4[1]. purchase mgt

8/7/2019 4[1]. PURCHASE MGT

1/18

2/27/20111

Purchase management

What is purchase management

function of materials management procuring the inputs for productionfunction at minimum cost to the systemobjective. Scope is external and also internal to theorganization.Importance of purchase management: purchase decisions commit a very largeportion of financial resource of the

company deal with large number of externalagencies represent companys reputation

negotiate and finalize deals integrity is of utmost importanceObjectives or goals of purchasing primary objective is making inputsavailable at minimum cost to system output


2/18

2/27/20112

The inputs to be made available are rawmaterials, semi finished items, bought out

items etc. focus is on system out put rather than onmicro level objectives.Goals of purchasingRight price, right quantity, right quality,right place and right time, right terms,right mode of transportationRight price right price is determined by costing the

production process of the supplier allowing reasonable profit for thesupplier and insisting and helping toreduce cost

Tender system should be used to identifylowest responsible bidder rather thanlowest bidder Principles normally used to ensure rightprice are cost structure and learning curve


3/18

2/27/20113

Right material

fulfill QCD expectations of external

customer Continuous value analysis, varietyreduction and standardization exercisesRight price

analyze costing of production processof the supplier allow reasonable profit for the supplier,insist & help reducing cost tender system to identify lowestresponsible bidder rather than lowestbidder principles normally used to ensureright price are cost structure and

learning curveRight quality

adherence to the standard orspecifications

standards like DIN, BS, IS etc.


4/18

2/27/20114

engineering drawings - manufactured,semi finished or a spare samples can be given as reference for

quality. Grades may be specified right quality meets customers QCDexpectations

vague, incomplete and incorrectspecifications resulting into wrong supplyor no supplyRight quantity neither shortage nor excess is right

quantity EOQ, inventory control systems, ABCanalysis price structure, discounts, availability,favorable reciprocal relations etc.

Right place place of conversion process - shortsupply Place of delivery will have an impact on

price and availability


5/18

2/27/20115

Right time material availability as per production

schedule Lead-time influences meeting theproduction schedule Lead time is time betweenexperiencing the need and arrival of

material pre contractual administrative leadtime, manufacturing, transportation andinspection time.

constantly try and reduce lead time asthis has an impact on inventory urgent purchase when unexpectedsituations come upRight source source is right if the Q,C,Dexpectations of the customer arefulfilled. source influences meeting expectations

of the external customer


6/18

2/27/20116

.Right terms or contracts

all legal aspects should be considered.

Buyer

organization should never be indulging

in illegal practice.

interest is to be protected if any dispute

emerges with suppliers.

Negotiations

irrelevant in perfect competition

attempt to extract maximum benefit

buyer should be careful not to lose a

good supplier

reasonable profit should never be cut

costing should be the base

growth and long term business

influencing factors are number of

sources, availability, price, delivery,

discount etc.


7/18

2/27/20117

Help buyers to find more economicalways of working rather than hut the processImportant features of good negotiators analytical mind, patience, optimism,persuasiveness, strategic, resourcefulness,originality[refuse to be stereotyped]purchase budget

purchasing accounts for large portion ofcorporate finance purchase budgets materials and servicesrequirements of all functionspurchase systems

in an organizationPurchase Systems purchase systems are pre purchase system,ordering system and post purchase system systems and procedures for reducingvariations and errors due to individuality. makes performing the function simple andless prone to errors for accountability, smooth running of

purchasing function.


8/18

2/27/20118

Pre purchase SystemVarious activities controlled by this systemare requisitioning, selection of suppliersand obtaining & evaluating quotations.Requisitions: made by anyone in the organization. separate requisition form for capitalequipment requisition for an item shall be made in astandard format all relevant information like quantity,specifications and authorization

competence to authorize the purchase making purchase activity easier and lesstime consuming.Traveling requisitions: minimum level for a stock item based onR

OL. permanent document with specification,authorization and quantity requiredpermanently marked returns to indenting department after

purchase is initiated


9/18

2/27/20119

Inquiries:

standard formats for making inquiries forsupply of a particular product in the marketfor. forms boldly declaring that they are notexplicit or implicit purchase orders2. Ordering system

Purchase order is the most importantelement in ordering system. purchase order is released after selectingthe supplier and finalizing the price and

other conditions of sale. purchase order is a legal document. Contents of the purchase order- purchaseorder reference number, specifications,

quantity required, delivery schedule, price,discounts, shipping instructions, locationsignature of the authorized officer, detailedterms and conditions


10/18

2/27/201110

several number of colour coded copies- supplier, receiving department, indentingdepartment & finance department3. Post purchase system

This system includes follow upprocedures, receipt and checking invoices.Follow up procedures:

expensive activity for an organization.this should be minimized and made moreeffective. Proactive elimination ofduplication

FSN analysis to fix follow up frequency Follow up responsibility is assigned tobuyers responsible for areas in whichsuppliers are situated.

