Purchase & Store Management

7/28/2019 Purchase & Store Management

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MATERIALS , PURCHASE& STORE MANAGEMENT

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

price)

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

PurchasingManager

Assistantpurchasing

Buyer electricalgoods

Buyer rawmaterials

Buyer plantequipments

Purchase serviceassistant

Clerk electricalgoods

Clerk rawmaterials

Clerk plantequipments

Records andcorrespondence

assistant

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

Applications:

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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3.Tenders

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

quotations.

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

goods.

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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Accountings

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

material

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

materials

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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THANK YOU..

Purchase & Store Management

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