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Supplier Selection

• Market Exploration • Supplier Selection- Sources like Trade Journals, Catalogues, Directories, Industry Directories, Mil –Standards, Customer Nomination basis, Govt. Nominated sources, Drawings etc • Supplier Registration- Technical, Finance Performance, Quality Standards, Credentials from Customers etc, • Vendor Development- Providing support like technical, process, tools, drawings and financial assistance in the form of advance payment. • Vendor Evaluation: Categorical method, Weighted-Point Plan and the cost-ratio method • Key factors like Delivery, Price, Quality, After Sales Service etc,

Purchasing Strategies and Practices: 1.Make / Buy decisions - Outsourcing Vs In sourcing 2. Single/Proprietary buying and Multiple source buying 3. Centralized buying and De-centralized buying 4. Direct buying and Purchases through Tendering 5. Supplies emanates out of Inter-Governmental Agreements 6. Long Term Business Agreements (LTBA) 7. Petty purchases 8. Spot purchases 9. Joint Ventures(JVs) 10. Director General of Supplies and Disposals(DGS&A) rate contracts

Single Source Buying Vs Multiple Source Buying

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Proprietary Purchases Cost may not be competitive Negotiation becomes difficult/ Not possible Delay in supplies leads to Time overrun and cost overrun Quality can be improved Suppliers are treated as business partners/relationship can be improved Issues related to dependability needs to be considered

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Competitive Purchases Cost competitiveness is ensured Negotiation very much possible Delays can be avoided Variation in quality of supplies is possible Suppliers are treated on Commercial angle Since more than one source is available dependability not an issue

Centralized buying Vs De-centralized buying • Preferred for common items through consolidation • Price discount is possible • Development of alternate source is possible considering quantities. • Indigenization is possible /more meaningful • Possibility of Transfer of Technology (ToT) can be explored • Best suited for high value / technology driven items • Preferred for unique items • Price discount may or may not be possible • Development of alternate source may not be viable. . • Best suited for varied products enviroment. • Indigenization may not be possible / effective • Decision on ToT is difficult.

Types of Tenders and Bidding Systems Types of Tenders • • • • • • Single /Proprietary Tenders Limited Tenders Open Tenders Global Tenders Pre-qualification Tenders Expression of Interest (EoI) Bidding Systems • Single bid • Two bids • Three bids • Earnest Money Deposit(EMD) • Performance Bank Guarantee(PBG) • Security Deposit .

simple straight forward approach as per the agenda iii) Negotiation process iv) Post-negotiation . It should not be a platform for either insulting or complaining each other.t technical. Negotiating means conferring.Preparation of Agenda ii) Pre-negotiation – General business talk.Negotiations • Process through which all clarifications w. commercial etc are sought out both buyer and prospective supplier. • The Negotiation sessions are: i) Planning for negotiations. discussing or bargaining to reach agreement in business transactions.r.

reviewing.Negotiation is a process of planning. and analyzing used by a buyer and a seller to reach acceptable agreements or compromises. Key objectives of Negotiation: To obtain the quality specified To obtain a fair and reasonable price To set the supplier to perform the contract on time .

• ii) Take it or Leave it: Describes a tactic whereby the buyer sets the seller know that they are firm on an issue and will not move further. • Iv) Concessions: Refers to the tactic of dropping some demands to produce gains in other areas.Negotiating Techniques • i) The Bogey: Describes a tactic whereby a buyer tells a seller that they likes the product. depending on how it is applied. .000/= is all that can be paid. but that Rs. • Iii) Best And Final Offer: Describes a risky tactic (also known as the door knob price) that can either help or hinder bargaining power.50.

ORDER PROCESSING • • • • • Receipt of quotations Identification of the Lowest Price (L1) Preparation of draft Purchase Order Obtaining Financial concurrence / scrutiny Putting up for CFA’s approval Divisional approval / recommendation Complex recommendation Corporate Office approval Procurement Sub-Committee (PSC) approval Board approval Government approval wherever required. .

Professional Ethics in Supply Management • Reciprocity. documentation and file maintenance • Seek approval for Competent Financial Authority (CFA) • Dealing only with OEMS/ Dealers.Trade relations ( By giving preference to some suppliers) • Compliance to stipulated procedure (Purchase Manual / OSM) • Transparent and openness • Fair and courteous treatment of suppliers • Integrity – Being honest and upright in character • No conflict of interest • Focus on value for money • Recording all meetings. Stockiest etc should be avoided • No personal agenda / only organizational objectives .

• Purchasing policies: i) Conservative policy ii) Hindsight policy .Seasonal Purchase • Concern areas: i) The available warehousing facility ii) The amount of liquid capital at hand.

