Material management concept emerged as a sensible forecast must possess the following:

formal organization due to the greater need for a

separate system in the flow of materials to the • experience
production floor. • good judgement based on data
analysis
Material management process exists in the • technical expertise
organization with the view of exploring the new
business opportunities. Features Common to All Material
Forecasting
Strategic supply management in the organization
Forecasting techniques as used by managers
will focus on intelligence gathering.
assume that the same underlying causal system
that existed in the past will continue to exist in
Customer satisfaction is the lifeblood of any
organization Customer patronage is the one the future
making the industry alive in the marketplace.
Short term forecast tends to be more accurate.
Materials requirement planning is the first Long period forecasting tends to have
stage in the procurement of any materials for uncertainties as there occur changes in the
processing into finished products or for sale to business environment
the direct consumer.
• Forecasts are never perfect
Materials Requirement Planning (MRP) • Forecast for groups of items tends to
be more accurate than forecast for
Involves the development of systems and individual items.
procedures. The proximate activities are • Some forecasting techniques assume
outlined and directed towards specific courses the same underlying demand for a
of action. certain period.
• Determine the purpose of the forecast
The lowest possible price must be obtained. • Establish time frame on the needed
Nevertheless, it must be within the specification materials
requirements in terms of quality. • Select the most
appropriate forecasting
Managers of Logistic Administration must technique
bear in mind the importance of the planning • Gather the data and analyze
process in the procurement of the needed according to the technique
chosen
materials for production. • Forecast preparation
• Forecast monitoring
Forecasting
● is a tool of the manager to reduce the ELEMENTS OF GOOD FORECAST:
Requirements for Properly Prepared Forecast
uncertainties and help him develop
• Forecast should be timely.
more visible future activities. • Forecast should be accurately stated.
● serves as the basis for budgeting and • Material requirement forecast must
planning for capacity, production, and be reliable.
inventory of goods • Material forecasting must be stated
● is a systematic approach to probe the in meaningful units.
future demand material of the • Forecast must be submitted in
hard copies.
industry.
• The information must be simple
Forecasting material demand is like forecasting and easy to understand and use.
the weather condition.
FORECASTING AND DEMAND
A good manager to be able to make a ANALYSIS

The customer demand is the most important
component in forecasting.
• Qualitative method consists mainly of
subjective information given by those
in direct contact with the end user of
the product. It needed to be validated
in order to get deeper information.
• Quantitative method This approach
uses historical data as to material
improvements and the development
of new component that goes into a
new product.
ORGANIZING THE SUPPLY CHAIN
Sound logistics management design develops
people operating effectively in the delivery of
goods in the production line.
The selection process for people in the
supply management must focus on honesty
that will build strong confidence and focus
attention to the organization's economic
objective.
Computer knowledge will be an advantage as
well as strong knowledge in human relations
and customer negotiations.
Effective implementation in the
organizing process of the purchasing functions
should be toward the following:
• Management must establish clear
objectives for all concerned.
• Identification and classification of the
activities with clear and definite
assignment of functions.
• Group related activities in the light of
human and material resources.
• Proper delegation of authority and
accountability to line executives.
• Define the vertical and horizontal
relationship to improve condition.
The vertical relationship pertains to his
relations with the higher executives and;
horizontal relationship pertains to the other
executives in the same line in the
organizational structure.
CHAPTER 2: ORGANIZATIONAL
FRAMEWORK AND
COMPETITIVE STRATEGY
cooperate effectively with other line
executives to avoid conflicts and
other organizational problem.
The centralized purchasing function involves
coordination with all departments in the whole
organizational set up.
Centralized purchasing activities result in
lower cost for the organization.
Negotiations usually result in quantity
discount.
Larger peso value purchases will develop buying
power.
The 'suki system' in the local parlance developed
continuous patronage.
The effectiveness of the centralized system has
significant impact on the organization's
profitability index.
ADVANTAGES OF CENTRALIZED
SUPPLY MANAGEMENT
• It promotes the effective use of
purchasing professionals.
Trained professional in the use of the internet
and the wide Wed create better access to
suppliers worldwide.
• It will generate bigger profit for the
company.
• Effective coordination between the
supplier and the purchasing
company.
Strategic alliance between suppliers and
company purchasers develops better efficiency
in the delivery of materials.
• It develops better monitoring of the
various changes that occur overtime.
The strategic alliance develops periodic review
of purchasing activities.
DISADVANTAGES OF CENTRALIZED
SUPPLY MANAGEMENT

