Thursday, March 17
SAP Material Management Introduction
Material Management Introduction
Managing materials is a must in manufacturing and trading industries. MM is the internal part of supply chain. Generally, for every big company, supply chain is implemented in IT. In such a IT framework, ERP is central part of a the supply chain.
The phases that occur in the life of a material are sourcing, procurement, storing, processing or producing, distributing and finally selling. This is what is called as supply chain.
Within the scope of SAP, MM module covers only sourcing, supply (procurement) and inventory management
Once MM module is implemented in a company, it can benefit by getting answers to the following questions.
What to buy ?
When to Buy ?
How much to Buy ?
Where to buy from ?
Material
A material is something which can be touched and is part of a business. All the materials can not stored. There are few materials which need to consumed as soon they are received. Such material are called non-stock materials. There are various categories of materials viz raw, semi-finished, finished etc.
Procurement
Procurement covers two processes : Sourcing and supply. Sourcing should be done proactively so that lack of material to the business do not occur.
Sourcing
To do sourcing, a strategy should be in place. Sourcing and supply are part of procurement and generally they are managed by same group of people in most companies.
Essentially Sourcing means to find sources of materials. Sourcing can take place within the organization if the organization is a huge one. Sourcing as already mentioned should be strategic. Sourcing always keeps finding the best vendors for materials, finding competitive prices, ensuring that supplies to the company are smooth during political, climatic or any other kind of emergencies.
When a new vendor is added to the vendor list, materials are sourced on a trial basis. When sourcing for a material is done, R&D team or marketing team is instructed not to over specify the material needed. IF over specification is done, then the vendor might find it difficult to produce and hence cost would increase. Also the number of vendors producing that material will be less. When a new material is produced by the vendor on demand then sourcing team can guarantee some minimum volume of purchase. This generally happens.
One of the important thing to consider while sourcing is the tax structure of the country or location where vendor is located. Various benefits can be drawn by the sourcing team by studying the tax structure and tax holidays of that location.
In huge companies like P&G, chevron etc there are two types of sourcing teams viz local and global sourcing teams. These teams have to be in continuous coordination to make sure that best materials at best prices and with best quality are being supplied to the business. They need to make sure that supply of materials to the business never stops or never becomes inadequate.
If you are in a manufacturing company and in the sourcing team then you should know the following points very well to source well for your company
Understand what the material does ? ie what if the function of the material you are going to source
What is its need in the organization ? where will it be used, which process will it be used in ?
The chemicals or the substance used to make that material.
For safety purpose you should be aware about the nature of the material and the chemical with which it is made up.
How was it manufactured?
After sourcing, how will you store it? how will the packaging me done ? how will it be transported ? what all legal documents need to be made to transport it? and obviously the cost of the material.
But if you are in a trading industry, try to learn the following things about the material being sourced.
Understand the requirement of the customer, function of the material, how much comfort and safety does the material provide ? how to store, handle and package the material ? how to transport and do the legal documentation while transporting the material. And again, the cost of the material.
Now the question is : how to find a source ?
Various things can be done to find a source. You can publish tenders and vendors will approach you with their offerings. Visiting various trade fairs. Go through a directory of traders and manufacturers. Asking a vendor to create a particular kind of a material.
Once the vendor has been finalized, a sequence of steps follow for sourcing the materials :
Negotiate for price and volume of supply, prepare a contract, ensure proper supply of materials to the business as per contract terms and conditions. Evaluate the performance of vendor. Decide whether to Continue with the vendor of hunt for another vendor.
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