Study of work flow of material & procurement control system of UPL
June-July 2006 - 1 -
EXECUTIVE SUMMARY
UMA PRECISION LI...
Study of work flow of material & procurement control system of UPL
June-July 2006 - 2 -
This project requires two months t...
Study of work flow of material & procurement control system of UPL
June-July 2006 - 3 -
2. PRIMARY OBJECTIVES
1. To unders...
Study of work flow of material & procurement control system of UPL
June-July 2006 - 4 -
3. GROWING IMPORTANCE OF PURCHASIN...
Study of work flow of material & procurement control system of UPL
June-July 2006 - 5 -
5. Changing nature of purchases.
P...
Study of work flow of material & procurement control system of UPL
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4. COMPANY PROFILE:
Uma Precision ...
Study of work flow of material & procurement control system of UPL
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We also manufacture rubberized coi...
Study of work flow of material & procurement control system of UPL
June-July 2006 - 8 -
4.1CONTRIBUTION - PRODUCT FAMILY
Study of work flow of material & procurement control system of UPL
June-July 2006 - 9 -
Study of work flow of material & procurement control system of UPL
June-July 2006 - 10 -
Study of work flow of material & procurement control system of UPL
June-July 2006 - 11 -
Study of work flow of material & procurement control system of UPL
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4.2 STRATEGY
To be no. 1 in quali...
Study of work flow of material & procurement control system of UPL
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4.4 GROWTH:
4.5 EXPORT GROWTH:
Study of work flow of material & procurement control system of UPL
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4.6 CAPABILITIES:
Handling large ...
Study of work flow of material & procurement control system of UPL
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4.8 QUALITY POLICY
Uma Precision ...
Study of work flow of material & procurement control system of UPL
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4.11 HR & TRAINING
FOCUSED TRAINI...
Study of work flow of material & procurement control system of UPL
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4.12 CUSTOMERS
Our major customer...
Study of work flow of material & procurement control system of UPL
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4.15 INFORMATION TECHNOLOGY:
ERP ...
Study of work flow of material & procurement control system of UPL
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5. THEORATICAL BACKGROUND
1. Mate...
Study of work flow of material & procurement control system of UPL
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3. INPUTES TO MATERIAL REQUIRMENT...
Study of work flow of material & procurement control system of UPL
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Net requirement of items: The gro...
Study of work flow of material & procurement control system of UPL
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5. Purchasing interfaces: Purchas...
Study of work flow of material & procurement control system of UPL
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Accounting is responsible for han...
Study of work flow of material & procurement control system of UPL
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These essentials of scientific pr...
Study of work flow of material & procurement control system of UPL
June-July 2006 - 25 -
8. PURCHASING PARAMETERS:
RIGHT
A...
Study of work flow of material & procurement control system of UPL
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STRUCTURE OF MATERIALS MANAGEMENT...
Study of work flow of material & procurement control system of UPL
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6. PURCHASING CYCLE IN UPL
6.1 ES...
Study of work flow of material & procurement control system of UPL
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PURCHASE CYCLE
Establish
Procurem...
Study of work flow of material & procurement control system of UPL
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6.3 MARKET RESEARCH AND SOURCE SE...
Study of work flow of material & procurement control system of UPL
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PERIODIC ORDERING SYSTEM
Shortage...
Study of work flow of material & procurement control system of UPL
June-July 2006 - 31 -
FLOW CHART TO SELECT SUPPLIER
No
...
Study of work flow of material & procurement control system of UPL
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5. Special quality / test inspect...
Study of work flow of material & procurement control system of UPL
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price movement during the time pe...
Study of work flow of material & procurement control system of UPL
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7. CONSUMABLE STORE DEPARTMENT IN...
Study of work flow of material & procurement control system of UPL
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7.1. ITEM CODIFICATION:
It is an ...
Study of work flow of material & procurement control system of UPL
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1.1. THREE BASIC STAGES OF CODIFI...
Study of work flow of material & procurement control system of UPL
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(C) Flexibility: The system shoul...
Study of work flow of material & procurement control system of UPL
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3. Numerical system:
Decimal code...
Study of work flow of material & procurement control system of UPL
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7.2. ACTIVITIES OF CONSUMABLE STO...
Study of work flow of material & procurement control system of UPL
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2. ISSUES:
Receive material requi...
Study of work flow of material & procurement control system of UPL
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inventory. These items have less ...
Study of work flow of material & procurement control system of UPL
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8. SOURCE SELECTIONS AND EVALUATI...
Study of work flow of material & procurement control system of UPL
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8.2 New Vendor Development Proces...
Study of work flow of material & procurement control system of UPL
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8.3 Vendor s Performance Evaluati...
Study of work flow of material & procurement control system of UPL
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III. On Time Delivery
1. Total nu...
Study of work flow of material & procurement control system of UPL
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8.4 SUPPLIER RATING
Rating Grade
...
Study of work flow of material & procurement control system of UPL
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9. PROBLEMS ASSOCIATED WITH PURCH...
Study of work flow of material & procurement control system of UPL
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10. FINDINGS:
1. Company recruits...
Study of work flow of material & procurement control system of UPL
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11. RECOMMENDATIONS FOR IMPROVEME...
Study of work flow of material & procurement control system of UPL
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2. Supplier Certification
JIT can...
Study of work flow of material & procurement control system of UPL
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be met with in the cost goals.
6....
Study of work flow of material & procurement control system of UPL
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II. Zero Inventories
In JIT, dail...
Study of work flow of material & procurement control system of UPL
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VI. Vendor Managed Inventory (VMI...
Study of work flow of material & procurement control system of UPL
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2. COST SAVING IN FREIGHT
If the ...
Study of work flow of material & procurement control system of UPL
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Inflation forecasting using exter...
Study of work flow of material & procurement control system of UPL
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10. Supplier Relationship Managem...
Study of work flow of material & procurement control system of UPL
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11. CONCLUSION
By studying the ma...
Study of work flow of material & procurement control system of UPL
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Training focus Little/No training...
