Procurement Glossary
Materials management: definition, methods and strategic importance in Procurement
November 19, 2025
Materials management encompasses the systematic planning, management and control of all materials-related processes in companies. It combines procurement, warehousing and scheduling into an integrated system that ensures availability at optimum cost. Find out below what materials management means, which methods are used and how current developments affect practice.
Key Facts
- Materials management integrates procurement, warehousing and requirements planning in a holistic system
- The central objectives are security of supply, cost optimization and reduction of capital commitment
- Modern approaches use digital tools for demand forecasts and automated ordering processes
- Successful materials management reduces inventories by 15-25% while increasing availability at the same time
- AI-based systems enable more precise demand forecasts and proactive procurement strategies
Contents
Definition: Materials management - basics and core elements
Materials management refers to the comprehensive planning, control and monitoring of all material flows in a company, from procurement to utilization.
Core areas of materials management
Materials management is divided into several central functional areas that are closely interlinked:
- Determining requirements: systematic analysis and forecasting of material requirements
- Procurement: selection of suppliers and negotiation of conditions
- Warehousing: Optimal inventory management and warehouse organization
- Disposition: Timely provision of the required materials
Materials management vs. logistics
While procurement logistics primarily focuses on transportation and warehouse processes, materials management also includes strategic aspects such as supplier management and requirements planning. It acts as a superordinate control system for all material-related decisions.
Importance of materials management in Procurement
In modern Procurement , materials management forms the foundation for strategic procurement decisions. It enables data-based procurement strategies and supports the development of long-term supplier relationships through precise demand forecasts and optimized order cycles.
Methods and procedures for materials management
Successful materials management is based on proven methods and systematic approaches to optimizing material flows.
ABC analysis and material classification
The ABC analysis categorizes materials according to their value share and enables differentiated control. A materials with a high value share receive intensive support, while C materials are procured automatically. This classification into material classes forms the basis for specific procurement strategies.
Determination of demand and forecasting procedure
Modern demand assessment combines various forecasting methods:
- Consumption-based processes for continuous requirements
- Demand-based procedures for project-specific requirements
- Hybrid approaches with AI-supported algorithms
Optimal order quantities and warehousing
Optimal order quantities are determined using mathematical models such as the Andler formula or modern simulation methods. Ordering costs, storage costs and shortage costs are brought into a balanced relationship. Stockpiling strategies also take delivery times and fluctuations in demand into account.
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Key figures for controlling
Effective materials management requires the continuous monitoring of relevant key figures for performance measurement and optimization.
Inventory key figures and turnover rate
The inventory turnover rate measures the efficiency of stock utilization and shows potential for optimization. A high inventory turnover rate indicates efficient materials management, while low values indicate excess stock. The capital commitment period quantifies how long financial resources are tied up in material stocks.
Service level and availability
The service level measures the ability to fulfill material requirements on time. Typical target values are between 95-99%, depending on the material class and strategic importance. Delivery capability and shortage rate supplement this key figure with qualitative aspects of material supply.
Cost efficiency and savings
Material efficiency is measured using various cost indicators:
- Procurement costs per order and per material
- Storage costs as a percentage of the inventory value
- Savings through inventory optimization and process improvements
- Total cost of ownership for strategic materials
Risks, dependencies and countermeasures
Materials management is exposed to various risks that can be minimized through systematic analysis and preventive measures.
Supplier defaults and supply risks
Dependence on individual suppliers can lead to critical supply bottlenecks. Although single sourcing increases negotiating power, it harbors considerable default risks. Countermeasures include the development of alternative sources of supply and the implementation of early warning systems for risk detection.
Inventory risks and capital commitment
Excessive stock levels tie up capital unnecessarily and increase the risk of obsolescence. At the same time, low stock levels can lead to production downtime. Obsolescence management identifies materials at risk at an early stage and develops recycling strategies. Modern systems use predictive analyses to optimize inventory management.
Quality and compliance risks
Poor material quality can lead to production downtime and liability risks. Systematic supplier evaluation and suitability checks minimize these risks. Compliance violations in material procurement can have legal consequences and require continuous monitoring of supplier practices.
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Practical example
An automotive supplier implemented an integrated materials management system to optimize its C-parts procurement. By introducing automated demand determination and Kanban-based replenishment control, the company reduced its stock levels by 30% while increasing availability to 99.2%. The implementation included ABC classification of 15,000 items, setting up automatic order points and integrating supplier systems. Within 18 months, capital commitment fell by 2.1 million euros, while order frequency was reduced by 40%.
- Systematic material classification as the basis for differentiated control
- Automation significantly reduces manual effort and error rates
- Supplier integration enables just-in-time delivery without supply risks
Current developments and effects
Materials management is undergoing a fundamental transformation through digitalization and new technologies that significantly increase efficiency and transparency.
Digitalization and AI integration
Artificial intelligence is revolutionizing materials management through more precise demand forecasts and automated decision-making processes. AI in Procurement enables the analysis of complex data volumes and recognizes patterns that human planners would overlook. Machine learning algorithms continuously improve the quality of forecasts and reduce planning errors.
Supply chain visibility and transparency
Modern companies rely on supply chain visibility for real-time insights into material flows. IoT sensors and blockchain technology create seamless traceability from the supplier to the end consumer. This transparency enables proactive control and rapid responses to disruptions.
Sustainability and circular economy
Sustainable materials management is becoming increasingly important due to regulatory requirements and customer expectations. Companies are implementing circular economy concepts that systematically take material recycling and reuse into account. Supply chain law-compliant processes require additional documentation and monitoring of the origin of materials.
Conclusion
Materials management forms the strategic foundation for efficient procurement processes and optimal material supply. The integration of demand planning, procurement and warehousing enables significant cost savings while simultaneously increasing security of supply. Digital technologies and AI-based systems are revolutionizing traditional approaches and creating new opportunities for precise control and proactive optimization. Companies that strategically align their materials management achieve sustainable competitive advantages through reduced capital commitment and increased flexibility.
FAQ
What is the difference between materials management and Procurement?
Materials management encompasses the entire control of material flows from requirements planning to utilization, while Procurement focuses primarily on procurement processes and supplier management. Materials management acts as a superordinate system that integrates Procurement, warehousing and scheduling.
What role does ABC analysis play in materials management?
The ABC analysis categorizes materials according to their value share and enables differentiated management. A materials with a high value share receive intensive support and strategic procurement approaches, while C materials are efficiently managed by automated systems. This classification optimizes the use of resources and management effort.
How do you calculate optimal order quantities?
Optimal order quantities are calculated using mathematical models such as the Andler formula, which takes order costs, storage costs and demand into account. Modern approaches also use simulation methods and AI algorithms to integrate fluctuations in demand, delivery times and quantity discounts.
What advantages does digital materials management offer?
Digital materials management enables real-time monitoring of inventories, automated ordering processes and more precise demand forecasts thanks to AI support. Companies benefit from reduced stock levels, higher availability and improved transparency throughout the entire supply chain while simultaneously reducing costs.
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