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. The Value Analysis technique was developed after the Second World War in America at General Electric during the late 1940s. Because of World War, Continue reading
Materials Management Concepts
Objectives of Material Handling
Materials handling may be defined as the art and science of movement, handling and storage of materials during different stages of manufacturing considered as material flow into, through and away from the plant. It is in fact, the technique of getting the right goods safely, to the right place, at the right time and at the right cost. All tangible and intangible benefits can be reduced to four major objectives. The application of material handling methods and equipment to be of greatest benefits should be governed by the following: 1) Reduced Costs: Cost-Reduction programs have two broad goals; either to reduce the cost of Material Handling or to reduce total production cost; by improved handling procedures. The latter concept net reduction in total manufacturing costs. The Ways in which cost reductions are realized through improved material handling are; Reducing material handling labour. Reducing the Material handling work done by direct Continue reading
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? To what extent can material’s price increases can be passed onto the last customer or is it impossible? What changes are happening in the company’s product, production and information technologies? What investments will be made by the company in Continue reading
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. Failure to consider this comprehensively could lead to complete failure. Managing Vendors– On a daily basis, vendor managers must monitor performance, provide feedback, champion new projects, define Continue reading
Types of Purchasing Systems
The effectiveness of purchasing activities can be enhanced by proper organization and coordination of the activities. There are four types of purchasing system:- Purchase made as per requirement: No purchase is made in advance. Purchase is done as need arises. Method usually applied for emergency requirement or infrequent goods. Contract Purchasing: Contract of material is given to an agency. It has an advantage that low price of those materials whose cost fluctuates highly. Market Purchase: Purchase is made from the market to take advantage of price fluctuations. Schedule Purchasing: It is a cyclic purchase model. A schedule of purchase is made and it is used for those commodities whose price do not fluctuate. Centralized purchasing means buying and managing purchases from one location for all locations within an organization. This can also be run by a central location buying in to a distribution warehouse that feeds smaller warehouses. This is Continue reading
Kanban System – Meaning, Origin and Operation
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. Kanbans maintains inventory levels; a signal is sent to produce and deliver a new shipment as material is consumed. These signals are tracked through the replenishment cycle and bring extraordinary visibility to Continue reading