Study of work flow of material & procurement control system of UPL
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12. BIBLLIOGRAPHY:
1. Material & ...
Study of work flow of material & procurement control system of UPL
June-July 2006 - 60 -
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Study of material flow and procurement control systems of material

  1. 1. Study of work flow of material & procurement control system of UPL June-July 2006 - 1 - EXECUTIVE SUMMARY UMA PRECISION LIMITED is one of the largest automobile machine component manufacturing company. The company is an ISO/TS 16949-2002 certified company and heading towards TPM excellence. Company manufactures precision parts and assemblies as per customer s requirement. UMA PRECISION manufacturers over 650 different automotive and standard parts to cater domestic market and another 400 types specially for export market with a monthly volume of 8 million parts to supply to automotive and electrical industries with over 95% schedule adherence. Precision parts play important role in any automobile industry. The major customers are BAJAJ AUTO LTD, TATA MOTORS LTD, PIGGIO VEHICLES LTD, CARARO INDIA, L&T and many other auto ancillaries. They have major export business with LUCY SWITCH GEAR UAE, MULTI TECH USA& AL AHIELA. The project is STUDY OF MATERIAL FLOW AND PROCUREMENT CONTROL SYSTEMS OF MATERIAL IN UMA PRECISION LIMITED carried out at UMA PRECISION LTD, D2 BLOCK, Pimpri, Pune. As we know that the materials are the key resources in an industrial enterprise since no production is possible without materials. Materials also form a major constituent of the cost of the product and therefore proper control over their procurement, storage, issue, movement and consumption is necessary. If materials do not arrive on time, Production facilities fail, workers are ill; customers change or cancel the orders, and so forth causing deviations from the plan. So it is necessary to study material flow and control systems of material
  2. 2. Study of work flow of material & procurement control system of UPL June-July 2006 - 2 - This project requires two months time for the completion. The steps involved in understanding the all the functions of material department, which are the activities are carried under material department, to understand why it act as a profit centre for organization. To studying the existing purchase functions &problems associated with it. This has been achieved by studying the overall purchasing procedures and function. By collection of appropriate data from marketing department, Collection of Purchase data, collection of Supplier data, Categorizing & analyzing data for exploring areas where improvement can be made. I have also studied inventory control system of material, as we know the inventory is the working capital of the business. It is observed that by using various control techniques such as ABC, Reorder level, management minimizes investment in inventory meet a demand for the product efficiently organizing the material flow and production. The concept of purchasing today is undergoing tremendous changes. Major focus is on cost saving. Considering this view, output examined for: 1. Reduction in variety. 2. Standardizing of machinery. 3. Bringing down inventory.
  3. 3. Study of work flow of material & procurement control system of UPL June-July 2006 - 3 - 2. PRIMARY OBJECTIVES 1. To understand the flow of material. 2. To understand the existing procedures of purchasing in the company. 3. To understand the vendor development procedure in the company. 4. To study the material codification systems. 5. To study the vendor rating systems of company. 6. To study the material inventory control system.
  4. 4. Study of work flow of material & procurement control system of UPL June-July 2006 - 4 - 3. GROWING IMPORTANCE OF PURCHASING Purchasing is being considered too specialized activity because of the following reasons: 1. Higher cost of goods and services. Raw materials, components services account for a significant portion (as much as 50-60%) of the company s total expenditure. Effective purchasing can therefore result in substantial saving to the company. 2. Escalating cost of stock outs. Lack of continuity in availability of materials seriously affects all major companies. It can damage profitability of the company and lower employee moral. Financial loss due to stock out of material can be enormous. 3. Purchasing is not mere act of buying. Purchase is much broader concept than just an act of buying. In today s context it includes a wide range of material related activities such as market research, vendor rating, pre purchase value analysis, price negotiation, standardization and codification 4. Higher present day cost of capital. Around 80% of working capital of a company locked up in inventory of raw materials, work in progress, finished goods, spares, etc. No organization can afford to invest such a big part of its capital in the stocks these days especially when the cost of borrowing is high. Bulk of these stocks can be reduced and unnecessary capital lock up can be avoided if purchasing is made efficient.
  5. 5. Study of work flow of material & procurement control system of UPL June-July 2006 - 5 - 5. Changing nature of purchases. Purchase is today no longer commercial activity but a techno commercial activity. More and more technical persons are being inducted into the purchase dept. and naturally these people like their counter parts in production, design, and other departments expect a better treatment. 6. Changing concept of buyer-seller relations. Buying scene has also undergone a major change. In today s world the supplier is no longer dependent on the buyer. Efficient buying-continuity in availability of materials with the lowest inventory investment demands a buyer to be good at business relations with the supplier. Retention of good suppliers with increasing competition is becoming difficult and hence the buying function becoming challenging day by day.
  6. 6. Study of work flow of material & procurement control system of UPL June-July 2006 - 6 - 4. COMPANY PROFILE: Uma Precision Limited was founded in 1979 to manufacture precision assemblies, systems and machined parts. It has had the privilege of serving the top industries in India for over 25 years, through a period marked by continuous change in the industry, our customer have remained our primary focus. Uma Precision Limited has remained in the forefront in adopting the new technologies, systems and continues to be industry leader in machined parts by utilizing the long rich production knowledge; our engineers have continuously out performed the industry standards in improving productivity and reducing the losses, to retain the competitive advantage. The company has evolved in to a group of companies backed by team of qualified personnel. The group has manufacturing facilities for precision assemblies, systems and machined parts at four locations in India. Uma Precision also have surface treatment facilities like heat treatment, plating and phosphate coating enabling us to deliver quality products in a stipulated time and one stop facility for customers. Presently, Uma Precision manufactures over 650 different parts to cater to domestic market and another 400 types, specifically for export market with a monthly volume of approximately 8 million parts to supply to automotive & electrical industries with over 95 % schedule adherence. Uma Precision is ISO / TS 16949 2002 certified and practicing TPM (Total productive maintenance) company to achieve excellence in manufacturing, which assures incorporated systems for sustaining a good quality. Uma Precision is well known for quality, cost competitiveness and timely deliveries. We, at Uma Precision believe in continuous training of our employees with the belief that, People make the organization .
