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Materials management is concerned with decisions about purchasing materials

and services, inventories, production levels, staffing, patterns, schedules and distribution. Such decision often affects the entire organisation, either directly,

or indirectly. Operations and logistics therefore play a major role in supply- chain management. The belief in some quarters is that ideally, one person within the firm should make all such decisions concerned with materials management, more so that they are so inter-related. However, the sheer magnitude of this task in most firms (for example; with thousand of employees,

tens of thousands of inventory items, husbands of work centres, several plants and thousands of supplies) often makes the suggestion impossible.

The relevant question then is: what organisational structure is best suited to handle the materials management function? Traditionally, organisations have divided the responsibility for materials management among three departments:

purchasing, production control and distribution. This form of organisation is called a segmented structure. Here the manager of each of these departments reports to a different person. The approach obviously requires a great amount of coordination in order for its to achieve a competitive supply system.

Consequently, many firms have restructured to centralize most materials management task in one department, and the manager of that department elevated to a higher position in the organisation. This form of organisation is called an integrated structure, while the unified department is referred to as materials management or logistics management.

The advantage in this integrated structure is that it elevates the materials management function. In addition, it also recognizes that the various materials

management task are all part of the same supply chain management activity. In

other words, it brings together all the tasks related to the flows of materials, from the purchase of raw materials to the distribution of the finished product or

service. However, most firms have been found to adopt the hybrid structures, whereby two of the three departments (i.e. purchasing and production control)

typically report to the same executive. The distribution department then continues to report to the marketing manager.

Granted that the organisational structure and management hierarchy can help integrate decisions and activities in materials management, a lot of cross – functional coordination is still required. Let us use an example to buttress this important point: the marketing department typically makes forecasts and processes incoming customer orders. The production control department uses this information to organise work-force schedule and set work priorities.

Simultaneously the marketing department needs to know the current schedule and production capability when processing incoming orders for the purposes of

making realistic delivery promises. Immediately purchased materials have been received or furnished goods shipped, the accounting department must necessarily follow through with payments or billing. In order to achieve better

cross functional coordination, organisations may have to push responsibilities lower in the organisation; group traditional functions around each major product or service; or create inter-functional coordination units. It has also been

suggested that information systems and the reward system maybe used to facilitates coordination across the functional boundaries.

Figure 8.2 illustrates the scope of materials management and the typical domains of responsibility for purchasing, production control, and distribution for a baker. As can been seen from the figure, the flow of materials begins with

the purchase of raw materials (e.g. flour, eggs, sugar baking powder) and services (e.g. maintenance – technicians to service equipment) from outside suppliers. The incoming raw materials are stored and then converted into bread

by one or more processes, which involves some short-term storage of work-in- process inventory. The loaves of bread are stored for a brief period as finished

goods and later shipped by means of transportation services suppliers to various outlets with their distribution centres. Cycle is repeated as necessary, as

the firm responds to customer demand.

Figure 8.2: Materials management for a Bakery and the Domains of Responsibility for its Three Primary areas of operation

Outlet A

Distribution centre Outlet B

Distribution

DISTRIBUTION Transportation

Domain of responsibility services supplier

FG Storage

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Transformation process and WIP storage

RM Storage

Egg Sugar Flour Bakin g Maintenance

supplier supplier supplier powder services

supplier supplier

The purchasing department is often responsible for working with supplies to ensure the desired inward flow of materials and services. This department may

also be responsible for inventories of raw materials. The determination of production qualities and scheduling of machines and employees directly responsible for the production of goods and services are all within the domain

of the production central department. The department handling distribution is usually responsible for the outward flow of materials from the firm to its customers. It may also be responsible for finished goods inventories and selection of transportation suppliers. It can be clearly seen that materials management is responsible for coordinating the efforts of purchasing and distribution. Hence, as we have already mentioned, materials management decisions have a major cumulative effect on the profitability of a firm and thus

attract considerable managerial attention.