Professional Documents
Culture Documents
COURSES
BASED ON UGC SYLLABUS
SYLLABUS
UNIT-I
Materials Management- Definition-Function-Importance of Materials Management.
UNIT - II
Integrated materials management- the concept- service function advantages- Inventory Control-
Function of Inventory - Importance-Replenishment Stock-Material demand forecasting- MRP-
Basis tools ABC-VED- FSN Analysis Inventory Control of Spares andSlow-Moving Items -EOQ-
EBQ-Stores Planning.
UNIT - III
Purchase Management- Purchasing - Procedure - Dynamic Purchasing - Principles -import
substitution- International Purchase-Import purchase procedure
UNIT-IV
Store Keeping and Materials Handling- Objectives - Functions - Store Keeping -Stores
Responsibilities Location of Store House Centralized Store Room -Equipment - Security Measures
- Protection and Prevention of Stores.
UNIT - V
Vendor Rating - Vendor Management - Purchase Department - Responsibility - Buyer Seller
Relationship - Value Analysis - Iso Types.
TABLE OF CONTENT
6. QUALITY CONSCIOUS:
If we concentrate on quality we are supposed to concentrate on materials. What kind of materials
and their quality & quantity, cost of material and everything leads to quality product.
7. EXPENDITURE OF MATERAIL:
The materials manager should control or reduce the usage of materials in connection packing,
transporting and labour charges.
8. CORPORATE AND SOCIAL RESPONSIBILITY:
The natural resource is very important and not only for a single person but it is meant for whole
universe, it is one of the ethics of the corporate world to safe guard the natural resources and to
avoid wastages
OBJECTIVES
TURNOVER 3.CONTINUITY OF SUPPLY 4.CONSISTENCY OF QUALITY 5.LOW PAYROLL COSTS 6.FAVOURABLE SUPPLIER RELATIONS
ES : 1.FAVOURABLE RECIPROCAL RELATIONS 2.NEW MATERIALS AND PRODUCTS 3.ECONOMIC MAKE -OR -BUY OR OU
PRIMARY OJECTIVES:
1. Low Prices:
Obtaining the lowest possible price for purchased materials is the most important objective of the
materials department. If the materials department reduces the prices of the items it buys, operating
costs are reduced and profits are enhanced. This objective is important for all purchases of
materials and services, including logistics and transportation.
2.High Inventory Turnover:
When inventories are low in relation to sales (inventory turnover = sales + average inventories),
less capital is tied up in inventories. This, in turn, increases the efficiency with which the
company's capital is utilized, so that return on investment is higher.
3. Continuity of supply:
When there are disruptions in the continuity of supply. excess costs are inevitable Production costs
go up Continuity of supply is particularly important for highly automated processes, where costs
are rigid and must be incurred even when production stops because of the lack of material This
objective is achieved through intelligent use of lead time estimate and a certified supplier whose
material is not impacted but loaded straight on the production line.
4. Consistency of quality:
The materials department is responsible for the quality only of the materials and services furnished
by outside suppliers. The manufacturing department is responsible for quality control of
manufacturing processes When materials purchased are homogeneous and in a primitive state (e.g.,
sand and gravel), quality is rarely a big problem for materials personnel.
5. Low payroll costs:
The common objective of a company is low payroll costs. The lower the payroll, the higher the
profits-all other factors being equal. But because no department can do its job without a payroll, the
objective of a low payroll must be viewed in a proper perspective. A technique for calculating the
order processing cost involves me of the formula: G= (L+OH)
Here;
L= Annual labour costs and salary OH= Office overheads per year N= Number of orders placed for
various items per year. It will be shown later that C, affects the economic order quantity in
inventory control the economic order quantity formula for inventory control.
6. Favourable supplier relations:
Manufacturing companies rely on outside suppliers a far greater degree than is generally
recognized. This is because in present times industries purchase up to 95 per cent of their items
from vendors. This makes favourable relations with suppliers extremely important.
SECONDARY OBJECTIVES:
1.Favorable reciprocal relations:
When a company deliberately buys from its own customers as much as possible, it is practising
reciprocity Sound reciprocity involves balancing of the advantages and disadvantages of using
one's buying power as an instrument for getting sales. Similarly, suppliers will use their own
buying power as a sales tool. In consumer goods industries, reciprocity is rarely a problem, sales are spread
among many users. In producer goods industries, however, reciprocity is a way of business life. particularly
among industries where there is little product differentiation and prices are uniform.
CLASSIFICATION OF MATERIALS:
Materials are classified into the following categories:
1. Raw materials: Raw materials are purchased from the original producer or manufacturers and
are used directly or subjected to a conversion process in producing the firm's product. For example,
plastic granules are the raw materials which are converted into plastic products through conversion
processes such as plastic molding. The molded plastic part shall be a raw material for some
assembly along the supply chain.
2. Purchase components: Nowadays, most of the industries purchase finished components from
the vendors and assemble them within their plant to obtain the finished product. Usually 95 per
cent of purchased components are those which do not represent the core competency of the buying
firm. But 5 per cent of in-house components which represent thecore competency of that industry
go into the final finished product. These 5 percent critical high value parts.
3.Work-in-progress: This category represents the materials in the semi-finished s as a result of
operation being performed on raw materials purchased from outside. These constitute a large
proportion of inventory blocked as capital. Lean manufacturing a inventory manufacturing has the
objective of minimizing the WIP (Work-in-Process).
4. Finished goods: The finally produced goods are termed finished goods. They a speeding up the
operation by using a pull system on the downstream side. ready for sale and function as a buffer
between production and marketing departments.
5. Spares: Spares are important inventories and usually represent the standby fo important
components of production equipment which convert the raw material to finished product. Spares
are classified into three categories: vital, essential and desirable (Fig. 3.1) Vital spares belong to the
mother machines as their stoppage will bring the production to a halt. Essential spares belong to the
next category of equipment that are available in larger number and perform semi-finishing
operations. Desirable spares belong to finishing equipment which are more in number.
6.Consumables: These materials are used in the manufacturing process and cannotbe reused for
the same purpose. Coal, mineral oil, lubricants, cotton waste, paints, oxygen.stationery items like
pencil, paper, ink, etc. represent some of the consumable stores.
7.Machinery and equipment: All the machinery, power and hand-driven equipment such as
presses, lathe machines, typewriters, electric motors and other machines used in production in other
departments is classified as stated above. A complete record of these machines during their lifetime
in terms of repair, replacement and renewal is usually kept on a history card.
CODIFICTION OF MATERIALS
Codification is a process of representing each item by a number, the digits of which indicates the
group and the dimension of the item. It can also be done by numerical digits or combination of
English letters.
INVENTORY
Meaning: The dictionary meaning of inventory is ’stock of goods’, or ‘list of goods’. In a
manufacturing concern inventory may include raw materials, work in process and stores,
etc.
DEFINITION: The American Institute of Certified PublicAccount defines “Inventoryin
the sense of tangible goods, which are held for sale, in process of production and available
for ready consumption”.
