SEM3 OP Materials Management 1

Vikas Choudhary 200323811 Materials Management
Q1 . "Materials Constitute The Most Fruitful Area Of Cost Reduction". Discuss... A1. Materials are the key resource in an industrial enterprise since no production can be possible without the use of materials. Hence, materials play a very important role in the functioning on any business enterprise , they also form a major constituent of the cost of the product and therefore proper control over their procurement ,storage, movement and consumption is necessary. Materials Management as defined by Bethel is "controlling the kind , amount, location, movement and timing of the various commodities used in and produced by the industrial enterprise." It thus , involves all activities concerning material right from the time the need for the material is established until they are issued to the production department of any industrial unit. Hence Materials management can also be defined as " The grouping of management functions supporting the complete cycle of material flow, from purchasing and transportation of materials to production planning to the warehousing, shipping, and distribution of the finished product " The functions of Materials management include : Materials Planning Purchasing Inventory Control Store-keeping Stores Accounting Transportation Disposal of Scrap and Surplus materials Waste Management Materials economics
Importance of Materials Management :The Sales and Production needs to be evenly balanced in order to ensure that whatever the industrial unit is producing is sold to the market as well , otherwise it could lead to a huge loss for the unit due to the surplus stock storage and damages caused by poor conditions of the warehouse. Materials in Indian context constitute more than half of the cost of production in most industries and projects. In some industries, 60-70% of the total production cost is due to materials. This makes the materials management the biggest single area having tremendous scope for cost reduction. A well co-ordinated materials management programme may lead to 15 to 20% of cost reduction .A rupee saving on material cost is almost equivalent to ten rupee of sale. Moreover, a sale is one time sale. Saving, on the other hand, is a recurring benefit. Effective materials management, therefore, has a tremendous effect on the profitability of the firm. Materials department though is the biggest spending department and literally the "custodian" of the company's purse but considering its potential to save money, it can prove to be a profit centre. Page 1 of 40
Costs involved in the Materials Management :Various costs involved in the management of materials are as follows: (a) Basic cost of materials - the cost which is paid to the supplier as price of goods. (b) Government levies & taxes -the cost paid to the supplier towards Government levies and taxes namely excise duty, sales tax, octroi etc. (c) Ordering costs -the cost incurred in effecting purchasing e.g. cost of tendering, stationery, postage, visits to the suppliers' plant to expedite delivery, cost of receiving, inspection and bill payment, including cost on staff. (d) Inventory carrying costs -the cost incurred in maintaining inventory e.g. interest on capital locked up, losses due to deterioration and obsolescence, insurance premium, storage and preservation expenses, etc. (e) Packaging and packing cost -the cost incurred in packaging and packing of the products. (f) Material handling costs -the cost incurred for movement, storage and making supply to the indentor. (g) Freight cost -the cost incurred in movement of materials from suppliers' works to buyer's works. (h) Insurance cost -the cost incurred in providing adequate insurance cover to the materials in transit and in storage. (i) Wastage during receipt, storage, production etc. -the cost of losses due to defects in design, poor quality of material, improper storage methods, inefficient issues, rework and rejection during manufacture etc. The primary objective of any organization is to reduce the above costs so that material cost is the lowest. Objectives Of Materials Management: There are ten objectives of materials management: a) To maintain steady flow of materials to ensure uninterrupted production. Any disruption affects cost of the product. b) To achieve economy in cost of materials by adopting cost reduction techniques like value analysis, variety reduction etc. c) To ensure consistency of quality by providing right materials, of the right quality, in the right quantity and at the right time. d) To reduce inventory investment through scientific inventory control techniques.
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e) To improve corporate image by improving good buyer-seller relations. t) To maintain good records of purchase, stores, traffic, etc. to eliminate possibility of corruption. g) To preserve/conserve materials in stock so that losses due to pilferage, deterioration, obsolescence etc. are kept at minimum. h) To reduce operating cost by minimizing/eliminating wastage and improving productivity of materials. i) To improve competitive strength of the firm by producing the best quality products using quality materials at the lowest possible cost. Conclusion ; Materials are key resources in an industrial organization. Materials management covers all those activities which concern procurement, receiving, storage and issue of materials. It covers activities like materials planning, purchasing, receiving and storekeeping, inventory control, materials handling, transportation, disposal of surplus and obsolescent materials, materials economics and waste management. Materials productivity has a significant and direct impact on company's profitability. Main objectives of materials management are: maintaining steady flow of materials, achieving economy in cost of materials, ensuring consistency of quality, reducing inventory investment, improving corporate image, maintaining good records, preserving/conserving materials, reducing operating cost and improving company's competitive strength.
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Q2.
a) What do you understand from classification of materials ? Why is it done ?
A2 a) A manufacturing or a servicing organisation generally requires large number of items. Handling of such items-planning, procurement, storage, accounting is very difficult if each one of them is handled separately. Some sort of classification, therefore, is a must since concentration of effort according to class system is more efficient and effective compared to diluted effort corresponding to individual items. Classification of materials is the process of grouping of items into few categories, according to some criteria. Everybody is familiar with classification of domestic articles into kitchen-wares, grocery, electrical gadgets, furniture, consumables, nonconsumables, etc. Since an item can be placed into more than one class depending upon the criteria used, some sort of formal classification, therefore is a must. Objectives Of Classification: Classification of materials is required to Evolve procedures of planning and control of materials in a class. Decide systems of storage and issue of materials in a class. Devise accounting and evaluation procedures common to all materials in a class.
Basis Of Classification : Materials may be classified either on the basis of (i) stage of conversion process (ii) nature of materials (iii) usability of materials Conclusion : Classification of materials is the process of grouping of items into few categories either on the basis of stages of conversion process or nature of materials or usability of materials . It is required to devise purchase, storage, inspection, issue ,accounting and evaluation procedures common to materials in different groups /classes.
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Q2. A2 b)
b) Discuss briefly the classification of materials based on the Stages of conversion process."
CLASSIFICATION ON THE BASIS OF STAGE OF CONVERSION PROCESS In a manufacturing organisation, store materials can be classified broadly into direct materials and indirect materials. And direct materials in turn can be further classified into raw materials, work-in-process and finished goods. STORE
Direct Materials
Indirect Materials
Raw Materials
Work in process
Work made parts
Purchased parts
Standard(bought out parts) after being processed and assembled
Special
FINISHED PRODUCTS
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Q3. a) What advantages can accrue to the organization from scientific codification? What are its essentials? A 3 a) An important factor concerning indenting, purchasing and issuing activities is an accurate and logical identification of materials. Wrong identification results in wrong purchases and/or issuance of a different item than what is intended. Plenty of examples of codification and its benefits can be quoted from our day-to-day life: LlC has a vast clientele and to identify a client by his/her name, if it is not entirely impossible it is certainly very difficult, since there can be several persons with the same names and perhaps with the same surnames or initials. LlC therefore, identifies its policy holders by policy numbers consisting of numerals. Similarly, Income Tax Department identifies its taxpayers by means of the permanent account numbers (PAN) consisting of numerals and alphabets, banks identify their clients by their bank accounts, traffic department identifies the owners of the vehicles by their vehicle numbers, librarians follow universal decimal classification system for indexing books and so on. Codification in an industry is the systematic concise representations of equipment, raw material, tools, spares, supplies etc. in an abbreviated form employing alphabets, numerals, colours, symbols etc. Benefits Of Codification: Scientific codification offers numbers of advantages: 1. Accurate and logical identification Correct quality description are necessary to ensure that items are indented, purchased, stocked and issued correctly. Codification makes it possible since each item is assigned a unique code after due consideration to its group, kind, size, specification and dimensional characteristics. Codification thus distinguishes one item from another (even if the nomenclature is the same) helps in accurate identification and eliminates any possibility of confusion. 2. Avoidance of long and unwieldy descriptions In the absence of codification one has to depend on the description which must be wholesome to identify the items correctly and properly. Usually, these descriptions become lengthy and at times unwieldy. For example to ensure proper identification of a cutting tool, say hob -its nomenclature must specify : (a) Module of the gear (say 2.5) (b) Pressure angle (say 20) (c) Type of hob (say pre-shaving) (d) Special details (say semi-topping) Thus wholesome description of the above-mentioned hob will be "25 module, 20 PA, semi-topping, preshaving hob".
