What Is Materials Management? A Guide for Manufacturers

It’s a fact of life for manufacturers: You need the right inputs to produce the right outputs. These inputs—hundreds, thousands, or more of raw materials, parts, components, and equipment—may be sourced from scores of different suppliers around the world. They must meet internal quality standards, comply with relevant regulations, and be handled properly to prevent damage or other loss. Then there’s the question of how much of each material to keep on hand to keep production lines humming without tying up working capital in excess inventory and holding costs.

Materials management brings these time-sensitive tasks together into a coordinated workflow so that the right materials are sourced from the right suppliers, at the right price, in the right quantity, at the right quality, and at the right time. If that sounds like a tall order, you’re (ahem) right.

What Is Materials Management in Manufacturing?

Materials management in manufacturing is the process of planning, purchasing, storing, moving, and controlling the materials required for manufacturing throughout their lifecycles to support ongoing production and meet customer demand.

The process of materials management encompasses procurement, inventory management, warehousing, logistics, and—in some cases—disposal or recycling. Beyond making sure that a manufacturer has what it needs on hand for uninterrupted, efficient operations, this function also focuses on keeping costs in check, minimizing waste, and complying with internal or regulatory standards. Effective materials management is essential for manufacturers, since materials make up a sizable percentage of production costs and, therefore, impact profitability and competitiveness.

Key Takeaways

• Materials management involves planning, purchasing, and controlling the flow of direct and indirect materials required for production.
• Coordinating these resources to optimize their availability, cost, and quality helps bolster production, reduce waste, and improve profitability.
• However, materials management can be challenging due to the complexity and interdependence of the processes involved.
• Investing in the right people, processes, and technology to manage materials throughout the supply chain is crucial.

Materials Management in the Manufacturing Industry Explained

Materials management in the manufacturing industry refers to the systematic approach a company takes to plan, organize, and control the flow of critical materials throughout its supply chain. These items include both direct materials—such as raw materials or parts—involved in producing a product, and indirect materials, which are supplies or equipment used in the production process but not directly traceable to a specific product. This comprehensive process encompasses everything from procurement and inventory control to warehousing, distribution, and disposal. As such, it requires data from throughout the enterprise and from external suppliers and partners and may involve multiple internal functions.

The fundamental aim of materials management is the strategic coordination of these essential resources to optimize their availability, quality, and cost-effectiveness. Manufacturers implement materials management processes and technologies to aid operations, reduce waste, and maintain profitability and competitive advantages in today’s dynamic and often disrupted manufacturing environment. Modern materials management also incorporates sustainable practices and environmental considerations to create more responsible resource utilization strategies that meet internal environmental, social, and governance standards and evolving regulatory requirements.

Why Does Materials Management Matter in the Manufacturing Industry?

Materials often account for the largest share of total manufacturing costs, though just how much needs to be invested depends on the industry. Electronics manufacturers requiring high-end components, for example, may have higher material costs than manufacturers of simpler electronic devices or those using more standard components.

In general, the cost of materials has been rising as well. Manufacturers anticipated a 5.8% average increase in raw material and other input costs in the second quarter of 2025, according to the National Association of Manufacturers, marking the highest increase since the second quarter of 2022.

So making the most of that expenditure is of utmost importance. A well-oiled materials management function can lead to significant savings for a company. But that’s not nearly all. Effective materials management can help achieve the following benefits:

• Correct materials specification and selection
• Regular, uninterrupted supply of materials to decrease the likelihood of interruptions in production
• Lower costs and increased efficiency, owing to refined procurement, inventory, and warehousing practices
• Greater visibility into and control over materials procurement, warehousing, and transportation costs
• Better inventory management and control to avoid costly stockouts or overstocking
• Minimization of waste related to excess inventory, defective materials, or inefficient processes
• Enhanced ability to mitigate supply chain disruptions or adapt in response
• Better flow of materials and goods, saving time and transportation costs
• Greater control over material quality
• Freed-up capital and resources for higher-value initiatives
• Fewer bottlenecks at various stages, from warehousing to production
• Faster manufacturing cycles
• Improved customer satisfaction

The 5 Rs of Materials Management

Although materials management processes may vary for different manufacturers—in keeping with their individual products, size, and regulatory requirements—a handful of principles apply across the board. The so-called “5 R’s” of materials management are high-level, universal goals for effective materials management that provide a framework for the smooth, cost-effective, and reliable flow of materials throughout a manufacturing operation:

