Material Control

Material Control

the systematic process of managing materials throughout the procurement, storage, usage, and disposal stages to ensure a consistent and uninterrupted supply of materials in the production process.

Accounting for Raw Material

1. Purchase of materials

2. Receipt of materials

3. Storage of materials

4. Issue of materials

5. Assignment of material costs to cost objects

Purchase of material

This includes initiating purchase requisitions, selecting suppliers and preparing purchase orders to acquire materials.

Receipt of material

This involves inspecting and verifying the quality, quantity, and condition of the materials upon delivery, followed by recording them in the receiving records. Once it is certified that the materials have been received as ordered, a payment can be made - ‘passing of the bill for payment’.

Storage of material

This involves properly storing the materials to ensure they are protected and accessible when needed.

Issue of material

Materials are issued to production or other departments based on material requisition forms, which are records of issued quantities.

Assignment of material costs to cost objects

Allocate the costs of materials to specific cost objects, such as products, job or departments.

Procurement Function

involves the activities necessary to acquire goods and services from suppliers.

Steps in the Procurement Process

1. Identify material needs

2. Prepare purchase requisition

3. Research suppliers

4. Request quotations

5. Evaluate suppliers

6. Negotiate and contract

7. Issue a purchase order

Identify material needs

Determine the types and quantities of materials required for production.

Prepare purchase requisition

The head of the production department or other authorities submits a purchase requisition to the purchasing manager. It is a formal request that specifies the materials to be purchased.

Research suppliers

Identify and evaluate potential suppliers based on criteria like price, quality, reliability, lead times, and the capacity to meet production needs.

Request quotations

Send a request for quotations to select suppliers, detailing material specifications, quantities, delivery requirements and other terms.

Evaluate suppliers

Review and assess received quotations to choose the supplier(s) that best meet the evaluation criteria.

Negotiate and contract

Negotiate with suppliers to finalize favourable terms, including pricing, payment options, delivery schedules, and quality standards. Create formal contracts following the negotiation.

Issue a purchase order

When the supplier has been selected, a purchase order is issued to formally request from the supplier, the specified materials at a the agreed-upon price and terms.

Main Objectives of Materials Control

• ensure availability of all types of material to minimize interruption

• purchase materials that are of the right quality to maintain standards

• prevent wastage and loss of materials due to obsolescence, theft or deterioration in quality

• optimise material costs while maintaining quality

• optimise inventory levels to avoid a shortage or excess stock

• to comply with laws and regulations about inventory handling storgae and disposal.

Principles of Material Control

1. Implement security measures

2. Establish authority

3. Segregation of duties

4. Set stock levels

5. Proper documentation

6. Conduct regular audits and reconciliation

Implement security measures

use physical securities like locked storage and surveillance cameras

Establish authority

specify who is authorized to order materials and ensure each transaction is approved by authority

Segregation of duties

assign different people to order, receive, store, and manage inventory to reduce fraud and errors.

Set stock levels

establish re-order, maximum and minimum levels for each material to manage stock effectively.

Proper documentation

use pre-numbered forms for requisitions, orders, receipts, inspections and issuing materials to ensure proper tracking.

Conduct regular audits and reconciliation

periodic internal checks ensure that all transactions involving materials are properly authorized.