Purchasing Fundamentals & Role Integration with MM in today context

H.A. Nuwan Amila

Index No. GDPSCM 12-15/27

Definition of Purchasing & Material Management

Purchasing & Material management can define as an Integrated management approach process involved in planning and forecasting of material requirement, purchasing, storing & distribution from the initial stage when the material requisition rises up to the stage when the need satisfied or complete

Steps wise -

Organizational view

Buying Or PurchasingDefinition : Acquiring goods or services to achieve the goals of an organization

Recognition of need – ( Right Item , Right QTY )

Recognition of Specification – (Right Quality)

Selection of source – (Right source)

Ascertaining price – (Right Price)

Placing order – ( Right place , Right time)

Payment – ( Right Attitude)

Purchasing in structural view

Eight Responsibilities - 8 R’s

Right Item – Item for the purpose In today context right item can identified by the purchasing requisition Material coding , use ERP ect.

Right Quantity – Always not will be the requesting QTY. EOQ is formula for identify optimum QTY. Help for maintain lowest material levels in organization

Right Quality – Fitness of Use Need to identify or acquire optimum quality materials High Quality materials means High cost. There fore Purchasing

professionals need to identify optimum quality / fitness for use.

Eight Responsibilities - 8 R’s

Right Source – Need consider about Four major characteristics

Production Capabilities Technical Capabilities Financial Capabilities Managerial Capabilities

If any case purchasing manager done wrong in his selecting right source or selected source not in proper characteristic,

Can develop suppliers through supplier awareness training , supplier visits , develop above mentioned characteristic’s.

Right Place – Wrong place deliver from supplier will always creates cost for

Org. When the creating po its indicate the place of delivery. Down time (overheads) , unwanted inbound delivery, ect;

Eight Responsibilities - 8 R’s

Right Time – One of the parameter shows time management ability of purchasing

dep. One of the way reduce stock holding cost of the organization JIT concept given new way of thinking to Right time responsibility

Right Price – Optimum price for the material Not the lowest bid or not the higher bid Need to identify optimum price by analyze bids & care other seven R’s

as well.

Eight Responsibilities - 8 R’s

Right Attitude– all mentioned Responsibilities need to carry out right attitude Purchasing professionals need to maintain their honest & Dignity Need to build good cooperate level relation ship with suppliers. Avoid from commissions , Favorable

P & MM Department as a Profit centre In earlier days P & MM treated as a cost centre due to…

purchasing dep. Was spending money stores was holding huge stock’s – blocking money & space

Progressive management recognize P & MM can provide opportunities to reduce cost & it can be treated as cost centre

Till the last decade equation in business is follows Selling Price = Manufacturing Cost + Profit

Current competitiveness in the market, the equation has changed to Selling Price - Manufacturing Cost = Profit

Due to selling price is determined by the market forces, profit can ensure only by the manufacturing cost

Approximately 50% - 60% percentage out of the manufacturing cost hold by materials.

Improve profit

Now let us see how much P & MM can improve the Profitability of Org.

Improve profit

Now let us see how much P & MM can improve the Profitability of Org.

It may be seen from the above table that just by reducing the material cost by 5% , how it is increased profit as comparatively with labor cost

Return on investment & MM The objective of any commercial organization is to get the best mileage

out of every rupee invested in the company. In other words, Management through their policies, decisions, coordination and control mechanisms must maximize the Return on Investment (ROI)

Importance of Value chain concept in supply chain

Suggested by Michael porter in 1985 as “competitive advantage”

The way of presenting construction of value to related end user

Support activities :

Procurement

Technology development

Human resources

Firm infrastructure

Primary activities :

Inbound logistic

Operations

Services

Outbound logistic

Marketing & sales

SupportActivities

Marketing& Sales

(e.g. Sales Force, Promotion, Advertising, Proposal Writing, Web site)

InboundLogistics

(e.g. Incoming Material Storage, Data Collection, Service, Customer Access)

Operations

(e.g. Assembly, Component Fabrication, Branch Operations)

OutboundLogistics

(e.g. Order Processing, Warehousing, Report Preparation)

After-Sales Service

(e.g. Installation, Customer Support, Complaint Resolution, Repair)

M

a

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g

i

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Primary Activities

Firm Infrastructure(e.g. Financing, Planning, Investor Relations)

Procurement(e.g. Components, Machinery, Advertising, Services)

Technology Development(e.g. Product Design, Testing, Process Design, Material Research, Market Research)

Human Resource Management(e.g. Recruiting, Training, Compensation System)

Value

What buyers are willing to pay

Conclusions

Importance of material (History – up to today context) with organizational view importance of integrated approach How to steps in purchasing common with 8 R’s Importance of profit centre concept & ROI P & MM how to effect in value chain analysis

We are in the process of synchronies Value chain in to supply chain concept.

Its not the two more flow chains no more. In as global trend customer push the value.

Its like upstream value pulling system. As a professionals we need to comply with it.

Without changing No survival in world.