Raw materials management: simple explanation on why it is necessary

Why a raw materials management process?

Materials management is a core supply chain function in every enterprise. Basically, materials management is the capability firms use to plan total material requirements. Plan is the keyword.

The process behind materials management is scheduling and is an important component of any ERP solutions that is used to manage stocks and production. The goal of the process is to be ahead to see the issues coming. Being ahead will provide an unbroken chain of components for production to manufacture goods on time for customers.

For raw materials, this Materials Management process changes a bit. Indeed, as a raw materials seller, you are key on the chain because you are the first. If your orders are late, everyone will be late. That means that we will take bigger margins than for classical materials management.

Raw materials management: simple explanation on why it is necessary : Raw materials being used on a production line by robots
Raw materials being used on a production line by robots

The challenge here is to extract your resources at the right time. If you do it too early, you will have big warehousing storage costs and face ERP implementation challenges.

If you do it too late, you take some huge risks for the whole supply chain. The best is to take some margins. Let’s see how to take them in a good way with a 3 steps process.

Step one: Get an emergency stock

Some raw materials depend on Mother Nature. That means that there could be natural issues, or even natural disasters, that could prevent you from doing your work.

Imagine that you extract coal from mines. If an earthquake makes the mine unusable for one month. You still need to provide coal for one month to your customers. On the other hand, you cannot prepare for everything.

If a virus forces your workers to stay home for one entire year, it would not be good to have a one-year long safety stock because it would cost you a lot.

To calculate the safety stock, let’s have an example. Following Eli Schragenheim’s works on supply chain, you should always have a third of the average consumption rate in safety stock. So, if your customers order you 100 tons every week in total, you should have 30 tons as your safety stock. If you need to use your emergency stock, you must do some emergency work with added hours to your workers to retrieve that stock.

The Objective and the Challenge of Improving the Supply Chain

Step two: Create a constant flow of production

Now that you have a solid emergency stock, you are not afraid of natural issues. There could still be some issues with work irregularities. Those inconsistencies could lead to using your safety stock. This is not something you want. You should know all your orders perfectly and know your average production to be balanced.

Step three: Always be balanced

Raw materials orders have the advantage to fluctuate slowly. Indeed, there are so many orders that it does not move a lot. Use this balance to improve your production lines, using Lean Six Sigma and continuous improvement methods.Lean Six Sigma on Wikipedia

Materials Management introduction online training
Materials Management introduction online training

Raw Materials Management need at a glance

Once again, the raw materials management role is key. Without it, no one can be on time and the whole supply chain processes are at risk of being late.

On the other hands, the management process is not the hardest to handle because it usually produces only one raw material type, coal for example.

This means that the process should focus on it, and also always being careful about possible natural issues that might occur out of company control.

To avoid this kind of issues, make sure the whole team is up to date with latest best practices by accessing SAP training online and getting upskilled on raw materials management.

Operational procurement online training
Operational procurement online training