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This is also over simplification of the actual complex situation. Usually, in case of hobs additional details like "hand of helix" (i.e. left hand or right hand), no of starts (i.e. single or multi-start), material of construction (i.e. HSS or carbide) and dimensional parameters (outside diameter, length and bore) also require to be specified. This would make the description further unwieldy. Codification avoids such long and unwieldy descriptions. 3. Prevention of duplication Items in the absence of codification require to be described by brand names, trade names or technological names and as such they are often requisitioned by different personnel under different names. A "lock nut" may be called "withdrawal nut", "slotted nut", "ring nut", "check nut". This can result in stocking of an item at different places under different names. The items so placed may be lost because of incorrect nomenclature although it may be physically present next to an identified item or may even deteriorate because of incorrect nomenclature. Codification system prevents duplication since name of the item is not important, it is always the code number that is taken into consideration at all stages. 4. Product simplification (variety reduction) A basic reason for codification is the simplification (i.e. reducing unnecessary variety) and standardisation (i.e. regulating variety). Codification achieves this objective as under: (a) For proper codification, grouping of identical items is essential. The most commonly used method is to take up an item group (say quills for bore grinding machines) within its main classification (say machines aids), list down variety (sizes) in use, identify variations among the variety and prepare the vocabulary. A prerequisite to the preparation of vocabulary is the analysis of the existing range by the senior personnel to see whether some of them can be dropped, substituted or combined. Frequency analysis and preferred numbers are the two techniques used for the purpose (i.e. to reduce variety). (b) Vocabulary (i.e. manual on codification) lists down all the items in stock according to the basic characteristics which provides a quick reference for the personnel from design and planning to know what variety already exists. The designer, thus can quickly examine the existing range of materials, components and tooling to see if anyone is suitable for incorporation in the new design. This helps to control variety. 5. Efficient purchasing Codification makes the purchase activity efficient due to the following: (a) Clerical work involved in writing long descriptions of items on various documents such as enquiry forms, purchase orders, order amendments, delivery schedules etc. is avoided. (b) Codes avoid the ambiguities regarding the requirements especially in a situation where the part of same description are purchased for different models. Take an example of a company manufacturing reduction gear boxes. The company may
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require worm shafts for its different ratios. Wrong buying instructions, therefore, may be conveyed unless detailed and long descriptions are used. Codification avoids this problem. (c) Buying instructions to the suppliers become easy and quick if there is proper understanding of codification by the supplier. (d) Codification classifies the items into groups (i.e. forgings, castings, bar materials, rubber parts, hardwares etc.) which in a large sized firm enables section wise! organisation of purchase department based on group codes. (e) Purchase records too can be maintained according to the group codes and different documents can also be filed accordingly. 6. Minimisation of clerical work In case of lengthy titles of material, long description such as "Tube head casing", "300 PA, semi-topping, pre-shaving hob", "Combination broach for 45 H7 bore and 8+0.03 key way width, "18 HSS taper shank drill" etc. are usually laborious to write. Imagine the work involved when such a single description has to be written on a purchase indent, enquiry form, purchase order, goods receipt report, discrepancy note, purchase journal, kardex card, etc. Clerical staff, often to reduce work, may use abbreviated form of description which may result in confusion. Alternatively, the title may be misspelled or improperly classified because of its technical nature or due to carelessness. Codification reduces this unnecessary clerical work. 7. Efficient storekeeping Codification facilitates locating and indexing of the materials in the main stores, crib stores, finished parts stores and warehouses. The materials may be arranged in the stores according to the group and in the ascending/descending order of the item codes within the group and group codes which reduces time in locating and issuing of the materials. Cards in the kardex cabinets too may be arranged as per item codes and group codes allotted to materials which reduces clerical work in posting of receipts and issues. Stock verification is easy to be performed since the work can be delegated to individuals as per classification of items. Clerical work involved in preparing inventory tag reduces since code numbers avoid the need for writing of description. Monthly consumption statements of stores can be prepared category wise (main class) which too reduces clerical work. 8. Accurate and reliable recording and accounting Codification leads to effective stock control, efficient recording and result-oriented accounting. Numerical codes ensure perfect identification of items which reduce chances of mistakes, save time and energy needed in posting and extracting data. The ultimate result of all this is the efficient, up-to-date, scientific and perfect stores accounting. 9. Easier computerisation Small size computers such as personal computers (PC) are finding wide applications in materials management. Mechanical recording is replacing manual (pen writing)
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records since it (former) is efficient, less costly and less fraudulent. However, machines would be of no value if descriptions were to be used. Machine recording with long descriptions would be time-consuming, error prone and costlier thereby defeating the very purpose of mechanisation. Conclusion: Apart from the above Codification (a) helps to look for alternatives at a time when the stock of a particular item is nil. (b) ensures proper quality description of the item which assists in efficient inspection. (c) simplifies costing and pricing since due to codes cost can be calculated jobwise for which different cost headings can be provided. (d) assists production since manufacturing runs can be planned on the concept of group technology. (e) assists management in their efforts to earn a good return on its investment. This being possible due to the various benefits of codification enumerated above.
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Q3.
b) Explain briefly any one numerical system of codification?
A3 b) The numerical system is based on use of numerals. On of the sub-systems within this category are: (a) Sequential code The system is suitable for small sized firms where the number of items is limited. Each item is assigned a number and the new item is allotted the next higher number. Alternatively, after each allocation few numbers are reserved for future. These reserved numbers are allotted to new items in future when expansion takes place. A system adopted by a small computer firm, engaged in the manufacture of computer parts is given below :Sr.No. 1. 2. 3. 4. , , , , , 30. Item Description Motherboard CPU RAM HardDisk , , , , , Cabinet Code 101 102 103 104 , , , , , 130
The method is simple to use but it does not place the similar items together. For example, a machined component may be followed by an oil seal, bearing etc. which in turn may be followed by once again another machined item
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Q5
Why are sound buyer -seller relationships important ? What can a buyer or seller do to improve these relationships ?
A5 Buyers and seller are the two wheels of the industry, be it that of the buyer or that of the seller. Smooth running of the industry requires cordial relationships. Every buyer and seller must realise that growth of the respective firms depends on the good will and relationships between the two. Every buyer must realise that success of his firm depends on how good his suppliers are and similarly every supplier must realise that his firm's prosperity depends on the prosperity of his buyer's company. Buyer and seller relationships are at the optimal level when supplier supplies the good of right quality, in the right quantities, at the right price, and at the right time and buyer understands the problems of the supplier and ensures supplier's firm makes profit and growth. Factors For improving Buyer-Seller Relationships :a) Attitude towards each other: Both buyer and supplier must create an atmosphere that gives the feeling to the other that he is welcome. Each firm must extend the same courtesy as they would expect to receive from the firm that they visit. b) Timely communication: Timely communication between buyer and seller is vital for establishing good buyerseller-relationships. Both should be prompt in acknowledging and replying the letters. A buyer gets numerous opportunities to communicate with the sellers: delivery schedules, reports of rejection, reduction in business, changes in drawings, changes in workload, revision in schedules, etc. The buyer should be courteous in approach. Complaints concerning delivery failures, rejections, shortages, debit notes etc. should be made in such a way that negative reactions are avoided. Vendors' letters, telegrams, telex messages should be answered as promptly as possible but certainly not later than a day after it is received. Similarly, seller too gets ample opportunities to communicate with the buyer: order acceptances, delays in deliveries, shipment details, receipt of debit credit notes, requests for GRR, requests for signing of hundies, enquiries for payments and new items, collection of rejected materials etc. c) Business ethics: Both buyer as well as seller must observe business ethics. Relationships based on ethical conduct can only be lasting. d) Visits by the senior staff : Good relationships result if there are personal contacts. Senior management of both the parties must make a point to periodically visit each other's plant. e) Mutual faith and trust: Good business relationships are always built on mutual faith and trust f) Avoidance of legal action: Page 11 of 40
Purchasing is a contract and it is always desirable to spellout everything clearly in the quotation, purchase order, order acceptance. Even if everything is clear, there could be still difference of opinion and conflict of interests. Differences (if any) must be sorted out across the table during meetings. However; legal action must be avoided at all cost. Elements in good buyer -seller relationships
Courtesy Timely Communication BUYER TO GIVE Business Ethics Visits by senior staff Mutual Faith and Trust Avoidance of legal action SELLER TO GIVE
1. Long term business agreements 2. Long term hand holding 3. Sharing information on future plans 4. Pricing 5. Timely payment 6. Non-cancellation of orders 7. Minimization of unscheduled deliveries and rush orders 8. Avoidance of unneccsary rejection 9. Avoidance of forced priced reduction 10. Avoidance of harassment
1. Timely deliveries without constant followup 2. Advance communication in case of expected failures in delivery 3. Short lead time in emergency 4. Defect free supplies 5. Competitive prices 6. Ability to hold on prose 7. Correctness of paper work 8. Adequate after sale server 9. Transparency at the vendor end
GOOD BUYER SELLER RELATIONSHIPS