• Engineering becomes involved
heavily in the parts design and
specification
• Higher coordination with supplier
• The need for local sourcing of
materials
Difficulty in financial control when
organization is spread in different profit
centre
COMPETITIVE STRATEGY AND
ALLIANCE
Purchasing can play a significant role in
making the organization competitive in this
business world of games.
The purchasing manager must be consistent
with the organization's strategy of competitive
advantage by linking with the firm's policy of
acquiring materials of high quality standard at
the lowest price possible.
Competitive strategy is the means of
articulating its competitiveness with other
industries by setting criteria in the purchase of
the needed material.
The competitive priorities of the organization
define the intended or desired performance.
Low production cost involved producing more
products. The more products produced the
lesser cost of production
It involved market penetration strategy as
products become competitive in the market but
with moderate cost in advertising.
• Product differentiation
-is based on customer demand.
-is providing the customer with more
product selection. Producing this kind of
products will involve higher production and
labor cost.
Customers' satisfaction would generate more
sales as quality buyers do not look much on
price tags.
POLICY GUIDELINES IN THE SUPPLY
CHAIN
The policy guidelines in buying material
requirement must reflect the organization's
competitive position in the industry
The following guidelines are worth taking into
consideration:
Material costing. The emphasis on cost may
drive those in the purchasing function to take
actions that keep material cost low, but may
neglect other criteria of service and quality.
Delivery lead time. When the company is
operating on flexibility, it must give priority to
lead time in the delivery of the needed
materials.
Reward and Performance. The good
performance of the purchasing unit in carrying
out the purchasing function is a must for most
firms
Rewards are extrinsic motivators but we also
need to check their performance periodically
as purchasing is too tempting for humans.
Budgetary Constraint. The purchasing
department is not only to satisfy the above
requirements, but should take into
consideration the level of quantity or inventory
of materials.
The budgetary constraint limits the flow of
materials in the production floor
RESOURCE PLANNING STRATEGIES
The development of more production
technology and the advent of more modern
machine for production would lead to higher
demand for supplies for the manufacturing
organization.
Requirements for the Development of
Strategic Resource Planning:
• Comprehensive understanding of
the corporate strategic plan.
• Exhaustive and careful evaluation
of supplier's capability and
credibility.
 • Survey analysis of the global
and local purchasing
opportunities.
• Identification of structural and
financial requirements.
THE DYNAMICS OF EVALUATION AND
SYSTEM IMPLEMENTATION
To implement the above management
purchasing strategies, it must adapt a careful
evaluation of the date in order to put in place
the economic and competitive objectives of the
organization.
The strategic plans must be able to answer
some specific questions related to the changes
in technology and the changes in market cost
structure.
The phases of the strategic resource
planning are:
• Resource Data Collection and
Analysis
• Organizational Re-engineering and
Development
• Resource Implementation and
Evaluation
CHAPTER 3 : MATERIAL
MANAGEMENT AND CUSTOMER
SATISFACTION
The purpose of material management is to
develop high customer satisfaction through
the transformation of materials and
component parts into finished products; the
supplier is the source of raw materials and
component part inventories. The purporse of
inventory is to decouple the entire
production process where materials are
combined with labor, technology, and
information plus the necessary capital
investment. purpose
There are five important functions of materials
inventory in product transformation process,
namely:
• Raw material in process
These materials are in the pipeline production.
In short, the materials are in current production
process.
• Buffer stock in the warehouse
The purpose of buffer stock is to ascertain that
production process will not be hampered due to
lack of necessary parts or component.
The stock level must be within production
schedule for at least five days.
Delay in supply may cost production stoppage
• Cycle of inventories
The cycle of inventories is the link that is
developed between the supplier and the
purchaser.
• Analysis of seasonal demand
The supply point must meet peak demands
when customer order exceeds production
capacity.
• Decoupling of stock inventory
Inventory is treated as a current asset for
accounting purposes. Decoupling permits as
alarm signal when to order new materials as
needed in the production.
INDEX OF MATERIAL FLOW IN THE
SUPPLY CHAIN
A manufacturing plant which is run by machine,
people and technology operate on a rated
capacity per day or per hour.When customer
demands go high, the tendency of the production
line is to increase production into its higher limit.
It would mean more materials flow in the supply
chain.When pushing for higher capacity, the
tendency is higher maintenance cost. It would
involve manpower fatigue or loss of manpower
morale when pushed too much in production
lower income and higher product cost per unit.
The cost of production is associated and
dependent on production volume.
INTEGRATED SUPPLY CHAIN
