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DPS 304 : Purchasing /Procurement Activities Purchased materials account for about 50% of the total manufacturing cost. Therefore purchasing plays a crucial.

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Presentation on theme: "DPS 304 : Purchasing /Procurement Activities Purchased materials account for about 50% of the total manufacturing cost. Therefore purchasing plays a crucial."— Presentation transcript:

1 DPS 304 : Purchasing /Procurement Activities Purchased materials account for about 50% of the total manufacturing cost. Therefore purchasing plays a crucial role in the Supply Chain Management. Quality starts with purchasing. Purchasing must ensure that parts & materials are: Of correct quality; in correct quantity; and Delivered on time. Therefore it is important to select suppliers committed to quality and make them an integral part of the company’s quality program.

2 Purchasing Activities  Co-ordination with user departments to identify purchase needs  Discussions with sales representatives  Identification of potential suppliers  The conduct of market studies for important materials  Negotiation with potential supplies  Analysis of proposals  Selection of suppliers  Issuance of purchase orders  Administration of contracts and resolution of related problems  Maintenance of a variety of purchasing records

3 Procurement Activities  Participation in the development of material and service requirements and their specifications  Conduct of materials studies and management of value analysis activities  Conduct of more extensive material market studies  Conduct of all purchasing function activities  Management of supplier quality  Purchase of inbound transportation  Management of investment recovery activities (salvage of surplus and scrap)

4 Purchasing / Procurement Goals  Provide an uninterrupted flow of materials, supplies, and service to operate the organization  Keep inventory investment and loss to a minimum  Maintain adequate quality standards  Find or develop competent vendors  Standardize items bought where possible  Purchase required items and services at the lowest ultimate price  Improve the organization’s competitive position  Have good relationships with other departments  Keep administrative costs down

5 Scope and Size of Procurement Function Depends on variables such as:  the business's strategy and policy as a whole.  make or buy policies  centralisation or decentralisation of purchasing decisions  integration of information systems nationally and internationally  the firm's size and complexity. Small firms with low volume needs may not need a specialist P officer. Buyers of large volumes do.  technical complexity of the goods and services themselves. Do buyers need technological understanding? Supply chain co- ordination may involve advanced IT systems.  multi-item, multi-site, cross border, intra-firm purchasing- to manage and control these interactions may need a bigger function.

6 Procuring for Different Types of Businesses Primary industry - mining and extraction firms  These firms usually drill, blast, pump, store, move material.  Their operations need capital equipment, consumables, maintenance/repair services and others

7 Procuring for Different Types of Businesses Manufacturing operations They process materials/components by shaping, forming, converting, fabricating, assembling. Their processes range across unique design projects, jobbing (one-offs, small or large batch) and line- operations ( large batch or continuous flow e.g. petro-chemicals). Procuring for these organizations require use of Formal MRP1 (materials requirements planning) systems with detailed forecasting

8 Procuring for Different Types of Businesses Service operations Wholesaler or retail distributors buy and stock goods for resale - adding some service value e.g. polishing, displaying, customer care and staff training. They may offer information and document based products. ( Procure for Stock ) Service providers on the other hand purchase: consumables, fixtures/fittings, phones, carpets, and support services. ( Time based procurement very critical)

9 Buying Situations  Routine order situations -product has been purchased many times in past and has established ordering routines  Procedural problem situations - non-routine and may require training employees on new product use  Performance problem situations - non-routine purchases of substitutes for current products which must be tested for performance  Political problem situations - non-routine purchases for products whose use would affect many departments across the company.

10 Purchasing Decisions Most important evaluation criteria include considerations on Quality, Price, Delivery, and Service. The decisions relate to what to buy, how much to buy, when to buy, who to buy from etc.

11 Purchasing Decisions Forward buying This means purchasing in excess of current requirements. Reasons for forward buying include to minimize risk of rising material costs and protection against future availability. Disadvantages of forward buying are prices actually going down rather than up and Increased carrying cost.

12 Purchasing Decisions Volume Contracts Sometimes organizations enter into contract with their suppliers as a way of ensuring constant supply quantities and prices and. This helps them meet purchase requirements over time. This may also lead to better quality materials

13 Purchasing Decisions Systems contracts or blanket orders These are related to volume contracts. The company agrees to purchase a certain amount over a period of time but they are not legally binding amount. Rather they are just assurances on either parties. They get fixed price. They are also referred to as stockless purchasing because of the lower inventory levels


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