Purchasing and Product Scheduling - Technology Structure, Logistics Management | Logistics Management - B Com PDF Download

PRINCIPLES OF PURCHASE (7-R RULE)
The supply chain management is controlled by the purchase function. The purchase function is assuming the following seven principles known as 7Rs.

The Rule of seven R’s means, buying the material

1. at right price

2. of right quality

3. in right quantity

4. at the right time

5. from the right source

6. at right place

7. with right mode of transport

– This is basic factor in logistics management.

– It is the link between the production unit and the customer directly or through the warehouses.

– Logistic cost based mainly on customer service. Better service and supplies provides economic advantage to the customer.

– The supplier’s logistic manager has to balance the high service level that the customer desires and the belief that the supplier may gain from possible increased sales against the cost of providing that services.

ORDER PROCESSING CYCLE 

1. Getting Requisition from User Departments: The department in need of a material presents a completed requisition form. Such requisition form includes details like department name, requisition reference number, description of the material, quantity required, suggested supplier, purpose and the approximate date when the material will be required, followed by the name and signature of the person preparing and authorizing the requisition form.

2. Sending Enquiries for Quotations: Purchase department invite suppliers to quote the rates materials. For this purpose a standard format is used which is similar to a purchase order, except that words such as “this is only a request for quotation” or “this is a not a purchase order” are printed so as to ensure that the supplier does not construe the request for quotation as a firm order.

3. Negotiating with Vendors to Fix the Price: If the presented cost does not match the company’s budget, the purchasing department can negotiate with the seller price and terms are met with. Another method that can be adopted here is competitive bid method. This method is widely used by governmental purchasing departments because of statutory requirements but also applied by industrial purchasing department.

4. Preparation of Purchase Order and Placing the Order: Having selected the supplier and the rates agreed, the buyer places the purchase order; expressing terms and conditions. All orders should be in writing and should be on the buyers purchase order to avoid possibility of level difficulties. When order is placed by telephone it is the practice to confirm the order by sending the supplier a regular order.

5. Follow Up with Vendor: After the order has been placed, the purchasing department has the responsibility of following-up of the order. Follow-up essentially holds the supplier to his promise of delivery. A follow-up procedure is must when the costs or risks resulting from delayed deliveries or non-deliveries are greater than the cost of follow-up procedures.

6. Receipt of Material, Inspection and Storing the Material: The material should be inspected properly, checked for its quality as well as quantity. In addition to this, it should be reserved in a proper room in a disciplined manner, so it is easy to recover it at any point of time.

7. Maintenance of Records: Purchase orders requisition and similar other legal contracts and documents should be preserved. Since they constitute the authority on which the purchasing department had taken its actions to a given item.

SUPPLIER SELECTION 

While selecting the suppliers, the following factors must be taken into account:

1. Lead times and on-time delivery:

What lead-time the supplier can provide.

What procedures does the supplier have for assuring on-time delivery?

What procedures does the supplier have for correcting delivery problems?

2. Price:

Are prices given reasonable?

Is the supplier willing to negotiate prices?

Is the supplier willing to engage in a joint effort to reduce costs by value analysis?

3. Qualities and Quality Assurance:

What procedures does the supplier have for quality control and quality assurance?

Problems and corrective actions for quality are considered or not.

4. Product or Service Changes:

How much advance notification does the supplier give when changes are made in products or services?

To what extent does the buyer have inputs regarding changes?

5. Flexibility:

How flexible is the supplier in handling changes in quantity, delivery schedules and product or services design changes.

6. Reputations and Financial Stability:

What is the reputation of supplier?

How financially stable is the supplier

7. Location:

Is the supplier located nearby?

SUPPLIER EVALUATION

For rating the suppliers, following factors should be considered:

1. Reliability in all Fields:

Is the supplier reputable, stable and financially strong?

Is the supplier going alongwith product development?

Is the supplier’s competitive strength proved by past experience?

2. Technical Capabilities:

Can he provide assistance as to the application engineering?

Can he provide assistance as to the analytical engineering?

Can he provide design assistance?

3. Convenience to deal with:

Can he help to reduce the acquisition cost?

Is he qualified to help in solving difficult problems?

Does he pack his product conveniently?

4. Availability:

Does he assure delivery in time?

Are his stocks locally available at short time?

Can he plan his supply to minimise the inventory.

5. After-Sales Services:

Does the supplier have a service organisation?

Is an emergency service available?

Are parts available when needed?

6. Sales Assistance:

Can the supplier help in building mutual market.

Will he recommend our products?

Does his products enhance the appearance of our products.

Logistics Outsourcing

Outsourcing is the contracting company’s business process to outside service providers for increasing firm’s profitability by primarily reducing overall operating cost and focusing on core competencies.

Objectives of Outsourcing

1. To reduce operating costs.

2. To focus on core competent functions.

3. To acquire new skills.

4. To avoid labour problems.

5. To avoid financial risks

6. To improve flexibility in functions.

7. To enhance market credibility.

8. To improve overall market performance.