Purchase english

H A S H M A N A G E M E N T S E R V I C E S L L P

C H E N N A I

P H : 9 1 7 6 6 1 3 9 6 5

The Essentials - Purchase

Overview

Copyright of Hash Management Services LLP www.businessense.in

‘The Essentials’ series from Business Sense is an initiative to empower the students(freshers) and

professionals in performing more efficiently and effectively in the organization

This document is a part of the “Certified Manufacturing Professional” course offered by Business Sense

This course is aimed at bridging the gap between the institutions and the industry by providing the

fundamentals of manufacturing management which are not offered by any of our

institutions/curriculum

This course would immensely benefit students and professionals who are joining manufacturing

organizations

For more details, please visit www.businessense.in

At Business Sense, we help clients through consulting engagements focusing on improving their

Operations through Lean Manufacturing Implementation covering 5S, SMED, Kaizen and other tools.

We also serve clients on Preparation of Detailed Project Reports, Market Assessments, and Supply

Chain Re-engineering.

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Contents


Section 1 – Introduction and Basic Processes

Section 2 – Materials Classification Techniques

Section 3 – Ordering Techniques

Section 4 – Vendor Management

Section 5 – MIS Reports and Analyses Points

Introduction to Purchase Function


Purchasing refers to a business or organization attempting for acquiring goods or services

to accomplish the goals of the enterprise

Purchasing role in any organization is considered to be important as it handle raw

materials & Sub-assemblies which have significant cost impact on material

manufactured.

Purchasing is key element of Supply chain management of any organization more ever in

recent times as sourcing are increasingly done from many countries. Companies with

robust purchasing department and experts give better business results than others.

Company Purchase Function

Supplier / Vendor

Organization Structure


This is a standard organization structure

for Purchase Function

Purchase Manager reports to the CEO of

the company

There would be a few Purchase Executives

/ Assistants reporting to the Purchase

Manager

Each Purchase executive would typically

focus on a single raw material category

We have explained a typical functional hierarchy. It may

vary according to each organization

CEO

Purchase Manager

Purchase Executive / Assistant



Responsibilities of an Engineer in the Purchase Function


Acquire quality goods and services in a professional, timely and cost effective manner

Help develop and maintain a supplier/vendor community capable of supporting the organization’s

needs with emphasis on superior service quality and cost effectiveness

Classification of all the materials (including packing materials) as A, B and C Class items (methodology described later in the

presentation) – to be done jointly with Stores function

Tracking of the lead time of all A & B Class items and make necessary changes in the purchase process

Maintaining Nil Stock-Out situation all times

Scheduled Purchase for all regular/fast moving A Class items

Re-Order level based ordering for all A&B Class items

Two Bin System / Min-Max for all C Class items

All Purchases through formal PO only – no telephone based/other means of ordering

Creation / Preparation of the Management Information Systems (MIS) that enable better decision

making processes for the present and the future, and present it to the Senior Management

Updation of records daily including Pending Order Status

Process Flow - 1


Stores Assistant/Executive sends a Purchase Indent (PI) to the

Purchase Executive depending on the status of the material available in

the stores. The quantity is based on the Production Planning /

requirements discussed with the other functions. Pending Orders,

Items in transit etc. Each PI should have a unique no which would be

mentioned in the PO later

Process Flow - 2


Purchase Executive then collects the Purchase

Indents and creates a Purchase Orders (PO) and

sends them to Purchase Manager for approval.