  7. 7. Study of work flow of material & procurement control system of UPL June-July 2006 - 7 - We also manufacture rubberized coir foam mattresses, pillows and seats to cater to automobile industries, government enterprises and service sectors, in our group company. LOGO OF THE COMPANY:
  8. 8. Study of work flow of material & procurement control system of UPL June-July 2006 - 8 - 4.1CONTRIBUTION - PRODUCT FAMILY
  9. 9. Study of work flow of material & procurement control system of UPL June-July 2006 - 9 -
  10. 10. Study of work flow of material & procurement control system of UPL June-July 2006 - 10 -
  11. 11. Study of work flow of material & procurement control system of UPL June-July 2006 - 11 -
  12. 12. Study of work flow of material & procurement control system of UPL June-July 2006 - 12 - 4.2 STRATEGY To be no. 1 in quality, cost and delivery of precision assemblies, systems. And machined parts by adopting latest and innovative technologies / systems. Total focus on customer requirements by proactive approach. To involve and contribute at design level by way of concurrent engineering with customer. Dedicated facility for customers (next door). 4.3 STRENGTH Over 25 years experience in manufacturing of Precision Assemblies, Systems, Machined and Press Parts for OEM s Customer focus Just in time delivery to customers Well organized logistics Certified quality management system Delighted, satisfied and strong corporate customer base Young, qualified and multi-skilled technical work force with average age of 24 24 years
  13. 13. Study of work flow of material & procurement control system of UPL June-July 2006 - 13 - 4.4 GROWTH: 4.5 EXPORT GROWTH:
  14. 14. Study of work flow of material & procurement control system of UPL June-July 2006 - 14 - 4.6 CAPABILITIES: Handling large volumes and different type of parts with various types of materials Short Product development time and concurrent engineering with customer In house tooling, jigs and fixture design and manufacturing facility Dedicated supply partners Reduction of losses and continuous improvement High inventory turnover ratio in considered segment Certified updated quality management system and direct online supplies to major customers Over two decades of experience in machining business 4.7 QUALITY MANAGEMENT SYSTEM
  15. 15. Study of work flow of material & procurement control system of UPL June-July 2006 - 15 - 4.8 QUALITY POLICY Uma Precision Limited is built for result oriented work culture, to fulfill customer s needs in terms of Cost, Quality and Delivery by enhancing effectiveness of people and plant equipment safely for achieving zero losses and profit making organization, by continual improvement for effectiveness of Quality Management System through Team Work, Training and Focus on Actions and Results. 4.9 AWARDS & ACHIEVEMENTS ISO/TS:16949-2002 Certification by Det Norske Veritas (DNV) 2004 National Award for Equal Opportunities for the Handicaps - 2003 Good Performance Award for TPM by BAJAJ auto ltd. 2004 State Award for Best Entrepreneurs by Government of Maharashtra 2001 4.10 EMPLOYEES MOTIVATION: Best kaizens. Excellent progressive department. Best attendance and punctuality Best Safe Department
  16. 16. Study of work flow of material & procurement control system of UPL June-July 2006 - 16 - 4.11 HR & TRAINING FOCUSED TRAINING AREAS 1. Quality Management System ISO / TS: 16949-2002 Root Cause Analysis FMEA - Failure Mode Effect Analysis MSA - Measurement System Analysis SPC - Statistical Process Control APQP - Advanced Product Quality Planning 2. Productivity Improvement TPM - Total Productive Maintenance JH - Jishu Hosen 5 S - Seiri, Seiton, Seiso, Seiketsu, Shitsuke Kaizen, Poka Yoke Value Engineering
  17. 17. Study of work flow of material & procurement control system of UPL June-July 2006 - 17 - 4.12 CUSTOMERS Our major customers are manufacturers of: Two and three wheelers Light commercial and heavy vehicles Multi-utility vehicles and passenger cars Tractor axles and transmission system Special electrical switch gears And many more in India and overseas. 4.14 SERVICES Online tracking of customer orders and inventory Mass produced precision machined parts Value added services like- assemblies, heat treatment and surface treatment, etc. Designing and manufacturing of tools and jigs Value engineering Concurrent engineering
  18. 18. Study of work flow of material & procurement control system of UPL June-July 2006 - 18 - 4.15 INFORMATION TECHNOLOGY: ERP for Automotive industry is designed to streamline and improve disjointed business practices -- enabling to manage multi-tiered networks of customers, suppliers, and partners closely. This solution set facilitates seamless integration and collaboration across multiple internal and external organizations. And it includes best practices that support critical business processes -- providing full visibility into enterprise data and increasing speed and flexibility worldwide. All day to day transactions, expenses, purchase orders, release vendor schedules, company level data, request for quotations, contracts, material received and to be received, are stored in the system daily from different department of the company for the future which can be retrieved whenever required. Following Fig. shows the ERP system of uma precision limited.
  19. 19. Study of work flow of material & procurement control system of UPL June-July 2006 - 19 - 5. THEORATICAL BACKGROUND 1. Materials Management: One area of operation s and logistics playing a major role in supply chain management is that of materials management, which is concerned with decisions about purchasing materials and services, inventories, production levels, staffing patterns, schedules and distribution, either directly or indirectly. Traditionally, organizations have divided the responsibility for materials management among three departments: purchasing, production control, and distribution. This approach requires a tremendous amount of co- ordination to achieve a competitive supply system, since each of these departments report to different heads. Hence many firms restructured to centralize most materials management tasks in one department called materials management department. This approach brings together all tasks related to flow of materials, from the purchase of raw material to the distribution of finished products or services. Purchasing is usually responsible for working with suppliers to ensure the desired inward flow of materials and services. Purchasing also responsible for inventories of raw materials and component. Distribution is normally responsible for the outward flow of materials from the firm to its customers. It also may be responsible for finished goods inventories and selection of transportation suppliers. Materials management is then responsible for co-ordinating the efforts of purchasing and distribution. 2. MATERIAL REAQUIRMQNT PLANING: Material requirement planning is a special technique to plan requirements of materials for production. MRP helps in planning the ordering and usage of materials at various levels of production and for monitoring the stock during these transactions. MRP calculates the number of items required at every point of time to meet the master production schedule & it co- ordinates to purchase department to make the required item available as and when they are needed
  20. 20. Study of work flow of material & procurement control system of UPL June-July 2006 - 20 - 3. INPUTES TO MATERIAL REQUIRMENT PLANNING: Aggregate requirement of finished product: The aggregate quantity represents the gross requirement of a product over a given period. The gross requirement are obtained from the following sources: period wise actual quantities taken from sales order on hand, time period wise quantities forecasted from time series analysis & time period wise based on feedback received from sales force. Master production schedule: The master production schedule is a statement which end items are to be produced, the quantity of each, and the dates they are to be completed. It provides the initial input for the items needed. Inventory Records: It is a major input for MRP system. When input calculation is made to find out how many are needed, the quantities available must be considered. There are two kinds of information needed. The first is called planning factor includes information such as order quantities, lead times, safety stock and scrap. This information is helpful for purchase department to plan what quantities to order and when to order for timely deliveries. The second kind of information required is the status of each item. The MRP systems need to know how much is allocated, and how much is available for future demand. This type of information is very dynamic and changes with every transaction that takes place. These data is maintained in inventory record file, also called an item master file. Each item has a record and all the records together form a file. Bill of material (BOM): Bill of material is the document generated at design stage. It gives the details of the structure of the product by dividing the final assembly into major assemblies, major assemblies into subassemblies and subassemblies into parts / components. The parts are listed in the sequence of assembly. Bill of material provides details such as part name, part number, description, quantity required, material etc.
