Materials control

Outline sources of information in regards to purchasinga.
Describe purchasing proceduresb.
Describe receiving proceduresc.
State the main type of storesd.
Describe the main features of a storee.
Explain the use of a given store documentf.
Explain the importance of controlling stock levelsg.
Describe methods of preservation and storage of materialsh.
At the end of this sub-unit, the trainee should be able to ;
What are the Various Sources of Potential Suppliers for a Manufacture?
Every organisation maintains a list of vendors, trade group-wise whom they approach for their
need of materials. This list is under constant review. Unsatisfactory suppliers are eliminated and
new suppliers are added to enhance competition. Also new suppliers have to be found for newer
materials required on ever expanding business. How does one obtain information regarding
potential suppliers? An important function of the purchase research section will be to obtain this
information from the following sources and keep a classified record for reference when
necessary. One of procurement’s most important duties has been identifying and aligning their
organizations with reliable suppliers. These sources not only have to meet shipping timelines,
pricing parameters, and quality standards,
The sources of information regarding the potential suppliers are:
1. Newspaper advertisements:
Newspapers columns are full of advertisements from various firms indicating the items of stores
which they manufacture, import, and stock or specialize in.
2. Trade directories:
directories are available which give classified information of suppliers industry wise. Very
detailed information is available there in regarding names and addresses of manufacturers, their
regional and branch offices, their authorized agents and their range of products.
3. Catalogue, price lists , pro-forma invoice etc:
Prices obtainable from catalogues and price lists are generally not final and are subject to
confirmation at the time of placing the order. Catalogues and price lists should be properly
classified and arranged to enable easy reference.
A pro-forma invoice (also known as a pro forma invoice) is a preliminary bill of sale that comes
in advance of delivery, issued by sellers to buyers. This type of invoice serves as a binding
agreement for the seller to provide the products or services. A pro-forma invoice outlines the
terms of the sale and typically contains product descriptions, price of products, terms of delivery,
and an expiration date of the invoice. It is meant to give a cost estimate of the sale, not the final
sale, and the terms are subject to change.
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4. Trade journals:
Most leading companies advertise in trade journals. Sometimes excellent articles appear in them
regarding specific industries. Valuable information can be obtained from such journals.
5. Salesmen:
Salesmen are excellent sources for supply and material information. Not only are they usually
well informed about the capabilities and features of their own products, but they are also familiar
with similar and competitive products as well. By the very nature of their specialized knowledge,
sales people can often suggest new applications for their products which will eliminate its search
for new suppliers. From their contacts with many companies, sales men and sales women learn
much about many products and services and all of this information is available to the alert,
receptive buyer. This is a key reason why sales personnel should always treated courteously and
given ample time to make their sales presentations. To deny them this opportunity is to risk the
loss of valuable information, including information concerning new and reliable sources of
supply.
6. Advertised tender:

6. Advertised tender:
Tender is the process of ascertaining availability and price of materials in sealed covers which
are opened and scrutinized, at a predetermined time by a tender committee. It is implied that the
materials covered by the tender should give scope for competition. The tender system induces
the bidders to quote the lowest Price, safeguards the interests of both the buyer as well as that of
bidder, ensures impartially and fairness, inspires confidence in the suppliers and leaves no room
for malpractice such as favoring a particular bidder or tampering with prices in the purchase
section.
7. Telephone directories:
Telephone directories of large cities contain classified advertisements from suppliers.
8. Exchange of information between similar companies:
If satisfactory trade relations are maintained, even one’s own competitors will part with the
information he has.
9. Trade exhibitions and fairs:
Visits to exhibitions and fairs should give valuable information regarding potential suppliers.
Such exhibitions and fairs are held industry wise and also for specific purposes, e.g., import
substitution. Some such exhibitions are held regularly at specific intervals when available
information can be updated.