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Conclusion: Good buyer-seller relationships are necessary to achieve principles of scientific buying. Both buyer and seller must realise that their respective organisations can benefit from the progress of other. Each party must have full appreciation of the other's viewpoint. Mutual trust, co-operation and understanding must form the basis of every contract. Each party must strive hard to discharge its obligations under contract honestly and faithfully. Relationships are good when buyer as well as seller tries to satisfy the requirements of each other. For good relationships, their respective requirements are as follows: Buyer's requirements Timely deliveries without constant follow up Advance communication in case of expected failures in delivery Short lead time In emergency Defect free supplies Ability to hold on price Correctness of paper work Adequate after sale service Transparency at suppliers' end Materials Management Seller's requirements Long term business agreements. Long term hand holding. Sharing information on future plans. Pricing. Timely payment. Non-cancellation of orders. Minimisation of unscheduled deliveries and rush orders. Avoidance of unnecessary rejection. Avoidance of forced price reduction. Avoidance of harassment.
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Q6 What is "hand to mouth buying "? What are salient characteristics " For what types of items is this method of buying suitable? A6 Hand to mouth buying also called "buying according to the requirements" refers to the frequent purchases of an item in small quantities. A number of factors influence selection of a buying method. They are: i) Nature of the item; ii) Regularity of its demand; iii) Quantities required iv) Susceptibility to price variations Different buying methods are as follows: Hand to mouth buying Scheduled buying Forward buying Speculative buying; Contract buying; Blanket orders; Tender buying Seasonal buying Group purchasing Sub-contracting; Central purchase organisation Directorate General of Supplies and Disposal Hand to Mouth Buying Important characteristics of hand to mouth buying are: a) Purchases are made only when demand arises. b) Purchases are made to cover immediate requirements. c) Quantity purchased is generally small though at times large quantity may be purchased. d) The terms of contract are negotiated. Competitive bids are generally not obtained as there is no sufficient time. Advantages of the method: i) Lower inventory investment ii) Low carrying charges iii) Reduced deterioration and obsolescence of materials iv) Lesser losses from price declines. Disadvantages of the method: i) Comparatively higher price due to urgencies and loss of quantity discounts. ii) Possible losses occasioned by an upward movement in prices.
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iii) Possible interruptions of production schedules because of market shortage of materials at the time of need. iv) Higher clerical costs due to frequent purchases. v) Acceptance of sub-standard goods in emergency. Responsibility of buying department: The effectiveness of the buying department depends on their connections with vendors.The selected vendors must be known for quality, reliability and integrity so that they fill buyer's order without taking advantage of the situation. A long list of vendors is generally necessary. Suitability of the method: This methods apply to : a) items required for prototypes and for products under development; b) items which are used infrequently and would not be required to be stocked so they are purchased when they are needed for definite consumption. Machine tools, special building materials, office furniture etc. are some of the examples of this group; c) cover immediate requirements of a stock item caused either due to delay in delivery from regular suppliers or due to increase in consumption; d) cover immediate requirements of items whose prices are expected to fall in the near future; e) procurement of replacement spares: f) items which have a limited shelf life and are not stocked for fear of perishability; g) items which are bulky (e.g. packing materials like wooden boxes and thermocole sheets, cotton waste etc.) and need lot of space for storage.
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Q7 Who is a good source ? Discuss briefly steps in the development of sources for machined items? A7 It is commonly believed that the best source is from where buyer gets the material at the lowest price. This is not normally so. There are several other aspects related to this problem. Quality of the material cannot be ignored. Equally important are quantity and price criteria. Situations are not uncommon when it is found that the source offering right quality does not have the capacity for desired quantity or that the price quoted by him is much higher. At times, his terms and conditions of supply may not match those of the buyer. At other times, the source offering the material at right price may have constraint of quality and quantity. The choice of the right supplier is therefore very important in order to enable the buyer to achieve other principles of purchasing. Only from the right source, right quantity, right quality, right price can be expected. In general, a right source may be defined as the one who can supply goods and services of the right quality, in the right quantities, at the right time and at the right price. In general, a right source may be defined as the one who can supply goods and services of the right quality, in the right quantities, at the right time and at the right price. This is possible provided, The source is free from labour problems. The source is financially strong. The source keeps itself abreast with changes in technology. The source possesses other essential traits which make him perform in the above mentioned four areas of right quality, right quantity, right time and right price. Since source is selected by the buyer, the failure on the part of the supplier should be looked upon as the failure of the buyer. A buyer can get many sources but good sources are difficult to get. Source selection and source development require time and efforts on the part of the buyer. Source selection and source development is the systematic process of locating, investigating, selecting and developing suppliers who can give acceptable delivery, quantity, quality and services at the acceptable price to the company. Source selection and source development is necessary for raw materials, tools, spares, or for items produced to commercial standards, or for items required to buyer's design, or for imported items. Though basic approach is same, but real good efforts are required to select and develop sources for items required to buyer's design. There are eight stages in the source selection and source development process These stages are: i) Source requirement stage to identify the need for source selection and source development. ii) Source location stage to collect information on potential sources of supply.
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iii) Source investigation stage to identify technical, financial, managerial and quality assurance capability of the vendors and thereby generate data to serve basis for preliminary source selection. iv) Preliminary source selection stage to narrow down the choice to those who are most likely to fulfill the requirements successfully. v) Techno-commercial discussions stage to discuss the technical aspects of the item and finalise terms of contract of the trial order. vi) Trial order stage to carry out follow up with the supplier until sample submission, sample validation, defect analysis and defect prevention including follow-up for pilot lot and bulk production lot. vii) Source appraisal stage to review performance of the vendor, render assistance (if required) and decide on future business with the vendor. Alternatively, appraisal stage requires review of earlier steps to search for a more satisfactory source. viii) Source retention stage to create necessary conditions so that supplier sticks to the company. i) Source Requirement Stage:Source selection and source development becomes necessary under the following situations. a) New products or modification in existing products: No organisation remains stand still. New activities always go on. New products are introduced and existing products are modified. This necessitates the purchase of new items and hence development of sources wherever necessary. At times, the new items may be standard items which are produced to commercial standards. At other times, the new items may be those produced to the buyer's design. Some of the items may require to be manufactured for the first time with major changes in specifications or entirely to new specifications. b) Market conditions: A sudden increase in the demand for a product would pose a problem before management as its installed capacity may appear inadequate to cope with it. c) Supplier's poor performance: At times, the performance of the established supplier may fall short of expectations. It then becomes necessary to locate other sources. The performance may deteriorate due to strike, natural calamities like fire, flood, etc. d) Diversion/Loss of suppliers' interest due to more attractive offers: Suppliers do not remain the same. The established supplier may divert his interest to new areas promising more lucrative and prosperous offers. The supply in such a case is bound to suffer adversely.
