1. Amount of materials is high compared to other inputs . and it is increasing year to year.
Proper materials management is key to the survival and growth of the company.
2. Cost of materials could be as high as 70-75% of the cost of the product in engineering
4. Added value of a product = Value of produced goods- value of materials purchased. It is imperative that not only that purchase cost of materials are to be low but also expenses incurred in purchasing, storing, handling should be as low as possible.
5. Quality of end product depends on quality of input materials. Hence it is important that right quality of products are to be procured at right time. Giving detailed description of requirements to supplier in the Purchase order ensures the same.
6. Materials management is one of the Key centers of accountability for performance. It
includes purchasing, handling of materials, maintaining appropriate inventory levels and
ensuring storage conditions.
9. Efficiency of business depends on ensuring right quality of materials in right quantity ant the right time. Otherwise it hampers the production to a great extent. Cost of production shoots up.
3. Low cost acquisition and possession- reduced handling and storage costs.
4. Continuity of supply- alternative sources, , captive suppliers, flexible suppliers
5. Low payroll costs- Low operating costs of material management personnel
6. Favorable supplier relations- supplier development
3. Standardization- coordinating with Design departments in reducing no. of items.
4. Product improvement- Contribution towards product improvement by giving appropriate
1. To pay reasonably low prices for best value of products
2. To keep inventories low
3. To develop satisfactory sources of supply
4. To secure good vendor performance
5. To locate new materials or products as required
6. To develop good purchasing policies and procedures
7. To implement programs like value analysis , cost analysis and make-or-buy decisions
8. To keep overheads of the department Low.
9. To have a high degree of coordination with other departments
3. Awarding purchase orders
4. Follow-up for delivery
5. Handling complaints , if any
6. Supplier development/ vendor relations
7. Payment of invoices
1. Establishing specifications
2. Scheduling orders
5. Market research
6. Inventory policy
1. Receipt of Purchase requests ( qty, delivery, item description)
2. Development Purchase specifications
3. Obtaining quotations from sources
4. Selection of source
5. Release of purchase order and acceptance by supplier ( technical and commercial terms)
6. Follow up for receipt
7. Checking invoice and approval for payment
1. Quantities may be very small for multiple sources
2. Supplier may be exclusive ( eg patent)
3. Supplier is outstanding in quality and delivery and no need to consider others
4. Ordering and scheduling is very easy and less costly
1. Suppliers will be competitive
2. Delivery disruptions cannot be sustained (because of Breakdowns , strike, floods etc)
3. Quantities too huge for one supplier
Vendor rating is carried out periodically (once in 6 months / 12 months ) to gauge the
performance of the approved supplier and to intimate him regarding improvement if needed.
Suppliers may be classified as( example)
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