10. Personnel from other departments of the company:
Personnel from other departments of a firm can often provide purchasing with helpful
information about prospective suppliers. Through their associations in professional
organisations, civic associations, and social groups, these employees often learn about
outstanding suppliers. Scientific, technical and research personnel who use sophisticated
materials or services always have many valuable suggestions to make regarding possible sources
of supply. From their attendance at conventions and trade exhibits, and from their discussions
with associates, these personnel are particularly well informed regarding new products, new
methods and new manufacturers.
11. Enquiry:
This is a simple method of ascertaining availability and price of materials through open offers. It
is adopted when there is no room for competition on account of (a) the value being very small,
(b) the materials being of a proprietary nature, (c) the policy being to buy only from one
particular firm, (d) the source of supply being limited or not established as in the case of
machined components and fabricated parts. The buyer may, however endeavor to obtain price
reduction by negotiation. The enquiry form (form7) is simpler than the tender form (form 8) but
both call for price, terms of payment, delivery time, etc.
12. Yellow pages:
Another commonly known directory is the classified yellow pages section of telephone
directories. This source of information is frequently of limited value to industrial buyers because
local telephone books list only local companies. However, buyers can readily obtain telephone
books for all major cities from the telephone company. The size and capability of companies are
also difficult to determine, as management and financial data are normally not included in the
advertisements. The yellow pages do, however, have the virtue of being well indexed. Also, they
can serve as a useful starting point if other sources have proved fruitless, and if local sources are
desired.

While multiple factors go into such a decision, what follows are 10 basis points companies
should keep in mind when looking to source of materials
1. Total landed cost
It is easy to focus on the lowest unit cost and assume that’s the best way to go. But unit cost is
just one piece of the total cost equation. Other factors include transportation, customs and duties,
brokerage services (both at origin and destination), banking fees, financing and insurance, to
name a few. Further, there could be additional, unexpected costs. If customs decides to examine
the freight, you should add in charges for the examination and local coordination charges. What
if fumigation is required? More charges. Any delays in the supply chain could result in expedited
freight charges in order to meet the target delivery date. While these may not occur, it is best to
plan for the worst, and hope for the best.
2. Product quality
The quality of the product has ramifications over and above the unit cost on the balance sheet.
Quality needs to be defined so that the supplier and buyer understand and are in agreement. If
there are issues with the quality of the product, it is much harder to address with a vendor
through cultures, time zones and geographies, than if you are meeting with a local supplier. Poor
quality affects everything downstream, most obviously the rate of returns by dissatisfied
customers. Returns drain the business, taking up resources that are more typically focused on
getting good product out to the market, not receiving bad product back in. Defective product may
need to be sold at a discount or written off as a loss, each of which affects the bottom line. A key
part of an efficient supply chain is having quality product all the way through it. In some cases, it
may involve trial and error, but as relationships grow over the years, some suppliers stand out as
offering a consistently superior product. These are the relationships to nurture.
3. Landed Capability
All the great products and quality will mean nothing if you are unable to get the goods to market.
What type of transportation is available, domestically and internationally? After all, you have to
get the goods to an airport or seaport for transport; is there a reliable transportation infrastructure
in the country? It is important to have the flexibility with service providers to implement
alternate plans quickly in case the primary plan or transportation lane becomes unavailable.
4. Location
Proximity leads to benefits such as doing business in the same, or close, time zones, also Trade
Agreements between countries have done a lot to ease restrictions on trade between the
countries.
5. Trade regulations
Governmental regulations can enhance or detract from the ease of doing business with a given
origin. Before any sourcing decision is made, it is imperative that all trade incentives or
restrictions are evaluated carefully. It is also essential to be familiar with documentation
requirements for customs clearance. There are many government-sponsored publications,
brokers or consulting organizations available to help educate an importer in the legal
requirements of international trade.
FACTORS AFFECTING A PURCHASE
Friday, November 27, 2020 2:27 PM