FUNCTIONS OF INVENTORY:
In general, the function of inventory can be defined as the process of tracking and managing the
stock of goods or materials that a company holds for the purpose of meeting customer demand. The
following are some of the key functions of inventory management:
1.Stock control: Inventory management ensures that the right amount of stock is available at all
times to meet customer demand.
2.Cost control: Inventory management helps to reduce the cost of holding too much inventory and
the cost of stock shortages by finding the optimal balance between inventory and customer
demand.
3.Cash flow management: Inventory management helps to optimize the cash flow of a company
by reducing the amount of capital tied up in inventory and improving the speed at which inventory
is turned over.
4.Order fulfilment: Inventory management ensures that customer orders are fulfilled on time and
with the right product by having the right stock levels in place.
5.Risk management: Inventory management helps to manage the risks associated with holding
inventory, such as obsolescence, damage, and theft, by having effective stock control processes in
place.
6.Data analysis: Inventory management helps to analyze data on stock levels, sales patterns, and
other relevant information to make informed decisions on inventory management.
IMPORTANCE OF INENTORY:
I. To protect against uncertainties: In inventory systems, there are uncertainties in supply,
demand, and lead time. Safety stocks are maintained in inventory to protect against those
uncertainties. If customer demands were known, it would be feasible-although not
necessarily economical to produce at the same rate as consumption. In this case, no finished
goods inventory would be needed; however, every change in demand would be immediately
transmitted to the production system in order to maintain customer service.
II. To allow economic production and purchase: It is often economical to produce materials
in lots. In this case, a lot may be produced over a short period of time, and then no further
production is done until the lot is nearly depleted. This makes it possible to spread the set-
up cost of the production machines over a large number of items. It also permits the use of
the same production equipment for different products. A similar situation holds good for the
purchase of raw materials. Owing to ordering costs, quantity discounts, and transportation
costs, is sometimes economical to purchase in large lots, even though part of the lot is then
held in inventory for later use.
III. To cover anticipated changes in demand or supply: There are certain situations where
changes in demand or supply may be anticipated. One case is where the price or availability
of raw materials is expected to change. Companies often stockpile steel prior to an expected
steel industry strike. Another source of anticipation is a planned market promotion where a
large amount of finished goods may be stocked prior to a sale.
IV. To provide for transit: Transit inventories consist of materials that are on their way from
one point to another. These inventories are affected by plant location decisions and by the
choice of carrier. Sometimes the inventory in transit is called pipeline inventory because it
is in the "distribution pipeline". The first two categories of inventory are taken up in this
chapter, the remaining two categories are treated in subsequent chapters of the book.
1. Ordering Cost
2. Carrying Cost
3. Shortage or stock out Cost & Cost of Replenishment
1.Ordering Cost
Cost of procurement and inbound logistics costs form a part of Ordering Cost. Ordering
Cost is dependent and varies based on two factors - The cost of ordering excess and the
Cost of ordering too less. How much to order is determined by arriving at the Economic
Order Quantity or EOQ.
•Cost of Capital
Inventory storage costs typically include Cost of Building Rental and facility maintenance
and related costs. Cost of Material Handling Equipments, IT Hardware and applications,
including cost of purchase, depreciation or rental or lease as the case may be. Further costs
include operational costs, consumables, communication costs and utilities, besides the cost
of human resources employed in operations as well as management.
Cost of Capital
Includes the costs of investments, interest on working capital, taxes on inventory paid,
insurance costs and other costs associate with legal liabilities.The inventory storage costs as
well as cost of capital is dependent upon and varies with the decision of the management to
manage inventory in house or through outsourced vendors and third-party service providers.
3. Stock-Out Costs/ Shortage Cost & Cost of Replenishment
Stock-out Costs is the cost associated with the lost opportunity caused by the exhaustion of the
inventory. The exhaustion of inventory could be a result of various factors. The most notable
amongst them is defective shelf replenishment practices.
Replenishment stock:
Replenishment stock refers to the process of replenishing or restocking items in a inventory system
to maintain an optimal level of inventory to meet customer demand. The objective of replenishment
stock is to ensure that the inventory levels are maintained at a level that balances the cost of
holding inventory with the cost of stock-outs (running out of stock).
MATERIAL DEMAND FORECASTING
When demand levels are not known exactly, as with independent demand, then forecasting
proactively aims to give best estimate of future demand and to predict changes. Forecasting also
aims, reactively, to minimize errors in previous forecasts.
Definition: - An estimate of sales in physical unit for an specified future period in theproposed
marketing plan/program and under the assured set of economic and other forces outside the
organization for which the forecast is made.
OBJECTIVES OF MATERIAL DEMAND FORECASTING:
Material demand forecasting has several objectives, including:
1. To determine the future demand for raw materials, components, and finished goods.
2. To plan production and procurement activities based on expected demand.
3. To help companies make informed decisions about inventory management and stock levels.
4. To avoid stockouts and overstocking, which can lead to increased costs and decreased
customer satisfaction.
5. To ensure that materials and products are available to meet customer demands in a timely
manner.
6. To provide a basis for long-term strategic planning, including capacity planning and
investment decisions.
7. To support effective cost management and budgeting by providing visibility into future
material requirements and costs.
8. To identify potential issues and risks related to material supply and demand, allowing
companies to proactively address them.
9. To support the development of sales and marketing strategies by providing information
about future product demand.
Definition:
According to American Production and Inventory Control Society, “MRP constitutes a set
of techniques that use bill of material, inventory data, and the master production schedule to
calculate the requirements for materials.”
Demerits of MRP:
1. Complexity: MRP systems can be complex to implement and maintain, requiring a high
level of technical expertise and specialized software. This can lead to high costs and long
implementation times.
2. Data accuracy: MRP systems rely on accurate and up-to-date data, and errors or
discrepancies in the data can lead to inaccurate results. This requires careful data
management and regular system updates.
3. Inflexibility: MRP systems are designed for specific operations and processes, and may not
be flexible enough to accommodate changes in demand patterns or production processes.
This can lead to inefficiencies and decreased productivity.
4. Dependence on computer systems: MRP systems are computer-based, and dependence on
these systems can lead to operational disruptions if there are technical issues or system
failures. This requires a robust system backup and disaster recovery plan.
1. A.B.C Analysis
3. VED Analysis
4. GOLF Classification
5. XYZ Analysis
6. SDE Classification
7. HML Classification
8. S-OS Classification
9. FNSD Classification
The materials are divided into a number of categories for adopting a selective approach for
materials control. It is generally seen that in manufacturing concerns, a small percentage of items
contribute large percentage of value of consumption and large percentage of items of material
contribute a small percentage of value.
In between these two limits there are some items which have almost equal percentage of value of
materials. Under A-B-C analysis, the materials are divided into three categories viz. A’, ‘B’ and
‘C’. Past experience has shown that almost 10% of the items contribute to 70% of value of
consumption and this category is called A’ category.
About 20% of items contribute about 20% of value of consumption and this is known as ‘B’
category materials. Category ‘C’ covers about 70% of items of materials which contribute only
10% of value of consumption. There may be some variations in different organisations and an
adjustment can be made in these percentages.
