Materials Management: Core Concepts and ERP Solutions

Take a moment and imagine this all-too-familiar scenario: As a manufacturing floor manager, you’re responsible for overseeing the timely production (and subsequent delivery) of your product. Maybe it’s a retail clothing line or auto parts for a major automaker. 

Regardless of the product, you know that materials management is key to keeping things running smoothly and meeting production goals.

Yet time and again, you run into the same issue: the direct materials that make up your product aren’t arriving on time, or worse, they’re not arriving at all. This means production is delayed, customers are left waiting and frustrated, and your company’s bottom line takes a hit.

Materials management is a crucial part of the manufacturing process. Ensuring that products are delivered on time and meet quality standards is critical. It involves more than just ordering and receiving materials—it also includes inventory management, supplier relationships, and transportation logistics.

What Is Materials Management?

At its core, materials management is the process of planning, organizing, and controlling the flow of materials throughout the manufacturing lifecycle. It encompasses a wide range of activities, including:

• Procurement: Identifying and selecting suppliers, negotiating contracts, and purchasing raw materials and components.
• Inventory Management: Tracking and maintaining optimal stock levels to ensure materials are available when needed while minimizing carrying costs.
• Quality Control: Inspecting incoming materials to ensure they meet specifications and quality standards.
• Warehousing: Storing and managing raw materials, work-in-progress, and finished goods efficiently and effectively.
• Transportation: Coordinating the movement of materials from suppliers to the manufacturing facility and finished products to customers.

In addition to these activities, the extended supply chain plays a crucial role in planning total material requirements and determining inventory levels across the supply chain. Supply chain management goes hand in hand with materials management.

Materials management aims to ensure that the right materials are available at the right time, in the right quantity, and at the right price. By optimizing these processes, manufacturers can reduce lead times, minimize inventory costs, and improve overall operational efficiency.

Materials Management Gone Bad

While effective materials management is essential for manufacturing success, getting it wrong can lead to many problems that can ripple throughout the organization. Ensuring that the right materials are available at the right time and in the right quantity to meet customer demand is crucial in this process.

1. Stock-Outs and Production Delays Frustrating Customers

One of the most significant risks of poor materials management is failing to plan and meet material requirements, which can lead to the depletion of critical components or raw materials. When this happens, production grinds to a halt, leading to costly downtime and missed deadlines. Not only does this impact your ability to fulfill customer orders, but it can also damage your reputation and strain relationships with key clients.

2. Poor Inventory Management Leading to Excess Inventory and Carrying Costs

On the flip side, overordering or poor demand forecasting can lead to excess inventory sitting in your warehouse. This ties up valuable working capital and increases carrying costs like storage, insurance, and obsolescence. 

Managing excess inventory also involves handling indirect materials, which include supplies like cleaning products, oil, glue, and safety equipment. In extreme cases, you may even need to write off expired or outdated materials, further eating into your bottom line.

3. Quality Issues and Rework

When materials don’t meet specifications or quality standards, it can lead to defects and rework downstream in the production process. This wastes time and resources and can result in subpar finished products reaching customers. Quality issues can have severe consequences in industries with strict regulatory requirements, such as aerospace or medical devices, including costly recalls or legal liabilities.

4. Supplier Relationship Conflicts

Materials management isn’t just about what happens within your four walls – it also involves managing supplier relationships. Poor communication, lack of visibility, or inconsistent quality can strain these relationships and disrupt the supply chain. 

In some cases, manufacturers may even face the risk of supplier insolvency or bankruptcy, leaving them scrambling to find alternative sources of critical materials. A materials manager oversees these relationships, ensuring effective communication and quality control to mitigate such risks.

5. Relying On Manual Processes and Data Silos

Many manufacturers still rely on manual processes and disconnected systems to manage their materials. This leads to data silos, lack of visibility, and inefficiencies that can compound over time. 

For example, managers may make decisions based on outdated or inaccurate information without real-time inventory tracking, leading to stockouts or overordering. Manual processes are also prone to errors and can be time-consuming, taking valuable resources away from more strategic initiatives.

6. Lack of Traceability and Compliance

With so many interconnected global supply chains, traceability is more important than ever. Manufacturers need to be able to track materials from raw inputs to finished products, ensuring compliance with regulations and customer requirements. Without robust traceability processes, manufacturers may risk using counterfeit or substandard components, leading to quality issues or even legal penalties.

How ERP Systems Solve Materials Management Challenges

An Enterprise Resource Planning (ERP) system is an integrated software platform that helps organizations manage and automate key business processes, including finance, accounting, procurement, inventory management, supply chain management, and production. By providing a single source of truth across the entire enterprise, ERP systems help break down data silos, improve visibility, and enable better decision-making.

Understanding the life cycle and environmental impacts of goods and materials is crucial, and performing a life cycle assessment (LCA) can provide valuable insights into a product’s life.

What are the Types of ERP Systems?

