Page 160 - DMGT525_MATERIALS_MANAGEMENT

Unit 11: Purchasing Research

Variable costs are those that depend on the number, size, and quality of courses and those Notes
that depend on the number of students in the course. The first group includes the salaries
of part-time staff (which vary with the length and nature of the course) and transmission
costs (which vary with the length of the course). The second includes payments to learner
support staff (which vary with such factors as the number of tutorials and the amount of
feedback on assignments) and the costs of distribution (such as warehousing and mailing
costs).
Cost forecasts for the design and production of materials must be based on assumptions
about the number of students to take the courses, the costs of materials and labor, and the
number of courses to be produced. Clearly, institutions’ budgets will vary considerably,
depending on their investment in face-to-face sessions, the technologies they use, the
number of students, and the quality of materials.

Source: http://www.ouhk.edu.hk/cridal/gdenet/Management/Benefits/forecasting.html
11.2 Forward Buying

Although quantities to be purchased are normally determined by inventory management and
control, it is often advantageous to purchase quantities in excess of the normal operating
requirements of the manufacturing plant. If operational considerations or supply conditions
indicate the need for such an inventory reserve, these purchases are termed as forward buying.

In order to ensure near-future availability, the buyer may have to take recourse to ‘Forward
Buying’ which means buying the quantities now, but for the requirements of a future period of
time. However, when the material is bought for ‘future’ and not for ‘current’ requirements, it
raises questions as to whether this amounts to: (i) hoarding. or (ii) speculative buying. How
ethical is the price consideration then? In a scarcity economy such as ours, the question assumes
much importance. If the intention of purchase is solely to assure supplies to production, and not
making a speculative profit on the inventory of materials, then it is justifiable. It is the business
of an industrial enterprise to produce goods, market them, and gain a profit on the output and
not to make a profit on the raw material inputs. The enterprise has thus an economic function to
carry out. But, in carrying out that function how much of self-interest should it serve? It is not
easy to answer this question because there is a thin line between what is ‘to hoard’ and what is
‘to ensure future supplies to production operations. The difficulty is compounded in a scarcity-
prone economy. The best thing would, perhaps, be to stick to the type of inventory ‘norms as
suggested by the Tandon. Also, if there is monitoring by an external agency such as a bank
(which supplies funds), it would standardize and regulate the ethicality problem. With economic
liberalization and therefore, competition with the multinational corporations, prices and,
therefore, costs have to be kept low. Hence, there is an increasing emphasis, even in Indian
organizations, on lean production that is, with minimal possible inventories of materials. This
business imperative should put a dam, on the speculative inventory, if any.
Self Assessment

Fill in the blanks:
7. In order to ensure near-future availability, the buyer may have to take recourse to
…………………
8. If there is monitoring by an external agency such as a bank (which supplies funds), it
would standardize and regulate the ……………… problem.

9. There is an increasing emphasis, even in Indian organizations, on ……………… that is,
with minimal possible inventories of materials.

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