1. Right supplier: Picking the right supplier means choosing ones that best meet the manufacturer’s needs. Considerations include the ability to offer competitive prices, provide high-quality materials, meet delivery deadlines, and work collaboratively. This “R” also calls for a diligent evaluation of potential suppliers to assess their reliability, financial stability, and performance. This is a necessary aspect of good materials management because having strong relationships with reputable suppliers helps deter supply chain risks and facilitates the smooth flow of materials needed for production.
2. Right price: The procurement of materials at the right price hinges on good market research, effective negotiation practices, and strategic sourcing strategies. The goal is to settle on the most cost-effective material sourcing options without sacrificing quality, thereby balancing costs with production standards. Finding the right materials at the right price is not a one-and-done type of practice. Manufacturers must monitor relevant trends—such as commodity price fluctuations or seasonal changes—to maintain favorable rates and protect or boost their profit margins.
3. Right quantity: Procuring the correct amount of material items is key. Too much material inventory ties up working capital and increases warehousing costs; too little can result in stockouts and production delays. A manufacturer will need to possess solid demand forecasting and inventory management capabilities to achieve that Goldilocks balance.
4. Right quality: Procuring materials that meet a manufacturer’s own specifications and standards is a prerequisite for consistency in finished products, the prevention of defects, and customer satisfaction. Investing in robust and orderly material inspection processes, as well as good supplier communication, is key to maintaining acceptable material quality levels and the ability to address issues as they arise.
5. Right time: Finally, materials must arrive when the manufacturer needs them—which is more complicated than it may sound. Indeed, it involves tight coordination with suppliers, staying on top of lead times, and implementing smooth logistics processes. Properly timed arrivals can prevent costly production delays and stoppages, as well as the accumulation of excess inventory; they’re also important for preserving efficient production workflows and meeting customer deadlines. Some manufacturers adopt lean or just-in-time methodologies with the aim of having materials on hand precisely when they need them. (More on those approaches later.)

The Core Components of Materials Management for Manufacturers

How well a manufacturer masters the core components of materials management can have a direct impact on its ability to produce goods efficiently, control costs, meet quality standards, and adapt quickly to changes in the marketplace or disruptions in its supply chain. The latter is increasingly an issue: Supply chain disruptions increased 38% in 2024 compared to the year prior, according to Resilinc, a significant upward swing from 2023 data, which found disruptions had grown by 5% over 2022.

The following foundational elements of materials management are broadly consistent across the manufacturing sector, though the specific approaches may vary based on company size, industry, production complexity, and product type. Each component can be supported (and often automated) by advanced technology systems, such as ERP platforms, inventory management software, supplier management systems, and data analytics, to help increase accuracy, enable end-to-end visibility, and improve demand forecasting and decision-making, among other benefits.

Raw Materials Procurement

The process of sourcing and purchasing the inputs necessary for manufacturing—from raw materials and parts to equipment—involves finding and assessing suppliers, negotiating pricing and terms, and scheduling timely delivery. Effective materials procurement relies on careful vetting and sustaining strong supplier relationships to achieve the desired balance of cost, quality, and reliability. Software tools that help with supplier evaluation, contract management, supplier relationship management, and order tracking can help manufacturers speed the procurement process and sweeten their deals.

Supply Chain Management

Supply chain management (SCM) coordinates the flow of materials from suppliers to the manufacturer and, sometimes, to the end customer of finished goods. This component of materials management can itself be broken down into multiple components, including logistics, transportation, warehousing, and distribution. The overarching aim of SCM is to get materials to the right place at the right time. Disruptions in the supply chain are common and can slow or stall production, so effective SCM is likely to incorporate mitigation strategies, such as multisourcing and contingency planning. Like other aspects of materials management, SCM is bolstered by purpose-built software that offers real-time tracking, analytics, route optimization, and automated alerts about potential disruptions, all of which boost supply chain efficiency and resilience.

Inventory Management

The tracking, storage, and movement of materials throughout the warehouse and production cycle all fall under the heading of inventory management. The intention is to stabilize inventory levels because keeping too much of a given material on hand can eat up capital and warehouse space, whereas not having enough in stock can lead to stockouts and production delays. Inventory management software can automate much of this, including tracking materials in stock using barcodes or RFID tags and reordering materials. Good inventory management technology also offers robust demand forecasting capabilities and advanced analytics to speed inventory turnover and avoid costly obsolescence.

In-Plant Material Handling

In-plant material handling focuses on the movement, storage, and protection of materials once they are in a manufacturing facility. It also monitors the use of equipment, such as conveyors, forklifts, automated guided vehicles (AGVs), and robotics, to transport raw materials, works in process, and finished goods from one workstation to another. A warehouse management system (WMS) can help manage material handling by reducing transit times, minimizing damage, increasing worker safety, and boosting overall throughput. When integrated with ERP software, a WMS can significantly sharpen end-to-end visibility into materials on the move.

