Explain why material management losses are not readily visible whereas sales and production losses are?
Material management is defined as “the planing, sourcing, purchasing, moving, storing and controlling of materials in an optimum manner so as to provide a predecided service to the customer at minimum cost.”
It includes various functions like materials planing, purchasing, receiving, stores and inventory control, scrap and surplus disposal. The losses incurred in these areas are termed as material management losses. As it consists of so many aspects, even if losses occur, you will realize it only at a much later stage.
Material mgt. acts as a cushion between supply and demand. Production and sales losses are basically losses incurred when the current sales is less than the break-even sales. Sales < Break-Even Sales , which thus causes losses. These losses are very visible as they are always accounted for. With a mere glimpse of the books of accounts one can see that a loss exists whereas material mgt. losses are not accounted for and are thus invisible.
Profit is derived as the Total income – Total Expenditure. While all other managerial functions like production, marketing, sales etc. , are evaluated on the basis of their achievements, materials mgt. is a profession which is judged by failures or stock outs.
Material Cost Index = Material Cost Of The Product
Production Cost Of The Product
It is very important to know the materials cost as 25% to 50% of a product cost is due to the materials used in it. The different areas in which material mgt. losses are incurred are:
• Material Planing & Control: This is the evaluation of material requirements after finding out the demand and supply position of the product.
The relationship between materials planing and other functions is as follows-
A lot of finances are incurred in purchasing materials. If a good evaluation is not made of the suppliers then the supplier can charge...