Materials management: Definition and tasks

Materials management encompasses the planning, control and monitoring of all material movements in a company. The aim is to provide the required materials 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 so that production, purchasing, warehousing, logistics and sales work together smoothly.

Whether raw materials, auxiliaries, 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 balance or information is available too late, delays, production stoppages and unnecessary costs arise. A structured materials management creates transparency and helps companies steer their processes more economically and reliably.

What is materials management?

Materials management refers to all tasks associated with supplying a company with material and managing the material flow. In a narrower sense, it ensures that production is always supplied with the materials needed. In a broader sense, it encompasses all material-related functions from procurement 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 considers not only 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. Exactly here lies one of the biggest challenges: on the one hand, companies must remain able to deliver and avoid production outages. On the other hand, capital binding, warehousing costs and overstock should be kept as low as possible.

Materials management helps to manage this goal conflict. It supports companies in planning material requirements, coordinating procurement processes, monitoring inventories and transparently mapping material flows. This enables companies to react faster, work more economically and improve their delivery capability.

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: Inventory 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 delivery capability: 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 designed to 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 management and evaluation into a seamless process.

Functions of Materials Management

The tasks of materials management range from needs assessment to disposal. Depending on the company, industry and depth of manufacturing, individual tasks can vary in their emphasis.

Material Requirements Planning

Material requirements planning determines which materials are needed when and in what quantity. Foundations for this include, among other things, customer orders, production plans, bill of materials, inventories, minimum stock levels, reorder lead times and consumption data.

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

Disposition

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

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

Procurement and Purchasing

Procurement ensures that the materials needed 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 department works closely with materials management. Only when needs, inventories, and lead times are transparent can orders be planned sensibly and bottlenecks avoided.

Goods Receipt and Quality Inspection

Upon receipt, delivered materials are accepted, inspected, and recorded in the system. This concerns not only quantities but also quality, documents, batches, serial numbers, and possible deviations.

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

Storage and Inventory Management

Storage ensures that materials are stored in an orderly, 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, receiving, transferring, issuing, 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 internal transports, picking, production supply, and provisioning at workstations or machines.

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

Disposal and Recycling

Materials management also includes the disposal and recycling of residual materials, rejects, packaging, or no longer needed materials. 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 as having different levels of breadth. 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

Integrated materials management combines central tasks such as procurement, storage, transport, and disposal. The aim is not to view material flows in isolation, but to plan and control them in a cohesive way.

Extended Integrated Materials Management

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

Total Integrated Materials Management

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

Discover all functions around the ERP warehouse in Abas.

Materials Management vs. Inventory Management: What Is the Difference?

The terms materials management and inventory management are often used similarly, but describe different emphases.

Materials Management refers mainly to manufacturing companies. It focuses on supplying production with materials and controlling material flows.

Inventory Management is more commonly used in trade. It is mainly about purchasing, storing, selling and controlling the flow of goods.

In practice, the two terms overlap, especially when ERP systems map production, storage, purchasing and distribution 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 schedules, available materials, lead times, inventories, machine capacities and customer delivery dates. Even small delays can affect several subsequent processes.

Typical challenges in manufacturing include:

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

A seamless Materials Management helps to 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 requirements.

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

A good Material Requirements Planning takes into account current orders, planned production, open orders, inventories, safety stock and replenishment times. This allows companies to synchronize procurement and production more effectively.

Inventory Management in Materials Management

Inventories are necessary to remain able to deliver. 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. Here, 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. Too low stocks increase the risk of stockouts and production stoppages. Too high stocks lead to capital binding, warehousing costs and possibly obsolete or no longer needed materials.

Key Metrics of Materials Management

Key figures help to make materials management measurable and controllable. They show whether inventories, costs, delivery reliability, and processes are in the desired balance.

• Inventory turnover rate: Indicates how often an average inventory is turned over within a period.
• Average storage duration: Indicates how long materials, on average, remain in storage.
• Capital binding: Describes how much capital is tied up in inventories.
• Service level: Indicates how reliably demands or customer orders can be fulfilled.
• Stock-out costs: Arise when material is not available in time.
• Procurement costs: Include costs related to inquiry, ordering, delivery and processing.
• Inventory accuracy: Shows how well system stock and actual warehouse stock match.

Regular monitoring allows developments to be recognized early. 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 several methods for optimizing materials management. They help classify materials, forecast demands more accurately, and manage inventories more economically.

ABC Analysis

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

XYZ Analysis

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

Just-in-Time

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

Make-or-Buy Decision

In the Make-or-Buy decision, it is assessed whether a part should be produced in-house 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 order or production proposals based on needs, stocks and replenishment times. This reduces manual work and supports proactive material planning.

Materials Management and ERP Systems

An ERP system connects materials management with other areas of the business. This creates a shared data base 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 in turn affect purchasing and production, leading to warehouse movements, cost postings and delivery dates. When this information resides in separate systems, media discontinuities, coordination effort and sources of error 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 production proposals
• transparent inventory management
• goods receipt and quality inspection
• batch and serial number management
• picking and shipping processes
• inventory procedures
• evaluations, key figures and reporting
• interfaces to production, purchasing, sales and finance

Advantages of Digital Materials Management

Digital materials management creates transparency across material flows, inventories and needs. Companies can more quickly identify where bottlenecks threaten, which materials are overstocked, and which orders or production jobs will be required.

The main advantages are:

• Less manual work: Automated proposals and postings/reconciliations reduce effort in day-to-day operations.
• Current stock: Material movements are recorded in a timely manner and are available to all relevant areas.
• Better planning: Demand, stock, lead time and production can be more closely coordinated.
• Higher delivery capability: Shortages and delays can be detected earlier.
• Lower costs: Inventory, storage costs and procurement effort can be optimized.
• More transparency: Material flows and responsibilities become traceable.
• Better decisions: Key figures and analyses support purchasing, production and management.

Materials Management with Abas ERP

Abas ERP helps medium-sized manufacturing companies plan, manage and control 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 warehouses, packing materials and containers. Through serial numbers, batch management and item traceability, material movements remain traceable. Also picking, packing planning and common inventory procedures are supported.

For day-to-day operations in the warehouse, Abas ERP offers a Scanner solution Warehouse for efficient data capture. This allows warehouse movements to be recorded digitally and processes such as put-away, inter-warehouse transfers, picking or inventory counting to be supported more efficiently.

In planning as well, Abas ERP helps to transparently control material requirements. Material requirements can trigger procurement proposals, which are reviewed and subsequently translated into purchase orders or production orders. This enables closer integration of material supply, production and purchasing.

Typical Challenges in Materials Management

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

Typical problems include:

• unclear or outdated inventory data
• too high inventories and capital binding
• shortages and urgent express orders
• manual alignments between purchasing, warehousing and production
• missing transparency about delivery dates and needs
• media breaks between different IT systems
• laborious inventories
• insufficient traceability of batches or serial numbers

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

Key Success Factors for Efficient Materials Management

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

• Transparent master data: Items, suppliers, storage locations and bill of materials must be complete and up-to-date.
• Realistic planning parameters: Minimum stock levels, replenishment times and lot sizes should be regularly reviewed.
• End-to-end processes: Purchasing, warehousing, manufacturing and sales should operate on the same data basis.
• Regular controlling: Key figures make visible 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 Company Processes

Materials management is far more than the mere provisioning of material. It connects planning, procurement, storage, production, logistics and controlling into a central management area in the company. Efficient materials management ensures materials are available, inventories remain economical and processes function 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 shared data base. This leads to more transparency, better delivery reliability and a solid foundation for economical and future-proof processes.