Materials management: Definition, tasks, and efficient planning for companies.

Materials management encompasses the planning, control, and monitoring of all material movements in a company. The aim is to provide the materials needed at the right time, in the right place, in the right quantity, and in the appropriate quality. Especially in manufacturing companies, efficient materials management is crucial to ensure smooth collaboration among production, purchasing, warehousing, logistics, and sales.

Whether raw materials, auxiliary materials, operating materials, purchased parts, trading goods, spare parts, or finished products: material flows influence costs, delivery capability, quality, liquidity, and customer satisfaction. When material is missing, inventories do not match, or information is available too late, delays, production interruptions, and unnecessary costs arise. A structured materials management creates transparency and helps companies make their processes more economical and reliable.

What is Materials Management?

Materials management encompasses all tasks associated with supplying a company with material and controlling the material flow. In a narrow sense, it ensures that production is always supplied with the necessary materials. In a broader sense, it includes all material-related functions from purchasing through storage, internal transport and production to distribution and disposal.

Thus, materials management is a central part of corporate logistics and closely linked to purchasing, production, warehousing, sales, financial accounting and controlling. It does not only consider individual orders or stock movements, but the entire goods and material flow in the company.

Why is Materials Management Important?

A well-organized materials management ensures that materials are available without building unnecessarily high stock levels. This is precisely where one of the biggest challenges lies: companies must remain able to deliver and avoid production outages on the one hand. On the other hand, capital binding, storage costs, and overstocking should be kept as low as possible.

Materials management helps to manage this trade-off. It supports companies in planning material requirements, coordinating procurement processes, monitoring inventories, and mapping material flows transparently. As a result, companies can respond faster, work more economically, and improve their deliverability.

The Goals of Materials Management

Materials management pursues several goals that influence each other. At the center is the secure and economical supply of the company with material.

• Supply security: Required materials should be available on time and in full.
• Cost reduction: Procurement, storage, transport, and process costs should be reduced.
• Inventory optimization: Stock levels should be neither too high nor too low.
• Reduce capital binding: Less tied-up capital in the warehouse improves liquidity.
• Quality assurance: Materials must meet the required quality standards.
• Improve deliverability: Customer orders should be fulfilled reliably and on time.
• Create transparency: Inventories, requirements, movements and costs should be traceable at all times.
• Support sustainability: Material use, disposal and recycling should be resource-efficient.

The Six-R Rule of Materials Management

A well-known fundamental principle of materials management is the Six-R Rule. It describes what a functioning material supply must deliver:

• the right material
• in the right quantity
• in the right quality
• at the right time
• at the right place
• at the right cost

In practice, this means: Materials management is not only a matter of purchasing. It connects planning, procurement, storage, transport, provisioning, inventory control and evaluation into a seamless process.

Tasks of Materials Management

The tasks of materials management range from needs assessment to disposal. Depending on the company, industry and degree of in-house production, individual tasks can be more or less pronounced.

Material Requirements Planning

Material requirements planning determines which materials are needed when and in what quantity. The basis includes, among others, customer orders, production plans, bills of materials, inventories, minimum inventories, replenishment times and consumption data.

A precise material requirements planning prevents shortfalls and overstock. It is especially important when companies work with many variants, long lead times or fluctuating demand.

Disposition

Disposition ensures that from determined requirements concrete procurement or manufacturing proposals arise. It checks whether material is already available, must be ordered, can be internally relocated or provided through in-house production.

In manufacturing companies, disposition is closely linked with production planning, purchasing and warehouse. It largely determines whether orders can be processed on time and cost-effectively.

Procurement and Purchasing

Procurement ensures that needed materials are available on time and under favorable conditions. This includes supplier selection, inquiry processes, orders, delivery dates, price negotiations and the evaluation of supplier performance.

An efficient purchasing works closely with materials management. Only when needs, inventories and delivery times are transparent can orders be planned sensibly and bottlenecks avoided.

Goods Receipt and Quality Inspection

During goods receipt, delivered materials are accepted, inspected and recorded in the system. It is not only about quantities but also about quality, documents, batches, serial numbers and possible deviations.

A reliable incoming goods inspection is important so that defective or incomplete deliveries are detected early and do not cause problems later in production or shipping.

Warehouse Storage and Inventory Management

Storage ensures that materials are stored in an organized, available and traceable manner. Inventory management documents which materials are available in which quantities and at which storage locations.

A good warehouse management supports, among other things, put-away, transfers, picking, inventory, batch management, serial-number management and container management. This makes material movements traceable and inventories more reliable.

Intra-plant Transport and Material Provisioning

Materials must not only be procured and stored, but also delivered to the right place at the right time. This includes intra-plant transports, order picking, production supply and provisioning at workplaces or machines.