There are several types of ERP systems available, and each has its own unique advantages to your particular business – particularly when it comes to material management in manufacturing:

1. On-Premises ERP: Installed locally on a company’s own servers and managed by its IT staff.
2. Cloud-Based ERP: Hosted on remote servers and accessed via the internet, typically on a subscription basis.
3. Hybrid ERP: Combines elements of both on-premises and cloud-based systems, allowing for greater flexibility and customization.
4. Industry-Specific ERP: Tailored to the unique needs of specific industries, such as Automotive, Food & Beverage, or Distribution.

Regardless of the type of ERP system you choose, they all share a common goal: to streamline and optimize business processes, including materials management. 

Here’s how the right ERP solution can help maximize your materials management:

1. Real-Time Inventory Visibility

One key benefit of an ERP system is its ability to provide real-time visibility into inventory levels, locations, and movements. By integrating data from across the organization, including procurement, production, and logistics, ERP systems help manufacturers avoid stockouts and overstocking. This real-time visibility also enables better decision-making, such as when to reorder materials or adjust production schedules based on changing demand.

2. Automated Procurement and Supplier Management

ERP systems streamline procurement processes by automating order management tasks such as purchase order creation, approval workflows, and supplier communication. This saves time, reduces errors, and helps ensure that materials are ordered and received on time. Many ERP systems provide tools for supplier performance tracking and risk management, helping manufacturers build stronger, more resilient supply chains.

3. Quality Management and Traceability

Many ERP systems include built-in quality management capabilities like inspections, testing, and certification tracking. This helps manufacturers ensure that incoming materials meet specifications and quality standards, reducing the risk of defects and rework downstream. 

ERP systems also provide end-to-end traceability, enabling manufacturers to track materials from raw inputs to finished products. This is particularly important for industries with strict regulatory requirements, such as food and beverage or pharmaceuticals.

4. Demand Forecasting and Planning

ERP systems provide powerful tools for demand forecasting and production planning. By analyzing historical sales data, market trends, and customer orders, ERP systems can help manufacturers predict future demand and adjust production schedules. This helps optimize inventory levels, reduce waste, and improve customer service by ensuring that products are delivered on time.

5. Integration and Automation

Perhaps the most significant benefit of an ERP system is its ability to integrate and automate key business processes. ERP systems help manufacturers make better, more informed decisions by providing a single source of truth. Automated workflows and alerts also help streamline processes, reduce manual errors, and save valuable time and resources for more strategic initiatives.

With ERP, manufacturers can overcome materials management challenges and drive significant improvements in efficiency, cost savings, and customer satisfaction. 

However, implementing an ERP system is not a one-size-fits-all solution – it requires careful planning, change management, and continuous improvement to realize its full potential.

Materials Management Best Practices

While ERP systems provide a foundation for materials management, manufacturers can optimize their processes through these best practices:

1. Embrace Sustainable Materials Management: Implement eco-friendly strategies to reduce costs and environmental impact across industries.
2. Develop a Robust Materials Management Strategy: Set optimal inventory levels based on forecasting, lead times, and safety stock requirements. Review and adjust parameters regularly.
3. Foster Strong Supplier Relationships: Build collaborative relationships, share forecasts, and identify improvement and risk mitigation opportunities.
4. Implement Lean Inventory Practices: Use Just-in-Time (JIT) and Kanban to reduce waste, improve efficiency, and minimize inventory carrying costs.
5. Leverage Automation and Technology: Utilize tools like barcoding, RFID systems, robotics, and AS/RS to improve accuracy, traceability, and warehouse efficiency.
6. Continuously Measure and Improve Performance: Establish and track KPIs such as inventory turnover and on-time delivery to drive optimization.
7. Invest in Training and Employee Engagement: Provide regular training and foster a culture of continuous improvement at all organizational levels.
8. Embrace Circular Economy Principles: Design for reusability, source sustainably, and minimize waste throughout the supply chain to enhance brand reputation and drive cost savings.

By implementing these practices, manufacturers can enhance their materials management processes and drive better business outcomes.

Top ERP Systems for Materials Management

Choosing the right ERP system is critical for manufacturers looking to optimize their materials management processes. 

With so many options available, it can be challenging to know where to start. Here are some of the top ERP systems available on the market today that offer robust material management ERP software features:

When evaluating ERP systems for materials management, you’ll want to consider factors such as ease of use, scalability, integration capabilities, and industry-specific ERP software. Keep an eye out for systems that offer real-time visibility, automation, and advanced analytics – as data can help you to uncover and understand exactly what’s happening within your materials management processes.

Continue Comparing the Best ERP Systems

Choosing the right ERP system can be daunting, especially given the wide range of options available and the unique needs of different industries. That’s where Top10ERP​.org comes in.

Our ERP software comparison tool is designed to help manufacturers find the best ERP system for their specific industry and requirements. 

Whether you’re in the automotive, aerospace, food and beverage, or any other manufacturing sector, we can help you identify the ERP systems that offer the materials management capabilities you need to succeed. You can also contact us for expert selection advice.

With our expert insights and user-friendly platform, finding the right ERP system for your materials management needs has never been easier. So, if you’re ready to take your materials management processes to the next level, visit Top10ERP​.org today and start exploring the ERP systems that can help you achieve your goals.