A-B-C analysis helps to concentrate more efforts on category ‘A’ since greatest monetary
advantage will come by controlling these items. An attention should be paid in estimating
requirements, purchasing, maintaining safety stocks and properly storing of ‘A’ category materials.
These items are kept under a constant review so that a substantial material cost may be controlled.
The control of ‘C’ items may be relaxed and their stock may be purchased for the year. A littlemore
attention should be given towards ‘B’ category items and their purchase should be undertaken at
quarterly or half yearly intervals.
This approach helps the materials manager to exercise selective control and focus his attention only
on a few items when he is confronted with lakhs of stores’ items. By concentrating of ‘A’ class
items, the materials manager is able to control inventories and show visible results in a short span
of time.
By controlling the ‘A’ items, and doing a proper inventory analysis, obsolete stocks are
automatically pinpointed. Many organisations have claimed that ABC analysis has helped in
reducing the clerical posts and resulted in better planning and improved inventory turnover.
ABC analysis has to be resorted to because equal attention to ‘A’, ‘B’ and ‘C’ items will not be
worthwhile and would be very expensive. Concentrating on all the items is likely to have a diffused
effect on all the items, irrespective of the priorities.
ABC analysis, in order to be fully effective, should be carried out with standardization and
codification. ABC analysis is based on grading the items according to the importance of
performance of an item that is by V.E.D -Vital, essential and Desirable— analysis discussed later.
Some items, though negligible in monetary value, may be vital for running the plant, and constant
attention is needed. If the inventory position is analyzed according to the value, commonly known
as XYZ analysis, then results of ABC and XYZ analysis will be different, depending upon the
nature of obsolete items.
The results of ABC analysis have to be reviewed periodically and updated. It is a common
experience that a ‘C’ item, like diesel oil in a firm, will become the highest value item during
power crisis. However, ABC analysis is a powerful approach in the direction of cost reduction as it
helps to control items with a selective approach.
EOQ is the size of the lot to be purchased which is economically viable. This is the quantity of
material which can be purchased at minimum cost. Generally, EOQ is the point at which inventory
carrying costs are equal to order costs. In determining EOQ, it is assumed that cost of managing
inventory is made up solely of two parts, i.e., ordering cost and carrying costs.
These costs are also known as buying costs and will arise only when some purchases are made.
When materials are manufactured in the same concern then these costs will be known as set-up
costs. These costs will include costs of setting up machinery for manufacturing material, time taken
up in setting cost of tools, etc.
The ordering costs are totalled up for the year and then divided by the number of orders placed
each year.
These are the costs for holding the inventories. These costs will not be incurred if inventories are
not carried. These costs include:
(a) The cost of capital invested in inventories. An interest will be paid on the amount of capital
locked up in inventories.
(b) Costs of storage which could have been used for other purposes.
Ordering cost increases as the number of orders increases. Carrying cost decreases as the number
of orders increases. EOQ is that quantity where the total cost is minimum
1. Supply of goods is satisfactory. The goods can be purchased whenever these are needed.
2. The quantity to be purchased by the concern is certain.
3. The prices of goods are stable. It results to established carrying cost.
When the above-mentioned conditions are satisfied, economic order quantity can be calculated
with the help of following formula:
EOQ = √2AS/I
Where,
Merits of EOQ:
1. Cost savings: EOQ helps companies minimize their total inventory costs by balancing the costs of
ordering and holding inventory with the costs of stockouts and lost sales.
2. Improved inventory management: EOQ provides a systematic approach to inventory
management, helping companies make informed decisions about ordering and holding inventory.
This leads to improved inventory management and reduced waste.
3. Increased efficiency: EOQ helps companies optimize their ordering and production processes,
reducing the time and resources required to manage inventory. This leads to increased efficiency
and improved productivity.
4. Better customer service: EOQ helps companies maintain optimal inventory levels, reducing the
risk of stockouts and ensuring that customer demand can be met in a timely and reliable manner.
This leads to better customer service and increased customer satisfaction.
5. Improved cash flow: EOQ helps companies optimize their cash flow by reducing the amount of
money tied up in inventory and maximizing the use of working capital.
Demerits of EOQ:
1. Simplistic assumptions: EOQ makes several assumptions, such as constant demand and constant
lead time, that may not be realistic in many real-world situations. This can lead to inaccurate results
and poor inventory management decisions.
2. Inadequate consideration of variability: EOQ does not consider the effects of demand variability
or the impact of lead time variability on inventory management. This can result in suboptimal
inventory decisions.
3. Limited applicability: EOQ is a simple model that may not be appropriate for all types of
inventory items, especially those with complex demand patterns or long lead times.
4. Inflexibility: EOQ provides a fixed order quantity that may not be suitable for companies with
rapidly changing demand patterns or frequent product changes.
3. VED ANALYSIS:
In this analysis, the items are classified on the basis of their criticality to the production process or
other services. In the VED classification of materials:
V = Vital items
E = Essential items
D = Desirable items
Vital items are stocked in adequate number to ensure smooth and risk-free operation of plant. In
other words, without such items the production process would come to a standstill.
Essential items are those whose stock-out would adversely affect the efficiency of the production
system. Although the production system would not stop for want to these items, yet their non-
availability might cause temporary losses in, or dislocation of production.
The D or desirable class of items are those which are required but do not immediately cause a loss
of production.
The VED analysis is done in respect of spare parts. However, this VED classification can also be
done in the case of critical raw materials, which are difficult to obtain.
5.GOLF CLASSIFICATION:
The GOLF classification of inventory items is done considering the nature of suppliers. As the
source of supply of different items are different, with a view to determining the lead time, order
quantities, safety stock and terms of purchase and payment. Here, under this classification:
L = Local supplies
6.XYZ ANALYSIS:
It is based on the closing inventory value of different items. Such classification is done every year
at the time of annual stock taking and items having highest inventory- valuation are classified as
‘X’, while those with low investment in them are termed as ‘Z’ items.
Other items are ‘Y items whose inventory value is neither too high nor too low. This type of
analysis is particularly useful in identifying the items requiring maximum care and attention during
storage.
7.SDE CLASSIFICATION:
Under this analysis, ‘S’ stands for scarce items which are in short supply, ‘D’ refers to the difficult
items meaning the items that might be available in the indigenous market but cannot procured
easily while ‘E’ represents easily available items, may be from the local market.
8.HML CLASSIFICATION:
The HML classification is similar to the ABC classification, except for the fact that instead of
consumption values of items, their unit values are considered. Items are classified on the basis of
their unit values into:
This type of analysis is useful for keeping control over materials consumption at the departmental
level. For example, gold, which is a high value item, will be classified as H and coal, which is a
low value item, will be classified as L.