  21. 21. Study of work flow of material & procurement control system of UPL June-July 2006 - 21 - Net requirement of items: The gross requirement obtained as above is adjusted by available inventory of the product to obtain net requirements. Thus, Net requirements = Gross requirements (-) Inventory available. Adjust Requirement for scrap allowance: There may be some rejections during the manufacturing, which leads to be accounted so that accurate numbers will be available for assembly. This is usually estimating the percentages of loss and adding it to the net requirements when the item is ordered. 4. FLOW CHART OF MRP Master schedule Demand forecastCustomer order Material requirement plan Plant capacity If adequate Finalize Material Requirement plan Mfg. lead time Bill of material If inadequate Revised master schedule
  22. 22. Study of work flow of material & procurement control system of UPL June-July 2006 - 22 - 5. Purchasing interfaces: Purchasing is the link between the organizations and its suppliers. It exchanges information with suppliers and functional areas. Fig shows the interface of purchasing with other functional areas of the firm. Operating units constitute the main sources of request for purchased materials and close co-operation between these units and the purchasing department is vital if quality, quantity and delivery goals are to be met. The purchasing department requires the assistances of the legal department in contract negotiations, n drawing up bid specifications for non routine purchases and to help interpret legislations on pricing, product liability and contract with suppliers. Purchasing Legal Accounting Data Processing Design Receiving Operation Supplier
  23. 23. Study of work flow of material & procurement control system of UPL June-July 2006 - 23 - Accounting is responsible for handling payments to suppliers, data processing is handled by the account departments, which keeps inventory records, checks invoices and monitors vendor performance. Design and engineering department usually prepare material specifications which must be communicated to purchasing. Also, design and purchasing people closely to determine whether changes in specifications, design or materials can reduce the cost of purchased items. Receiving checks incoming shipments of purchased items to determine whether quality, quantity and timing objectives have been met and moves the goods to temporary storage. Purchasing must be notified when shipments are delayed, accounting must be notified when shipment are received so that payments can be made. 6. SCIENTIFIC PURCHASING: Materials are the key resources in an industrial enterprise since no production is possible without materials. Materials also form a major constituent of the cost of the product and therefore proper control over their procurement, storage, issue, movement and consumption is necessary. Materials management exactly does this. Purchasing is the procuring of materials, tools, stores(or supplies) and services required for the manufacturing of a product, maintenance of the machines and uninterrupted running of the manufacturing plant in a manner that guarantees the marketing of the company s product in the quantities desired, at a time promised and at the competitive price consistent with the quality desired. It is the essence of buying goods of right quality, in the right quantity, at the right time and at the right price from the right source.
  24. 24. Study of work flow of material & procurement control system of UPL June-July 2006 - 24 - These essentials of scientific procurement are though complimentary yet achievement of one does not guarantee the other. The buyer may have a source capable of giving quality product but he may not have enough capacity to meet quantity requirements in time or the source may have the capability to supply goods of right quality & in the right quantities but he may not supply at the right price or at the right time. But if the buyer has right kind of sources, then he can get the goods of right quality, in the right quantities, at the right time & at the right price. To conclude, for scientific purchasing, greater emphasis has to be placed on locating, selecting, developing & retaining right kind of suppliers. 7. PURCHASE AS A PROFIT CENTRE Purchase department in almost all companies is the biggest spending dept. Almost 50 to 60% of the company s income is spent on materials. The very fact that the purchase department is responsible for such a high percentage of the company s money highlights its role in the profit making potential of the company. The purchase department is though a cost centre, but considering its role to save company s money, it should be looked upon as a profit centre. Every rupee saved in buying goes to the profit column of the balance sheet. Hence the efficient performance of the purchasing function is vital for the efficient functioning of the whole organization. Purchasing is no longer a clerical function, but a dynamic discipline which can play a major role in the company s growth. The purchase dept should employ different cost saving techniques & contribute to the corporate profitability resulting in the growth of the economy.
  25. 25. Study of work flow of material & procurement control system of UPL June-July 2006 - 25 - 8. PURCHASING PARAMETERS: RIGHT ATTITUDE SWOT Analysis. RIGHT MATERIAL Value analysis RIGHT TIME Right reorder point, Lead time analysis RIGHTQUALITY Rejections specifications RIGHT QUANTITY EOQ& Inventory models RIGHTSOURCE Vendor rating purchase research RIGHT PRICE Negotiation learning curve RIGHT CONTRACTS Legal Aspects RIGHT PLACE OF DELIVERY
  26. 26. Study of work flow of material & procurement control system of UPL June-July 2006 - 26 - STRUCTURE OF MATERIALS MANAGEMENT DEPARTMENT IN UPL: Material manager (Pune plant) Raw material Section Brought Out Section Consumable Section Sr. purchase engineer Purchase engineer Sr. purchase engineer Store asst.
  27. 27. Study of work flow of material & procurement control system of UPL June-July 2006 - 27 - 6. PURCHASING CYCLE IN UPL 6.1 ESTABLISHING THE NEED FOR PROCUREMENT The need for procurement may arise from the following: 1. Material shortage report generated by the MIS system, work order-wise and buyer- wise. 2. Advance information about long items. 3. Purchase indent of other items. 4. Specific requirement of design. 5. Requirements of other plant. 6.2 SCRUTINITY OF PUCHASE REQUIRMENT The items are generally specified by part no and description in the requirements. They are generally scrutinized to check the following: 1. Whether the description is correctly and clearly given. 2. Whether it signed by authorized signatories. 3. Earlier purchase history of items. 4. Price list. 5. List of approved suppliers. 6. Whether new sources are required to be developed. All the above information can be obtained from purchase data bank in the ERP system.
  28. 28. Study of work flow of material & procurement control system of UPL June-July 2006 - 28 - PURCHASE CYCLE Establish Procurement Need Order Preparation Market research / Source selection Follow up Receiving & Inspection Invoicing & Payment Scrutiny of purchase requirement
  29. 29. Study of work flow of material & procurement control system of UPL June-July 2006 - 29 - 6.3 MARKET RESEARCH AND SOURCE SELECTION This step includes: 1. Floating enquiries for items whose prices fluctuate widely from tie to time. 2. For items purchased to commercial standards faxed quotations are obtained from vendors. 3. For items that have not been purchased before new vendors are searched and activities related to selection and approval is undertaken. 4. When the amount involved is less than Rs 1000 the buyer can opt for petty cash purchase The enquiries are floated top preferably three or more suppliers, exception based on urgency, value of items and past experience of supplier. 6.4 ORDER PREPARATION Once quotations are received, they are scrutinized. A synopsis of the quotations (comparative statement) is prepared and analyzed. The lowest quotation as well as buyer s judgment and previous experience is considered while finalizing the supplier. Negotiations are then held with the supplier for finalization of price and commercial terms. The purchase order document contains the relevant information to understand the clear requirements of supply as pre specifications. 1. Part no. and description of items. 2. UPL drawing no. along with latest issue status. 3. Reference of UPL Std / Indian Std / international Std. 4. Requirement of predelivery report.