• Delivery is known and assumed to be instantaneous • Stock once bought can not be resold. .Determining the optimal purchasing strategy • • • • • • • • Division of time Planning horizon Known demand for all the periods No shortages are allowed No shortage cost has been assumed Only one price offer in a period No supply restrictions Prices fluctuate randomly and are independent of each other.

• Differences: a) Extent of negotiations b) Lead time requirements c) Size of the expenditure d) Availability of sources .Purchasing of capital goods • Key features: i) Non-repetitive ii) High value iii) Involves depreciation over the period of economic life.

and operations and services rendered by the suppliers such as demonstration service. replacement of parts etc. . and commissioning. after sales service. soundness of the supplier.Considerations in evaluation of bids • Operating characteristics and the Engineering features • Economic Analysis of the investment i) Payback period approach ii) Return on Investment (RoI) approach iii) Internal Rate of Return(IRR) iv) Discounted Cash Flow (DCF) • Qualitative considerations: Reliability. installation.

• Tax benefits • Lesser retains full control of the equipment and not the lessee. .Comparison between Purchase and Lease Purchase • Long term measure • Involved in technology stable areas. Lease • Short term measure • Best suited for less efficient piece of equipment • Lessee is responsible for everything. transportation cost etc are the responsibility of the supplier • Asset/depreciation • Purchaser is the full owner. • Installation. commissioning.

• All charges that are accounted for on customs import entries can be deferred: i) Customs duty ii) GST iii) Import entry transaction fee • Deferral of the payment of customs charges for up to 7 weeks with a minimum period of 3 weeks. • Importer can settle one month‟s transactions with a single payment.Deferred Payment Scheme(DPS) • The deferred payment scheme(DPS) allows approved importers to defer the payment of customs charges (including GST) accounted for on customs import entries. .

000. The expected return is Rs.20.1. .5000 at the end of 10 years. Should the company buy the lathe?. 1.Problem: • A company wishes to buy a Capstan Lathe at an initial cost of procurement of Rs.00. The company has alternative investment opportunity which will bring profit of 10% annually. The M/C has an useful economic life of 10 years and will face a salvage value of Rs.000 for 10 years.

he must so arrange his stock that is readily available and in good condition and he must maintain an adequate staff to do the work required at a good space(Robert W.smooth running .Module 4 Stores Management • “ The responsibility of the store-room manager is to maintain an efficient .Bosler) . To do this.economical operation and give service to the plant.

• “ The storage of materials as one system can tell whether and to what extent lower manufacturing cost and compensate for higher inventory costs (Peter F. .Stores Management……Continued • “ The function of stores control is perhaps the least glamorous of all aspects of materials management and is yet so necessary and important (Gokaran).Drucker).

Saving them from all kind of damages and losses .Exercising over all control their movement.Maintenance system • Storekeeping .The receipt system .Storage System • Classified systems approaches: . .Physical upkeep .

Objectives of Storekeeping / Storage System • Minimization of cost of production • Providing efficient service • Establishing coordination between the various departments of the organization • Advising the management .

Advising Management • • • • • Physical verification and valuation Inspection Replenishment Obsolescence Disposal of scrap .

.Functions of Storekeeping / Storage System • Receipt of materials---. physical verification 7 value of stores.Maintenance of space. minimum labor. • Storage & preservation---. • Record-keeping----Maintenance of records • Issue of materials----Materials are issued on proper authorization and requisition as and when demanded.A proper record shall be maintained for all receipts.

Factors underlying successful Storekeeping • • • • • • Location /situation of storehouse Layout of the storehouse Records Preservation Verification and valuation Management .

Benefits of successful Storekeeping • • • • Avoiding unnecessary delay and confusion Smooth running by providing the materials on timely manner Blocking of capital through overstocking is avoided Hold-ups and delays are avoided by ensuring against understocking Physical verification and valuation Accounting for materials Minimizing wastages Availability of information To have a better cost control by ascertaining the cost of storage and cost of production. • • • • • .

Casher Vs Storekeeper Casher Storekeeper To receive and make payments To keep a proper record of all the receipts and payments together the authorizations Safety of cash Exercise control over the cash in possession Receives and issue the materials Maintains a complete record Safety of material Exercise Control over the materials .

. placement and issue of materials  Minimization of spoilage.  Greater economy and use of lesser time in receipt.A GOOD STORE LAYOUT • Aims for  Maximum utilization of the available space  Greater efficiency of the stores department  Easier accessibility to all the materials  Security of all the materials carried and records maintained. damage and other kinds of losses. movement.