9.S-OS CLASSIFICATION:
This analysis is based on the nature of suppliers and period of their availability. This is useful for
deciding the time of purchase or procurement, so that the cost of materials and the holding cost
may be balanced. Here, the two classes are:
S = Seasonal items
Cut off points of these classes are usually in terms of number of items issued during the last few
years. This helps in preventing obsolescence and ensures disposal of dead stock. Some authors
classify the items as FSN where ‘F stands for fast, ‘S’ stand for slow moving, ‘N’ stand for non-
moving materials & parts. This will automatically reduce inventory costs.
STORES PLANNING: Store planning is nothing but physical arrangement and layout of
receiving item. It is properly arranged store the materials are properly maintained which will help
minimum handling and maximum utilization.
UNIT 3 PURCHASE MANAGEMENT
PURCHASE MANAGEMENT:
According to Alford and Beatty, “Purchasing is the procuring of materials, supplies, machines,
tools and services required for equipment, maintenance, and operation of manufacturing plant”.
MEANING:
Purchase management is the process of overseeing and controlling the purchasing of goods and
services for an organization. It involves identifying the needs for products or services, selecting and
negotiating with suppliers, monitoring delivery, and evaluating the quality of products and services
received. The goal of purchase management is to ensure that the organization gets the best value
for its money by obtaining the right products or services at the right time, at the right price, and in
the right quantity.
TYPES OF PURCHASES:
Raw Materials: These are things you’ll use to create a new product – like metals, lumber,
or petroleum.
Semi-Finished Products or Components: These are things you need to support your final
product, such as components, systems, etc.
Finished Products: These are things you’ll use for internal use or anything you won’t have
to process before selling to the final customer. Things like: computers, carts, etc.
Maintenance, Repair, and Operating Items (MRO): These are items that your business
needs to operate, but doesn’t sell to the customer. Think cleaning supplies, office supplies,
and spare parts for your machinery.
Production Support Materials: This refers to items you’ll need to pack and ship items,
such as tape, boxes, bags, labels, etc.
Services: These are services you need to support your business, such as your web hosting,
customer support, legal team, etc.
Capital Equipment: Anything assets you’ll use for more than a year, such as machinery,
computers, etc.
Transportation: This is a specialized type of service to handle your inbound and outbound
material flows, such as third-party logistics, freight, etc.
METHODS OF PURCHASING:
There are several ways to address purchasing, which include:
By Requirement
With this purchasing method, you only purchase the goods you need, when you need them,
and in the required quantity. These are generally things you don’t purchase regularly and
can be considered emergency goods because you don’t keep them in storage.
Market Purchasing
Using this approach, you buy goods to take advantage of favorable market situations. It
may not meet your immediate needs but will help in the future. FOr instance, if a particular
component you know you need plenty of is on sale, you may buy extra now, while it’s
cheaper.
Speculative Purchasing
With this method, you purchase items at a lower price now, with the idea of being able to
sell them at a higher price later. The idea is that you’ll have profit due to price increases
later.
Purchasing for a Certain Future Period
This method purchases goods that you require regularly. These are things you don’t need a
lot of, and the price isn’t expected to fluctuate much. You’ll assess the needs for a certain
future period, and make your purchases accordingly. You can assess your requirements
based on past experience, the period for which you need supplies, your inventory carrying
cost, etc.
PRINCIPLES OF PURCHASING:
1. The right price: Obtaining the best possible price for the goods or services purchased, while
considering factors such as quality, delivery time, and payment terms.
2. The right quantity: Purchasing the right quantity of goods or services to meet the
organization's needs.
3. The right quality: Ensuring that the goods or services purchased meet the organization's
standards for quality.
4. The right time: Ensuring that the goods or services are delivered at the right time, and in the
right sequence
5. The right source: Selecting the best possible supplier based on factors such as cost,
reliability, and reputation
6. The right specification: Clearly defining the requirements for the goods or services
purchased, including quality, delivery time, and performance criteria.
7. The right contract: Keeping accurate records of all purchase transactions, including
contracts, invoices, and delivery receipts.
8. The right delivery: Ensuring that the goods or services are delivered on time and in the right
condition.
9. The right transportation: The Right Transportation is an important principle in effective
supply chain management and logistics
10. The right material: The Right Material is a key principle in effective purchasing and supply
chain management. It refers to ensuring that the organization is purchasing the correct
materials or goods that meet the organization's specific requirements and standards.
PURCHASING SYSTEM: -
(1) Hand to mouth buying: In this method of purchasing, an item is purchased frequentlyin
small quantity when the demand arises
(2) Forward buying: The purchase are usually made keeping in mind the requirementsbased
on the demand and sales forecast.
(3) Reciprocity: (mutual exchange of raw materials and finished goods) When the buyerand
seller co-operate in such a way that buyers buys one product from the seller and on his turn the
seller buys a product manufactured by service provided by the concerned firm.
(4) Scheduled buying: when an item is procured through the deliveries in accordance with
adelivery schedule furnished by the seller as well as purchaser.
(5) Speculative buying: Sometimes large quantities are boughtwhenprice is low,speculating
the prices will rise such type of buying normally not occurred in industrial purchases.
(6) Hedging purchase: The purchase maintains which aims to eliminate price fluctuation
iscalled hedging purchase. Hedging is possible in the organized commodity market Where large
volume of commodity are transacted when the buying is done on the basis of quotation /down
payment.
(7) Contract buying: when the purchase is made on formal contract where the
requiredmaterial delivery is often spread over a period of time. The purchase method is called
contract buying.
(8) Blanket order: In a variety of items are purchased from a single supplier, the order iscalled
blanket order. Usually such items have low unit price and the method is most suitable for
purchasing of general hardware, electrical goods and stationaries etc.
(9) Tender buying: A tender on quotation is a written offer made by a supplier to thepurchase
promising to provide a specified quality, particular price. The tender buying is most popular in
Government organization and public sector undertakings.
(10) Seasonal buying: This is type pf purchasing pertains to the items which are notavailable
but required for consumption throughout year. The seasonal buying is profitable to any of them
during the respective season.
OBJECTIVES OF PURCHASING:
a) To ensure minimum disruption of production schedule
b) To obtain required materials, spare parts & services etc in the right time.
c) To identify the better substitutes in the market at low prices.
d) To maintain the goodwill of the company
e) To maintain the competitive position
f) To advise the design department on probable prices, deliveries performance of items etc.
PURCHASING PROCEEDURE
GENERAL MEANING
Purchasing is the formal process of buying goods and services. The purchasing process can vary
from one organization to another, but there are some common key elements.
The process usually starts with a demand or requirements – this could be for a physical part
(inventory) or a service. A requisition is generated, which details the requirements (in some cases
providing a requirements specification) which actions the procurement department. A request for
proposal (RFP) or request for quotation (RFQ) is then raised. Suppliers send their quotations in
response to the RFQ, and a review is undertaken where the best offer (typically based on price,
availability and quality) is given the purchase order.
PURCHASING PROCEEDURE FLOW CHART
1. Recognition of the need:
The initiation of procedure starts with the recognition of the need by the needy section.
The demand is lodged with the purchase department in the prescribed Purchase
Requisition Form forwarded by the authorised person either directly or through the Stores
Department. The purchase requisition clearly specifies the details, such as, specification
of materials, quality and quantity, suggested supplier, etc.