  30. 30. Study of work flow of material & procurement control system of UPL June-July 2006 - 30 - PERIODIC ORDERING SYSTEM Shortage report arrives Determine Re-order quantity Issue replenishment order Receive supply Update records Demand arrives Check up Stock on hand Is stock on hand >=demand Fill Order End Yes Back Order No
  31. 31. Study of work flow of material & procurement control system of UPL June-July 2006 - 31 - FLOW CHART TO SELECT SUPPLIER No Yes Yes No No Yes yes No Purchase indent is this a regular item? Is there an annual contract? Was last supplier satisfactor y? Should more suppliers be checked? Place order Evaluate performance Make short list of possible sources Obtain Quotations Prepare Comarative statement Select Supplier Finalise terms of Contract
  32. 32. Study of work flow of material & procurement control system of UPL June-July 2006 - 32 - 5. Special quality / test inspection requirement. 6. Delivery terms.(Ex Our Factory / Ex Your Factory) 7. Payment terms. 8. Visit of customer at supplier s premise if contractually agreed with customer. 9. Special packing and dispatch instructions, if any. 10. Applicability of excise, ST, Octroi, discount, tooling cost, development costs, penalty, etc. 11. Warrantee clause. 12. Special comments if any. 13. For a special characteristic items / the quality requirements like method of inspection / any special processes of manufacturing to be indicated. 14. For capital items a progress report to be requested. The final price is then placed before the pricing committee for approval. If its new supplier, then approval of the supplier also to be done by the authorized person after evaluation. A letter of intent is send to the supplier along with necessary document, drawings, as advanced information, if required, to begin the processing the order. The details of the purchase order are fed into the ERP (MIS) system. Finally the computerized purchase order is sent to the supplier. Determining the right price A very important aspect of purchasing is to determine the right price. For this purpose, the purchase managers refer to the past purchase records in the MIS system, price list of supplier s as well as the quotations obtained. The buyer then weighs all the information in light of his experience with individual suppliers and is own assessment of
  33. 33. Study of work flow of material & procurement control system of UPL June-July 2006 - 33 - price movement during the time period in question. Reduction of price or whether any terms of supplier can be altered to the buyer s advantage. 6.5 FOLLOW UP Pre delivery follow up with the supplier is done to remind him of the due date and obtain advance information about the expected delays. Telephone, fax and email are the preferable methods used depending upon the criticality of items. A visit to the supplier s works may also be required. Shortage chasing is done as soon as the due date is over. Supply status is intimated to shop / assembly/ end user. For cash purchase of less than Rs1000, a comparative statement is submitted to Finance every fortnight. If there are any changes in order, that is also communicated to the supplier. 6.6 RECEIVING AND INSPECTION Once the material is received from the supplier, it is physically verified with respected to PO details. The challan is also verified and Goods Inward Note (GIN) is prepared. The material is then inspected as per the acceptance criteria. Rejected material is then sent back to the supplier by preparing Rejection Note. The accepted material goes to the stores which then updates the records in the ERP (MIS) system. 6.7 INVOICING AND PAYMENT The supplier s invoice is sent to the accounts department. A copy of GIN is also sent accounts link up invoice with the GIN and purchase order details and verifies. The price, sales tax, transport charges, discounts are verified against purchase order while quantity is checked against GIN. The invoice is then passed for payment.
  34. 34. Study of work flow of material & procurement control system of UPL June-July 2006 - 34 - 7. CONSUMABLE STORE DEPARTMENT IN UPL Store function concerned with receiving movement storage and issue of items, raw material, brought parts, tools, spares, consumable stationary etc. required for production, maintenance and operation of the plant and finished goods until its dispatch to customers. Store therefore is the custodian of all goods that are received in the company until they are consumed or sold and naturally it assume the responsibility of receiving, storage, preservation, issue and accounting. It is very important department in UPL. Consumable is related with indirect materials required at the shop floor. Indirect material is defined as any inventory that does not go into the final product but is used during the manufacturing process. Manufacturing companies of all sizes depend on these indirect materials to keep their plants running smoothly and meet production goals. This includes tools, machine parts, chemicals, shop rags and other inventory items. These items play a key role in manufacturing the product but are peripheral to the product being manufactured. This inventory is thought of as a cost of doing business. Indirect material is a large cost of manufacturing that can be tracked and controlled by consumable department. It serves all the needs of production, maintenance, quality by providing the items like expandable tooling(drill bits, cutting tools, inserts grinding wheels), reworkable tools (tools requiring sharpening, drill bits, white bits, saw blades etc,), gages & calibration instruments, and so on. Purchase and consumable store are goes hand in hand. Consumable department purchase indented items as per requirement. Receive them, store with proper item code in respective location. Consumable store is divided in to two parts, receipts and issues. It also handle material requirement of other plants of uma precision limited.
  35. 35. Study of work flow of material & procurement control system of UPL June-July 2006 - 35 - 7.1. ITEM CODIFICATION: It is an important factor concerning indenting, purchasing and issuing activities is an accurate and logical identification of materials. Wrong identification results in wrong purchase and / or issuance of a different item than what is indented. Codification systems too are not perfect, but codes are shorter and as such minimize errors. Codification is the systematic concise representation of equipment, raw material, tools, spares, etc., in an abbreviated form employing alphabets, numerals, colours, symbols, etc. BENEFITS OF CODIFICATION: 1. Accurate and logical identification. 2. Avoidance of long and unwieldy description. 3. Prevention of duplication. 4. Product simplification. 5. Efficient purchasing 6. Minimization of clerical work. 7. Efficient store keeping. 8. Accurate and reliable recording and accounting. 9. Easier computerization. 10. Proper quality description of the item which assists in efficient inspection.
  36. 36. Study of work flow of material & procurement control system of UPL June-July 2006 - 36 - 1.1. THREE BASIC STAGES OF CODIFICATION: 1. Identification: It is the process of assigning correct nomenclature to the items. The description must take in to consideration the specifications and technical name of the item. Identification system should be uniform for all items.E.g. A 20 Dia drill may be described as Drill, H.S.S., Taper Shank 2. Classification: IS the arrangement of items in to groups according to a predetermined pattern (governed by common features of the items). The grouping of store items which may be done on the basis of Description , As per suppliers , As per origin , Value , or Function of the item. a) Description classification refers to the grouping of items of similar description, irrespective of the end use, in to one class. Bearing are put into one class, oil seals in to another class, o- ring in third category, Belts in to fourth class. Tools in to another category and so on. 3. Codification: IT is the allocation of the specific codes to the items within the broad frame work of the selected system. A codification system always tailored made to satisfy the specific need of a firm. There are many standard systems out of which firms could choose but care should be exercised in its use. The codes should have the following characteristics: (A) Simplicity: The system must be simple in form it should permit its operation in hands if non specialist personnel. (B) Brevity: The code should use minimum possible number of digits.