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e) New regulations/directives: The government issues new regulations from time to time. New regulation may be in form of curb on imports/heavy duties on imported material or restrictions on manufacture of goods under collaboration. All these result in spurt of demand for indigenous materials. Consequently, import substitution emerges as an important element in the purchase market. f) Alternate source of supply: Even though a company wants to depend on one reliable source for its requirements of materials, it may adopt a pragmatic policy to develop alternate sources to protect itself and have a less dependence on one of its suppliers. New suppliers may approach a buyer to convey their interest in the supply of items currently being purchased from outside or currently being manufactured at the company's own works. i) New plant location: Economy in transportation cost and ease in follow up work are accepted as a justifiable reasons for the dependence on local sources. However, new situations may arise out of location of plants at different places which may compel a buyer to explore new sources in and around new plants. k) Change in the manufacturing process: The changes in the manufacturing process as a result of buyer's industrial engineering or value engineering staff's recommendations may require buyer to develop new sources. I) Closure of the existing supplier: The closure of the existing supplier due to labour problems, financial difficulties, disputes among the owners, or any other reason requires buyer to look for new sources. ii) Source Location Stage:-
Before proceeding to select sources, available prospective sources should be studied. The type of information can be obtained from anyone of the following sources: a) Old suppliers For a new item to be procured, the old suppliers should be consulted. There are good chances that one of the old suppliers will be able to give some information on the new suppliers. Old suppliers with proven identity and sincerity can be good and reliable source of information on the subject.
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b) Trade directories Trade directories are publications listing suppliers against their products. At times, these directories also give other relevant information like suppliers' addresses, telephone numbers, telegraphic addresses etc. These are prepared by various departments under Government and other private, public organizations, c) Professional Institutes : There are quite a few professional institutes in our country like National Institute of Material Managers, Institute of Engineering (India), etc. These institutes can advise on prospective suppliers from among their members. They also issue journals of their disciplines. These journals also give good information. d) "Classified Yellow Pages" of telephone directories Another commonly known source of information is the "Classified Yellow Pages" of a telephone directory. The usefulness of information, however, is limited firstly because most of the advertisers are the local suppliers, and secondly the buyer cannot get any idea of their size and capabilities. Yet at times, this information is found to be useful. e) Circulars: Circulars received in the daily mail can also provide information on the vendors of items which the buyer's company is interested in developing. f) Trade exhibitions and trade fairs: One of the main purposes of such exhibitions and fairs is to promote sales and advertise company's capabilities. All important manufacturers participate in such fairs and display their items. Trade exhibits provide an excellent opportunity to see new products for comparison with products manufactured by others. Trade exhibits, therefore, go a long way in helping a buyer to locate new sources. . g) Advertisement in mass media: All manufacturers of repute give wide publicity of their capability an~ achievements through advertisements in tools of mass media like radio, TV, newspapers and magazines. Regular study of these helps buyers in locating prospective suppliers. h) Salesmen: Salesmen of manufacturers who call on the buyer are an extremely valuable source of information about suppliers and their products. They not only give complete information about their own products but also highlight deficiencies of the products of their competitors.
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i) Company's personnel: Personnel working in the other departments of the company often can give information about the suppliers. iii) Source Investigation Stage (Collection of Data):-
The preceding step -location of sources -may provide a long list of all possible sources. They must be pruned to weed out technically incompetent. Managerial ineffectiveness, financial unsoundness and poor quality assurance capability are additional considerations for dropping some suppliers from the list. In other words, the aim is to identity possible sources and select potential sources which will be able to supply goods at competitive prices and meet buyer's requirements of quality, quantity and delivery. Evaluation of vendors, therefore, requires specific information that will enable assessment of the firm's capability in fulfilling its part of the contract. Since the best source of information is generally the source itself, the most common method employed is to mail a proforma to each potential source with a request to fill up the same and return it by a specific date. On the pre-determined day, the team visits the firm. The team may include one senior personnel from the following functional areas: i) Purchase ii) PPC department iii) Finance department iv) Quality assurance department. The duties of the team are two folds: i) The team verifies contents of the first part of the proforma (it is worth while for a team to carry the proforma with it for verification. Discrepancy, if any, is recorded on the performa. ii) The team collects information given in the second part of the proforma. Over and above, various points are discussed by members of the team to remove doubts and eliminate dark areas. Findings of the team may be recorded in the second part of the vendor data form to ensure homogeneity in recording. Another method of securing information on the Vendors' capabilities is to write in confidence to some of the firms which are using the materials supplied by the source under scrutiny. Source Investigation Stage(Suppliers Capabilities):The information secured directly from the firm on the prescribed forms and observations of the team during their visits require to be processed to assess firm's capabilities in the following areas: a) Technical/production ability: Technical capability of a source depends mainly on quality and quantity of technically skilled manpower and machines. The firm chosen for the purpose should possess high level of technical proficiency in terms of human skills and machines.
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i) Manpower: The prospective vendor must have sufficient skilled, semi-skilled, and unskilled labour. The skilled labour should be highly competent in general and specifically in the specialised areas involved in manufacture of the items. Workers skill can be found out on the shop floor by the team members by observing them when being taken around the manufacturing facilities during the visit. The team should find out whether or not the firm has the type of skilled labour required for the job. ii) Machines: The details of machines, their types, makes, condition, life and the degree of accuracy they are capable of should be found out. Details of machines purchased in the last 2 years give indications of growth in the technical field. Further more details of machinery on order can give an idea of expansion proposal. While studying the list of machinery, it is essential to look for other facilities also to get the correct idea of firm's capability. For example, a firm dealing in forging/casting should have heat treatment facilities. For small-scale industries they should have fool-proof working arrangements with other units, which should be verified during the visit. iii) Drawing and design office: A good supplier should have a well equipped design and drawing office to carry out day-to-day work. Small scale industrial units may not have this facility of their own. As long as they have some arrangements with other firms/organisations/institutions, this should suffice. iv) Tool room: A well-equipped tool room is an indication of technical capability of the supplier. b) Quality assurance ability: The endeavour should be to find out the firm's capability for quality assurance and reliability. By reliability is meant, the firm's ability to adhere to all the terms and conditions of supply irrespective of external and internal environments i.e. ensuring delivery of desired quantity at predetermined time. Quality assurance ability is the ability to adhere to quality in manufacture. It is preventive function of quality. The objective of this study should be to find out if the firm employs a scientific system of quality control capable of providing desired level of quality. The good quality control system should have minimal rework, minimal scrap, minimal rejects, a small field staff to deal with post procurement defects. c) Financial capability:Financial capability of the vendors is essential to ensure uninterrupted supply and quality of the product. A company with sound financial position is in a better position to absorb development cost. A company which is financially weak can hardly be expected to keep up their commitments. An interview with firm's bankers would reveal their financial strength and performance. When the buyer is a non-government agency, his bankers should approach the bankers of the potential source as ethics in banking prevents giving information to other parties directly. Financial documents like balance sheet, profit and loss account, and fund flow statements are quite useful in analysing financial stability of the vendor. These statements should be interpreted by representative from finance department who normally finds out long term and short-term solvency and firm's capability to honour their financial commitments.