requirements of international trade.
6. Finances
Any discussion of buying and selling would be incomplete without evaluating the financial
aspect, in addition to looking at the actual cost of goods. What terms can be negotiated? What is
the risk with a given manufacturer? Is more insurance required to source from a supplier ? Can
your excellent credit terms with your domestic bank be leveraged to benefit the suppliers’
financial picture, resulting in less risk and cost to the buyer? How will the increased transport
time — resulting in tied-up inventory — affect your cash-to-cash cycle?
7. Time to market/responsiveness of supplier
Time to market is becoming an increasingly critical factor in sourcing decisions. If one’s
competitor has product available more quickly, the result could be lost market share and more
important, lost revenue. It is important that your supplier be receptive to, and able to
accommodate, change. Perhaps the product needs to be tweaked slightly, or sales are exceeding
expectations and production needs to be ramped up. Is the supplier in a position to do this? ).
8. Value-added services
Are there additional services available at origin to add value to the product? ,Does the supplier
guarantee that it will pack the freight to ensure it arrives intact at destination? A new importer
might make the mistake of cutting corners on the packaging and dunnage when importing honey
from China. The result could be steel drums bouncing around an ocean container for 12 days on
a vessel then five more days on the rail, only to have honey oozing out of the container from
leaky drums when it is opened at its Chicago destination. Such a situation, sadly not fictitious,
has the consequence of lost product, lost sales and significant cleanup — all more costly than
investing in the original dunnage at origin.
9. Communications/IT capabilities
How will you know what has shipped? Is your supplier a real-time, Internet-savvy, information-
sharing partner? Open dialogue and communication is imperative between the supplier and
buyer. Late, missing or inaccurate documents can cause delays of customs clearance and,
ultimately, delivery to destination. Inaccurate product information may result in additional
freight and time to correct such an error. E-mail and the Internet, and good-old phone calls, can
go a long way to ensuring supply-chain efficiency.
CENTRALISED VS DECENTRALISED PURCHASE SYSTEMS
Structuring the company purchasing model is an issue many businesses struggle with, and poorly
structured purchasing systems are one of the primary reasons companies have trouble controlling
their costs.
Large companies may have dozens of departments, each with its own purchasing protocols.
Decentralization may be an good choice with clear advantages in some cases…but is it the best
cost management choice for a large business?
In cases where local sourcing is key, this level of autonomy may be preferable. However,
decentralized procurement for large organizations can be inefficient and risky. In order to control
budget and provide the resources the company requires to operate, centralization is often the
answer.
Comparing Centralized and Decentralized Purchasing

Establishing purchasing protocols for a growing business is an important decision. Before you
decide whether to implement centralized or decentralized procurement, let’s take a deep dive into
the pros and cons of each model.
Centralized Purchasing
With a centralized procurement system, all purchasing goes through one central department.
Department managers submit requests for approval, and the procurement staff retains control of
the budget.
Pros:
A comprehensive spend analysis is always at your fingertips. Your data is clean, up-to-
date, and available. You know how much money is being spent, where the supplies are
going, and who is ordering.
-
When all purchases require approval, irregular spending is eliminated, or at least
minimized.
-
Using centralized data has the advantage of allowing budget experts to compare suppliers
and make advantageous deals based on volume, even across multiple locations.
-
Purchases are made by specialists armed with comprehensive information about suppliers,
their history, and their competitors. They have the knowledge and skills to negotiate better
deals.
-
With the information stored in a centralized database, procurement managers are better able
to improve supplier risk management, ensure supplier diversity and comply with corporate
social responsibility initiatives.
-
Cons:
Corporate procurement adds a layer of bureaucracy to every transaction, and removes
decision autonomy from local managers, which can result in job dissatisfaction.
-
Supply chain issues, such as lagging processing and delivery times may occur when a
purchasing department makes strategic buying decisions over local suppliers, or when an
emergency situation arises for which a department needs immediate supplies.
-
Decentralized Purchasing
With decentralized systems, each office, division, or project manager has purchasing power to
order supplies at their own discretion without seeking approval.
Pros:
Supplies are purchased by each department on demand to meet immediate and long-term
needs. Local managers are in the best position to understand the needs of their divisions.
-
Order processing is fast and easy, with no wait for approval. If a need arises, it can be
sourced and filled immediately. Replacements for defective or damaged shipments can be
initiated immediately, without routing through the company procurement process.
-
Cons:

Cons:
Opportunities for bulk purchasing across departments, and for negotiating better terms
based on bulk are lost.
-
Orders are typically made by administrative staff, and not purchasing experts who have the
knowledge and skill to evaluate suppliers, consolidate orders, and negotiate better deals.
-
A decentralized system often means disorganized data. Compliance issues may arise as
managers order or reorder for the greatest expediency as opposed to strict protocol
adherence.
-
Performing a spend analysis is far more difficult with a decentralized system. Data in
different systems is rarely standardized.
-