  37. 37. Study of work flow of material & procurement control system of UPL June-July 2006 - 37 - (C) Flexibility: The system should both identify and classify all the existing items and should have all enough extra unsigned codes to absorb future items readily without upsetting established sequence of numbers. (D) Uniqueness: The system should ensure one and only code for each item. That is each item should have a unique identification. (E) Layout of codes: Layout of code should be easy to handle. 1.2 PRINCIPLE SYSTEM OF CODIFICATION 1. Alphabetical system: The system employs alphabets as a code for classification as well as identification of the items. 2. Alpha numeric system: Alphanumerical system in the combination of alphabetical and is in improvement over the two methods. Each item is identified and is given a proper description. Identical items are classified into groups and each group provided a suitable heading. Codes are assigned next to the group, which are usually the alphabets. Individually items with in each group are assigned numbers based on block system or decimal system. E.g. Main Class: FN(fasteners) , Sub Class: 0000, Vocabulary Code : FN000044 : FN000045
  38. 38. Study of work flow of material & procurement control system of UPL June-July 2006 - 38 - 3. Numerical system: Decimal code: the code under this system consists of a group of numbers separated from each other by a decimal point, identifying the general category of items, sub category and individual items. The first category called general category divides the items in to main classification such as raw materials, electrical items. The second category called Sub category divides the main classification in to sub classifications according to their nature, use or characteristics. The third category called item category divides the sub category into individual items within the subcategory. The number of digits can be decided on the requirements of stores but their number within the consecutive decimals is restricted to four to make the code convenient to handle. For example: Cutting tools is the major category , this may be divided into subgroups like inserts, milling cutters, grinding wheels, drills, reamers, taps, etc. And each sub group divided in to centre drills, taper shank drills, extra long drills, stub drills, etc. the above may be codified as: Main Class Sub Class Particulars Item Code Tools (01) Drills (001) centre drill D 2.5 01.001.001 Centre drill D25 01.001.002 Centre drill D42 01.001.003 S.S.drill 12 mm 01.001.004
  39. 39. Study of work flow of material & procurement control system of UPL June-July 2006 - 39 - 7.2. ACTIVITIES OF CONSUMABLE STORE: 1. RECEIPTS: Receive material on gate take gate entry on chalan. Preparing Goods inward note: (GIN) Goods inward note is prepared when material is received in store. For that you have to select the PO or item code of that particular material, check the rate and discount check the physical quantity vs. chalan and original quantity, according to terms and conditions in PO check tax terms and then prepare GIN. GIN and material Shifted to Holding store: Check physical quantity vs. chalan quantity If quantities ok sign qty. checked. If not ok generate short discrepancy note to supplier. Check quality of material if found ok accept, if not ok prepare rejection note &return material with proper excise supporting documents, if excisable. Shift material to respective locations with item codification. Maintaining a adequate inventory.
  40. 40. Study of work flow of material & procurement control system of UPL June-July 2006 - 40 - 2. ISSUES: Receive material requisition slip signed by authorized person. Check whether material is in stock. If in stock issue and mention item code on requisition slip. Collect all slips for the day and feed issues in ERP. If material is not in stock mention those items in pending register Purchase those items according to procedure. Daily Preparing documents for management information: Company Level Data, vendor challan register and total filing. 7. 3. PERPETUAL VERIFICATION OF MATERIALS IN STORES: Under this, all items of the store are verified through counting, weighing, measuring etc. at the end of every month. It is a continuous function rather than a year end system. It helps to found out the items reached a minimum level and also find out non moving items. 7. 4. ABC ANALYSIS (Always better control) ABC analysis is a basic analytical management tool it helps to keep always better control over the materials. This is a selective control technique applied in various areas such as inventory, criticality of items, obsolete stocks, purchasing order, and receipt of materials, inspection, store keeping and verification of bills. The materials can be divided in to three categories for selective management control. The alphabets A, B, C stands for the three different classes. ABC analysis refers to the annual consumption value of the items. It has been found out in many industries that a small number of items account for a large proportion of the annual turnover of the
  41. 41. Study of work flow of material & procurement control system of UPL June-July 2006 - 41 - inventory. These items have less than 10% of the total number will account for a substantial portion of about 75% of a total consumption value, and these few items are called A items which need careful attention of the materials manager. Similarly a large part bottom items over 70% of total number can account for only 10% of the consumption value and are known as C class. The items that that lie between the top and the bottom are called B category items. A Items High Consumption Value B Items Moderate Value C Items Low Consumption Value 1) Very strict control Moderate control Loose control 2) No safety stocks (or very low) Low safety stocks High safety stocks 3) Frequent ordering Once in Three months Bulk Ordering once in six months 4) Maximum follow up and expediting Periodic follow up Follow up and expediting in exceptional cases 5) Minimization of waste obsolete and surplus Quarterly control over surplus and obsolete items Annual review over surplus and obsolete items 6) Maximum efforts to reduce lead time Moderate efforts to reduce lead time Minimum efforts to reduce lead-time.
  42. 42. Study of work flow of material & procurement control system of UPL June-July 2006 - 42 - 8. SOURCE SELECTIONS AND EVALUATION The objective of right price, right quality, right time and right quantity cannot be achieved unless there is a right source. Hence greater emphasis is given to locating, selecting, developing and retaining the right kind of suppliers. The source selection and evaluation in UPL is done as per ISO 9001-2000 Quality Manual. 8.1 Locating Potential Suppliers There are various sources from which information on suppliers of different material is available. These are 1. Trade directories and trade journals 2. Telephone directories. 3. Supplier catalogues. 4. Trade exhibitions. 5. E-sourcing 6. Company personal recommendations. 7. Public tenders. As per the Quality Manual ISO 9001-2000 suppliers should be selected from the following: 1. Established supplier. 2. UPL evaluated supplier. 3. ISO certified supplier. 4. Authorized dealers.
  43. 43. Study of work flow of material & procurement control system of UPL June-July 2006 - 43 - 8.2 New Vendor Development Process There are various factors that go to approve a new supplier and all these factors have to be evaluated with ref to buyer s needs before a supplier is finally approved. The process is as follows: 1. Considering full Profile of the supplier s organization. 2. Technical / Commercial competency. 3. Assessments of supplier s quality system. 4. Clearance from design department. 5. Hading over document sheet to project manager for ordering. 6. Ordering to be done subsequently by material group. 7. Performance to be observed at least one and then include in the approved list if necessary by giving supplier code. If there is no transaction with supplier for three years or supplier re-locates manufacturing unit, then fresh assessment of supplier is done.
  44. 44. Study of work flow of material & procurement control system of UPL June-July 2006 - 44 - 8.3 Vendor s Performance Evaluation and Rating It is necessary to see whether suppliers are meeting performance standards of the company. Hence performance evaluation is carried out every year and the supplier is given a rating. The performance rating of the supplier is given after evaluation of the following points. I. Quality 1. Has the vendor supplied the quality that has been specified? 2. Have there been any complaints from the customers? 3. Is any rework to be done based on supplier error? Supplied quality is compared with various parameters of accepted quality. Vendor rating quality index = No of lots rejected No of lots accepted II. Price 1. Are vendor s prices reasonably fair? 2. Does he offer any discounts? 3. Are follow up costs too high? Vendor rating price index = Lowest price bid Price bid by vendor
  45. 45. Study of work flow of material & procurement control system of UPL June-July 2006 - 45 - III. On Time Delivery 1. Total number of consignments delivered. 2. No of consignment delivered on time(gap between actual date and delivered date to be considered ) 3. Safe delivery of consignments against damages. Vendor rating delivery index = Delivery on Scheduled Total no of Deliveries The suppliers are informed about there rating. 1. Suppliers having performance rating less than 50% are deleted from the supplier s list unless justified by Head operations. 2. Suppliers between 50-85% are penalized by reducing share of business. 3. Supplier rating adjusted manually if there are complaints from shop. Non-Approved Suppliers These include: 1. Supplier delivering small items. 2. Supplier delivering non critical items < Rs 1000. 3. New sources under development with clearance from Design / Dept Head- Materials After techno-commercial evaluation.