The purchasing professionals in today's
competitive market are expected to contribute in
building operating units in profitable operation.
The purchasing agents need to devise an
integrated supply chain management that is
consistent with the firm's competitive strategic
actions. The components and linkages are means
by which the firm can develop competitive
advantage.
THE SUPPLY CHAIN STRATEGY AND
COMPETITIVE PRIORITIES
Cost variance in the price of materials is a
strong determinant in the procurement of the
needed materials. The low cost of materials can
drive purchasing managers to make decisions.
Delay in production due to lack of supply is
another cost factor.
The component strategies for competitive
priorities:
• Speed in delivery and reliability of
the materials
The delay of the materials at the production
line is called a throughput time
· The ordering cycle
It is the process of facilitating the flow of
information and the delivery of materials at the
plant site.
• The communication linkages
The communication linkages also determine the
speed in the delivery of materials.
Electronic Data Interchange (EDI) makes the
ordering time faster
• The channel of distribution
This refers to the mode of distribution used
by the suppliers to the customers. The
volume of materials and the weight
involved determines the kind of
transportation facilities that will be used by
the supplier.
Heavy materials are usually shipped through
cargo vessel in container when coming from a
foreign supplier or through trucks or train
when coming from local supply chain. Light
materials may be through air transport.
• Speed response in
materials acceptance
The focus of responsibility in the acceptance of
materials also depends on the receipt of the
materials at the plant site. It involves the
following activities:
• Physical receipts which involve physical
count
• Inspection as to its compliance with the
order specification and quality
• Unloading the materials and moving into
the storage area
• Documentation processing
DETERMINANTS OF
CUSTOMER SATISFACTION
Customer satisfaction
• is the happy feeling for
good and reliable service
or the level of fulfilment of
his desires, needs and
wants.
• The receipt of something
that is promised and
received on time is a great
element in the development
of customer satisfaction.
A customer who notices a small
defect on its alarm system for his new car
would lose his level of satisfaction even if the
car displays its newest form and style.
The level of satisfaction is
conditioned by the quality and product
performance.
The elements of customer satisfaction:
• Availability of materials
-The materials must be available as they are
needed in the production. In time delivery
stipulates that it must be just in time that the
customer received the goods.
-Made to order products usually take time to
deliver. It requires lead time delivery.
-Made to Stocks are products or materials that
are on the supplier's shelf ready for shipment.
-There is short lead time delivery as it needs
only documentation and shipment of materials.
-Lead time is conditioned by the distance and
the means of transportation that will be used
• Shipment and receipt of materials
-On time shipment is the delivery of the
materials as promised to the customer.
-The delivery time must be calculated that the
goods or materials are received on the
stipulated period which must include the
shipping time.
• Receipt of materials quality
-The customers expect to receive the specified
quality of materials when it arrived at its
destination. Some materials may be damaged
while in shipment.
-Loading and unloading of the materials may
cause damages which is still the responsibility of
the supplier.
-The purpose of the physical count of the
materials is to determine shortages in the
delivery.
• Supplier's flexibility and
responsiveness
-The name of the game in customer satisfaction
in the manufacturing sector lies in the hands of
the supplier.
-Effective communication linkage is an
instrument that will sustain customer
satisfaction. The supplier must admit
immediately some materials shortage or
damages before product reaches the production
floor.
• The level of supplier's product quality
Quality
• is an important element in
customer satisfaction
• is the statistical measure of
product acceptance in terms
of its elements and
performance when put in to
a finished product.
• refers to specifications as
determined not only by the
engineering department but
more so the end customer.
-The poor quality of products that goes into
production line causes great damage to both
supplier and customer
-The quality of material inputs is the
uppermost consideration in the minds of the
customer.
-The customers are the king and queen in the
business industry and their level of satisfaction
must be met in order for the organization to
survive in this competitive business
environment.
CHAPTER 4 : SUPPLIER SELECTION
AND ASPECT OF PURCHASING
SELECTING THE IDEAL SUPPLIER
The selection of the good supplier may vary
from organization to organization.
Product quality is the direct result of the
production workforce and the suppliers.
The criteria in selecting a good
supplier:
The selection process of the correct supplier is
one of the most important activities of the
purchasing department.
Two important categories for supplier
evaluation
It is an assessment of the supplier's system of
production that is a great determinant of product
quality materials
• Process Based Evaluation
• Process based evaluation is the
process of evaluating the supplier's
methods and procedure in the
production of its supply component.