Purchasing Process/procedures is concerned with the obtaining goods and services
Like individuals, businesses and organizations need to purchase goods and services to meet their
needs on a regular basis. And also like individuals, businesses absolutely need a formalized
purchasing process if they want to extract maximum value from every shilling they spend. The
way in which your company develops and implements its purchasing plan can have a major
influence on not just expenses, but your business’ overall competitive performance, profitability,
and efficiency.
By learning and implementing a few best practices for your purchasing process,
- you can help reduce waste,
- protect your business from needless risk and expense,
- develop workflows that maximize efficiency, profits, and value recovered from every dollar
invested.
The primary benefit of a formal process for purchasing is avoiding waste due to fraud, rogue
spend, theft, and other financial pitfalls that accompany undocumented, non-optimized buying
habits. But because procurement sits at the heart of the value creation process for your company,
formalizing and optimizing your purchasing process is also important to:
Creating and efficient and effective buying process for not just direct spend (e.g., raw
materials) but indirect spend (e.g., office supplies, IT services, etc.).
-
Successful supplier relationship management.-
Optimal supply chain management and strategic sourcing (for both cost savings and value)-
Streamlining the procurement cycle and all its sub-processes.-
Providing a solid audit trail for internal and external review.-
Establishing a model for business process management that can be applied across your
entire organization.
-
The Purchasing Process
Traditionally, the purchasing process is a cycle, with each step requiring the exchange of
information and various approvals to move forward. Every business will have its own unique
touches to add, but generally speaking, the purchasing process follows a well-established pattern
of events.
1. Needs Analysis
At this stage, the company recognizes and documents a need for goods or services to solve a
particular problem. The procurement team describes the need to be met, and works with others to
determine how best to do so. For example, a company facing high travel expenses might invest
in more fuel-efficient company transportation for its sales staff, or reduce the amount of travel
required for remote employees by investing in advanced telecommunication software.
2. Purchase Requisition to Purchase Order
The “purchasing” portion of the purchasing process kicks off with a purchase requisition
submitted to the purchasing department or purchasing manager by the individual, team, or
department requesting the goods or services. The purchase requisition contains full details on the
items or services to be obtained.
Purchase requests below established budget thresholds are automatically updated to purchase
orders, and submitted to the preferred supplier for that item or service. More expensive
PURCHASING PROCEDURES

orders, and submitted to the preferred supplier for that item or service. More expensive
purchases, or unexpected purchases not in the budget, will be forwarded to the appropriate
individuals for review and approval before they can be transferred to POs.
Rejected purchase requisitions are returned to the issuing party for review and correction or
clarification as needed.
3. Purchase Order Review and Approval
Approved purchase orders are sent to accounting to verify the funds exist in the appropriate
budget to cover the requested goods and services.
4. Requests for Proposal
POs that receive budget approval are returned to the procurement department and, as required,
used to create requests for proposal (RFPs), also known as requests for quotation, or RFQs.
These are dispatched to vendors to solicit bids to fulfill the order for goods or services.
Potential suppliers submit their bids, and are carefully reviewed based on their performance
history, compliance records, and important characteristics such as average lead times, reputation,
and price.
5. Contract Negotiation and Approval
The vendor with the winning bid is then awarded a contract, which is further refined before
signing to ensure optimal terms and conditions and to ensure a mutually satisfactory arrangement
for both parties.
Once the contract is signed, the purchase order is a legally binding agreement between buyer and
seller.
6. Shipping and Receiving
The supplier delivers the goods or services within the agreed-upon timeframe. Once they’ve been
received (in the case of goods) or performed (in the case of services), the purchaser carefully
reviews the goods and services to ensure they’ve received what was promised, and notifies the
vendor of any issues.
7. Three-Way Matching
A cornerstone of spend management, three-way-matching is the comparison of shipping
documents/packing slips with the original purchase order and the invoice issued by the supplier.
This comparison is used to ensure all the information related to the transaction is accurate.
Discrepancies must be rectified as soon as possible to avoid additional charges, delays in
production and payment, or damage to supplier relationships.
8. Invoice Approval and Payment
Successfully matched orders are approved for payment. Any modifications or additional charges
may require another layer of approvals before payment can be issued. Once approved, payment
is issued to the vendor. Ideally, such payments are made with the goal of capturing early
payment discounts and other incentives while avoiding late payment fees.
9. Accounting Records Update
Completed orders are recorded in the company’s books, and all documents related to the
transaction are securely stored in a centralized location.

