Purchase & Store Management

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    Innovative assignment

    Industrial management (2ME310)

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    Material management

    Manufacturing units more than 60% money inmaterials

    Emphasize on need for adequate materials

    Proper planning- can reduce cost of production Material management involve control of :

    Type of material

    Amount of material

    Location of material Movement of material

    Timing of purchase of material

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    Functions of Material Management

    Material planning

    Procurement or purchasing of materials

    Receiving and warehousing

    Storage and store administration

    Inventory control

    Standardization, simplification and value-analysis

    External transportation ( i.e. traffic, shipping etc.)

    Disposal of scrap, surplus and obsolete materials

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    Objectives of Material Management

    To minimize material cost

    To procure & provide materials of desired quality when &where required with minimized cost

    Reduce investment tied in inventory & develop higher

    inventory transport ratio To purchase, receive, transport, & store materials in a

    possible efficient way

    To cut down costs through simplification, standardization &value analysis

    To report changes in market conditions and other factors

    To modify paper work procedure

    To conduct studies in areas of quality, consumption & costof materials training in field of material management

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    Purchasing and procurement

    The purchasing department is liaison agency which

    operates between the factory organization and the

    outside vendors on all matter of procurement.

    Purchasing implies procuring material , supplies,machinery, and service needed for production and

    maintenance concern.

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    Objectives of procurementdepartment

    To procure right material

    To procure material in right quantities

    To procure material in right quality

    To procure from right and reliable source or vendor To procure material economically ( at reasonable


    To receive materials at Right place and at

    Right time

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    Activities , duties and functionsof Purchase department

    Keep records indicating possible materials andtheir substitutes

    Maintain records of reliable supply and price of

    materials Review material specifications with an idea of

    simplifying and standardizing them

    Making contacts with right sources of supply

    Procure and flow up purchase orders

    Maintain records of all purchases

    To make sure through inspection that right kind

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    Activities, duties and functionscontinue..

    To act as liaison between the vendors and diff.departments of the concern such as production, qualitycontrol, finance, maintenance etc.

    To check if the material has been purchased at the righttime at economical rate

    To keep an uninterrupted supply of material with leastinventories

    To prepare inventory budget Prepare list of materials required by diff. departments

    of organization

    To ensure that prompt payments are made to vendors

    & maintain good public relations

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    Purchase Departments :Functional Division



    Buyer electricalgoods

    Buyer rawmaterials

    Buyer plantequipments

    Purchase serviceassistant

    Clerk electricalgoods

    Clerk rawmaterials

    Clerk plantequipments

    Records andcorrespondence


    Order clerk

    Record clerk

    File clerk

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    The charts shows an organization of a typical

    purchasing department. There are three main

    sections :

    Purchasing Section : place orders with the vendors

    Purchase service Section : follows the progress of

    the order at vendors end , its shipment by the

    vendor and its final receipt in the company. Record section : maintain all the records of

    quotation, costs, purchases etc.

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    Centralized vs. DecentralizedPurchase organization

    Advantages of centralized purchasing :

    At most invariably makes more efficient ordering ofmaterials

    Forms a basis to gain barraging of efforts

    Eliminates duplication of efforts

    Helps procuring uniform and consistent materials

    Simplifying purchasing procedure Simplifies the payment invoices

    Permits a degree of specialization among buyers

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    Centralized vs. DecentralizedPurchase organization

    Advantages of Decentralized purchasing :

    Improved efficiency

    Faster procurement

    Control over purchases is no longer remote

    Decentralized operations are more flexible

    Less concentration of power & authority

    Less chances of misuse of authority & corruption

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    Disadvantages of centralizedpurchasing :

    Little slower process

    More cumbersome

    Applications :

    For concerns using fewmaterials whose quantity andavailability are vital

    For purchasing small items offairly high value such as toolbits, grinding wheels, dialgauges etc.

    Disadvantages of decentralizedpurchasing :

    Less quantity discounts

    Involves duplication of efforts


    Where diff. plants of a largeorganization require diff. typesof material

    Where branch plants requireheavy & bulky items such as oilproducts, fuels, paints etc.

    Local community productspurchase

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    Material buying techniques

    Materials can be bought or purchased by one of the

    following techniques :

    Spot quotation

    Floating the limited enquiry

    Tenders :

    1. Single tender

    2. Open tender

    3. Closed tender/ Limited tender

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    1.Spot quotation

    The buyer can go to the market, collect minimum

    three quotation ( for purchasing one material)

    from diff. suppliers, take a on the spot decision,

    pay cash and buy the commodity. Here is an example of a spot quotation :

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    2.Floating the limited enquiry

    A few reliable ( and otherwise registered with the

    company ) vendors are written letters to send the

    price and others details for a particular commodity.

    A quotation form example is shown. Such formsare generally used for calling the quotation :

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    A tender or a quotation is in the form of a written

    letter or a published document (in news papers).

    The aim is to find the price for procuring certain

    materials or to get a particular work done within

    the desired period and under specified conditions.

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    1. Single tender :

    Tender is invited from one reliable supplier only.

    Single tender is called under following conditions :

    Prosperiety items.

    High quality items.

    C class items such as clips, pins, pencils, etc.

    Urgently needed items

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    2. Open tenders :

    Open tender which is also called press tender is

    published in news paper, Trade Journals etc., for

    procuring materials of desired specifications. It is open to everybody ; any vendor can furnish the


    Open tender gets very wide publicity. A vendor has to deposit an earnest money with the

    tender information. This is just to ensure that the

    vender does not back out from the rates etc.

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    Examples of open tenders

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    Earnest money :

    It is the money demanded from the suppliers who

    quotes the tender so that later on he does not back out

    from the rates he quotes for supplying the materials or


    Security deposit :

    After selecting the supplier to whom to give the tender

    , either on the basis of lowest rates quoted by him or

    otherwise , he is asked to make security deposit so that

    in case the supplier fails to furnish the goods properly

    and in time, the security deposit can be forfeited.