• The objective is to avoid some
non-value added cost which can
form part of price reduction.
• Performance Based Evaluation
• Performance based evaluation is
related to the tactical assessment of the
supplier's performance to supply the
purchasing requirement of the firm.
• The performance based evaluation is
more commonly used by most
companies. It is easier to conduct as the
needed data are available in the
supplier's file.
• The purchasing of materials involves a
plan of action that takes into
consideration the product that meets its
requirement for quality and price, and
that it will serve the customer's needs
and wants.
• The selection of the supplier must be
carefully evaluated according to the
operation's documented quality
standards and the industrial buying
practice
The Three Performance Based Systems
• Categorical method
The performance variables are carefully
identified and the buying executive develops a
list of performance factors for each supplier.
The categorical method of evaluation could be
used immediately as it is simple and easy to
administer.
• Cost Ratio Method
This method is commonly used by most
organized company as it requires mathematical
analysis of the factors in the delivery of
materials
The analysis of the internal cost associated
with quality, delivery and service is converted
to cost ratio which expresses the cost of
percentage of the value of the purchases
• Linear Averaging Method
The linear averaging method uses specific
quantitative performance factors to evaluate
supplier's capability and reliability to supply
the needed materials.
The assignment of this weight is a matter of
top management judgement and may vary
from organization to organization.
The weights are then used as multiplier for
each of the individual criteria and would
now determine the total percentage of each
supplier.
The primary objective of the purchasing
company is to provide the processing plant
with adequate supply of the needed materials.
THE DEVELOPMENT OF EFFECTIVE
SUPPLIER RELATIONSHIP
Growing Efficient resource coordination and
teamwork must be worked out by both the
supplier and the buyer as their mutual interest of
profitability hinges on good relationship.
The following reasons for such
relationship are:
• Continuous product improvement
• Reducing production cost
• Improve company services
• Efficient product delivery to customer
BEHAVIORAL DIMENSIONS IN SUPPLY
MANAGEMENT
RELATION
There are behavioural dimensions that need to be
avoided and the good values be propagated in
order to establish better supplier management
relations.
• The counterproductive relationship
There are still people in the industry that take
their greater advantage over the other as they are
the buyer or the valued customer.
• The transactional or competitive
 relationship The materials management department is a
composition of different units that are linked
The parties under this condition are striving on a together in the development of better supply
win-loss relationship. chain management