2. The Selection of the supplier:
The process of selection of supplier involves two basic aspects: searching for all possible
sources and short listing out of the identified sources. The complete information about the
supplier is available from various sources, such as, trade directories, advertisement in
trade journals, direct mailing by the suppliers, interview with suppliers, salesmen,
suggestions from business associates, visit to trade fair, participation in industries
convention, etc.
3. Placing the order:
Once the supplier is selected the next step is to place the purchase order. Purchase order
is a letter sent to the supplier asking to supply the said material. At least six copies of
purchase order are prepared by the purchase section and each copy is separately signed
by the purchase officer.
4. Follow-up of the order:
Follow-up procedure should be employed wherever the costs and risks resulting from the
delayed deliveries of materials are greater than the cost of follow-up procedure, the
follow-up procedure tries to see that the purchase order is confirmed by the supplier and
the delivery is promised. It is also necessary to review the outstanding orders at regular
intervals and to communicate with the supplier in case of need.
5. Receiving and inspection of the materials:
The receiving department receives the materials supplied by the vendor. The quantity are
verified and tallied with the purchase order. The receipt of the materials is recorded on
the specially designed receiving slips or forms which also specify the name of the vendor
and the purchase order number.
6. Maintenance of the records:
Maintenance of the records is an important part and parcel of the efficient purchase
function. In the industrial firms, most of the purchases are repeat orders and hence the
past records serve as a good guide for the future action.
7. Maintenance of vendor relations:
The quantum and frequency of the transactions with the same key suppliers provide a
platform for the purchase department to establish and maintain good relations with them.
Good relations develop mutual trust and confidence in the course of the time which is
beneficial to both the parties.
DYNAMIC PURCHASING:
• A dynamic purchasing system is a completely electronic process for making commonly
used purchases of products
• The cost of setting and running a dynamic purchasing system are borne by the contracting
authority.
3. Trading companies: These companies act as intermediaries between buyers and sellers
in different countries. They purchase goods or services from suppliers and resell them to
buyers in other countries.
4. Agents and brokers: Agents and brokers act as intermediaries between buyers and
sellers. They help buyers identify and select suitable suppliers, negotiate pricing and
contracts, and manage logistics.
5. Joint ventures: This involves partnering with a local company in a foreign country to
establish a joint venture. The joint venture allows for easier access to local resources and
knowledge, which can help streamline the purchasing process.
6. Foreign subsidiaries: This involves setting up a foreign subsidiary to handle the
purchasing process. The subsidiary can manage sourcing, shipping, and customs
clearance, as well as provide local market knowledge and expertise.
7. Online marketplaces: These are digital platforms that connect buyers and sellers in
different countries. They provide access to a wide range of suppliers, and the purchasing
process can be streamlined through the use of digital tools and services
CUSTOMS AGENTS:
Customs Agents prepare the document of Shipping Bills in the house for submission while rests
of the documents are obtained from the client. Preparing shipping bill involves Classification of
cargo under specific classification that is a critical activity in the entire process.
UNIT 4 STORE KEEPING
STORE KEEPING:
•Meaning: Stores form the basis of material management. Stores play a vital role in the
operations of a company. Storing or storekeeping is a service to the production department.
OBJECTIVES OF STOREKEEPING
1. Minimizing cost of production through minimizing cost on materials: The primary
objective of store keeping is to provide services in the most economical manner so that
the production cost can be minimized. The cost of the material used in the production is
the sum total of cost of material plus cost of procurement plus the cost of carrying it in
the store.
2. Maintaining the value of materials: One of the objectives of store keeping is maintain
the value of materials in stock at the lowest practical level at all times in order to
economize the working capital and to minimize the cost of storage.
3. Services to user departments: Another objective of store keeping is to mar available
efficient services to the organization. These services include taking care of raw material,
work-in-process, finished goods and scrap control.
4. Establishing coordination with other departments: Coordination is the essence of an
effective management. Although the main objective of store department is to keep the
materials in order to remain in touch with the material inventory control section, it does
not mean that all other departments of the organization are to be ignored.
5. Advising materials manager: Store keeping is an important part of materials
management. That is why management has to rely heavily on the store department for
formulating its investment policies. Product costs have 50 to 60 per cent contribution due
to a major portion of material costs. The suggestions given by the storekeeper regarding
the purchase, preservation and consumption of materials may be of great use for the
management.
1. Identification of materials: Identification is the process of systematically defining and
describing all items of stock. It includes preparation of stores code or vocabulary.
adoption of material specifications and introduction of a degree of standardization. This
essentially is the job of design, planning or standards department, besides the purchasing
department
2. Receipt of materials: Receipt of materials is the primary function of a storekeeper
Receipt is the process of accepting from all source’s materials, equipment and spares
parts used in the organization, including supplies for manufacturing or operating
processes maintenance offices, capital installations and finished products.
3. Storage: This function involves the management of storehouses, namely faultless
become Billy conversant with the materials. working of material handling and storage
equipment, and the safe custody and protection of stock Storage implies the act of storing
the materials.
4. Inspection: Inspection means the examination of incoming materials for qua and quality
Stores department takes the help of inspection personnel from quality co department to
have the goods inspected. Sometimes even some stores personnel skill inspection does
this work.
5. Material verification and stock taking: It is an important duty of the storekeeping to
take stock of the materials and to conduct stock taking. Stock taking is the process a
physical verification of the quantity and condition of goods, usually on a periodic
Similarly, stock checking is also done on an ad hoc basis for introducing element surprise
6. Issue and dispatch: This is the process of receiving demands, selecting the ite required
and handing them over to the users. Storekeeper must ensure that the mater requisition
note bears the signature of the authorized person.
7. Record keeping and accounting: Keeping the record of incoming and outgoing
materials is one of the important functions of the storekeeper. Stores accounting process
of recording stock movement and balances in terms of financial value.
TYPES OF STORES
Main or centralized stores
A central store is generally a 'wholesale' supplier to other units, departments or
sub-stores which operate on a retail basis issuing goods directly to users. All
material is received and issued by one central store. Different departments do not
purchase their requirements themselves.
Branch or decentralized stores
Decentralized or branch stores are provided in the plants which are considerably
large in where one main shore cannot meet the requirements of the plant without
west of and inconvenience different departments have the own Moves from which
day an w the material requirements.
Central store with sub-stores
A very big factory having a large number of product lines may have this type of
storage has a main store which can serve as a base with sub-stores each unit of
production preferably located as near the unit as possible. The sub-stores draw in
requirements the main store for a certain period, say a fortnight or a month.
Tool and miscellaneous stores
Tool and miscellaneous stores are equipped with all the necessary tools needed by
the production and other shops. The stock of tools must be maintained with due
regard to the requirement of the work. This store is responsible for issuing tools,
spare parts and other accessories to different departments.