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These are generally found out from various ratios like current ratio, profit ratio, debtequity ratio, gross profit ratio, net-profit ratio, etc. It also indicates the inventory holdings and turnover, income-tax paid etc. All these give clear indications of firm's financial position. d) Managerial capability: While assessing a supplier, the study of an organisation is also necessary since an organisation is what its people are. The firm's ability to deliver quality goods at the right time and in the right quantity depends on the capabilities of the managers. They should have positive attitude and approach in overcoming delays. This reduces the risk of slippage of delivery dates by the vendor. Small-scale industries are necessarily a one man's show and everything depends on the owner. But then he should have easy accessibility and approach to good consultants. Reputation of the firm, the composition of its board of directors, and quality of its managers should therefore be taken into account while selecting a source for big and special projects. e) Labour management relations: The buyer will often find it beneficial to understand labour management relations at supplier's plant. .Poor relations will often result in erratic performance and inconsistent quality of product. Good employer-employees relations on the other may provide the buyer with low-priced components in addition to good quality and delivery. It is also desirable to record the timing of the supplier's agreement with the union. iv) Source Selection Stage:The data collected about the vendors followed by systematic evaluation of their capabilities provide the basis for a preliminary selection of the suppliers. The following considerations are important for narrowing down the scope of choice: i) Size: Quite often the buyer faces the dilemma of size of the operations of a supplier. Size should not either be a criterion of effectiveness or an assurance of supply. Quite often, it has been found that small companies are better suppliers, willing to cooperate with large companies. In our country, quite a few large firms have reputation of poor performance either due to their monopoly position or due to their carelessness and mismanagement. The size of an organisation should, therefore, be no consideration at the time of selecting a source of supply. There are advantages and disadvantages on both the sides. ii) Type of supplier: A buyer may have an option of selecting between the actual manufacturer and/or his selling agent or distributor or dealer. Obviously, the best of the lot from buyer's point of view should be selected. Generally manufacturers of repute should be given preference in case a buyer desires to have new equipments and new designs. Direct contact with them has an advantage of better communication in technical field. Local distributors/agents are preferred when stores are required in small quantities.
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iii) Location of the firm: Local sources should be preferred as communication with local firms is very quick, easy and effective. Local sources are also economical due to reduced transportation cost. iv) General reputation of the firm: "A known devil is better than unknown angel" is a wise saying. v) BIS coverage: Firms on the approved list of Bureau of Indian Standards (BIS) should be given preference over others. vi) Experience: Suppliers having experience in manufacture of similar goods should be given preference over others. vii) Firms known for business ethics: It is unwise to risk dealing with suppliers who are known to have questionable ethics. An unethical supplier may knowingly bid low to "buy on" only to raise his price later at a crucial point in the schedule. He may knowingly promise a delivery that cannot be made in order to get an order. He may claim the ability to produce a product that is beyond the capability of his firm, fully intending to "shop the order to another firm". He may even resort to commercial bribery in an attempt to get his items passed or retain orders with him. viii) Reciprocity: Reciprocity, or trade relations as it is often called, should never be the primary basis for selection of a supplier, unless all other pertinent factors are clearly and unmistakably satisfied. ix) Past performance: The record of past performance provides an excellent insight into the firm's probable future performance. Some firms are perpetual defaulters. The buyer should do well to consider his own experience with these suppliers. v) Techno-Commercial Discussion & Trial Order:
This includes the following: a) Technical discussions between the representatives of a buyer and a supplier: Detailed specifications and drawings of the equipment, their sub-assemblies and components indicating clearly the raw materials used, tolerances permitted and special process required, it any, is provided to the supplier. Other technical details as to "what the item is", "what assembly it is in", "what function it performs", "which quality b) Cost estimation and quotations submission: The supplier is asked next to make cost estimation and submit his quotation. Discussions and negotiations are held which ultimately lead to finalization of a trial order. Various other aspects incidental to price namely transportation, delivery, etc. are also finalised Purchase orders are released for the trial order, the order quantity on the trial order is generally less than a month's requirements. c) Time schedule for submission of samples: The buyer next sits with the suppliers' representatives to prepare time schedule for submission of samples. To arrive at the time schedule, all major activities are recorded.
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Q8
. Explain different shipping terms e.g Ex-works , F.O.R(Place of dispatch),F.O.R(Place of destination),Buyers' work, and at site. Also explain obligation of supplier and buyer under these shipping terms.
A8. A shipping term represents a particular place of delivery (i.e. place of transfer of ownership rights) and as such it demarcates the legal obligations of the buyer and those of the seller. It also signifies that the price includes expenses up to the place as implied from the shipping term. Shipping term also highlights as who (seller or buyer) runs the risk in the event of damage/loss of goods. Shipping Term Ex-works Price to Include Cost of goods in deliverable state Risk of loss to Risk of loss to Seller Buyer Seller may provide facility but any damage while loading and unloading is to buyer's account. However, if seller charges for the help, loss (if any) is to the seller's account Any damage to the Any damage or loss goods while they of goods from the are at his works or station of dispatch while in transit to onwards is to the transporter's buyer's account godown, or at the time of loading into the vehicle (even if it is being done by transporter) is to seller's account Any loss or damage to the goods while they are at seller's works, transporter's godown, and during transits(until they reach buyer's station and buyer gets notified) is to the seller's account Any damage or loss of goods while they are at transporters godown. (after buyer has been notified) while loading into vehicle, during movement to the buyer's plant is to the buyer's account.
F.O.R., (Station of dispatch)
Cost of goods expenses upto the transporter's godown, loading and unloading at the transport's place
F.O.R., (Destination)
Cost of goods freight and insurance upto the buyer's station
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Buyer's Work
Cost of goods, insurance and freight upto the security gate of the buyer's works Costs of goods , insurance , freight and expenses and risks until the goods are uploaded at the sellers store/site
At Site
Any loss or damage to the goods from the seller's works to the buyers works is to the sellers account Any loss of damage to the goods at the sellers works , transporters godowns , in transit within buyers works including while uploading is to the sellers account.
Any damage to the goods while taking them to the stores and/or at the time of uploading is to the buyers account
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Responsibilities of the buyer/seller under the shipping terms Shipping Term Responsibilities Seller Buyer Ex-Works Sale at suppliers Seller to be Buyer is place responsible for responsible for (i) keeping the (i) arranging for material in transport including deliverable state loading on to the (ii) intimating buyer vehicle at supplier's regarding delivery works of the goods. (ii) paying for . freight (iii) arranging for transit insurance (iv) paying octroi and other taxes (v) arranging for collection of materials from transporters godown. (vi) paying for the local transport including at the transports' godown F.O.R (Station of Sale is made on Seller is responsible Buyer is dispatch ),Free-on rail/truck at station for responsible all -Rail-Road) of dispatch (i) and (ii) as above activities referred (iii) arranging for to above except (i) movement of goods to the transporters' godown. (iv) safe loading on into the vehicle (Any damage while loading even if transporter/ railways is doing -is to the sellers' account) F.O.R (Destination) Sale is made at the station of destination Seller is responsible for(i) to (iv) as above (v) paying for freight(vi) arranging for transit insurance. Buyer is responsible for all activities referred above except (i) to (iii) Meaning
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Buyers Work
Sale is made at works buyer's plant .
At Site
Sale is made at the place of storage
Seller is responsible for(i) to (vi) and (vii) arranging for movement of material from transporter'sgodown to buyer's works (i.e. upto gate of the buyer) (viii) paying octroi and other local taxes. Seller is responsible for -(i) to (vii) : as above (viii) safe unloading at the buyer's designated place of storage
Buyeris responsible for safe unloading of goods at his works and its storage.
