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‡function of materials management
‡ procuring the inputs for production
function at minimum cost to the system
‡ Scope is external and also internal to the

‡ purchase decisions commit a very large
portion of financial resource of the
‡ deal with large number of external
‡ represent   

‡ negotiate and finalize deals
is of utmost importance

‡ primary objective is making inputs
available at minimum cost to system output

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‡ The inputs to be made available are raw
materials, semi finished items, bought out
items etc.
‡ focus is on system out put rather than on
micro level objectives.
ight price, right quantity, right quality,
right place and right time, right terms,
right mode of transportation

‡ right price is determined by costing the

production process of the supplier
‡ allowing reasonable profit for the
supplier and insisting and helping to
reduce cost
‡ Tender system should be used to identify
lowest responsible bidder rather than
lowest bidder
‡ Principles normally used to ensure right
price are cost structure and learning curve

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‡ fulfill QCD expectations of external
‡ Continuous value analysis, variety
reduction and standardization exercises

‡ analyze costing of production process

of the supplier
‡ allow reasonable profit for the supplier,
insist & help reducing cost
‡ tender system to identify lowest
responsible bidder rather than lowest
‡ principles normally used to ensure
right price are cost structure and
learning curve
‡ adherence to the standard or
‡ standards like DIN, BS, IS etc.
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‡ engineering drawings - manufactured,
semi finished or a spare
‡ samples can be given as reference for
‡ Grades may be specified
‡ right quality meets customers¶ QCD
‡ vague, incomplete and incorrect
specifications resulting into wrong supply
or no supply
‡ neither shortage nor excess is right
‡ EOQ, inventory control systems, ABC
‡ price structure, discounts, availability,
favorable reciprocal relations etc.

‡ place of conversion process - short

‡ Place of delivery will have an impact on
price and availability

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‡ material availability as per production

‡ Lead-time influences meeting the
production schedule
‡ Lead time is time between
experiencing the need and arrival of
‡ pre contractual administrative lead
time, manufacturing, transportation and
inspection time.
‡ constantly try and reduce lead time as
this has an impact on inventory
‡ urgent purchase when unexpected
situations come up

‡ source is right if the Q,C,D

expectations of the customer are
‡ source influences meeting expectations
of the external customer
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‡ all legal aspects should be considered.
‡ organization should never be indulging
in illegal practice.
‡ interest is to be protected if any dispute
emerges with suppliers.

‡ 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.

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‡ Help buyers to find more economical
ways of working rather than hut the process


‡ analytical mind, patience, optimism,
persuasiveness, strategic, resourcefulness,
originality[refuse to be stereotyped]

‡ purchasing accounts for large portion of
corporate finance
‡ purchase budgets materials and services
requirements of all functions
purchase systems
in an organization

‡ purchase systems are pre purchase system,
ordering system and post purchase system
‡ systems and procedures for reducing
variations and errors due to individuality.
‡ makes performing the function simple and
less prone to errors
‡ for accountability, smooth running of
purchasing function.

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£arious activities controlled by this system
are requisitioning, selection of suppliers
and obtaining & evaluating quotations.

‡ made by anyone in the organization.
‡ separate requisition form for capital
‡ requisition for an item shall be made in a
standard format
‡ all relevant information like quantity,
specifications and authorization
‡ competence to authorize the purchase
‡ making purchase activity easier and less
time consuming.

‡ minimum level for a stock item based on
‡ permanent document with specification,
authorization and quantity required
permanently marked
‡ returns to indenting department after
purchase is initiated

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‡ standard formats for making inquiries for
supply of a particular product in the market
‡ forms boldly declaring that they are not
explicit or implicit purchase orders

‡ Purchase order is the most important
element in ordering system.
‡ purchase order is released after selecting
the supplier and finalizing the price and
other conditions of sale.
‡ purchase order is a legal document.
‡ Contents of the purchase order- purchase
order reference number, specifications,
quantity required, delivery schedule, price,
discounts, shipping instructions, location
signature of the authorized officer, detailed
terms and conditions

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‡ several number of colour coded copies
- supplier, receiving department, indenting
department & finance department

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

‡ expensive activity for an organization.
this should be minimized and made more
effective. Proactive elimination of
‡ FSN analysis to fix follow up frequency
‡ Follow up responsibility is assigned to
buyers responsible for areas in which
suppliers are situated.

‡ to eliminate defects in receipt process
‡ systematic record of all receipts, carrier
details and descriptions
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‡ record is in chronological sequence of
arrival of supplies.
‡ inspection of consignments and payment to
‡ In many organizations a receipt section
handles this activity centrally

‡ supplier sends his invoice to customer¶s
‡ Invoice checking system checks PO terms,
reciept details, quantity received, inspection
reports [accepted quantity and rejected
quantity], losses, damages etc.
‡ coordination with finance department for
payment to suppliers.


‡ long term contract with buyers
‡ commitment for a long period on
schedules, price and discount based on
availability of the item, financial position,
EOQ for that item
‡ no speculation in this buying
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‡ practiced in public sector companies and
private companies
‡ tendering systems in practice
‡ open tendering system adopted by public
sector companies.
‡ bids are invited by advertisements in
‡ lowest bidder is chosen
‡ time consuming and expensive
‡ Private companies make a list of well
known and serious bidders in the market
and invite tenders from these bidders.
‡ tenders are opened lowest bidder is
‡ ensure that the lowest bidder is also a
responsible bidder and capable of meeting
QCD expectation
§ "

‡operative for a for a long time, µc¶
category material, price is fixed

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‡ Delivery is as and when customer desires,
supplier to hold inventory.
‡ benefits are no of orders are less, inventory
is passed on to the supplier

‡ Supplier holds the stock for the buyer
‡ Supplier and customer are close to each
other and the inputs flow in a pipe line or on
a conveyer.
‡ Obsolescence is minimized.
‡ Suppliers production schedule is as per
customers. Dedicated supplier and customer

‡ after finalizing the rates through
negotiations for a definite period, customer
shall buy required quantity from the
specified supplier.
‡ ailways and other government
‡ ate contracts normally do not specify lead
‡ Hence suppliers demand higher rates for
early delivery
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‡ buying from once own customers
should be done only if terms and conditions
are same.
‡ Less efficient manufacturers resort to this
‡ discouragement of competition

‡ use single document as purchase order and
also delivery challan
‡ reduction in administration expenses

‡ source of market intelligence[market

conditions, industrial climate, what is new?]
‡ crucial for product quality
‡ member in the value chain
‡ import substitution, cost reduction, value


‡trade magazines, telephone directory, trade

shows, publications by DGTD, DGS&D
‡ net
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‡ inquiries by buyers and request by
suppliers to be included in the approved
suppliers list
‡ meet, visit



evaluate on a zero to ten scale the position
of 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


‡ terms of delivery, price and quality are
negotiated and finalized
‡ trial order is placed for a small quantity to
gauge mutual acceptance

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‡ Clear cut need described fully, quantity
and technical needs clear
‡ personal rapport between buyer & supplier
‡ vendors¶ meet to discuss performance of
supplied materials, quality and technical

‡ allotment of marks based on performance
‡ for short listing
‡ for apportioning requirements
‡ $!
% Delivery performance, weightage?
a. adherence to time schedule
b. adherence to quantity schedule
2. Quality performance
3. Price performance


‡ local sources - merits demerits
‡subcontracting - better utilization of man
power, better scheduling of facility for
critical operation
‡ small, big - merits, demerits
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! !
#Ã &Ã

‡ Whatever is crucial to the quality of final
out 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
‡order quantity is small
! &Ã !

‡ 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
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