Warehouses
Warehouses are the godowns which take the responsibility of keeping and storing
goods and providing ancillary services in order to help the small and medium-
sized traders and manufacturers who, because of technical and economic reasons,
BENEFITS OF STOREKEEPING:
Minimum Investment: Material costs constitute a major portion in the total cost
of production. Therefore, their impact on the total cost is immense. With the help
of a good storekeeping system, the levels of material, namely minimum,
maximum and reorder level.
Continuous flow of material: Store keeping ensures continuous supply of
materials to the various departments without any delay and without causing any
stoppage in the production activities. This enables the company to maintain its
production schedule.
Protection and preservation: Store keeping is meant for physical storage of
materials carried into the store in a scientific and systematic manner with a view
to save them from all kinds of damages and losses. The storage of materials
involves not only their custody or safe keeping but also their preservation against
deterioration
Good quality at minimum cost: Today, there is a cut-throat competition among
the business enterprises. Every organization aims to produce quality goods while
lowering the cost of production. Here, the race of the stores department becomes
very important
Fewer accidents: The stores should have a proper layout to avoid accidents
which are the results of unsafe conditions and unsafe acts. If the layout of the
store is not properly planned, there will always be the fear of accidents
Proper storage for improved output: Things kept at an appropriate place are
conducive to good work flow. As a result of improved flow of work, the cycle
time is reduced and output is increased. May not like to have their gun
storehouses.
STORES RESPONSIBILITIES:
1. Receiving and inspecting goods: The stores personnel are responsible for receiving
goods, inspecting them for quality, and ensuring that the quantity matches the purchase
order.
2. Stocking and organizing inventory: Once goods are received and inspected, stores
personnel are responsible for stocking and organizing the inventory in a way that is easily
accessible and can be quickly retrieved when needed.
3. Issuing inventory: Stores personnel are responsible for issuing inventory when it is
requested by the appropriate department or personnel. They should ensure that the
quantity issued matches the request and that the inventory is properly documented.
4. Recording inventory movements: Stores personnel are responsible for accurately
recording inventory movements such as receipts, issues, transfers, and adjustments.
5. Conducting regular inventory audits: To ensure the accuracy of the inventory, stores
personnel are responsible for conducting regular inventory audits to reconcile the
physical inventory with the inventory records.
6. Maintaining a clean and organized storage area: Stores personnel are responsible for
maintaining a clean and organized storage area that is free of hazards and promotes a safe
work environment.
7. Ensuring compliance with policies and procedures: Stores personnel are responsible
for ensuring compliance with all policies and procedures related to inventory
management, including security, storage, and handling of inventory.
8. Communication with other departments: Stores personnel should maintain good
communication with other departments to ensure that inventory is available when needed
and that inventory levels are sufficient to meet demand.
9. Conducting training: Stores personnel may be responsible for training new employees
on inventory management policies and procedures, as well as any software or technology
used in inventory management.
STORES PROCEDURE
1. Receiving goods: When goods arrive, they should be received by the stores personnel,
and the quantity, quality, and condition should be checked against the purchase order.
2. Inspection of goods: Goods should be inspected for damages or defects, and if there are
any, they should be reported to the supplier immediately.
3. Storage of goods: Goods should be stored in a safe, secure, and appropriate location, and
the inventory records should be updated to reflect the new stock.
4. Issuing goods: When goods are required, the stores personnel should issue the goods
against the requisition, and the inventory records should be updated accordingly.
5. Physical inventory count: A physical inventory count should be conducted at regular
intervals to ensure the inventory records match the actual stock levels.
6. Stock taking: The stock should be regularly reviewed to ensure that the stock levels are
optimal and the stock rotation is appropriate.
7. Documentation: All stock movements should be documented, including receiving,
issuing, and returning, to maintain accurate inventory records.
8. Security: The stores personnel should ensure that the inventory is secured to prevent
theft or damage, and only authorized personnel should have access to the inventory.
9. Re-order level: The stores personnel should establish re-order levels for the inventory to
ensure that stock levels do not fall below a critical level.
10. Disposal of inventory: Any inventory that is no longer required or has reached its expiry
date should be disposed of appropriately.
A centralized store is that store which receives materials for and issues them to all
departments, divisions and production floors of the company. Such a store is only one in the
company which receives materials for and issues to all who need them. The materials required
for all the departments and branches are stored and issued by only one store.
A decentralized store is that type of store which receives materials for and issues them to only
one department and not to the whole company. The decentralized store may be in many numbers
in the company, as each department has its own such store. Purchasing and handling of materials
are undertaken by each and every department separately. If the volume of material activities is
large, this type of store is suitable because each and every branch has their own store for
facilitating smooth operations of their production activities.
1. CCTV cameras: Closed-circuit television (CCTV) cameras are installed throughout the
store to monitor activity and deter theft. Cameras can be used both inside and outside the
store.
2. Alarm systems: An alarm system can be installed in the store to alert security personnel
or law enforcement in the event of a break-in.
3. Access control: Access control measures, such as ID cards or security codes, can be used
to restrict entry into certain areas of the store.
4. Security guards: Security personnel can be employed to monitor the store and provide a
visible deterrent to potential thieves.
5. Electronic article surveillance (EAS): EAS tags or labels can be attached to inventory to
deter theft. If an item with an EAS tag is not deactivated at the point of sale, an alarm will
sound when it passes through the store's exit.
6. Locks and safes: High-value inventory can be stored in locked cabinets or safes to
prevent theft.
7. Employee training: Employees can be trained to recognize potential threats and to follow
procedures for handling theft or damage to inventory.
8. Lighting: Adequate lighting can be installed inside and outside the store to increase
visibility and deter theft.
9. Physical barriers: Physical barriers such as fences or bollards can be installed to prevent
unauthorized entry into the store.
10. Inventory management systems: Inventory management systems can be used to track
inventory and identify any discrepancies or missing items.
PROTECTION AND PREVENTION OF STORES:
1. Security measures: Installing security systems, such as cameras and alarms, can help
deter theft and prevent unauthorized access to the store. Security personnel may also be
used to monitor the premises and ensure that only authorized personnel are allowed to
enter.
2. Fire prevention: Fire prevention measures, such as smoke detectors, sprinkler systems,
and fire extinguishers, can help minimize the risk of fires and reduce the damage caused
by any fires that do occur.
3. Climate control: Maintaining a consistent temperature and humidity level within the
store can help protect products and materials from damage caused by extreme
temperatures or moisture.
4. Pest control: Implementing a pest control program can help prevent infestations by
insects and rodents, which can damage products and materials.
5. Regular maintenance: Regular maintenance of the store, including cleaning, repairs,
and inspections, can help identify and address potential issues before they become major
problems.
6. Proper storage: Properly storing products and materials can also help prevent damage
and theft. This may include using appropriate shelving, pallets, or containers to ensure
that items are stored securely and are not at risk of falling or being damaged.
STORE ACCOUNTING
To find out the value of materials in stock at any point of time one must know the quantity of
materials available in stock as well as the value associated with these quantities. There are
several methods available for determining the value of each item and one of these methods must
be chosen for the purpose.