Stores Equipments •      Steel vs wooden equipments Racks Containers Measuring equipment Ladders and steps Cleaning equipment  Shelving (open/ closed type)  Trays  Pigeon hole cupboards  Pallets  Trays  Tote boxes .

Types of Store Depots /House • • • • Main or Central Stores Depot Sectional or Branch Stores Depot Tool Stores Depot Warehouses .

equipment etc.  To issue the material to sectional or branch stores depot.Main or Central Stores Depot • Main functions:  To receive all the materials. tools to tool depots and equipments to various departments  To take steps for the replenishment of stock  Advantages and Disadvantages . tools.

say on weekly basis or monthly basis • The sectional or branch stores depots are located in each section.Sectional or Branch Stores Depot • The main stores depot issues the materials to the sectional stores depots for a certain period. unit. branch etc • This depot . in turn draws its requirement from the main or Central Stores Depots .

.Tools Stores Depot • This store is responsible for issuing tools. • The tools are drawn from the main store once and then they are issued by the stores depots as and when required by the departments. spare parts and other accessories to different sections in general and production department in particular.

• Types of Warehouses: Ordinary warehouse and Bonded warehouse. . because of technical and economic reasons may not like to have their own store house.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.

receiving. shipping. cross docking. • Areas: Reserve storage. . assembly special handling lines and quality inspection area.Why do we need Layout Design? • The goal of warehouse layout design is to optimize warehousing functions and achieve maximum efficiency and space utilization. forward pick up.

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Key principles of Layout and operation of warehouse system  Using the most suitable unit load  Making the best use of space  Minimizing movement  Controlling movement and location  Providing safe. . secure and environmentally sound conditions  Maintaining at minimum overall operating cost.

Factors affecting warehouse layout and planning Inside factors Flow of goods in the warehouse („U‟ flow or Through‟ flow) Movement of people and equipments Outside factors Size & configuration of site Site access Access to stock & minimizing congestion  Stock replenishment  Handling of goods in and out of the warehouse  Supervision. safety and stock security Local authority plans Site details Financial considerations Building factors .

„U‟ flow and Through' flow. facilitating cross docking and yields excellent security • Best suited for Cross Docking. • Advantages: Excellent utilization of dock resources. .e. • „U‟ flow: Occurs when the goods receipt and dispatch functions are located at the same end of a warehouse building.Layout models • Two main approaches of the plan of material flows i.

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often at opposite end of warehouse.Continued • Through‟ flow layout: Through flow happens when separate loading bay facilities for outbound and shipping are provided. • Disadvantages: Goods need to travel the full length of the warehouse. It is difficult to control the movement and also less flexible. even for goods that have a higher throughput level. .Layout models….

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Costing of Issues to Production Details Rising price levels: Cost of materials issued Cost of inventory levels at the end of a period Falling price levels: Cost of materials issued Cost of inventory levels at the end of a period High Low Medium Medium Low High Low High Medium Medium High Low FIFO Average Method LIFO .

reconciliation etc. • Past experience.) • Stores accounting refers to the mathematical process which reveals the quantity. Issue • “ We live in a world where the future is uncertain and the accountant is reporting events of the past” (Harold Bierman Jr. .Stores Procedures and Records for Receipt. quality and value of stores carried and preserved in a storehouse on a given date relating to a specified period. errors. Inspection.

Stores Recording and Documents used • Receipt of Materials  Materials Receipt Book / Receipt Note (GRN)  Daily Receipt Voucher  Package Slip  Bin Card  Stock Ledger  Stock Identification Card / Tags .

Inspection of Materials • Purchase Order(PO) • Daily Receipt Voucher • Inspection Note / Inspection Cum Receiving Report (ICRR) • Rejection Note • Bin Card • Stock Ledger • Stock Identification Card .

Issue of Materials • Materials Requisition Slip / Stores Requisition(SR) • • • • Bin Card Gate Pass Stock Ledger Stores Advice Note .

Verification of Stores • • • • Stock-taking Sheet Stock Valuation Sheet Bin Card Materials Transfer Sheet / Inter Unit Stock Transfer (IUST) • Materials Return Note • Stock Ledger .

Materials Control • Stock Day Sheet • Stock Ledger Card • Kardex Card • Stock Day Card: This is a statement prepared daily by the stores dept for submission to the management giving the daily operations. It also helps in ascertaining the activities of the stores dept. .

• Kardex Card : It is a card used for materials control in a stores dept. when ever any necessity arises. It offers knowledge of up-to-date stock position and the action taken in connection with its replenishment.Materials Control……Continued • Stock Ledger Card: Provides information on stock position on daily basis and activities of stores dept. .