Materials Requirement Planning

Materials requirement planning (MRP) determines which materials and what quantities a manufacturer will need to fulfill its sales forecasts, production schedules, available inventory, and material lead times. MRP systems automatically calculate the required materials, generate purchase and production orders, and make adjustments based on demand fluctuations or the effects of supply chain disruptions. An effective MRP practice can cut down on material inventory carrying costs and help a manufacturer become more responsive to changes in supply and demand. Most manufacturers use MRP modules that are built into modern ERP platforms to guide data-driven planning.

Manufacturing Roles Commonly Involved in Materials Management

Given the breadth of components involved in manufacturing materials management, there are naturally numerous roles commonly associated with handling these processes and tasks. As would be expected, for smaller manufacturing firms, individuals may take on multiple roles, whereas larger manufacturers may hire employees just to handle their specialized and distinct materials management efforts.

In most cases, however, those performing the work operate collaboratively to promote smooth operations and tighten cost control. Among the manufacturing roles commonly found in materials management:

• Material planners analyze demand forecasts, production schedules, and supplier lead times to align material deliveries with manufacturing requirements. They typically have a background in SCM, business, or industrial engineering and have experience using MRP and ERP systems.
• Materials analysts spend their time analyzing data related to material costs, inventory, and use. They can identify trends, optimize stock levels, and improve procurement processes. They supply planners with quantitative insights and cost analyses. Like material planners, they may have a background in SCM or engineering, but they might also boast a business analytics background that highlights solid data analysis skills and familiarity with inventory management software.
• Inventory analysts focus specifically on monitoring and managing material inventory levels to prevent stockouts or overstocking. Their duties include demand forecasting, setting reorder points, and performing inventory cycle counts, often using inventory management software to track material movements and generate their reports. They may have degrees in SCM, business administration, or related fields. They will need fluency in inventory management or, at a bare minimum, spreadsheet software.
• Inventory control managers oversee the entire inventory process. They are likely to implement inventory control tasks, lead inventory counts, and develop policies to maintain inventory accuracy. Those in this role collaborate closely with teams from procurement, production, and warehouses to safeguard materials and verify regulatory compliance. They usually have significant inventory-focused experience along with a degree in business, supply chain, or logistics. They may also have earned specific certifications, such as APICS CPIM (Certified in Planning and Inventory Management) offered by the Association for Supply Chain Management.
• Warehouse associates handle the steps needed for receiving, storing, organizing, and distributing materials within a warehouse. Their work includes picking, packing, and preparing items for shipment to satisfy production; operating warehouse equipment, such as forklifts and pallet jacks; and conducting regular inventory counts. They also follow storage protocols to minimize material damage or loss. Warehouse associates may have experience in using specific warehouse or logistics equipment, and they usually have at least a high school diploma. Some roles may require inventory management system know-how or certifications in operating specific equipment.
• Procurement specialists do more than buy materials. They take care of sourcing, assessing, and negotiating with suppliers, as well as managing supplier relationships and contracts that lead to timely and cost-effective materials procurement. They also track and record purchases, monitor supplier performance, and resolve issues. Solid skills in negotiation, analytics, and communication are a must, as is proficiency in ERP and procurement systems. Procurement specialists work closely with inventory and production teams to make sure manufacturing material requirements are met. They may have a degree in supply chain, business, or a related field and often have had a few years’ experience in purchasing, procurement, or supply chain roles.
• Supply chain managers oversee the flow of materials and related duties throughout the manufacturer’s supply chain from sourcing to delivery. They develop strategies for production planning, logistics, and inventory management; monitor supply chain performance using key performance indicators (KPIs); and initiate improvements as needed. Supply chain managers work with suppliers, as well as internal production, warehousing, and logistics teams. They tend to have degrees in supply chain, logistics, business, or engineering; those in senior roles may have a master’s degree. They are also skilled users of ERP/MRP systems and knowledgeable about various lean or continuous improvement methodologies (such as Six Sigma).
• Compliance managers are responsible for making sure the manufacturer adheres to relevant laws, regulations, and company policies related to material management (commonly concerning safety, environmental, and industry standards). Compliance managers conduct audits and assessments of internal processes and supplier practices, develop training and protocols to maintain regulatory compliance, investigate violations, and issue reports. They are likely to have several years of experience in compliance, quality assurance, or SCM, plus deep knowledge of relevant regulatory standards, such as those put forward by the Occupational Safety and Health Administration and the International Organization for Standardization. Bachelor’s degrees in business, supply chain, law, or relevant fields are common, and advanced certifications in compliance or risk management may be required.