The POs’ can be supplier-wise / item-wise. Each

PO should have a unique PO number which

should be mentioned in the PO, tracking

sheet/systems, should be mentioned by the

supplier while sending the Invoice back to the

company

Process Flow - 3


Purchase Manager approves the POs’ within 1

day (can be fixed by the senior management)

and send back to the Purchase Executive

Process Flow - 4


Approved POs’ should be sent to the Suppliers on the same day ( hard

copy / email)

Once the POs’ are sent, the suppliers should be followed-up for the

deliveries. Lead time based tracking should be done and once the lead

time is crossed it should be informed to the Purchase Manager

Process Flow - 5


Supplier sends the materials to the company

with the Invoice and Delivery Challan (DC)

Once the materials are received, the Stores

Assistant / Executive checks for the quality and

quantity and prepares a Goods Receipt Note

(GRN) and updates the stock on the same day

Snapshot of Purchase Function


Stores

AssistantPurchase

Executive

Purchase

Manager

Suppliers

ShipmentsWarehouse

Purchase

Indent

Purchase

Order

For Approval

Approved

Purchase

Order

Purchase

Order

Sent to Suppliers

Invoice,

Delivery Challan

Goods Receipt Note

- Stores Assistant

Purchase Process

Contents







ABC Classification


Pareto Analysis / 80-20 rule

20% of the items would constitute 80% of the value

Few other examples:

20% of the causes results in 80% of the defects

20% of the population controls 80% of the wealth

20%

80%

80%

20%

Items Value

ABC Classification


In any organization, the raw materials form about 60~65% of the Cost of Goods Sold (COGS).

COGS: All Raw Materials – 60~65%

Labor Cost – 7~8% Power & utiities – 8~10%

.

.

. _______________________

Total – 100%

ABC Classification


While analyzing the raw materials it would be clear that the top 20% of the items would constitute about 80% of the purchase value. Next 30~40% items would constitute about 15% of the purchase value. Remaining 50% of the items constitute 5% of the purchase value.

A Category

B Category

C Category

Few Items = More consumption in value

More Items = Low consumption in value

Methodology of analyzing ABC items, and Lead time are explained in the “Certified Manufacturing Professional” course. To access login to www.businessense.in

Contents







Ordering Techniques


Category Characteristics Ordering Techniques Reason

A Very High Value. Need to

monitor continuously

Scheduled Shipments / Standard Order Quantity (SOQ)

For items whose consumption is regular through-out the season

Re-Order level For items whose consumption do not

follow a pattern

B Moderate Value – Moderate

Impact on the Inventory Holding

Re-Order level Order based on the Re-Order

level

C Low Value – No major impact

on the Inventory Holding Cost

MinMax / Two Bin System Do not focus more on the C

Category items

Methodology of calculating ROL, Scheduled Shipments, MinMax quantities are explained in the “Certified Manufacturing Professional” course.To access login to www.businessense.in

Contents







Vendor Management


Any addition/modification of the vendor should be carried out through proper Vendor Evaluation Report

Following are the parameters that have to be considered in a Vendor Evaluation Report

S.No Parameters Weightage in %

1 Quality 30

2 Adherence to Delivery 20

3 Price 15

4 Average Lead time 15

5 Credit Period 10

6 Support during emergencies 10

Please note that the weightages are based on general management principles. They can be modified according to the industry / companies

Vendor Master Sheet


A Vendor Master Sheet should be maintained in the purchase function.

Following are the details to be recorded:

S.No Details to be recorded

1 Item Code

2 Item Description

3 Vendor Code

4 Vendor Name

5 Address

6 Contact Person

7 Phone No

8 Email Id

9 Vendor rating (based on the weightages)

End of Free Content


Please visit our website www.businessense.in to access the full course – “Certified Manufacturing

Professional”

Our website also contains list of ready-to-use templates and report formats containing Charts and

pivot tables.

Templates and report formats are available for Purchase, Stores, Production, Quality, Maintenance and

HR functions

These templates come in excel /word and can be downloaded and used right away

At Business Sense, we help clients through consulting engagements focusing on improving

their Operations through Lean Manufacturing Implementation covering 5S, SMED, Kaizen and

other tools.

We also serve clients on Preparation of Detailed Project Reports, Market Assessments, and

Supply Chain Re-engineering.

You can subscribe to our bi-weekly newsletter here.

Follow us:

http://www.businessense.in/

http://eepurl.com/pgLJr





Purchase english

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