Kardex offers a wide range of automated storage and retrieval solutions. each designed to increase productivity and maximize on floor space. . allowing companies to become more competitive in their daily operations. Kardex has designed.000 solutions across a broad spectrum of industries. manufactured and installed more than 140.

surplus stocks and scraps • Systems & Procedures for disposal and control • Materials Handling and Transportation Management. .Module 5 Practical problems in MM • Dead stocks.Case Studies • Evaluation of MM performance.

• Surplus: Items are those materials and equipment which have no immediate use but have accumulated due to faulty planning. . materials and so on.Obsolete. However. they have a usage value in future. process. Surplus and Scrap Materials • Obsolete: Items are those materials and equipment which are not damaged and which have economic worth but which are no longer useful for the company‟s operation owing to many reasons such as changes in product line. forecasting and purchasing.

residues.Obsolete. flashes. etc. Surplus and Scrap Materials…Continued • Scrap: Items generated due to process wastages. They may have end use within plant sometimes. borings. otherwise they have a market value. • Reasons :  Changes in product design  Rationalization  Cannibalization  Faulty planning and forecasting .

Obsolete, Surplus and Scrap Materials…Continued
• Reasons……..  Faulty purchase practices  Other causes • Non-moving items • Scrap and disposal procedures

Write-Off and Disposal
• Reasons for disposal • Is there any alternative usage in other section or outside organization? • If it is defective material, then can it be salvaged and used? • Has there been any effort to return it to the vendor? • How and who accepted it during inspection? • What was the last purchase qty and date and stock held then? • What action has been taken to prevent recurrence of similar nature?

Write-Off and Disposal……Continued
• What is the estimated price of the item “as is where is” condition? • What are the comments of users, finance, audit and disposal committee with regard to the above?.

though objectively it is a technical business function( Ralph Sims.. economy and safety. Jr). positioning and moving the materials with ease. ” • Materials Handling is the art of preparing. .Materials Handling • “ The movement of materials (or “things”) is a wasteful and expensive activity……. speed. placing.

and storing of materials in any form by means of gravity.Continued • Materials Handling is the art and science involving movement. manual effort or power actuated machinery( American Materials Handling Society).Materials Handling…. • 50% of handling time is added to production time. .. packaging. • 30-40% materials handling cost is added to production cost.

.Importance of Materials Handling • Cost and time of materials handling can be reduced to a greater extend by adopting a sound system of materials handling procedure. • It also ensures the following:  Reduction in accidents  Elimination of manual labor and greater job satisfaction  Reduction in inventory of WIP  Increase in production.

• • • • • • • • • • • Reduce materials handling to its minimum Logical sequence of operations Conserve power and fuel Consult materials management department Proper selection of handling equipments Minimize the breakdown of equipments Have maximum weight of units load Minimize non-productive handling operations Avoid wasteful movements Centralized storekeeping Ensure coordinated efforts.Guidelines for cost reduction in a Materials Handling System. .

Evaluation of MH System • • • • Materials Handling Time Ratio (MHTR) Materials Handling Labor Ratio (MHLR) Materials Handling Cost Ratio (MHCR) Materials Handling Direct Labor Loss Ratio (MHDLLR) • Materials Movement Operation Ratio or MMOR .

and controlling the flow of materials and services from suppliers to end users / customers. • “The process of planning.1997)” • Primary logistics activities Transportation Facility Structure Inventory Material Handling Py. This Integrated approach incorporates suppliers.SUPPLY CHAIN MANAGEMENT………………. organizing. supply management. Service response logistics activities Waiting time Capacity Delivery Communication and Information . integrated logistics and operations (Russell Morey.

SCM………Continued.Inventory . they become Integrated Logistics. Logistics includes: .Warehouse management . • Integrated Logistics When logistics activities and service response logistics operate in conjunction with each other.Shipment of goods .Transportation .

Environmental issues Ranking of various modes of transportation High Low Cost Speed Dependability Capability Fuel efficiency Loss or damage Air Air Road Road Water Water Water Water Water Air Air Rail .Product characteristics .TRANSPORTATION • Key factors(Slater.Gattorna & Watters.1990.Market structure .Company characteristics .Customer characteristics .1996) .

less damage. point to point service flexible. high density. water and rail. high value. truck. inland containers Small loads. Increased with ebusiness. containers Transport oil and products in liquid form. fast and reliable. perishable critical goods. light weight.Characteristics of different modes of transportation Mode of Transportation Rail Trucking Air Characteristics Low value. more reliable. long life and low operating cost Intermodal Pipe line . Dell Computers Combines several modes of shipping. bulk products. high capital cost. economical use. raw materials. small packages. more expensive More expensive and fastest mode of freight transport. primary shipping mode for internet companies like Amazon. less theft Package delivery Small packages.