The selection of the supplier is in the

• The corporate cooperative
functional alliance of the different operating
relationship
units of the buying organization.
The cooperative relationship recognizes the
In order to develop strategic alliance
potential value of better
with the supplier, the following should be
supplier-buyer cooperation. Their objective established:
is long term partnership and the
development of better linkages. There should exist a strategic matching
in the field of:
• The collaborative relationship
• Technological development
The greater value of cooperation and
collaborative partnership between the buyer • Innovation of material inputs
and seller is developed when there exists a
single supply firm that attends to the buyer's • Philosophy of quality management
supply chain.
• Engineering design
The strategic partners share information on
quality improvements, innovation, or economic
• Use of computerized system of
data that is present in the industry.
communication
SUPPLIER MANAGEMENT PROGRAM
• Ease and faster coordination
The development of the supplier management
The supplier must consider itself to be an
relation is based on the idea of efficient integral part of the buyer's production system to
resource allocation and teamwork. . develop this strategic alliance which in the long
run will be beneficial to both parties.
When the volume of purchases increases, it is
important for the buying organization to
develop a few numbers of qualified suppliers THE ROLE OF PURCHASING
that will be able to supply them with quality EXECUTIVE
parts and products at reasonable price.
Purchasing
Supply chain management relations could not • is one of the most intricate
be underestimated when the buying firm is functions in most organizations.
experiencing the great pressure from the buying • It covers tasks such as providing the
public in the continuous supply of new and business organization with the supply
quality products. of raw materials, supplies and
contracting services
Reliable suppliers are conduits to remain in
competitive edge with others in the industry as
The most important task of the purchasing
suppliers will help them reduce the price of
department is in customer relations and the
inputs, develop quality products and develop
development of linkages with suppliers.
innovations.
CHAPTER 5 : INVENTORY
THE DEVELOPMENT OF STRATEGIC
MANAGEMENT AND
ALLIANCE
TRANSPORTATION
 THE NATURE OF INVENTORY
PURPOSE
inventory in materials management system is the
stock or store of goods in the shelf or in the
warehouse
Inventories are vital parts of any organization
that manufactures products for its target
customer.
The following are peculiar items
found in the inventory of a manufacturing
organization:
• Raw materials and purchase parts
Raw materials are those supplied by the
supplier and this will go into the production
line for further processing into finished
products.
• Stocks in production process
or work in process
Stocks that are already in the production are
still part of the manufacturing inventory.
• Finished goods for delivery or
in transit
Finished goods still form part of the
corporate stocks. These are those in the
warehouse or storage area awaiting shipment
or delivery to the target customers. They are
still stocks until received by the buyer.
• Replacement parts, tools and
other supplies
Manufacturing plants need to have a ready
stock of replacement parts for its operating
machines in order to prevent long hours of
break time. Machines have operating time
limits and it requires maintenance and
repair. Supplies in inventory are those that
are used in the daily operation.
THE FUNCTIONS OF INVENTORY
MANAGEMENT
The objective of inventory management is to
achieve satisfactory level of stock to service
customer demand.
The following are the functions of inventory
management:
• To supply production requirement
• To meet customer demand
• To protect against stock out
of materials
• To decouple production operation
Take advantage of the just-in-time
delivery