Especially in manufacturing, this area affects production efficiency. If material is provided late, incorrectly or incompletely, waiting times and disruptions occur.

Disposal and Recycling

Disposal and recycling of residual materials, rejects, packaging or no longer needed materials are also part of materials management. This area is increasingly important due to sustainability requirements, cost awareness and regulatory guidelines.

Materials Management in the Narrower and Broader Sense

Materials management can be defined at different widths. In the narrower sense it focuses on supplying production with material. In the broader sense it includes additional tasks along the entire material flow.

Integrated Materials Management

The integrated materials management combines central tasks such as procurement, storage, transport and disposal. The goal is not to view material flows in isolation, but to plan and control them in connection.

Extended Integrated Materials Management

In extended integrated materials management, production planning and control are additionally included. This allows material requirements to be coordinated more closely with manufacturing orders, capacities and deadlines.

Total Integrated Materials Management

The total integrated materials management also includes distribution. This makes the entire material and goods flow from procurement through production to delivery viewable. This form is particularly relevant when companies want to optimize deliverability, lead times, inventories and capacities holistically.

Materials management vs. Goods management: What's the Difference?

The terms Materials management and Goods management are often used interchangeably, but describe different emphases.

Materials management refers mainly to manufacturing companies. It focuses on the supply of materials to production and the control of material flows.

Goods management is more commonly used in commerce. There it is mainly about purchasing, storing, selling and controlling the flow of goods.

In practice, both terms overlap, especially when ERP systems map production, warehousing, purchasing and sales processes. For manufacturing companies, however, the term Materials management is usually more precise.

Materials management in manufacturing

In manufacturing companies, materials management is particularly demanding. Production orders depend on bills of materials, work plans, available materials, lead times, inventory levels, machine capacities and customer delivery deadlines. Even small delays can affect several subsequent processes.

Typical challenges in manufacturing include:

• varying material requirements
• long or uncertain lead times
• many variants and customer-specific orders
• complex bills of materials
• high requirements for batch- or serial-number tracking
• close coordination between purchasing, warehousing, production and sales
• high cost pressure from inventories and tied-up capital

End-to-end materials management helps make this complexity manageable. It ensures that material data, inventories, requirements and movements are centrally available and that decisions can be made on a reliable data basis.

Material Requirements Planning: Foundation for Stable Processes

Material requirements planning is one of the most important tasks of Materials management. It answers the question of which material is needed when. It distinguishes between different types of demand.

• Primary demand: demand for saleable finished products or assemblies.
• Secondary demand: demand for individual parts, raw materials or components required for production.
• Tertiary demand: demand for auxiliary and operating materials, tools or consumables.

A good material requirements planning takes into account current orders, planned production, open orders, inventory levels, safety stock and replenishment times. This allows companies to better synchronize procurement and production.

Inventory Management in Materials Management

Inventories are necessary to stay able to meet deliveries. At the same time, they incur costs and tie up capital. Therefore, inventory management is one of the most important control tasks of Materials management.

Companies must decide which materials to stock and in what quantities. In doing so, minimum stock, reorder point, safety stock, maximum stock, consumption, lead time and replenishment risk play important roles.

The goal is not automatically the lowest stock, but the economically right stock level. Too-low stock increases the risk of stockouts and production stoppages. Too-high stock leads to capital tying up, storage costs and possibly outdated or no longer needed materials.

Key Metrics of Materials Management

Key metrics help to make materials management measurable and controllable. They show whether inventories, costs, service levels, and processes are in the desired balance.

• Inventory turnover: Indicates how often an average inventory is turned over within a given period.
• Average storage duration: Indicates how long materials stay in storage on average.
• Capital tied up: Describes how much capital is tied up in inventories.
• Service level: Indicates how reliably needs or customer orders can be fulfilled.
• Stockout costs: Arise when material is not available in time.
• Procurement costs: Include costs around requests, ordering, delivery and handling.
• Inventory accuracy: Indicates how well system inventory and actual stock match.

Regular controlling allows early recognition of developments. For example, companies can see whether inventories are rising, certain materials are frequently missing, or individual suppliers repeatedly cause delays.

Methods for Optimizing Materials Management

There are various methods for optimizing materials management. They help classify materials, forecast needs more accurately, and manage inventories more economically.

ABC Analysis

The ABC analysis classifies materials according to their value share. A-items have a high value share and should be planned and monitored particularly closely. C-items usually have a low value share, but occur in large quantities. This distinction helps to sensibly prioritize the effort of control.

XYZ Analysis

The XYZ analysis assesses materials by the predictability of their consumption. X-items have a regular consumption, Z-items vary strongly. This allows companies to better decide which planning methods and safety stocks are suitable.