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    Quantity standards

    There are four important Quantity standards :

    Maximum inventory

    Minimum inventory

    Standard order and,

    Reorder point.

    These quantity standards are explained in chapter Inventorycontrol chapters.

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    Quality standards

    There are some standards as per which manufacturingdepartments makes products and inspection departmentschecks the quality.

    Specifications can be form of :

    Dimensions and material specifications. Performance specifications.

    Blue prints.

    Quality standards are dictated by : Efficiency of the products & functions

    Cost and the estimated life of the products Quality of interchangeability & ease

    Appearance & feel of the production in use

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    Steps involved in one purchasing cycle

    Recognition of need, receipt and analysis of purchaserequisition

    Selection of potential sources of supply

    Making request for quotation

    Receipt and analysis of quotation Selection of right source of supply

    Issuing the purchase order

    Follow-up and expediting the order

    Analyzing receiving reports

    Checking and approving vendors invoices for payments

    Closing completed orders

    Maintenances of records and files

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    All purchase transactions initiates a chain ofaccounting transactions taking from charged thetransaction to the proper account to the final paymentof the bill.

    Checking invoices is the accounting procedure whichcan be handled efficiently by the accountingdepartment.

    It also involves technical features such as itscompliance with the description & specifications

    contained on the purchase order. So, close coordination between purchasing and

    accounting departments is needed.

    R f l

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    Requirements of materialcontrol system

    Proper coordination of departments such as purchase,receiving, testing, storage, accounting etc.

    Making economy

    Operating an internal check to verify all transactions

    Storing materials at a safe place

    Operating a system of perpetual inventory to find anytime the amount and the value of each kind of materialin stock

    Setting of quality standards Operating a system to see the right material is available

    to a department at the time Needed

    Keeping proper records of all material transactions

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    Stores and material control

    Materials and supplies the most important assets

    in the majority of business enterprises.

    Success of business largely depends upon the

    efficient storage and material control. Material pilferage, deterioration of material and

    careless handling of stores lead to reduced profits.

    P[roper maintainace & security of the store isequal essential as well.

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    Store Management

    Store management takes care :

    That the required material isnever out of stock

    That no material is availablein excess than required

    To purchase materials on theprinciple of economic orderquantity, so that associatedrates can be minimized

    To protect stores againstdamage, theft etc.

    M f hi t f

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    Means of achievement offunctions

    Functions of store management can be achieved

    through :

    A proper purchasing practice

    An adequate procedure of receipt and issue of


    Proper methods of storing materials

    An effective system of storing materials

    A proper method of keeping store records

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    Location of stores

    Location should be carefully decided so as to ensuremax. efficiency

    Best location of stores is one that minimizes totalhandling costs& other related costs

    It also depends upon the nature and value of items tobe stored and the frequency with which they are issuedand received

    All departments should have easy access to store

    Bulky and heavy materials should be located nearby

    There can be sub stores placed at convenient places incase of very big industries.

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    Types of store location

    There are two types of store location system :

    1. Decentralized system : in this type of system

    each section of the industry (e.g. foundry,

    machine shop, forging etc.) has the separate storeattached with it.

    2. Centralized system : In this type of system, the

    main store located centrally fulfills the need foreach and every department.

    Ad t t li ti f

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    Advantages centralization ofstores

    Better supervision and control

    It requires less personnel to manage and thus

    related cost reduces

    Better lay out of stores

    Inventory checks facilities

    Optimum stores can be maintained

    Fewer obsolete items

    Better security arrangements can be made

    Advantages of decentralization of

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    Advantages of decentralization ofstores

    Reduced material handling and related costs

    Convenient for every departments to draw


    Less risk of loss by fire or hazards

    Less chances of production stoppages owing to

    easy and prompt availability

    More fast & quick delivery of needy material

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    Receipt of materials

    All materials from outside are received by receivingdepartments.

    Firstly, receiving department unpacks the materialsreceived and checks the quality & condition

    Purchase slip contains data regarding the NO. of items &quality in the pack

    A materials received report is prepared by receivingdepartment and is sent to purchase or accountingdepartment

    All the items are inspected & sample tested to ensure thepurchase order specifications have been made

    In case of rejection, a part or whole consignment may bereturned to the vendor with a request for replacement orcancelation of the order.

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    Issue of material

    Materials should be issued by the storekeeper to

    different departments, only upon receipt of a properly

    authorized withdrawal form-usually called a Material

    Issue Requisition form.

    Material requisition is prepared in duplicate by the

    foreman or the manager depending upon the nature

    and amount of materials or goods to be withdrawn

    from the stores. Both the copies are sent to the storekeeper who issues

    the materials and records the quantities disbursed.

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    Examples of material receipts

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    Codification of materials

    Each material or item in the stores should be

    clearly identified so that the same can be easily

    located at the time of need. This is achieved by

    allocating CODE numbers. The code should be meaningful and impart a

    unique identity to each material.

    Ex. B.S. 609 means Brass screw 6mm * 9mm

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    Physical verification of stores

    Necessity of :

    - Avoid shortage of material in stoke;

    - Correct and update store-records;

    - Calculate the rate of turn-over of an item;

    - Ensure maximum economy in stock carrying;

    - Effect insurance covers.

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    Disadvantages of Physical stock taking :

    - Loss in production; unless and until during period

    of physical stock taking, plant overhaul etc. is

    planned.- Labour and over time expenses in carrying out

    stock taking.

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    Methods of Physical Stock taking

    1) Annual Physical Verification

    2) Perpetual Inventory and Continuous Stock

    Taking System

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