Page 59 - DMGT525_MATERIALS_MANAGEMENT

Materials Management

Notes Question:
According to you, what steps could be taken to avoid last minute ordering?

Source: http://www.ethicaltrade.org/sites/default/files/resources/Purchasing%20practices,%20case% 20studies%20and%20
report_0.pdf

4.8 Summary

 Purchasing is the procuring of materials, supplying machine tools and services required
for the equipment maintenance and operation of manufacturing plant.
 The functions to be performed by the purchase department may be classified as Primary
and Secondary functions of purchase department.

 Some of the responsibilities of the purchase department are wholly its own, and it shares
some of them with other departments.
 The approval in the technical aspects of the vendor’s product or services may be the
responsibility of the quality or the design department, but the purchaser should be
convinced that the source of the supply is stable, reliable, and will be able to fulfill the
demands made upon it.
 The Purchase department verifies and ensures that all conditions like price, quantity, and
quality, etc., that were earlier agreed upon are in order to a further need for verification of
invoices arises from the problem of defective material being supplied.
 Scientific purchasing is governed by eight well known parameters called Basic elements
of scientific purchasing or also called Principles of purchasing or “simply’ 8Rs buying”-
Right Quality, Right Quantity, Right Price, Right Source, Right Time, Right place of
Delivery, Right Procedure and Right contract.
 Replenishment method such as reorder level, “two-bin system”, “review system-optional
replenishment”, and “review system compulsory replenishment” help to provide broad
guide lines.
 Right sources require the analysis of transportation costs along with the basic price to
make selection between a distant supplier and a local one.
 In case a Ministry/Department does not have the required expertise or manpower, it may
send its indent to the Central Purchase Organization (e.g., DGS&D) with the approval of
its Secretary.
 The Ministries/Departments have been advised to fix appropriate cut-off points in terms
of the size of procurement to switch over to e-procurement.
 A Capital Equipment purchase is equal to or greater than $5,000 and has a useful life span
of one or more years.
4.9 Keywords

Capital Equipment: Capital equipments are the assets such as vehicles that generally depreciate,
or lose value over time.

Forward Buying: The placement of an inventory purchase order earlier than required in order
to take advantage of a special price offer, or similar is referred to as forward buying.
INCOTERMS: INCOTERMS or international commerce terms are agreed rules which set out the
delivery terms for goods which are traded internationally.

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