Main documents of store accounting
a) Material requisition slip: This document is raised by the production department showing the
quantity of material required. The stores department issues material against authorized signature.
b) Bin Card: As the name suggests, a card hangs from the bin or container containing each
material. This card records all daily transactions against items. This card is the first form of
perpetual inventory where transactions are immediately updated.
c)Stores ledger: It is master document record of stores. It is essential record mandatory for the
stores to maintain. The accounts in a store’s ledger are actually detailed analysis of general
purchases and issues,
1. First-in, first-out (FIFO): The FIFO method assumes that the first items purchased are
the first ones sold, and uses the cost of the oldest inventory to calculate the cost of goods
sold.
2. Last-in, first-out (LIFO): The LIFO method assumes that the last items purchased are
the first ones sold, and uses the cost of the newest inventory to calculate the cost of goods
sold.
3. Average cost method: The average cost method is a method of store accounting used to
determine the value of inventory and the cost of goods sold. This method calculates the
average cost of all items in inventory, and then uses this average cost to determine the
value of inventory and the cost of goods sold.
4. standard cost method: The standard cost method is a management accounting technique
that involves setting predetermined standard costs for the direct materials, direct labour,
and overhead that are expected to be incurred in producing a particular product or
providing a particular service.
MATERIAL HANDLING:
Materials handling refers to the movement, storage, control, and protection of materials
in a manufacturing or distribution facility. It involves the physical handling of materials,
including loading and unloading, transportation, and storage. Materials handling is an
essential aspect of logistics and supply chain management and involves various
equipment and systems such as conveyors, forklifts, pallets, shelving, and automated
systems. Effective materials handling can improve efficiency, reduce costs, and enhance
safety in a facility.
Value Analysis is a technique to examine all facets of a function and the cost of the
product to find ways of reducing or eliminating costs without sacrificing performance or
quality. it tries to pinpoint what a product is expected to do and study its performance to
suggest improvements.
Planning: Define the needs, strategic performance objectives and functional specification
of the proposed system and supporting technologies at the outset of the design.
Standardization: All material handling methods, equipment, controls and software
should be standardized and able to perform a range of tasks in a variety of operating
conditions.
Work: Material handling processes should be simplified by reducing, combining,
shortening or eliminating unnecessary movement that will impede productivity.
Safety: Work and working conditions should be adapted to support the abilities of a
worker, reduce repetitive and strenuous manual labor, and emphasize safety.
Space utilization: To maximize efficient use of space within a facility, it is important to
keep work areas organized and free of clutter, to maximize density in storage areas
(without compromising accessibility and flexibility), and to utilize overhead space.
System: Material movement and storage should be coordinated throughout all processes,
from receiving, inspection, storage, production, assembly, packaging, unitizing and order
selection, to shipping, transportation and the handling of returns
Environment: Energy use and potential environmental impact should be considered
when designing the system, with reusability and recycling processes implemented when
possible, as well as safe practices established for handling hazardous materials.
Automation: To improve operational efficiency, responsiveness, consistency and
predictability, automated material handling technologies should be deployed when
possible and where they make sense to do so.
Life cycle cost: For all equipment specified for the system, an analysis of life cycle costs
should be conducted. Areas of consideration should include capital investment,
installation, setup, programming, training, system testing, operation, maintenance and
repair, reuse value and ultimate disposal.
1. Forklifts: These are vehicles that are used to lift and transport heavy loads. They can be
used indoors and outdoors and come in a variety of sizes and capacities.
2. Conveyors: These are machines that are used to move materials from one location to
another. They can be used for sorting, assembly, and packing.
3. Cranes: These are machines that are used to lift and move heavy materials. They can be
used in construction sites, shipyards, and other industries that require heavy lifting.
4. Pallet jacks: These are small vehicles that are used to move pallets from one location to
another. They can be used in warehouses, factories, and distribution centers.
5. Automated guided vehicles (AGVs): These are driverless vehicles that are used to
transport materials around a facility. They can be programmed to follow a specific route,
making them ideal for repetitive tasks.
6. Hoists: These are machines that are used to lift heavy objects. They can be used in
construction sites, factories, and warehouses.
7. Stackers: These are machines that are used to lift and stack materials, such as pallets.
They are often used in warehouses and distribution centres.
8. Trolleys: These are wheeled carts that are used to transport materials. They can be used
in factories, offices, and other locations.
FACTORS AFFECTING SELECTION OF MATERIAL HANDLING:
1. Type of products or materials: The type of products or materials being moved will
affect the choice of material handling equipment. Heavy items, such as machinery or
large containers, may require cranes or hoists, while pallets and crates may be best moved
with forklifts or pallet jacks.
2. Size and weight of products: The size and weight of the products being moved will also
impact the selection of material handling equipment. The equipment chosen should be
able to handle the weight and size of the products safely and efficiently.
3. Distance to be travelled: The distance that the products need to be moved will also
impact the selection of material handling equipment. Conveyor systems are ideal for
moving products over long distances, while forklifts and pallet jacks are better suited for
shorter distances.
4. Frequency of movement: The frequency with which the products need to be moved will
also impact the choice of material handling equipment. High-volume environments may
require the use of automated equipment, such as AGVs or conveyor systems, while
lower-volume environments may only require manual equipment.
5. Safety requirements: Safety is a critical consideration when selecting material handling
equipment. The equipment chosen should be safe for both the operator and the products
being moved, and should comply with all relevant safety regulations.
6. Cost: Finally, the cost of the equipment will also be a factor in the selection process. The
chosen equipment should be cost-effective and provide a good return on investment over
its lifetime.
Direct import: This involves purchasing goods or services directly from a foreign
supplier without the involvement of intermediaries such as agents or brokers. This
method requires a high level of expertise in sourcing, shipping, and customs clearance.
UNIT 5 VENDOR MANAGEMENT
VENDOR RATING:
Vendor rating is a process of evaluating the performance of a supplier or vendor based on criteria
such as quality, reliability, delivery time, customer service, and cost. This information is used by
businesses to determine which vendors to continue working with and which to terminate, as well
as to negotiate better pricing and service terms.
VENDOR MANAGEMENT:
The term vendor management is used when describing the activities included in researching and
sourcing vendors, obtaining quotes with pricing, capabilities, turnaround times, and quality of
work, negotiating contracts, managing relationships, assigning jobs, evaluating performance, and
ensuring payments are made.
1. Quality:
The term quality stands for ability and willingness of the supplier to meet the specifications of
the buyer. At no cost, the quality should be sacrificed for low price.
2. Price:
Normally quality does not always go side by side with price but we must try to find out those
suppliers who make better than average product at an average price. However, sub-standard and
poor-quality purchases should not be made at the cost of a low price.
3. Quick Delivery:
The lead time i.e., time to get supplies, should be less so that there is a quick delivery of goods.
Generally, the best suppliers are the busiest and in order to get goods from them, one has to wait
for a long time. However, quick delivery reduces the amount of forward planning and increases
the flexibility.
4. Service:
It is very important factor in selecting the vendor. It includes the provision of expert advice to the
buyer before and after the sale of materials and other items. Good service helps in maintaining
good relations between the supplier and the buyer. The speed and effectiveness of arrangements
to service and repair equipment is very important to certain machines.
