty parts can slow or even stop production lines, throwing off
timetables for production goals (Mentzer, 2001).

The
other major component of materials management is standards compliance. There
are standards that are followed in supply chain management that are critical to
a supply chain’s function. For example, a supply chain that uses just-in-time
or lean replenishment requires absolute perfection in the shipping of parts and
materials from purchasing agent to warehouse to place of destination. Systems
reliant on vendor-managed inventories must have up-to-date computerized
inventories and robust ordering systems for outlying vendors to place orders on
(Hax and Candea, 2004).

Effective
materials management according to Christine
(2002) is essential in order to provide the best service to customers, produce
at maximum efficiency, and manage inventories at predetermined levels to
stabilize investments in inventories. Successful materials management requires
the development of a highly integrated and coordinated system involving sales
forecasting, purchasing, receiving, storage, production, shipping, and actual
sales. Both the theory of costing
materials and inventories and the practical mechanics of cost
calculations and record keeping must be considered.

Costing materials
present some important, often complex, and sometime highly controversial
questions concerning the costing of materials used in production and the cost
of inventory remaining to be consumed in a future period. In financial accounting, the subject is
usually presented as a problem of inventory
valuation; in cost accounting,
the primary problem is the determination of the cost of various materials
consumed in production and a proper charge to cost of goods sold
(Freeman, 2006).