Challenges for Manufacturers in Materials Management

The practice of materials management is inherently challenging due to the interdependence of multiple processes that, when not up to par, can harm production continuity, cost efficiency, product quality, and overall competitiveness. Following are descriptions of five frequent obstacles that manufacturers may encounter, why they matter, and how to address them:

• Raw material volatility: Global commodity prices rose 4.8% year-on-year, according to a March 2024 UN Trade and Development report, with prices for minerals, ores, and metals rising 23.6% to an all-time high. Indeed, prices for raw materials can fluctuate widely due to changes in demand, availability, geopolitical instability, and supply chain or logistical disruptions—throwing budgets off, impacting product pricing strategies, and sometimes halting production. By understanding these vulnerabilities, manufacturers can set up long-term contracts with suppliers to strengthen pricing stability, diversify their portfolios of suppliers so they are not dependent on a single source, and use forecasting tools to anticipate fluctuations. Having local sources of materials can also be beneficial.
• Poor material quality: Substandard quality in the materials that go into making products or that are necessary for the manufacturing process can lead to all sorts of problems. These might include production defects, safety hazards, costly rework, or product recalls. Material quality issues can add to a manufacturer’s costs, result in production downtime, and erode customer trust. Putting in place clear and stringent material quality-control processes, such as inspecting incoming materials and performing supplier audits, is a best practice. Manufacturers are also advised to strengthen their supplier relationships, agree on and document quality standards, present regular feedback for continuous improvement, and have backup suppliers to turn to should quality issues persist.
• Environmental compliance: Manufacturers face many regulations related to materials management, including waste disposal, materials sourcing, emissions, and sustainability targets. Failure to comply can result in financial and legal penalties, production halts, and reputational harm. Thus, it’s important to stay up to date on any regulations (local, national, and international) related to materials. Proactively adopting sustainable practices, such as waste reduction, recycling, and sourcing environmentally responsible materials, can help, too. It’s also possible to integrate compliance tracking into enterprise systems (such as an ERP platform) for ongoing compliance and documentation.
• Equipment failures: Issues related to material handling or production equipment can create operational disruptions, delayed deliveries, and damaged materials. Equipment downtime can decrease productivity and lead to costly emergency repairs and missed production timelines. Implementing preventive maintenance programs, regularly performing equipment inspections, and investing in performance-monitoring or predictive maintenance technologies—aided, for example, by equipment sensor data and advanced, AI-enabled analytics—can help address issues before they end in failures. Contingency planning, including keeping backup equipment and parts on hand for critical systems, is a best practice.
• Supply chain visibility: Transparency into a manufacturer’s material supply chain, including order status, shipment information, and supplier performance, helps drive better decision-making and adaptability to issues. However, many manufacturers have limited visibility into their networks of supply, which can increase the possibility of stockouts, overstocking, delayed deliveries, misaligned decisions, and miscommunications. An ERP platform that centralizes data and performs real-time tracking across core functions provides greater visibility and facilitates enhanced coordination among teams and with suppliers. Manufacturers can also implement RFID tags, barcodes, or other digital tracking approaches for better monitoring of materials. Sharing data and forecasts with supply chain partners also promotes greater transparency, collaboration, and problem-solving.

Materials Management Best Practices for Manufacturers

Despite variations in materials management practices generated by company size, product type, production volumes, supply chain complexity, and technologies implemented, some proven best practices can provide almost any manufacturer with a framework designed to increase efficiency, reduce costs, enhance product quality, and improve operations.

Leverage Lean Manufacturing Principles

Lean manufacturing is a method of minimizing waste and costs in production processes while still delivering quality products on time. Applied to materials management, the lean approach sees to it that items move efficiently from procurement and receiving to production, incurring the least amount of handling and delays. One way to achieve this is through value-stream mapping, which identifies and then eliminates activities that do not add value to the materials management process. Another lean principle is to create flow by removing functional barriers; in the context of materials management, this might involve reorganizing workspaces or rethinking how and where materials are stored so that they are easier to reach. Some manufacturers see value in applying just-in-time (JIT) inventory methods--ordering only what they need and arranging it to arrive exactly when they need it--thereby lowering their inventory carrying costs and limiting losses stemming from obsolescence or damage.