The development of better supply management
relations is a great step towards the just-in-time
delivery of materials in the production system.
The oversupply and undersupply in the
warehouse could be avoided if there would be
greater coordination and cooperation in
materials delivery.
Take advantage of material price
increase
With greater coordination with supplier
under the supply management relation
program, the purchasers could take
advantage of large volume order in
anticipation of price increase as dictated by
the global economy.
• To provide continuous supply into
the pipeline
Pipeline inventories are those on production
floor, in transit to customer, semi-finished item
in the warehouse and finished goods ready for
shipment.
DETERMINANTS OF INVENTORY COST
Too much inventory is cost investment that
does not earn profit unless the finished
product has been delivered to the customer.
shortage in material stock is lost in operating
demand and will cause stoppage of operation
that will result to more losses.
The three basic costs associated with
inventory are:
• Holding or carrying cost
 The stocks in the warehouse are idle money put
in materials which are needed for production.
We call it 'holding cost' as these materials in
processing are still investments until they are
processed and finally delivered and paid by the
customer
• Ordering cost
The salaries and wages paid for those in
charge of purchasing, canvassing and
receiving of the materials, and maintaining
them in storage are part of the ordering cost.
Transportation expenses in the inspection of
the materials at the supplier plant site are cost
associated with ordering the materials.
• Shortage cost
Shortage cost is the result when demand for
the products exceeds the supply inventory at
hand. It is considered as production cost due
to availability of the needed materials for
processing. This is also called opportunity
cost for not meeting customer demand which
could have been an earned profit for the
organization.
THE DETERMINATION OF ECONOMIC
ORDER QUANTITY
Manufacturing organization or any processing
company engaged in the production of goods to
satisfy consumer demand must place periodic
orders of the necessary materials
All decisions to purchase materials involve cost
such as ordering cost, storage cost, investment
cost and other associated cost related to
materials inventory.
The economic order quantity model/
This is used to identify the order size that will
minimize the annual cost of holding inventory
and the ordering cost.
This model works effectively under the
following conditions:
• The firm manufactures one kind of
product
• The annual demand forecast is identified
• There is a constant demand of the product on
annual basis
• The lead time delivery is constant
• The supplier offers no quantity discount.
The order is received as a single delivery
Instantaneous economic order model
This model assumes that the usage of materials
is proportionately equal to the delivery of
materials in the production line:
Quantity discounts
Quantity discounts are price reduction
offered by suppliers for volume orders. When
quantity discount is offered, the buying
organization must be able to compute
between the carrying cost, storage cost and
amount of capital investments.
ORDERING SCHEDULE AND SAFETY
STOCKS
The ordering of materials needed in the
production line needs constant analysis and
study. When to order the materials is called the
material reorder point (MRP). The time of
material delivery must be made so that the
stock level is still enough to supply production
operation
• The rate of demand based
on production schedule
• The lead time of delivery
• The extent of demand and
time variability
• The degree of stock risk and
the operation costs involve
SAFETY LEVEL OF STOCK
Task necessary to carry additional
inventories in stock to reduce the risk of
running out of materials during the ordering
lead-times
Safety stock then is the buffer level of
inventory that will sustain the supply of
materials while waiting for the arrival of
replenishment.

