Question

Explain/discuss the (i) objectives of materials management (ii) objectives of inventory control (iii) reasons for keeping inventories (iv) scope of materials management (v) selection of suppliers (vi) ten ‘R’’s of purchasing.

Answer 1

i.) Objectives of Material Management:-

a) Low Price- Materials management helps in reducing the price by purchasing the adequate quantity of materials, which neither increases the cost of storing the material and nor there is opportunity cost due to lack of materials.

b) High Inventory turnover- Good materials management ensures that the average inventory locked up is less as compared to sales volume, this leads to a reduced carrying cost.

c) Continuity of Supply- Proper material management helps in maintaining the continuity of supply and does not hinder the production process. Thus, it ensures a smooth production process.

d) Quality- Material management also ensures the standard quality of material, as bad product leads to the poor end product.

e) Favorable Supplier relations- Material Management department also takes important steps to maintain healthy relations with the organization.

ii.) Objectives of Inventory Control:-

Inventory Control is also very important for every organization because of the following reasons:-

a.) Prevent Blockage of funds- Inventory Control is important because it prevents blockage of funds in the form of stocks by determining the adequate level of demand for goods.

b.) Uninterrupted Production and Consumer demand- Inventory control helps in ensuring the availability of needed inventory for uninterrupted production and meeting consumer demands.

c.) Scientific Basis- Inventory control provides a scientific basis for planning of inventory needs.

d.) Demand Fluctuations- Inventory Control helps in coping up with demand fluctuations by providing adequate inventory.

e.) Risk of obsolescence- It helps in reducing the loss of obsolescence and deterioration, etc.

iii.) Reasons for keeping Inventory:-

Different organizations have to maintain different levels of inventory depending upon the demand, their operational level, and considering their individual factors.

a.) Keeping Inventory is important to meet the unexpected demand that may arise in the future due to the happening of some unexpected events.

b.) Inventory of raw materials is important to have a smooth production in the manufacturing plant.

c.) Inventory is important to reduce the cost of transit as the repetitive purchases will lead to a rise in expenditure of the organization.

d.) Keeping an adequate level of inventory also helps in getting quantity discounts and also provides the opportunity to take advantage of economies of scale as well.