Develop Material Quality Standards

Creating and documenting clear material specifications and quality requirements are important actions to take to make sure purchased materials meet the manufacturer’s defined standards and that everyone involved internally is working from the same assumptions. This minimizes defects, the need for additional rework, and production interruptions. It’s also vital to communicate standards to suppliers, write them into contracts, and train internal staff in material inspection and quality assurance procedures.

Optimize Your Warehouse Layout

A well-designed warehouse can significantly improve materials management by maximizing capacity, shortening travel time, increasing picking speed, trimming labor costs, and decreasing order fulfillment time. An optimized warehouse layout also means fewer misplaced or damaged materials. Some common solutions include grouping the most frequently used materials close to production and implementing clear and consistent labels and signage to simplify material identification. Layouts should be regularly reviewed and revised as needed, as usage patterns and material requirements change over time.

Use Inventory Control Methods

Companies can implement various inventory control techniques to maintain optimal levels of materials. ABC inventory analysis—which classifies the value of materials based on their importance to the manufacturer or their rate of consumption—and JIT are two examples of inventory control methods that focus on inventory levels to decrease holding costs and enhance cash flow. ABC analysis concentrates on the most critical items, while JIT works well for fast-moving or expensive materials. Manufacturers can also put in place physical controls, such as using barcodes or RFID tags in conjunction with inventory management software, to track materials in real time.

Regularly Audit Supplier Performance

Ongoing supplier audits confirm that material vendors are meeting the agreed-on quality, reliability, and delivery standards. Regularly auditing supplier performance serves to identify shortcomings early on, lessens the chances of running into material shortages or substandard items, and upholds continuous planning in material supply chain management. A layered approach offers the greatest benefits: Manufacturers can establish and track KPIs (such as on-time delivery and defect rate), collect qualitative feedback (related to communications, for example), and schedule routine evaluations. Just as important as the audit is the development of a corrective action plan, created in collaboration with the supplier.

Optimize Materials Management With ERP Software

Investing in modern ERP software gives manufacturers an integrated platform on which to build an effective materials management practice. NetSuite for Manufacturing is an all-in-one, cloud-based solution designed specifically for the wide variety of companies that operate in this sector, offering real-time visibility into materials across the entire supply chain from procurement to production. What’s more, native integration of supply chain and production data with finance and business data equips the multiple teams involved in material management to coordinate, collaborate, and make well-informed materials management decisions.

NetSuite also offers software designed for the building materials industry, which had long relied on spreadsheets, siloed systems, or legacy software to manage their operations—often to their detriment. NetSuite’s ERP software for building materials manufacturers and wholesale distributors is a single ERP platform that incorporates inventory management, demand planning, procurement, and supply chain management for increased transparency and operational support. For example, the inventory management module dynamically manages material reorder points and sets preferred stock levels based on average lead times, seasonal and historical demand, and days’ supply on hand. The software’s supply chain control tower provides oversight into materials, wherever they are, to help planners, purchasers, and production schedulers better coordinate and make data-driven decisions through the materials management lifecycle.

Materials management may sound like grunt work, but it can have a strategic-level impact on a manufacturing business. The supply chain disruptions and sudden swings in demand that have arisen during this decade have made it abundantly clear how important managing the flow of materials from sourcing to consumption can be. When manufacturers invest in the core processes, skilled professionals, and enterprise technology that form the foundation for effective materials management, they can successfully plan, procure, and manage materials throughout their supply chain. That’s good news across the board. It helps keep costs in check, quality and compliance requirements met, production running smoothly, profitability rising, and—last but not least—customers satisfied.

Materials Management for Manufacturers FAQs

What are the main objectives of materials management?

The main objective of materials management in manufacturing is to maintain the seamless, efficient, and cost-effective flow of materials from procurement through production to meet customer demand without interruption. This objective is often distilled into what are referred to as the “5 Rs” of materials management: right supplier, right price, right quantity, right quality, and right time.

What is the materials management workflow?

A materials management workflow is a structured process that includes the planning, purchasing, movement, storage, and control of materials required for production or operations. This workflow typically includes multiple sequential steps: planning and forecasting of material requirements, procurement from reliable suppliers, receiving, quality control and inspection (prior to entering inventory or production), storage and warehousing, inventory management and control, internal transport and distribution between locations or from storage to production, and ultimate use or consumption.

What are the three main functions of materials management?

The three main functions of materials management typically include:

• Material planning and control: Determining that the right materials are ordered in the right quantities at the right time for ongoing production needs.
• Purchasing or procurement: Sourcing and acquiring materials from suppliers and negotiating the best quality, price, and/or delivery terms.
• Inventory and warehousing: Overseeing the storage, tracking, and handling of materials to have enough materials on hand, maintain their quality, and keep holding costs in check.