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MATERIAL MANAGEMENT

ASHANI BASUM. PHARM

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Introduction

Vendor selection & development

Buying techniques

Purchase cycle & procedure

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. . . . . Procurement of the material and usage of those material without

any further delay so that the misuse can be diminished at its level best

is the main objective of Material Management.

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What is a vendor ? ? ?

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Questions to be asked before the selection of a

vendor . . .

How much quantity is required to be purchased?

How much time is available for such purchase?

Will the material be required repeatedly?

What is the volume of the purchase?

Which is the industry producing the required materials?

What is the commercial viability of the materials?

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Stages of Vendor

Development

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Survey stage • Identifying potential supply sources• Provisional vendors list

Enquiry stage• Analysis of informations in standard

enquiry format.• Personal visits.• FDA approval etc.

Negotiation & Selection stage

• Quality control specifications, clarifications, Discount quantity etc.

Experience & evaluation stage

• Performance appraisal

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Evaluation Stage

Categorical Method

Weighted Point Method

Cost Ratio Method

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Categorical Method

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Weighted point method

• This is a point rating based evaluation technique for the quality of the goods

received, delivery & the quality of the services.

Quality 50 points

Delivery 30 points

Price 20 points

Total 100 points

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• Quality rating

Quality rating= no. of lots accepted/ no. of lots received * rating

points

• Delivery Rating

Delivery rating= no. of lots delivered in time/ total no. of lots

delivered * rating points

• Price Rating

Price rating= Least offer received/ supplier's offer * rating

points

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Cost Ratio Method

Actual cost can be determined as a sum total.

Follow up, transportation, packing etc. costs are also added in this

case.

Higher the cost

Lower the supplier’s comparative rating

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Buying Techniques

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. . . What is purchasing or buying?

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. . . Importance of purchasing

“Without a proper purchasing management an

organization can not run properly”

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Purchase

Maintaining the quality of the items.

Diminish the production disruption

as much as possible.

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Quality

Quantity

Source

Price

Time

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. . . What is Price ?

Price is the greatest variable in purchasing.

It can be qualified as best or lowest price.

Buyer should be familiar with trade cycle,

business trends, quantity discount etc. for right

price of an object.

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. . .What is quotation ?

The specific characteristics of the quotation are;

• Quotations are invited on a prescribed format.

• Taxes, freight etc. conditions are included in the format.

• At the top of the form “THIS IS NOT AN ORDER” is

printed.

• Minimum three quotations are needed from each

supplier.

• This is not a purchase order.

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Spot Quotation. . .

Buyer will go to the market.

Collect minimum three quotations from different suppliers.

Take decision on spot.

It is not applicable for pharmaceutical products.

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It is a published document

It is aimed to procure a specific object or getting a job done

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Single

tenders

• Invitation to only one supplier.

• Mainly for propietory items, C items etc.

Open tende

rs

• Value of purchase is very high.

• Supply sources are not known.

• Very expensive

Closed

tenders

• Only pre qualified/ known beaders are allowed.

• No advertisement in public.

• Lowest beader wins.

Classification of Tenders

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. . . What is negotiation?

Negotiation can be defined as the art of arriving at a

common understanding through bargaining on the

essentials of a contract such as delivery, specifications,

prices & terms.

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Need for Negotiation

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Discussion . . .

Prices are related to large value

Terms & conditions are required

Contract is desired for a long period of time.

Variation in purchase quantity is possible

Changes in transportation, packaging and delivery points are required.

When no acceptable quotations are received from the responding

vendors.

 

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Process of negotiation . . .

1. It takes place between two individuals or two sets of individuals.

2. Communication is very important in this matter.

3. Through the communication purchase department should convince the vendor

to agree with their view points, so that an agreement can be done.

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“For both buyer and supplier it should be like a win-win situation”

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“Negotiation is not a bargaining”

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Possible Negotiation Situations

Common meeting ground in negotiation

Common agreement in negotiation

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No agreement in negotiation

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Discounts are defined as the cash concessions offered

by the vendor in the payment price, on the goof

purchased, in order to enhance the volume of business

opportunities.

 

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. . . Reasons for giving discounts

1. Due to the placement of large orders seller will obtain economies in production,

packaging etc.

2. If the bills are immediately cleared by the purchaser then seller will gain finance

for his activities.

3. This means the supplier is giving a part of his savings to the buyer.

4. Discounts are offered by majority of the suppliers.

 

 

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Classification of Discounts

Discounts

Volume contract

Cash discounts

Cumulative discounts

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Volume contract

For this type of discounts large volume of orders should be placed.

This can be defined as the method of offering discount proportionate to the

quantity of the goods ordered.

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. . . Cash Discount

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. . . Cash Discount

Time for payment

in days

Cash discount (%)

90 nil

60 1

30 2

Immediate 3

1. The normal credit period is 90 days for the payment of bill.

2. This method will offer discounts depending on the

payment made on the delivery.

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Cumulative Discount . . .

1. This can be defined as the method of offering discount on the basis of

actual purchases and appropriate to the quantity range in a year.

2. For example; buying is continued during the course of the year, but the

price will be reduced beyond a certain volume.

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. . . What is consignment terms?

This is mainly used in the retailing business.

In consignment terms, the buyer will pay the amount after selling the goods.

A pharmaceutical firm may agree on consignment terms of payment with a

chemist’s shop.

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Purchase Cycle

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Purchasing Cycle

Supplier’s acceptance Need recognition Spell out of

specifications & requirements

Official Requisition

Check specification prices

Select suppliers

Quotations & analysis

Price & terms,

Negotiations,

Finalisation

Purchase order for supply

Supplier’s acceptance

Delivery of materials

Materials & reports, analysis

Payment made

Specifications file

Purchase records

Inquiry Tenders Supplier’s records

Follow up

Checking of Invoices with

purchase orders

Purchasing Cycle

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References . . . Guy Wingate;

Pharmaceutical Computer system validation quality assurance, risk management, Regulatory compliance; 2nd edition; Page 103- 126

K K Ahuja, Material Management; 1st edition, 1992.

Operational principles for good pharmaceutical procurement; Essential Drugs and Medicines policy, Interagency pharmaceutical Coordination Group, Geneva 1999; World Health Organization

Vendor Managed Inventory: Providing Visibility Across he Pharma R & D Supply Chain; Cognizant 20-20 insight

Harol T. amrine, john A. Ritchey, oliver S. hulley; Manufacturing Organization and Management

www.tenders.gov.in Tendersinfo Blogs www.google.co.in• C.V.S.SUBRAMANYAM ,

pharmaceutical production and management, 1st edition: vallabh prakashan ;2005

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