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Q9 .a) What is negotiation ? When is negotiation preferred over competitive bidding ? A9 Negotiation is a critical part of every purchase transaction and is the "art of possible". Since one cannot get what one wants, negotiation provides an opportunity to persuade other party to do what one would like to have without demanding it. Negotiation is the process of planning, reviewing, analysing and discussing the information between buyer and the seller to arrive at an acceptable agreement. It is infact an art by which a buyer and a seller, usually face to face, tend to resolve differences to reach at the precise terms of contract. An effective negotiation is one in which buyer is able to give he is ready to concede and get what he wants. A negotiation session at times may last few minutes while on other occasions it may extend for few meetings. Negotiation does not always end in a successful contract. It is better for the buyer to accept failure in negotiation rather than to concede more than one can afford. Negotiation is essentially an opportunity to analyse facts and persuade others to agree upon certain terms. Negotiation is a well accepted process of determining price and other terms of contract, (i.e. delivery, payment terms, etc.). In India even today perfect competition does not exist and competitive bidding process cannot work effectively, negotiation has a crucial role to play. The objectives of negotiation are: To obtain a fair price for the specified quality of the item. To agree on delivery period. To decide on packaging, packing and method of transportation. To agree on payment terms. To agree on liability for claims and damages. To discuss incentives e.g. discounts, bonus clause etc. To decide on frequency of progress reports. To agree on common methods of inspection, time and place of inspection, nature and Type of test certificates etc.
Negotiation is preferred over competitive bidding when the following situations exists : (a) Limited competition: Negotiation should be used when the number of bidders is inadequate. . (b) Too short a time: Negotiation is desirable when the buyer does not have sufficient time to invite competitive bids. (c) Low rupee value of the order: Low rupee value of the order may not justify cost of inviting and evaluating competitive bids. (e.g. low value orders of non-recurring nature). (d) Lack of clarity of specifications: Negotiation is desirable when specifications of the items required are not clear.
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(e) Fixed price items :Negotiation is particularly useful for items of fixed price due to one or several reasons, e.g. monopoly, collusion, seller controlling multiple sources), governmental control etc. (f) Knowledge of the market: Negotiation is desirable if the buyer has sufficient knowledge of the market, availability of the items and an average price to be paid.
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Q9 .b) State briefly the principles of negotiations? A.9 b) PRINCIPLES OF NEGOTIATIONS 1. Prior knowledge of opponent's bargaining strengths helps buyer to plan his appropriate negotiation tactics. The supplier's bargaining strength usually depends on the following factors: a) Seller's need for the orders: The lesser a supplier needs the contract, the greater is his bargaining strength.The more frequently the supplier's representative calls on buyer, the more badly he needs the order. Supplier's annual profit and loss account can also give some idea of supplier's annual profit and loss account can also give some idea of supplier's need for new business. b) Seller's confidence in securing the orders: The bargaining strength of the supplier also depends on how certain he feels of getting the order. When the supplier knows that his chances of getting the contract are almost certain, he usually becomes most difficult to deal with during negotiations. This normally happens when the supplier gets to know : That his quotation is the lowest of all; That his quotation is close to the rate that the company is prepared to pay for this item; That the rate quoted by him is equal to or lower than the price that the company is already paying for similar items or for the same item to other firm(s). That he is a preferred source of supply because of quality, reliability or delivery reason. No amount of threats-threat to delay contract or reduce other business or manufacture the item at the home plant or award the contract to some other vendors -have any effect on such suppliers. c) Time available for negotiation: Short lead time significantly improves seller's bargaining strength. When a supplier knows that the buyer's requirements are urgent, he is likely to become adamant and is able to negotiate on terms favourable to himself. d) Critically of the item involved: The supplier is usually strong when he knows that he is the only one who will be able to process the job because of its criticality. The mere knowledge that the buyer has failed previously to procure the item from others makes the new supplier quote higher and become inflexible during negotiation sessions. e) General market conditions: General economic conditions have a substantial effect on the supplier's.bargaining strength. When in the market there are too many buyers compared to number of suppliers, the latter is usually not flexible in negotiation sessions. The psychology of depression or boom of the market has a tremendous effect on the supplier's bargaining strength. Selection of right time of negotiation is very important. Seasonal items -fans, refrigerators, airconditioners, etc. -offer good scope for negotiation if negotiation for long term contract is made during off-season since there is psychology of recession.
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f) Monopolistic status: The absence of competition generally strengthens the supplier's negotiation strength. The supplier can be expected to act tough if he knows that He is the only source of supply, or He is the only who has necessary raw materials and toolings, or His competitors will not show interest in such items, or the like. Such a supplier usually does not show any interest in the contract and thereby builds up pressure prior to consummation of the contract. g) Knowledge of cost elements: A smart supplier can readily judge whether or not the buyer has adequate information on cost and price of the item. Having known that the buyer has no knowledge of the item and its cost, the supplier usually is adamant in his stand. 2 Good initial preparation can increase your chances of success Pre-planning for negotiation is as important as pre-planning for any business activity. Good initial preparation can produce positive results in negotiation. Preparation involves information gathering, team formation and administrative matters of the meeting. Preparation for the negotiation can produce positive results. The buyer must collect relevant information such as : product knowledge e.g. what the item is, what it does, what assembly it is in, alternatives, substitutes etc;.present and future requirement of the items e.g. job life, job quantity;.cost element e.g. material cost, labour cost, tool cost, overheads etc.;.customs and practices i.e. what has been done in the past;.capacity of company's staff;.suppliers' strength i.e. market position, range of product, financial stability, reliability etc. Planning also involves decisions regarding composition of the negotiation team and role of each member e.g. who will do most of the talking. A buyer also must determine in advance his goals from the negotiations. Negotiation involves "give and take" and to be effective, the buyer must determine in advance as to what concessions he will like to secure from the supplier and what concessions he can make to the supplier. He should further rank the objectives in the order of their importance: vital, important, less important and desirable. Similarly, buyer should know what suppliers' priorities are: finance, orders etc. This is to ensure that the buyer does not lose sight of his fundamental aim. It should not happen that in order to make a contract he gives up more than he should. For this reasons, he must list his vital goals and few "add ons" to discord if need be. 3. "Talk to the proper man" At the outset, the buyer must make it sure that supplier's representative(s) has full legal authority to conclude the contract on behalf of his (their) company. The buyer should not discuss his negotiation plan with the supplier's representatives who have no authority to make a commitment on behalf of their company but need to obtain approval from their superiors. 4. "A buyer also has some selling to do" The rule may appear strange but it is a fact. Before starting discussions, the buyer should mentally make the supplier ready for concessions. This being possible if the Page 31 of 40
supplier is truly convinced that the contract following negotiation session is in the long term interest of his company. To create suppliers' interest, the buyer should enumerate whatever positive features of the business transaction are. For example, the buyer may mention i) the growth plan of business in the ensuing years; ii) his company's track record of timely payments; iii) his company's fairness in dealing with the vendors, and iv) the like. While making a mention of these features, he should not exaggerate. He must be honest to himself. 5. "A good offence is the best defence" To be a successful negotiator, it is always desirable to maintain the pressure on the person on the other side of the table. "Good offence is the best defence" is the age-old saying. The best strategy will be to "listen more and talk less" and to be able to do this, the buyer should take up the role of an interviewer. 6. "Time constraints in negotiations, as in other activities, are subject to 80/20 rule. Deadlines are inevitable and common deadline spurs both sides to generate solution. Statistics show that 80 per cent of concessions tend to be made during the last 20 per cent of the negotiation time. To be in driver's seat, the buyer should hold his concessions until late in the process. Even a small concession which may mean little to the other side acts a parting gesture at the time of close of the deal. 7. "Diversions at the appropriate time are essential for keeping control and avoiding bad judgement" Direct confrontations do come up in negotiations. Tempers may rise but they would not help. One can lose more by losing control and making bad judgments. An experienced negotiator can divert attention away from the issue (when tempers flare) at hand by making a joke or calling a coffee break, thus giving him or her the edge. He also knows when to stop or say, "let us think through this again and meet tomorrow". 8. Hard-won concessions, regardless of its value to the buyer, provide greater satisfaction to the receiver (the seller) of the concession. Buyer should learn to concede slowly and carefully. A quick concession will have no value to the supplier. Also, the rate at which concessions are made affect supplier's expectations. A hard-won concession earns greater appreciation from the supplier. It also gives the supplier satisfaction that concession has been made. 9. "Tact and diplomacy is necessary to make supplier do face-saving" Everyone likes to be appreciated. No one likes to be criticised. Having obtained the desired concessions, the buyer should never give the impression to the supplier that the supplier has reduced that rates because he had done some padding. The buyer on the other hand should compliment the supplier for having agreed to the buyer's request. The buyer should make liberal use of undermentioned words to give feeling of satisfaction to the seller. The rule of the game is to leave people a way out of situations so that they can preserve their self respect. Embarrassment or humiliation helps neither party. The