  46. 46. Study of work flow of material & procurement control system of UPL June-July 2006 - 46 - 8.4 SUPPLIER RATING Rating Grade 85% and above Good Between 75.00 & 84.00% Satisfactory Between 50.01& 74.99% must improve Below 50% Poor No business to be done with suppliers with poor rating.
  47. 47. Study of work flow of material & procurement control system of UPL June-July 2006 - 47 - 9. PROBLEMS ASSOCIATED WITH PURCHASING 1. Problem arises in purchasing due to sudden change in processes, new demand by customer, sudden change in plans. 2. A major problem is that suppliers not paid on time due to which they loose confidence with the buyers and end up making buyers pay in other ways. 3. In some cases suppliers are not reliable which results in late deliveries and quality may also not be up to the mark. 4. Procurement and follow up costs are high if there are too many suppliers or if suppliers are located far away. 5. If sufficient advance information is not given to the buyer s about procurement of items, then the material may have to be procured at the eleventh hour at higher costs. 6. There may be more than one buyer procuring similar items. If both the buyers do not coordinate, it is likely that one will procure at a higher cost and the other at the other cost.
  48. 48. Study of work flow of material & procurement control system of UPL June-July 2006 - 48 - 10. FINDINGS: 1. Company recruits handicap people in assembly line of various products and give them equal opportunity to earn money. 2. Single material management handles the requirements of four plants of company. Company has Good co- ordination among the four plants. 3. Working on Kaizens & moving towards total productive maintenance. 4. Production capacity of a company will be double with in one year. LIMITATIONS 1. All the programs are going under ERP system so there are the limitations regarding the analysis of the data without user of that company. 2. As material management is a vast topic it required a lot of time to understand procurement control systems of company. 3. Non-availability of data because of the confidential matters. 4. Some time a respondent was busy.
  49. 49. Study of work flow of material & procurement control system of UPL June-July 2006 - 49 - 11. RECOMMENDATIONS FOR IMPROVEMENT Objectives of improvement 1. To facilitate cost saving in purchase while still maintaining quality. 2. To reduce lead-time. 3. To improve delivery. 4. To develop long lasting relationship with suppliers. (10.1) JUST IN TIME (JIT) METHODS JIT is a philosophy of continuous improvement in which non- value added activities (Wastes) are identified and removed for Reducing Cost Improving delivery Improving delivery Improving quality Improving performance 1. Single Sourcing JIT is rooted in simplifying everything. Dealing with none supplier, or at most three suppliers if volume are large allows simplification of paperwork, physical handling, complex transition processing, etc. things such as RFP s bids, quotes and other arm s length activities waste time and resources. Also there is waste from late deliveries (expediting), defective products, poor service and damaged goods. A single supplier should involve pact that both parties will work to eliminate waste in supply chain.
  50. 50. Study of work flow of material & procurement control system of UPL June-July 2006 - 50 - 2. Supplier Certification JIT cannot succeed without continual quality improvement. The idea of Supplier Certification in JIT is to certify that your suppliers also believe in quality first and have formal quality improvement processes and goals. Striving for zero defects is a joint strategy between you and suppliers cannot be achieved when there are too many suppliers. Reduce the supply base to allow more time to work with key suppliers on quality improvement. 3. True Partnership Focus JIT dictates that suppliers became an integral part of manufacturing flow process and this requires huge increase in interaction at all levels. Purchasing should not be the sole communication point with the suppliers. Problem solving, process improvement and waste elimination require cost sharing buyer with key supplier to successfully attack right things at right time. But this require trust, a view that supplier are stack holder with you and long term commitment to the relationship. The result of cost sharing must benefit both in these environments to allow sustainability. 4. Joint Cost Reduction Objective of Design Supplier involvement in the design process can of great help to engineering but the supplier must be also commuted to target cost saving thus supplier chosen must not only have some ideas, but also be clear how to meet engineering need thought out the process. Purchasing should make sure that the design process receives the benefit of using supplier resource so that the idea grows on engineering with every project completed 5. Joint strategies to meet customer expectations JIT being with customer. To meet and exceed customer expectations require some level of interaction between supplier and customer without this first hand contact and knowledge, your key supplier can not contribute to strategies for meeting customer expectations. When your market place requires target pricing of new product from your supplier, they need to know every thing that can above customer requirement that still must
  51. 51. Study of work flow of material & procurement control system of UPL June-July 2006 - 51 - be met with in the cost goals. 6. Outsourcing Of services Out sourcing suggest an organization focused on few, well chosen core competencies supported by long term outside relationship for many of its other activities and resources. This definition avoid the quick fix, lowest cost mentality and actually alludes to that which all strive in our purchasing activities buying great values. Secondly, pursue outsourcing in a manner that target more time for value added activities, rather than puts people out of work. Purchasing should only take the lead to recommend outsourcing in those activities that push the limit of internal resources. The idea here is not to just look for goods and services to outsource, but to recognize where it is already being done by default and get involved as a purchasing professional to help do it better! 7. Inventory Control Functions of Inventory Control a. To get right amount of stock at right at right time of requirement. b. To minimize inventory and inventory cost. c. To reduce material handling and handling costs. d. To prevent loss through damage, obsolescence. JIT methods can be effectively used as they emphasis on waste elimination. I. Total Quality Assurance of Suppliers If the suppliers are able to deliver goods of 100% quality all the time, there is no need for quality checks at buyer s premises and material can straight away be taken to shop floor for production. This eliminates cost for preparing GINs, inspection costs and costs involved in rejection of goods. For this Total Quality control at supplier s end is vital and has to be cent percent.
  52. 52. Study of work flow of material & procurement control system of UPL June-July 2006 - 52 - II. Zero Inventories In JIT, daily or at the most twice a week; deliveries are expected from suppliers rather than traditional deliveries of large quantities. For this suppliers have to be geared to actual requirement on shop floor. Deliveries from supplier should directly come to shop floor instead of routing through stores. This will also eliminate cost of receipts and storage, which is generally very high. III. Reduced material handling and handling costs If we make a flow chart of material from the time it is received to the time finished product is sent out, we will notice that material has been handled a large number of times. Handling does not add value to product and must be eliminated. A close study of the handling systems will reveal the amount of waste hidden in material handling.E.g. Indirect labour involved in material handling may be more than direct labour. Hence scientific technique for material handling needs to be evolved. IV. Worker Participation The whole organization, right from directors to the shop floor worker must be involved in cost reduction programs. Workers should be trained in multi trade so that they are capable of doing several jobs as well as encouraged to contribute new ideas towards work simplification, which can cut costs. V. Partnership Focus In JIT systems, the relationship between buyer and seller is that of Partnership rather than two different companies with different interest. The suppliers factory is considered as an extension of ones own factory. Also trend is on single supplier, or at most three suppliers, if volumes are large. Hence by remoulding relationship, JIT can achieve tremendous results.
