9 purchase function pom handout 9

7/31/2019 9 Purchase Function POM Handout 9

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PURCHASE FUNCTION

In a manufacturing activity, the purchasing function is the most crucial and it playsa vital role.Purchase department not only makes sure availability of required materials butalso of required quantity.

Thus the output product and customer satisfaction very much depends upon thepurchase departments effectiveness and efficiency.

In short, the function of purchase department is to ensure availability of allrequired input raw materials, semi finished and subassemblies, assemblies, partsand components in right quantity at right time at right place at right price from right source with right quality & specification by right transportation and delivery & by right ethics and means.

The function of purchase dept. involves.1. Preparation of list of all available specifications for all required items.2. Materials requirement schedule showing the items, quantity and time requiredin a period.3. Co-ordinate with Engineering Design & manufacturing Department in

(a) Development of most acceptable specifications with tolerances & limits.(b) Standardisation of items/spares.(c )Capacity planning.(d) deciding the required quantity & time.

(e) Make or buy analysis.4. Conduct Market analysis for the items.

5. List out possible vendors.6. Determination of status of each item as ABC XYZ FSN HML VED7. Decide the inventory levels ROL, LT. Safety and buffer stocks to be maintained in consultation with stores and

finance production planning.8. Inviting bids/quotes.9. Price and terms negotiation.10. Contracting.11. Supplier selection.12. Inspection and Goods Receipt in coordination with concerned depts.13. Value analysis.

14. Vendor development15. Productivity Improvement16. Transportation & Transit arrangements17. Import Procedures18. Tax Procedures.19. Bills settlement.20. Finanace, Accounts and Audit procedures for Budgetting.21. Forecast of prices

Dr. M KOTEESWARAN MBA II SEM POM 2012 Hand Out - 9Page 91


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PURCHASE FUNCTION

Revenue budget Capital budget.22. Proposals/Projects/Sanctions/Followup.23. Follow up internal & external with suppliers, transporters, inspector, Govt.Agencies.24. Dispute resolution with regard to:

Rate Quantity Quality Goods returned BillsPayment Delivery Damages Loss Breach of Contract Wrong consignment. Suppliers Auditors

Finance Production Stores Legal Since Purchase accounts for 50 to 80% of the cost of production, purchase

department is the most vital unit with the organisation as it causes cash

outflow and allows basic quality in.

Value Analysis

In production function anything not adding value is waste. JIT is a tool to cut down the waste cost on accountancy inventory pile. In global competition, waste reduction has come to focus to cut cost and to

compete on price. Just as JIT, Value Analysis is a major technique of cost reduction and cost

prevention.



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PURCHASE FUNCTION

It is a discipline to minimise cost without compromising quality.

Value Analysis is

the systematic application of recognised techniques which identify the functionof a product or service,

establish a monetary value for the function and provide the necessary function reliability at the lowest overall cost.It is an organised approach to identify unnecessary costs associated with any product / material part / component System or service by analysis of function and efficiently eliminating them

without affecting quality reliability capacity & function.

When is Value Analysis applied?

Sales decline Less competitive Raw material cost has gone up New designs have come up Cost of manufacture is disproportionately high. Rate of return on investment is falling. Delivery commitments fail.

Difference between Value Analysis and Value Engineering?

Value Analysis is the application of a set of techniques to an existing productwith a view to improving its value.

It is remedial in nature.

Value Engineering is the application of the same set of techniques to a newproduct at the design stage when no hardware exists to ensure that badfeatures are not added. It is preventive process.

What does 'Value' mean ?

The word value is used in different meanings.

Observer - Perception. Designer Reliability Purchaser Price

What does 'Value' mean ?

Production /Manufacture Cost Sales person Customer willingness. InvestigationEconomic.



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PURCHASE FUNCTION

Cost value - Sum of labour, material, overhead & other elements toproduce.

Exchange value -Measure of all properties, qualities, features of theproduct.

Use value - Functional, fundamental form of economic value. Esteem value - Quality & appearance. It is more than the use value.

Performance -Reliability (functional) requirements -Protection (safety) -Trouble free service(reliability) -Appearance (added satisfaction). Value is a ratio of performance to cost. Value can be increases by improving the performance or reducing the cost or

both Value is a ratio of performance to cost. Value can be increases by improving the performance or reducing the cost or

both

Vendor Rating

The main responsibility of purchasing function is to minimise the cost of

purchase without compromising the requirements in terms of quality, quantity,

delivery, time, price. Hence it is important that the buyer develops

multisuppliers for every item.

This has many advantageous:-

1.Competitive price2.When one fails, another source is readily available.



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PURCHASE FUNCTION

3.Scheduling is comfortable. In a multisource environment, it is essential to develop an evaluation system

for the vendors so that judicious apportionment of business can be made.

Various parameters are used to evaluate vendors like:

Price quality quantity delivery time service

Various parameters are used to evaluate vendors like:

reliability technical capability convenience availability after sales service assistance in selling.

When based on enquiries, bids, terms & conditions and records available ofsupplies to other clients general impression about suppliers before purchase is

vendor evaluation.

An inhouse system to evaluate, monitor and rate after receiving delivered is Vendor

Monitoring or Vendor Rating.

In vendor rating apart from the above, Location, Inventory policy & level of inventory. Readiness to change over to buyer's system. Ex: ERP/CRM. Flexibility Reserve Capacity Internal facilities & Quality Philosophy. Labour welfare / Relations. Warranties. Vendors sources are also factored.


9 purchase function pom handout 9

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