A milestone event in the procurement process occurs when the items you’ve ordered arrive in
your warehouse.
Did you get the right product?-
Is it of the quality you expect?-
Was the correct quantity delivered?-
Simple questions, perhaps, but how your company systematically goes about answering them can
have major impacts on efficiency, productivity, and ultimately profitability. In our continuing
series covering the basic steps in the procurement cycle, we take a behind-the-scenes look at the
receipt of goods process — what’s involved and why it matters.
Where does it begin and end?
The receipt of goods process matches the goods that a company receives with the purchase order
you issued to a vendor, verifying that the goods received are what was ordered and that they are
undamaged. The process starts with the purchase order(PO) and ends with the successful handoff
of the goods to the requester and the invoice to the payables department. At its most basic, the
receipt of goods process consists of three steps:
Inspecting the goods: Comparing to the PO
Often, the vendor invoice is received after the goods have been received, in which case there’s an
additional step of matching the invoice with the receiving documents.
Inspecting the goods: quality and quantity count
When a shipment arrives, it’s important to confirm that you received the right goods in the right
quantity.
How thoroughly you verify the quantities received will likely vary by how many packages are
involved, and how important the contents are. If there are many packages, and there are many
items in each package, complete counts would be a very time-consuming process. In those cases,
it may be better to use sampling to establish the quantity received. A sampling of a few of the
packages can be done by weight, physical dimensions, or an individual count — whichever
method makes the most sense for a particular product.
Depending upon the importance of the product and its intended use, quality checks may or may
not take place during the receiving process. In some industries, food production, for example,
products may be received into a quarantined state, to undergo stringent quality and composition
testing. Typically, though, a quality check made during the receiving process is made to catch
damage that occurred during shipping.
Comparing to the PO: paying only for what you get
Naturally, you’ll only want to pay vendors for the correct merchandise received in the proper
quantity and of acceptable quality at a price agreed upon, so you’ll need to compare receiving
documents against the PO.
If the shipment arrives without a vendor invoice, this step is covered during the inspection
RECEIVING PROCEDURE

If the shipment arrives without a vendor invoice, this step is covered during the inspection
process. However, it’s important for your accounts payable department to have documentation
supporting the successful receipt before payment is approved. Documents including the purchase
order, receiving report, packing slip, and vendor’s invoice can be filed together (preferably in
electronic format) and attached during the receipt process so that they are readily available when
the invoice is received, and bills are being paid.
Recording the receipt: tools to get it right
Once you’ve inspected the incoming goods and confirmed that the items and quantities agree
with what was ordered on the PO, you’ll want to record the receipt against the PO formally.
Using electronic procurement (eProcurement) software to record and track the receipt of goods
process brings efficiency and helps build best practices in several ways.
Minimize risk of paying for goods you didn’t order, or overpaying for those you did order-
Keep inventory stock levels accurate and up to date-
Track the value of goods and services that have been received but not yet invoiced-
Speed up, streamline, and ensure greater accuracy of the payables process-
Communicate to the purchasing team/buyers that a purchase order line is closed-
Automatically alert the requester that items have arrived (or have not arrived by due date)-
The benefits eProcurement software brings to the receipt process are ;

There are many reasons as to my a company/buyer might return goods back to the seller or
supplier, these reasons are as follows
1. Incorrect Product or Size Ordered
2. Product No Longer Needed
3. Product Does Not Match Description on Website or in Catalog
4. Product Did Not Meet Customer’s Expectations
5. Deliberate Fraud
How To Return Goods
Department contacts the supplier to return the damaged items and request replacement
item(s).
-
Supplier sends the replacement item(s)-
Supplier receives the returned item and sends a credit memo to Accounts Payable (AP) for
processing
-
RETURNED GOODS

TYPES OF STORES

Materials control

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