Chapter -2

Purchasing Tools and Techniques

Dr. Gajanan Anne

Assistant Professor
Dept of Mechanical Industrial Engineering
MIT, Manipal

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Purchasing Management

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Functions of the purchase department
• Supplier identification and selection

• Buying

• Negotiation and contracting

• Supply market research

• Supplier measurement and improvement

• Purchasing systems development

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Skills Required-
(1) Manage projects

(2) Assess costs associated with work to be done by subcontractors

(3) Realize that learning-curve principles will affect time and labor
costs

(4) Apply value engineering (VE) to the design and construction

(5) Ensure the contractor purchases materials in the appropriate

quantities for maximum discounts
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(6) Process map the actual times required for the sub activities.
Purchasing Tools and Techniques

1) Project management

2) Learning-curve analysis

3) Value engineering/value analysis

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Project Management
Better, Faster, and Cheaper

Critical Path Method (CPM)

Program Evaluation and Review

Technique (PERT)

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Project Planning and Control Techniques

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Rules for
Constructing a
Project
Management
Network

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1. The direction of arrows should flow from left to right avoiding mixing of direction. No
looping!

2. No single activity can be represented more than once in a network diagram. The length of
an arrow has no significance.

3. The event numbered 1 is the start event and an event with highest number is the end event.
Before an activity can be undertaken, all activities preceding it must be completed. That is, the
activities must follow a logical sequence (or interrelationship) between activities.

4. In assigning numbers to events, there should not be any duplication of event numbers in a
network Diagram

5. Dummy activities must be used only if it is necessary to reduce the complexity of a network
diagram

6. A network diagram must have one start and one end event
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Dummy Activity -An activity (represented by a dotted line on the arrow network diagram)
that indicates that any activity following the dummy cannot be started until the activity or
activities preceding the dummy are completed.

When more than one arrow leaves the same node and arrives at another node.

When one activity depends upon two preceding activities and another activity
depends only upon one of these two preceding activities

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Problem 3. Suppliers' selection project

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Problem 4. Draw a network for the simple project of erection of steel works for a
shed.

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Critical Path Method (CPM) in Project Management

• Powerful technique for analyzing, planning, and scheduling large, complex projects.

• Determine a project’s critical path—the longest sequence of tasks that must be finished
for the entire project to be complete.

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 • Powerful technique for analyzing, planning, and scheduling large,
complex projects

• Determine a project’s critical path—the longest sequence of tasks that

Critical Path must be finished for the entire project to be complete.
Method
(CPM) in
Project
Management

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Program Evaluation Review Technique (PERT)

Project management planning tool used to calculate the amount of time it will take to
realistically finish a project.

PERT charts are used to plan tasks within a project — making it easier to schedule and
coordinate team members.

•The shortest possible amount of time each task will take

•The most probable amount of time

•The longest amount of time tasks might take if things don't go as planned

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Learning Curve
➢ Tool that describes workers performance in repetitive activities.

➢ Due to cumulative experience and increasing familiarity with tasks, workers

are likely to do tasks faster and at less cost.

➢ Learning-curve analysis is appropriate when a supplier uses a new

production process or produces an item for the first time.

➢ Production efficiency usually increases as a supplier’s workforce become

familiar with a new process.

➢ The approach is also appropriate when an item has high direct-labor content.
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 • Value analysis involves examining all elements of a component,
assembly, end product, or service to make sure it fulfills its intended
function at the lowest total cost.

• The primary objective of value analysis is to increase the value of an

item or service at the lowest cost without sacrificing quality.

Value • Ways to increase value :

• Increasing the functionality or use of a product or service
Analysis/Value while holding cost constant

Engineering • Reducing cost while not reducing functionality

• Increasing functionality more than increasing cost

• For example, offering a five-year warranty versus a two-year warranty

with no price increase
• raises the value of a product to the customer.

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• Value analysis projects follow a systematic approach

Value consisting of five stages:

• Gather information

Analysis • 2. Speculate

• 3. Analyze

Process • 4. Recommend and execute

• 5. Summarize and follow up