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Purchase Management

Purchase Management

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Published by tushar_vedant

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Categories:Business/Law, Finance
Published by: tushar_vedant on Jul 16, 2007
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11/29/2012

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InventoryInventory
is a list ofgoodsandmaterials, or those goods and materials themselves, held available in stock by abusiness. Inventory are held in order to manage and hidefrom the customer the fact that manufacture delay is longerthan delivery delay, and also to ease the effect ofimperfections in the manufacturing process that lowerproduction efficiencies if production capacity stands idlefor lack of materials.
Business inventory
The reasons for keeping stockAll these stock reasons can apply to any owner or productstage.
Buffer stock
is held in individual workstationsagainst the possibility that the upstream workstationmay be a little delayed in providing the next item forprocessing. Whilst some processes carry very largebuffer stocks, Toyota moved to one (or a few items)and has now moved to eliminate this stock type.
Safety stock
is held against process or machinefailure in the hope/belief that the failure can berepaired before the stock runs out. This type of stockcan be eliminated by programmes likeTotal ProductiveMaintenance 
Overproduction
is held because the forecast and theactual sales did not match. Making to order andJIT eliminates this stock type.
Lot delay stock
is held because a part of the processis designed to work on a batch basis whilst onlyprocessing items individually. Therefore each item ofthe lot must wait for the whole lot to be processedbefore moving to the next workstation. This can beeliminated by single piece working or a lot size ofone.
Demand fluctuation stock
is held where productioncapacity is unable to flex with demand. Therefore astock is built in times of lower utilisation to besupplied to customers when demand exceeds productioncapacity. This can be eliminated by increasing theflexibility and capacity of a production line orreduced by moving to item level load balancing.
Line balance stock
is held because different sub-processes in a line work at different rates. Thereforestock will accumulate after a fast sub-process orbefore a large lot size sub-process. Line balancingwill eliminate this stock type.
 
Changeover stock
is held after a sub-process that hasa long setup or change-over time. This stock is thenused while that change-over is happening. This stockcan be eliminated by tools likeSMED.These classifications apply along the wholeSupply chain not just within a facility or plant.It is often the work practise to hold all these stocksmixed together before or after the sub-process to whichthey relate. Because they are mixed-up together there is novisual reminder to operators of the adjacent sub-processesor line management of the stock which is due to aparticular cause and should be a particular individual'sresponsibility with inevitable consequences. Some plantshave centralised stock holding across sub-processes whichmakes the situation even more acute.
Special terms used in dealing with inventory
Stock Keeping Unit(SKU) is a unique combination of all thecomponents that are assembled into the purchasable item.Therefore any change in the packaging or product is a newSKU. This level of detailled specification assists inmanaging inventory.
Stockout
means running out of the inventory of an SKU.
 "New old stock" (sometimes abbreviated NOS) is a term usedin business to refer to merchandise being offered for salewhich was manufactured long ago but that has never beenused. Such merchandise may not be produced any more, andthe new old stock may represent the only market source of aparticular item at the present time.
Inventory examples
Whileaccountantsoften discuss inventory in terms of goodsfor sale, organizations -manufacturers,service-providers  andnot-for-profits- also have inventories (fixtures,furniture, supplies, ...) that they do not intend to sell.Manufacturers',distributors', and wholesalers' inventorytends to cluster inwarehouses.Retailers' inventory may exist in a warehouse or in ashopor store accessible tocustomers. Inventories not intended for sale to customersor toclientsmay be held in any premises an organizationuses. Stock is simply cash in disguise. If stocks areuncontrolled, you are encouraging theft. Moreover it willbe impossible to know the actual level of stocks andtherefore impossible to control them.Manufacturing organizations usually divide their "goods forsale" inventory into:
Raw Materials- materials and components scheduled foruse in making a product.
 
Work in Process, WIP - materials and components thathave begun their transformation to finished goods.
Finished goods- goods ready for sale to customers.
Goods for resale.For example:
 Manufacturing
A canned food manufacturer's materials inventory includesthe foods to be canned, empty cans and their lids (or coilsof steel or aluminum for constructing those components),labels, and anything else (solder, glue, ...) that willform part of a finished can. The firm's work in processincludes those materials from the time of release to thework floor until they become complete and ready for sale towholesale or retail customers. Its finished good inventoryconsists of all the cans of food in its warehouse that ithas manufactured and wishes to sell to food distributors(wholesalers), to grocery stores (retailers), and evenperhaps to consumers through arrangements likefactorystoresand outlet centers.
Logistics or distribution
Thelogisticschain includes the owners (wholesalers andretailers), manufacturers' agents, and transportationchannels that an item passes through between initialmanufacture and final purchase by aconsumer. At eachstage, goods belong (as assets) to the seller until thebuyer accepts them. Distribution includes four components:
1.
: Distributors who hold andtransport a consignment of finished goods formanufacturers without ever
owning 
it. Accountantsrefer to manufacturers' agents' inventory as"matériel" in order to differentiate it from goods forsale.
2.
: The movement of goods between owners,or between locations of a given owner. The seller ownsgoods intransituntil the buyer accepts them. Sellersor buyers may transport goods but most transportationproviders act as the agent of the owner of the goods.
3.
: Distributors who buy goods frommanufacturers and other suppliers (farmers, fishermen,etc.) for re-sale work in thewholesaleindustry. Awholesaler's inventory consists of all the products inits warehouse that it has purchased from manufacturersor other suppliers. A produce-wholesaler (ordistributor) may buy from distributors in other partsof the world or from local farmers. Food distributors

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