The amount of safety stocks that is
appropriate for a given situation depends on
the following:
• The average demand rate and
average lead-time.
The average demand rate is the production
requirements for any given time either on
weekly or monthly bases.
• Demand and lead time variability.
Demand is predicted on the schedule of
production. The demand projection varies with
the plant operating capability and the
prevailing condition at work.
• The demand service level.
The demand service level is the average time
by which the supplier can deliver the goods to
the production line.
The data availability within the procurement
system is within the tip of the finger with the
advent of the computerized system in materials
inventory
MODELS FOR MATERIALS ORDERING
and delivering the same to the production floor.
• Fixed interval model
The fixed-order interval model is the process of
ordering materials at fixed interval for a given
period say weekly or on a monthly base or a
time frame where stock inventory is determined
to run out.
• Fixed quantity model
This is the process of ordering materials at
fixed quantity at varying intervals based on
materials consumption.
MANAGING INVENTORY TO
SALES VOLUME
Logistics Management
The most important component of inventory
management is the knowledge of what quantity
of parts or materials to order and when to order
it
• Inventory turnover
Inventory turnover is the time it takes for the
inventory to move from finished warehouse to
the point of customer acceptance and payment.
• The percentage of sales volume
• Purchasers must consider the estimates of
sales volume to determine the amount of
inventory that should be available in stock
to meet the operation's demand
• The par stock approach
The par stock approach requires that
purchaser determines the level of inventory
item that must continually be in stock from
one delivery date to the next in order to meet
the customer demand.
EFFECTIVE INVENTORY MANAGEMENT
Effective inventory management is all about
knowing what is on hand and what is in use. It
must reflect how much finished products were
produced.
Balancing inventory management is paying
attention to three key aspects: the
• Time of delivery
This refers to the supplier processing an order
• Processing time until goods are
finished
The processing time refers to the time by which
the good goes out into the production floor
until it is ready for shipment to the intended
buyer.
• The number of units required at one
particular period
The number of units required for a particular
item to keep production moving. Overstocking
of materials means cost.
THE ROLE OF TRANSPORTATION IN
PURCHASING
The role of supply manager in the flow of
information and physical supply is from the
supplier to the ultimate customer.
Transportation involves facilitating the
 movement of raw materials and component
parts from the supplier to the manufacturing
plant and then the finished product to the
ultimate consumers.
In the traditional inventory system, supply
management is a manufacturing activity until
the advent of the just in time delivery system.
Transportation is the most costly and time
consuming component of the purchasing
management.
THE MODE OF TRANSPORTATION
The purchasing manager must select the most
convenient and reliable mode of transportation
in the transfer of materials and component parts
and the finished
product. The decision involves specific
operating and cost characteristics and
decision makers must weigh the advantages
and disadvantages in the choice of
transportation mode.
The following measures of effectiveness are:
• Speed - immediate response and
on-time delivery
Air cargo is used for high value products that
needed to be received on time for the processing
of important component parts.
TRANSPORT EVALUATION
Transportation cost consists of all direct
charges associated with the movement of the
product from one location to another. The
most important criteria to consider for
transport selection are:
• Competitive rates
• Customer service
• Transport reliability
• Pick-up and delivery service
• Availability of handling equipment
• Geographic coverage
• Billing accuracy
• Insurance coverage and damage claim
• Cost - the more urgent the delivery, the
higher the cost
• Reliability is the quality of service
rendered in terms of speed
The use of rail or train
Railroad is one of the most convenient means
of transportation and used extensively in
foreign countries. It is less costly in the
transport of products from the supplier to the
customer as it carries more volume and
moves faster.
Trucks and containerized vans
The trucking industry controls mostly the
shipment of imported and export goods from
the pier and vice versa. Some trucking
companies are used for local deliveries of
grocery products, fruits and vegetables.
Water carriers or ships
Water carriers are either used locally for the
import or export of goods as the country is
composed of several islands The roll on roll off
vessels are used to transport export and import
products.
Air Cargo
• Electronic data interchange for effective
communication
FREIGHT RATE DETERMINATION
The following factors are the determinants in
the freight rate charges:
• Shipping weight per cubic meters
• Liability for damage
• Perishable product needs refrigeration 4.
Liability for damage to other commodities
• Dangerous cargo that is subject to
explosion
• Susceptibility to theft
• The value of the product
• Loading and handling difficulty
• Excessive length or weight
• Trade condition to the port of
destination
• Quantity offered as a single
 consignment
• Value of service

Negotiating the rate is a management process

that involves planning, analysis and reviewing
past transactions.
Negotiation activities are influenced by the
characteristic of the current business. trends and
the individual frame of mind in the negotiation
table. It

The following terms must be understood

before entering into an agreement:

Prepaid- the shipper owns or pays for the

freight

Collect - the consignee owns or pays for the

freight

Prepaid/Collect - a specified portion of the

freight is paid by the shipper and the balance
to be paid by the consignee.

Prepay and add - the shippers advanced

payment of the freight and collects later to
the consignee the additional expenses.

F.O.B. Origin - the title to the merchandise

passes to the consignee at the time of pick up.
The liability of the supplier is terminated
when the merchandise is picked up by the
shipping organization.

F.O.B. Destination - the title to the

merchandise passes at the time and place of
delivery. The supplier's liability is terminated
only when the buyer receives the
merchandise.

Bill of lading - conveys the freight terms

and conditions, and this acts as the contract
for carriage and receipt for delivery of the
merchandise.