Page 51 - DMGT525_MATERIALS_MANAGEMENT

Materials Management

Notes (i) Time required by the main stores to take possession of the goods, deposit them into
appropriate bins and update inventory.
(j) Issuing materials and carrying them to the place of work.

Since the inventory investment of an item to a large extent is influenced by it,
the buyer must analyze each of the above mentioned elements and try to reduce them to
the extent possible this is especially important for items of A and B categories under A, B,
C classification of inventories.
Occurrence of one or two contingencies, namely, strike or lock out, flood, etc., at supplier’s
plant may require the purchase department to make rush purchase from local suppliers at
a higher prices, this being possible for the following items:

(a) Produced to commercial standards,
(b) When new suppliers are approached and develop the item,
(c) To ensure the continuity in production, buyer must maintain sufficient inventory in
case of single source items.
5. Right Sources: Only the right sources can give quality of materials in the right quantities
at the right price and at the right time. Right source aspect involves decisions as to:

(a) The kind of item to be purchased directly from the manufacturers,
(b) From which dealer,
(c) From which open market.
Right sources require the analysis of transportation costs along with the basic price to
make selection between a distant supplier and a local one.
6. Right Place of Delivery/Transportation: In most of the cases, items have to be supplied
directly consuming units, which may be located at distant places from the headquarters.
The place of delivery should be clearly mentioned in the supply order.
7. Right Procedure: The right procedure to be adopted has to be formally developed for the
pre-purchase, ordering, and post purchase system. Pre-purchase means initiating the
purchase through requirement of indent, planning, selection of suppliers, obtaining
quotations and evaluating them. Along with the purchase order, an acknowledgement
copy is also sent to the supplier, who returns the same duly signed as a token of acceptance
of the purchase order and to abide by the terms and conditions mentioned in the order.
8. Right Contract: Purchase order is a legal document that binds the selling company with
the buying company. Various terms and conditions about insurances, sales, octroi tax,
excise, customs, breach of contract, settlement of dispute, etc., are clearly mentioned. Case
of international purchase INCOTERMS 1990 such as F.O.R, F.O.B, C.I.F., etc.
The selection of particular availability of sources must be based on such factors as reliability,
technical ability, after sales service buying convenience, past experience, location financial
position, labor relations, reciprocal relations etc.

4.5 Kardex System

This system is widely used by the purchase officers and following information can be obtained
from it:
1. What should be purchased?

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