Materials Management Concepts

Concept of Vendor Management

Vendor Management is the management and control, by an entity, of those third parties that supply goods and/ or services to that entity. It is the discipline of establishing service, quality, cost, and satisfaction goals and selecting and managing third party companies to consistently meet these goals:-

  • Establishing Goals– Just as employees need clearly established goals, operations need clearly defined performance parameters.   When selecting or managing vendors, vendor managers must optimize their opportunity to achieve these goals by using third parties companies.
  • Selecting Vendors– The fine art of vendor management is essential to optimizing operational results.   Different vendors have different strengths and weaknesses, and it is the vendor manager’s responsibility to match the right company with the desired performance characteristics.  
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Abey Francis

Make-or-Buy Decisions in Purchase Management

The make-or-buy decision is the act of making a strategic choice between producing an item internally (in-house) or buying it externally (from an outside supplier). The buy side of the decision also is referred to as outsourcing. Make-or-buy decisions usually arise when a firm that has developed a product or part–or significantly modified a product or part–is having trouble with current suppliers, or has diminishing capacity or changing demand.

Make-or-buy analysis is conducted at the strategic and operational level. Obviously, the strategic level is the more long-range of the two. Variables considered at the strategic level include analysis of the future, as well as the current environment.… Read the rest

Abey Francis

Meaning of Value Analysis

The purchasing manager conducts value analysis that aims mainly at achieving cost effectiveness and maintaining the required level of quality. Value analysis is an organized effort that studies in detail the ‘value’ of material. Value Analysis reviews the design changes with the objective of eliminating high cost materials and the materials that are technically obsolete and reducing the number of parts. After analyzing the functions and cost of material, the purchasing manager evaluates the possibilities of using the material.

Value Analysis can be defined as a process of systematic review that is applied to existing  product designs in order to compare the function of the product required by a customer to  meet their requirements at the lowest cost consistent with the specified performance and  reliability needed.

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Kanban System

Kanban is a concept related to lean and just-in-time (JIT) production. The Japanese word kanban is a common everyday term meaning “signboard” or “billboard” and utterly lacks the specialized meaning that this loanword has acquired in English. According to Taiichi Ohno, the man credited with developing JIT, kanban is a means through which JIT is achieved.

Kanban is a signaling system to trigger action. As its name suggests, kanban historically uses cards to signal the need for an item. However, other devices such as plastic markers (kanban squares) or balls (often golf balls) or an empty part-transport trolley or floor location can also be used to trigger the movement, production, or supply of a unit in a factory.… Read the rest

Abey Francis

Purchasing Policy – Principles and Implementation

Purchasing Policy Principles

The major principles on which purchasing policies should be based are a sound orientation, reflect a cross —functional approach and be directed at improving the company’s bottom line.

i. Business Orientation

Developing a purchasing and supply strategy requires a thorough understanding of the company’s business policies. The following questions are important to determine how purchasing and supply strategies will need to support the company in meeting its goals and objectives:-

  • What end-user market is the company targeting and what are the major developments going on in those markets?
  • What competition is the company suffering from and what leeway does the company has in setting its own pricing policies?
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Abey Francis

Purchase Systems and Importance of Source

In an organization all activities are carried out according to systems and procedures for reducing variations and errors arising out of individuality. This makes performing the function simple and less prone to errors. Purchase organization also consists of such systems established for smooth running of purchasing function. These systems are pre purchase system, ordering system, post purchase system.

Pre Purchase System: This system lays down how purchase activity is initiated. Various activities controlled by this system are requisitioning, selection of suppliers and obtaining & evaluating quotations.

  • Requisitions: Requisition for an item may be made by anyone in the organization.
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Abey Francis