5. Assurance of supply:
Only those suppliers should be preferred who assure supplies of raw materials and other
components. Thus, suppliers who suffer recurring shortages should be used with great care as it
can adversely affect our production schedule.
6. Size of the supplier:
Some authorities recommended that orders of small size should be placed with a small company
whereas the orders of large size should go to large companies. However, this correlation can’t be
always applied. A small supplier would generally work very hard to perform a large order, if
given a chance.
7. Number of suppliers:
Should we place all order with one supplier or use two or more suppliers? The use of a single
supplier has the following advantages:
(a) In times of shortage, the supplier will give preference to the needs of the customer.
(b) A single supplier can also offer the best price with assured supplies.
On the other hand, two or more suppliers may be beneficial in times of shortage. Large
companies generally buy from two or more suppliers getting the twin benefit of low price and
service.
8. Local suppliers:
Sometimes, a buyer may be compelled to buy certain requirements locally on account of the
following reasons.
c) Community relations between the company and public may force the buyer to buy
locally. For example, the supplier to a hospital or charitable trust by the local businessman would
help in raising the funds for such organization
d) Local buying is generally justified when small quantities of materials are purchased.
e) There is a feeling of closer co-operation between the vendor and the buyer.
f) The delivery is quickly made.
g) Urgent orders can be met promptly.
h) Disputes, if any, can be easily resolved.
9. Miscellaneous Considerations:
The following points should also be considered at the time of selection of suppliers:
(a) In order to maintain complete objectivity, the buyer must keep himself free from
unethical influences. Favor to friends should be avoided. Similarly commercial bribery such as
gifts etc. has no place in selecting vendors.
(b) Dishonest vendors must be rejected forever.
VENDOR DEVELOPMENT
VENDOR EVALUATION:
1. Competency
First, look at how competent the supplier is. Make a thorough assessment of their capabilities,
and measure them against your needs. Then look at what other customers think. How happy
are they with the supplier? Have they encountered any problems? And find out why former
customers changed supplier.
Look for customers whose needs and values are similar to yours, to ensure that the
information you gather is relevant to your organization.
2. Capacity
The supplier needs to have enough capacity to handle your company's requirements. So, ask
how quickly they will be able to respond to your needs, and to market and supply
fluctuations.
Look at the supplier's resources, too. Do they have the means to meet your orders,
considering their commitments to other clients? (These resources could include staff,
equipment, storage, and available materials.)
3. Commitment
Your supplier needs to provide evidence that they are committed to high quality standards.
Where appropriate, look for quality initiatives within the organization, such as ISO
9001 or Six Sigma.
The supplier must also show they will be committed to you, as a customer, throughout the
time that you expect to work together. (This is particularly important if you're planning a
long-term relationship with them.)
Look for evidence of their ongoing commitment to fulfilling your requirements, whatever the
needs of their other customers.
4. Control
Ask how much control this supplier has over their policies, processes, procedures, and supply
chain. How will they ensure that they deliver consistently and reliably, especially if they rely
on scarce resources, and if these resources are controlled by another organization.
Itis also vital to ask about their compliance with the General Data Protection
Regulation (GDPR), which is essential for any organization that works in, or has partners in,
the European Union (EU).
5. Cash
Your supplier should be in good financial health. Cash-positive firms are in a much better
position to weather economic ups and downs.
So, does this supplier have plenty of cash at hand, or are they overextended financially? And
what information can the supplier offer to demonstrate their ongoing financial strength?
6. Cost
Look at the cost of the product or service that this supplier provides. How does it compare
with the other options that you're considering?
Most people consider cost to be a key factor when choosing a supplier. However, cost is in
the middle of the 7 Cs list for a reason. Other factors, such as a commitment to quality and
financial health, can potentially affect your business much more than cost alone, particularly
if you plan to rely on the supplier long-term.
7. Consistency
How will this supplier ensure that they consistently provide high quality goods or services?
Do they have a strong track record, or are they an industry newcomer with an innovative
approach?
No one can be perfect all the time. However, the supplier should have processes or
procedures in place to ensure consistency. Ask potential suppliers about their approach, and,
if possible, get a demonstration and a test product.
VALUE ANALYSIS:
ISO has developed over 23,000 standards covering a wide range of topics including quality
management, environmental management, information technology, energy management, and
social responsibility. The standards are developed by experts from around the world, and are
reviewed and updated regularly to ensure that they remain relevant and useful.
ISO standards are voluntary, but many businesses, governments, and other organizations
choose to adopt them as a way to demonstrate their commitment to quality, safety, and
sustainability. ISO certification is often required by customers and suppliers as a condition of
doing business, particularly in international trade.
ISO also works closely with other organizations, including the United Nations, to promote
international cooperation and development. It has established partnerships with a number of
international organizations, including the World Trade Organization, the International
Electrotechnical Commission, and the International Accreditation Forum.
TYPES OF ISO:
1. ISO 9000 - Quality management: This series of standards provides guidelines for
the implementation of a quality management system, which can help organizations to
consistently meet customer requirements and enhance customer satisfaction.
2. ISO 14000 - Environmental management: This series of standards provides
guidelines for the implementation of an environmental management system, which
can help organizations to manage their environmental impact and improve their
sustainability.
3. ISO 27001 - Information security management: This standard provides guidelines
for the implementation of an information security management system, which can
help organizations to protect their sensitive information and maintain the
confidentiality, integrity, and availability of their data.
4. ISO 45001 - Occupational health and safety management: This standard provides
guidelines for the implementation of an occupational health and safety management
system, which can help organizations to manage and reduce workplace health and
safety risks.
5. ISO 22000 - Food safety management: This standard provides guidelines for the
implementation of a food safety management system, which can help organizations to
ensure the safety and quality of their food products.
6. ISO 50001 - Energy management: This standard provides guidelines for the
implementation of an energy management system, which can help organizations to
manage their energy use and improve their energy efficiency.
7. ISO 26000 - Social responsibility: This standard provides guidelines for the
implementation of a social responsibility management system, which can help
organizations to act in a socially responsible manner and contribute to sustainable
development.
1. Develop and implement a quality manual: The quality manual should outline the
policies, procedures, and processes that the organization has in place to ensure that
products and services meet customer requirements and are of a consistent quality.
2. Define the scope of the QMS: The organization must define the scope of its quality
management system, which includes identifying the processes that are covered by the
QMS and the products and services that are affected.
3. Identify and document procedures: The organization must identify and document
procedures for controlling the processes that affect product and service quality,
including purchasing, design, production, and inspection.
4. Establish a process for continuous improvement: The organization must establish a
process for continuous improvement of the quality management system, including
setting objectives, measuring performance, and taking corrective action when
necessary.
5. Conduct internal audits: The organization must conduct internal audits of its quality
management system to ensure that it is meeting the requirements of the ISO 9000
series of standards.
6. Obtain third-party certification: To obtain ISO 9000 certification, the organization
must have its quality management system audited and certified by a third-party
certification body.