Just-in-Time

Just-in-Time aims to provide materials as closely as possible to when they are needed. This can reduce inventory, but requires stable supply chains, reliable processes and close coordination with suppliers.

Make-or-Buy Decision

In the Make-or-Buy decision, it is checked whether a part should be manufactured internally or procured externally. Costs, capacities, lead times, quality, know-how and strategic dependencies play a role.

Automated Order Proposals

Modern ERP systems can automatically generate orders or production proposals based on needs, inventories and replenishment times. This reduces manual work and supports forward-looking material planning.

Materials Management and ERP Systems

An ERP system connects materials management with other areas of the company. This creates a common data basis for purchasing, warehousing, production, sales, finance and controlling.

This is especially important because material decisions are rarely made in isolation. A customer order can trigger material requirements, which influence purchasing and production, leading to warehouse movements, cost postings and delivery dates. If this information is in separate systems, media disruptions, coordination effort and sources of errors arise.

An integrated ERP software supports materials management, among other things, through:

• central master data for items, suppliers and storage locations
• automatic demand determination
• order and manufacturing proposals
• transparent inventory management
• goods receipt and quality inspection
• lot and serial number management
• picking and shipping processes
• inventory counting procedures
• analyses, key figures and reporting
• interfaces to production, purchasing, sales and finance

Benefits of Digital Materials Management

Digital materials management provides visibility into material flows, inventories and needs. Companies can quickly see where bottlenecks may occur, which materials are overstocked and which orders or production orders are required.

The main advantages are:

• Less manual work: Automated proposals and postings reduce the workload in day-to-day operations.
• Current inventories: Material movements are captured promptly and available to all relevant departments.
• Better planning: Demand, stock, lead time and production can be aligned more closely.
• Higher delivery reliability: Stockouts and delays can be detected earlier.
• Lower costs: Inventories, warehousing costs and procurement effort can be optimized.
• More transparency: Material flows and responsibilities become traceable.
• Better decisions: KPIs and analytics support purchasing, production and management.

Materials Management with Abas ERP

Abas ERP supports medium-sized manufacturing companies in planning, managing and controlling material movements between suppliers, customers, production and warehouses. The ERP software connects warehousing, purchasing, manufacturing, sales, finance and controlling in a single integrated system.

In warehousing, Abas ERP supports, among other things, the management and monitoring of inventories, consignment stock, packaging materials and containers. Through serial numbers, batch management and item traceability, material movements remain traceable. Shipping picking, packing planning and common inventory procedures are also supported.

For operational work in the warehouse, Abas ERP offers a scanner solution Warehouse for efficient data capture. This allows warehouse movements to be captured digitally and processes such as put-away, rearrangement, outbound processing, picking or inventory counting to be supported more efficiently.

Also in planning, Abas ERP helps to transparently control material requirements. Material requirements can trigger procurement proposals, which are checked and subsequently converted into purchase orders or manufacturing orders. This allows material supply, production and purchasing to be more closely integrated.

Typical Challenges in Materials Management

Many companies in materials management face similar challenges. Supply chains are becoming more complex, customers expect short delivery times, material prices fluctuate, and production schedules change faster than before.

Typical problems are:

• unclear or outdated inventory data
• too high inventories and capital tied up
• stockouts and urgent express orders
• manual coordination between purchasing, warehousing and production
• lack of transparency about delivery dates and needs
• media discontinuities between different IT systems
• labor-intensive inventories
• insufficient traceability of batches or serial numbers

These challenges cannot be solved by simply increasing stock. What matters is a better integration of planning, data, processes and responsibilities.

Key Factors for Efficient Materials Management

To ensure sustainable materials management, companies should follow a few principles:

• Transparent master data: Items, suppliers, storage locations and bills of materials must be complete and up-to-date.
• Realistic planning parameters: Minimum stock, replenishment times and lot sizes should be regularly reviewed.
• End-to-end processes: Purchasing, warehousing, production and sales should operate on the same data basis.
• Regular controlling: Key figures reveal where optimization potential exists.
• Digital support: ERP software reduces manual work and improves process reliability.
• Flexibility: Companies must be able to respond to supply bottlenecks, demand changes and production changes.

Conclusion: Materials Management as the Foundation of Stable Business Processes

Efficient materials management is far more than merely providing material. It connects planning, procurement, storage, production, logistics and controlling into a central management area of the company. Efficient materials management ensures that materials are available, inventories stay economical and processes operate reliably.

Manufacturing companies in particular benefit from integrated ERP support. With Abas ERP, material movements, warehouse processes, planning, purchasing and production can be controlled on a common data basis. This results in greater transparency, better delivery capability and a solid foundation for economical and future-proof processes.