  53. 53. Study of work flow of material & procurement control system of UPL June-July 2006 - 53 - VI. Vendor Managed Inventory (VMI) for MRO supplies and non critical items. A new concept in inventory management is VMI. If the vendors take care of repair, maintenance and office supplies, it will costs for obtaining and managing these inventories. The costs arising from unavailability of these spares will be eliminated. The same can be applicable in case of non-critical items. (10.2) OTHER METHODS 1. COST SAVING ON PURCHASE DATA. Create a pricing history variance report Prepare a report of items that have fluctuating prices on past orders. This can be a source of cost savings in areas where decision to buy are often made at the last minute. Annual volume pricing contracts should bring down price compared to small one time buys of each item. Help your suppliers buy better If you receive a volume discount for buying nuts and bolts for your operation, can you have another supplier buy nuts and bolts on that contract in making a component for you? Or if you steel sheets or copper tubes for your own fabrication uses can a fabrication supplier buy from source when you occasionally subcontract some work to that fabrication supplier? Cross reference lists of sub-components used by one supplier to your own contract. This or electrical components and sheet metal purchases.
  54. 54. Study of work flow of material & procurement control system of UPL June-July 2006 - 54 - 2. COST SAVING IN FREIGHT If the terms of supplier are freight pre-paid then as a purchaser you do not know how much you are paying for product vs. freight and handling charge. If you think your supplier has more clout with their freight buying volume, test such an assumption before putting sources of freight services in their hands. The transportation function of the company should take advantage of purchase person s breath of experience and together they can work as a team to create additional savings and improved strategies. It may appear difficult to justify adding freight responsibility to purchasing dept. load. But it needs to be viewed as another expensive commodity requiring cost and quality control. 3. Payment policy If you do not pay your suppliers on time as per payment terms, you have a credibility problem with the suppliers. It is necessary to create a partnership between Purchase and Finance to look at process problems first. Agree that whatever policy is determined for payment will be followed. Otherwise most suppliers end up making you pay for it in other ways because they have to deal with cash flows too. 4. Purchasing Forecasts Converting marketing forecast data to usable form The obvious source of internal data that purchasing contents with is the marketing forecast itself. Whereas a marketing forecast deals with end products purchasing must convert marketing data to a forecast for supporting materials and components. MRP is not helpful in this way because it changes continually for every minor production change. It also generally has a limited planning horizon and projects future needs of individual items rather than components groupings, or supplier workloads.
  55. 55. Study of work flow of material & procurement control system of UPL June-July 2006 - 55 - Inflation forecasting using external data Since inflation is built into every business s financial plan, the control of inflation is critical to meeting profit targets. The purchasing must forecast overall inflation for the business financial plan using correlated external data obtained from components, commodities and pricing indexes. This data can be used as an inflation budget to trigger supplier long-term agreements that keep costs below the forecast. Hence good, credible forecasting can control pricing. As purchasing gets more involved in forecasting activities, they will discover more opportunities to save money and in times of tight supply, save the business. 5. Lead Time Analysis: Preparing lead-time reports and analyzing them is an effective ways to estimate lead time and devise methods to reduce the time. The items can be divided in to First time orders, Repeat orders and Emergency orders. The report should not only contain total lead time but time required for processing the order, delivery of order and receipts of goods. This analysis will also help identify suppliers who trouble with late deliveries. 6. A, B, C Classification of Suppliers: Similar to A, B, C classification of items the suppliers can be classified depending upon criticality / monetary value of the items so that more concentration can be given to A class compared to B and C. 7. Constituting Supplier Awards On similar lines of worker awards an award can be given to best supplier depending upon the performance in the project. This will serve as a moral booster for the suppliers as well as lay foundation for a strong relationship.
  56. 56. Study of work flow of material & procurement control system of UPL June-July 2006 - 56 - 10. Supplier Relationship Management (SRM) A very important aspect in the whole process of buyer seller transaction is the management of relationships. The supplier should be an integrated part of the management flow process. A true partnership mentality needs to be fostered by management and practiced by both organizations. Purchasing needs to play the role of facilitator of direct communication between supplier and customer and provide problem solving leadership. The relationship should involve a pact that both buyer and supplier will work for the elimination of waste in the supply chain. SRM can be practiced by integrating business practices with software. It involves consolidating and classifying procurement data to provide an understanding of supplier relationships. The benefits of SRM stem from analyzing supplier relationship to develop procurement strategies that reduce costs, help in supplier partnership decisions and provide leverages over suppliers in negotiations. Certain pre- requisites are necessary for building buyer-supplier relationships: 1. Mutual confidence and interest of both the parties, by avoiding unreasonable demands, cancellations, delivery alterations, postponements and changes in specifications. 2. Exhibiting general interest in mutual problems of procurement, market situation, cost reduction, rejections, and transportations and forecasting. 3. Cooperation in prompt shipments, processing formalities, payment of invoices and sharing relevant information. 4. Continuous improvement in ordering methods and supplying the services. 5. Intimate understanding and intelligent of each other s business interests. 6. Aiming for sustained and ethical relations, both in short as well as long term.
  57. 57. Study of work flow of material & procurement control system of UPL June-July 2006 - 57 - 11. CONCLUSION By studying the material flow &procurement control system of an organization it helps to understand working of material management department. The concept of purchasing today is undergoing tremendous changes. Major focus is on cost saving. Considering this view, scope can be examined for: 1. Reduction in variety. 2. Standardizing of machinery. 3. Bringing down inventory. 4. Value analysis of material Various Programmes can be undertaken to reduce pricing of purchased items, key processes, inputs, including cost of quality at supplier s end. Change in purchasing concept Traditional Concept (Reactive purchasing) Modern Concept (Proactive purchasing) Period Characterized by More suppliers Few suppliers Pricing Cost plus Target Price Supplier Relationship One Time Partnership Quality Incoming inspection TQC/TQM Inventory Stock JIT
  58. 58. Study of work flow of material & procurement control system of UPL June-July 2006 - 58 - Training focus Little/No training Extensive training including behavioral science Problem stance Reactive Proactive View Cost center Profit center NEW TRENDS IN PURCHASING 1. E-procurement through Internet / Electronic Data Interchange. 2. Procurement cards - Payment instrument. 3. Collaborative purchasing Working together to add value. 4. Green purchasing Purchasing Environmental friendly materials.
  59. 59. Study of work flow of material & procurement control system of UPL June-July 2006 - 59 - 12. BIBLLIOGRAPHY: 1. Material & Logistics Management - L.C. JHAMB 2. Material Management - by Gopalkrishnan 3. Total Quality management- K. SHRIDHARA BHAT 4. Purchasing & Inventory Control - K. S. Menon Website: www.umaprecision.com
  60. 60. Study of work flow of material & procurement control system of UPL June-July 2006 - 60 -
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