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It is responsible for obtaining the materials, parts and supplies needed to produce a product or provide a service. In manufacturing, more than 60% of the cost finished goods comes from purchased parts and materials. Purchasing also refers to the quality of goods and services, both of which have significant impact on operations. Purchasing is the link which exchanges information with suppliers and functional areas.
Operating units constitutes the main source of requests for purchased materials
Accounting is responsible for handling payments to suppliers, data processing which includes inventory records, checks invoices and monitors indoor performance.
Design and engineering prepares materials specifications to be communicated to purchasing. If determines change in specifications designs of materials that can reduce, the cost of purchased items.
Receiving checks incoming shipments of purchased items to determine whether quality quantity and timing objective have been met and mores the gods to temporary storage.
Suppliers and vendors tells us about the materials purchased and tran specifications required in terms of quality quantity and delivers.
The purchasing cycle begins with a request from with the organizations to purchase materials equipment suppliers or other items from outside the organization and the cycle ends when the purchasing is notified that a shipment has been recorded in satisfactory conditions. The main steps involved in it are:
The examination of the function of the purchased parts and materials in an effort to reduce the cost or to improve the performance is made by value analysis.
Checklist of questions for value analysis:
- Is the item necessary, does it add value or can it be eliminated?
- Are there alternative sources for the item?
- Can the item be provided internally?
- What are the advantages of the present arrangement?
- What are the disadvantages of the present arrangement?
- Could another part, material or service be used instead?
- Can specifications be made less stringent to save cost or time?
- Can two or more parts be combined?
- Can more (less) processing be done on the item to save on cost?
- Do suppliers/providers have suggestions for improvements?
- Do employees have suggestions for improvements?
- Can packaging be improved or made less costly?
The steps involved in this process are
- Select an item that has high annual supply volume. This can purchased part materials or a service
- Identify the function of the item
- Analyze the hardware obtained plus answers to other questions that arise and make recommendations
Outsourcing it refers to buying goods/services from outside sources instead of making the goods or proving the services with in the firm. The reason for this is
- Outside source can provide materials plants or services better, cheaper or more effectively
- Expertise and knowledge of outside sources
- To have the advantage of flexibility
When companies downsize and narrow their focus on core activities
While outsourcing a company should onsider certain factors like
- Cost to do it in house versus cost to buy including starting cost vs. cost to outsource
- Stability of demand and possible seasonally
- Quantity available from suppliers compared with a firms own quality capabilities
- The desire to maintain close control over operations
- Idle capacity available with in the organization
- Lead times for each alternative
- Who has patients, expertise etc.
- Stability of technology
JIT – Just in time manufacturing technology of requires. JIT purchasing which includes deal with fewer suppliers and forming long term relationships with them who emphasizes cooperative spirit them low prices. On time delivery is the primary need of JIT.
Suppliers
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Participants