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outcome of the negotiation must leave people intact especially if no agreement has been reached. This ensures continuity in relationships and leaves the door open for future sessions. 10. "Negotiation should not end up with an unhappy supplier". Such a situation will result in supplier supplying inferior goods and cutting corners to reduce cost. This would in turn harm the buyer later on. Therefore, the supplier must be paid adequate amount to cover cost of production and marginal profit for growth. It is also a good negotiating practice to leave something on the table. It shows that the buyer is not greedy and it is appreciated. The strategy will pay dividend in subsequent negotiations. 11. "Commitments once made must be kept" Suppliers must learn to trust the buyer. A buyer who builds up trust with his suppliers can accomplish anything. Suppliers trust in buyer depends on how the buyer lives up to the terms of the deal. Commitment once given must be kept. One should not give one's word lightly but keep it up once it is given. 12. "Critical review of one's own performance after the negotiation usually helps in sharpening negotiation skills". Every negotiation session must be looked upon a learning experience. The negotiator after a negotiation session should ask the following: How did the negotiation go? Did it achieve its objectives? If results have not been satisfactory, what could have been done? What mistakes led to the failure in negotiations? What one should try to de next time?
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Q13 What factors do you consider when selecting a mode of transport? When is motor transport more suitable? A13. Transportation costs account for a very significant portion (in some cases as high as 40%) of the material cost and as such a very high potential exists to reduce these costs. Major factors that have a wear on transportation costs are as follows: 1. The value of the product: The higher the value of the product to be transported, the higher is the transportation rate. 2. Volume of traffic moved:Transportation costs are lower if the volume of goods to be transported is more (e.g. A full truck/wagon load would be cheap in comparison to quarter wagonload or half wagon load). 3. Density: The denser the product, the easier it is to load into a carrier and consequently lower are the transportation rates (e.g. cloth is cheaper to transport than cotton bales) 4. Space required: Bulky items cost more to transport as they require more space and transportation are higher as they are based on space required (e.g. cotton bales cost more to transport) 5. The place to which the goods are to be transported :If the goods are to be transported to a small city or town from where there is a little or no chance of getting return shipment, the rates are higher. 6. Special services required : Special services such as special connection and stopover privileges increase transportation costs. 7.Packagaing requirements : The greater the packaging requirements , the higher are the rates. 8.Competition : The rates also depend on the demand and supply of the carriers. Larger the number of carriers the lower would be the cost. Road transport includes the different means of transport such as motor cars, trucks, tankers, tramways, animals, and carts and is the most important mode of transport in the industry. Road transport is the second largest country's internal transport which provides the only mechanised transport in hilly, rural and backward areas which are not connected by rail. It also serves as a feeder to rail heads. All movements of goods begin with road transport and end with road transport. Even for railway transport, goods must be taken to railway station by truck transport. Advantages / Merits of road transport : (1) Door-to-door service : Road transport provides door-to-door service. Goods can be collected from the centers of production and carried directly to the destination if it is
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full truck/lorry load. This is perhaps the most important reason of its popularity. Loading and unloading charges are reduced in road transport if there is direct transportation of goods to the final destination. (2) Suitable for short distance :Road transport generally proves to be quicker and cheaper than the railway transport when distance involved is small. This is the reason why perishable goods like vegetables, fish, fruits and flowers are generally sent by road transport. (3) Multiple use of roads : Road transport is convenient for carrying goods to the interiors and remote placesof the country where other means of transport cannot reach easily and quickly. (4) Flexibility : Road transport is a flexible means of transport as changes can be made easily, quickly and with limited expenditure. There is no fixed schedule or time table for road transport. Vehicles can move at any time according to the need.. Like airways, it is not tied down to fixed routes and time schedules. (5) Safety : Road transport is reasonably safe and secure particularly when goods are door delivered without any break and loading and unloading in transit. The possibility of loss sue to thefts and breakages is limited.
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Q15 Purchase order is a legal document . What terms and conditions should be printed on reverse of purchase order to safeguard company's interest? A15 Purchase order terms and conditions are printed on the reverse side of all the purchase orders. These terms and conditions deal with acceptance of contract, amendments in the contract, delivery performance and contract termination, inspection and acceptance, packing and packaging, ownership rights of the buyer, proprietary rights, patent indemnity, legal jurisdiction, etc. i. Acceptance of contract clause to ensure that purchase order serves basic conditions of the contract. ii. Amendments in the contract clause to reserve the buyer's right to make any changes in the specifications, method of shipment, place of delivery, time and manner of delivery, quantity etc. iii. Delivery performance and contract termination clause to reserve buyer's right of cancellation of purchase order for default in time of delivery. iv. Inspection and acceptance clause to reserve buyer's right to reject and return the goods if they do not conform to the quality specifications. v. Packing, drayage and containers clause to limit seller's right to charge unusual packing and packaging expense. vi. Property rights clause to define the ownership rights of the items given 'on loan' to the supplier and at the same time highlight the supplier's responsibility to maintain such property in good condition. vii. Proprietary rights clause to define seller's duties to maintain secrecy of the buyer's interests. viii. Patent indemnity clause to absolve buyer against any suit of proceedings which may be brought against the buyer by some other firm for alleged patent infringement by the supplier of the goods under the contract. ix. Legal jurisdiction clause to define place where disputes relating to this contract will be adjudicated. A sample Terms and Conditions of a Purchase Order for RR firm is mentioned below: Purchase Order Terms & Conditions 1. ACCEPTANCE: This Agreement is made between the Vendor named on the face of this order ("you") and RR ("us"). This purchase order must be accepted in writing by you by signing this purchase order and returning it to us. If for any reason you should fail to accept it in writing, any conduct by you which recognizes the existence of a Contract pertaining to the subject matter hereof shall constitute acceptance by Page 36 of 40
you of this purchase order and all of its terms and conditions. Any terms proposed in your acceptance of our offer which add to, vary from, or conflict with the terms herein are hereby objected to. Any such proposed terms shall be void and the terms herein shall constitute the complete and exclusive statement of the terms and conditions between us and may hereafter be modified only by a written instrument executed by both of our authorized representatives. If this purchase order has been issued by us in response to an offer and if any of the terms herein add to, vary from or conflict with any terms of your offer, then the issuance of this purchase order by us shall constitute an acceptance of your offer subject to the express conditions that you assent to the additional, different and conflicting terms herein and acknowledge that this purchase order constitutes the entire agreement between us with respect to the subject matter hereof and the subject matter of your offer. You shall be deemed to have so assented and acknowledged unless you notify us to the contrary in writing within ten (10) working days of receipt of this Purchase Order. 2. TERMINATION: We reserve the right to terminate this order in whole or in part for our convenience upon written notice to you, in which event you shall be entitled to reasonable termination charges consisting of a percentage of the order price reflecting the percentage of the work performed prior to termination plus actual direct costs resulting from our termination. 