Receipt: to eliminate defects in receipt processproactively. systematic record of all receipts, carrier

details and descriptions


11/18

2/27/201111

record is in chronological sequence ofarrival of supplies. inspection of consignments and payment to

suppliers In many organizations a receipt sectionhandles this activity centrallyInvoice checking supplier sends his invoice to customers

finance Invoice checking system checks PO terms,reciept details, quantity received, inspectionreports [accepted quantity and rejectedquantity], losses, damages etc. coordination with finance department forpayment to suppliers.Special purchasing systemsForward buying:

long term contract with buyers commitment for a long period onschedules, price and discount based onavailability of the item, financial position,EOQ for that item

no speculation in this buying


12/18

2/27/201112

Tender buying practiced in public sector companies andprivate companies

tendering systems in practice open tendering system adopted by publicsector companies. bids are invited by advertisements in

papers. lowest bidder is chosen time consuming and expensive Private companies make a list of well

known and serious bidders in the marketand invite tenders from these bidders. tenders are opened lowest bidder isidentified. ensure that the lowest bidder is also a

responsible bidder and capable of meetingQCD expectationBlanket orderoperative for a for a long time, c

category material, price is fixed


13/18

2/27/201113

Delivery is as and when customer desires,supplier to hold inventory. benefits are no of orders are less, inventoryis passed on to the supplierZero stock Supplier holds the stock for the buyer Supplier and customer are close to each

other and the inputs flow in a pipe line or ona conveyer. Obsolescence is minimized. Suppliers production schedule is as percustomers. Dedicated supplier and customer

Rate contract after finalizing the rates throughnegotiations for a definite period, customershall buy required quantity from thespecified supplier. Railways and other government Rate contracts normally do not specify leadtime. Hence suppliers demand higher rates for

early delivery


14/18

2/27/201114

Reciprocity buying from once own customersshould be done only if terms and conditionsare same. Less efficient manufacturers resort to this discouragement of competitionSystems contract

use single document as purchase order andalso delivery challan reduction in administration expensesImportance of source

source of market intelligence[marketconditions, industrial climate, what is new?] crucial for product quality member in the value chain import substitution, cost reduction, valueimprovementsearching for sourcetrade magazines, telephone directory, tradeshows, publications by DGTD, DGS&D

net


15/18

2/27/201115

inquiries by buyers and request bysuppliers to be included in the approved

suppliers list meet, visitpreliminary screening and selectionevaluate on a zero to ten scale the positionof the potential supplier on

general house keeping and maintenance production and technical competence quality control and inspection facilities financial resources

other companies supplied to progresiveness of management morale of the work force ability to meet QCD expectations cordial relations and courtesy

negotiations and trial orders terms of delivery, price and quality arenegotiated and finalized trial order is placed for a small quantity togauge mutual acceptance


16/18

2/27/201116

what strengthens customer supplierrelations? Clear cut need described fully, quantity

and technical needs clear personal rapport between buyer & supplier vendors meet to discuss performance ofsupplied materials, quality and technicalperformance

Vendor rating allotment of marks based on performance for short listing for apportioning requirements How evaluation is done?

1.Delivery performance, weightage?a. adherence to time scheduleb. adherence to quantity schedule2. Quality performance3. Price performance

Special aspects in source selection local sources - merits demeritssubcontracting - better utilization of manpower, better scheduling of facility forcritical operation

small, big - merits, demerits


17/18

2/27/201117

Make or buy decisionswhat do we make? Why & When do wemake?

Whatever is crucial to the quality of finalout put core competence of the company propritorial and confidential design &

knowledge is involved special skills and technology is involved in house capacity is unutilized fear of monopoly by supplier suppliers are unreliable and not

transparentorder quantity is smallwhat & Why do we out source or buy? Important but not critical core competence of supplier more expensive to make in house overheads are very high in house to balance the production line planned maintenance programmes

sudden breakdown


18/18

2/27/201118

4[1]. purchase mgt

Documents