3. CONFIDENTIALITY: All specifications, documents, artwork, or drawings delivered to you by us remain our property. The information is delivered solely for the purpose of your performance of this order and on the express condition that neither they nor the information contained therein shall be disclosed to others nor used for any purpose other than in connection with this order without our prior express written consent. We reserve the right to request that you return all such information to us upon our written request. Your obligations under this paragraph shall survive the cancellation, termination or other completion of this order. 4. WARRANTY: You expressly warrant that all goods and services supplied to us by you as a result of this order shall conform to the specifications, drawings or other description upon which this order is based, shall be fit and sufficient for the purpose intended, merchantable, of good material and workmanship and free from defects. Inspection, test acceptance or use of the goods by us shall not affect your obligations under this warranty, and such warranty shall survive inspection, test acceptance and use. You agree to replace or correct promptly defects of any goods or services not conforming to the foregoing warranty without expense to us, when notified of such non-conformity by us. In the event of your failure to correct defects in or replace nonconforming goods or services promptly, we may, after reasonable notice to you, make such corrections or effect cover at your expense. 5. PRICE: This order must not be filled at a higher price than shown on the order. Any change must be authorized on a change order written by us. If no price is shown, you must notify our Buyer who issued the order of the price and his/her acceptance must be obtained in writing before filling the order. 6. FORCE MAJEURE: Neither of us shall be liable for a delay in the performance of our obligations resulting from the order when the delay is due to causes beyond our control, such as but not limited to war, strikes or lockouts, embargo, national
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emergency, insurrection or riot, acts of the public enemy, fire, flood or other natural disaster, provided that each of us has taken reasonable measures to notify the other, in writing, of the delay. Failure of subcontractors and inability to obtain materials or labor shall not be considered as a force majeure delay. 7. PATENTS: Unless the goods ordered hereunder are to be manufactured according to special design furnished by us, you shall at your own expense defend us from any claim of infringement of any letter patent, trademark, copyright or other intellectual property right by reason of manufacture or use of the goods furnished hereunder. You agree to protect and indemnify us fully against any liability, cost, recovery or other expense, including attorney's fees, in or resulting from any such claim provided that we give you timely notice of such claim. 8. INDEMNITY: You shall be responsible for and hold us harmless against all damages to persons or property that occur as a result of the performance of any work or service delivered hereunder by you, your agents, subcontractors and/or employees. 9. INSURANCE/INDEPENDENT CONTRACTORS: Before commencing work, you shall furnish us with certificates of insurance from companies 10. CHANGES: We reserve the right to make changes in drawings, designs, specifications, scope of work to be performed, time and place of delivery and method of transportation. If such change is to be made, it will be evidenced in writing by us in the form of a change order. If any such change has an effect on the price, warranty, delivery date or patent identification provisions of this order, an equitable written acknowledgement of the effect on the changed provisions shall be indicated on the change order. You may not make any change in drawings, design specifications, scope of work to be performed, time and place of delivery and method of transportation without our written change order acknowledging the change. Any such change orders accepted by you shall be incorporated in and amend the order. 11. INSPECTION/TESTING/REJECTION: Payment by us for the goods or services delivered hereunder shall not constitute our acceptance. We retain the right to inspect the goods or work performed and to reject any or all of the goods or work performed which are in our judgement defective. Goods rejected by us and goods supplied in excess of quantities called for herein may be returned to you at your expense and in addition to our other rights we may charge you all expenses of unpacking, examining, repacking, and reshipping such goods. In the event we receive goods whose defects or nonconformity is not apparent on examination, resulting in deterioration of our finished product, we reserve the right to require the replacement , as well as payment of any resulting damages. 12. RR PROPERTY: Any material parts furnished by us intended for use by you in your execution of your duties as required by this order should be considered as being held by you on consignment. All such materials or parts not used by you in
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connection with this order shall be returned to us at our expense unless you are otherwise directed in writing. If not accounted for or returned to us, missing materials or parts shall be paid for by you. All such materials or parts will be kept insured by you at your expense in an amount equal to the replacement cost with a loss payable to us. 13. REMEDIES: Our remedies shall be cumulative and our remedies include any remedies allowed by law. Waiver of any breach by us shall not constitute our waiver of any other breach of the same or any other provision. Acceptance of any items or payments therefore shall not waive any breach. 14. DELIVERY/RELEASES: Time is of the essence. You agree to comply with specific delivery schedule without any delay and without anticipating our requirements. Any delays in shipment shall be reported to us immediately as they become known to you. We reserve the right to cancel this order and effect cover if you cannot comply with the delivery date(s) indicated on this order. If delivery dates are not specified on this order, you shall procure materials, fabricate, assemble and ship goods only as authorized by shipment releases issued to you by us. We may return overshipments to you at your expense for all packing, handling, sorting and transportation. We may from time to time, and with reasonable notice, suspend shipping schedules specified in the purchase order or such shipment releases. 15. ASSIGNMENTS/SETOFFS/SUBCONTRACTING: This order, the work required to be done hereunder and any payments to be made hereunder may not be assigned, transferred, or subcontracted without our prior approval. No invoices may be rendered by others than the named firm shown as "Vendor" on the reverse without our written permission. All claims for monies due or to become due from us shall be subject to deduction by us for any setoff or counterclaim arising out of this or any other purchase orders with you whether such setoff or counterclaim arise before or after such assignment or subcontract by you. 16. PREMIUM TRANSPORTATION: If in order to comply with our required delivery date it becomes necessary for you to ship by a more expensive mode than specified on the face of this order, any premium transportation cost resulting therefrom shall be paid for by you unless you can establish to our satisfaction that the necessity for the change in routing is occasioned by force majeure events. 17. PACKING LIST: A packing list must be enclosed in all shipments showing the purchase order number and exact quantity and description of the goods shipped. 18. GOVERNING LAW/SUBMISSION TO JURISDICTION: This agreement shall be construed in accordance with the laws governing contracts made and to be performed in the State of Delhi.You hereby consent to the jurisdiction of any local, state, or federal court located within the State of Delhi and waive any objection which you may have based on improper venue or FORUM NON CONVENIENS to the conduct of any proceeding in any such court.
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19. ENTIRE AGREEMENT: Except when issued to carry out a contract signed by both of us, this purchase order constitutes the entire agreement of sale and purchase of the goods or services ordered hereunder. Vendor shall be conclusively presumed to have waived its right to receive payment for products or services purchased by RR under this Purchase Order if an invoice therefore has not been submitted within three (3) years of the date of this Purchase Order. The submission of an invoice by Vendor shall give rise to a presumption that the charges are the full amount due Vendor for the products or services listed on or referred to in the invoice for the purpose of determining the existence of any underpayment. Vendor may submit supplemental invoices only if accompanied by a photocopy of the original invoice and documentation acceptable to RR that establishes the validity of Vendor's claim for underpayment. If a supplemental invoice and supporting documentation are not furnished within three (3) months after the date of submission of the original invoice, the claim shall be conclusively presumed waived.
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SEM3 OP Materials Management 1

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Copyright:

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SEM3 OP Materials Management 1

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Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

a) What do you understand from classification of materials ? Why is it done ?

Vikas Choudhary 200323811 Materials Management

Work made parts

Standard(bought out parts) after being processed and assembled

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

b) Explain briefly any one numerical system of codification?

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

GOOD BUYER SELLER RELATIONSHIPS

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

F.O.R., (Station of dispatch)

Cost of goods freight and insurance upto the buyer's station

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Sale is made at works buyer's plant .

Sale is made at the place of storage

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

Vikas Choudhary 200323811 Materials Management

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