Assignment:
Materials Management
Submitted by:
Prashant Khedekar
MMS-Operations
Roll no. 14106A1061
Question:Purchase Department is a Profit-centre. Discuss?
Answer:
Purchasing which is a part of Materials management is
responsible to buy materials of the right quality, in the right
quantity, at the right time, at the right price, from the right
source with the delivery at the right place. This objective must be
achieved with a minimum investment in inventory by balancing the
risk of stock out and production stoppage, the cost of forward and
buying and the economics of quantity purchases. Another objective
is the maintenance of adequate quality of brought out materials.
Also, the other objectives are: avoidance of duplication, waste and
obsolescence with respect to various items purchased etc. Thus,
purchasing manager has the objective of sustaining the company's
competitive position by reducing costs and ensuring quality of
materials.
To achieve the above objective, purchasing (and hence materials
management) can be viewed as a profit centre. Any stock out and the
resulting loss of production is treated as a loss. The reduction in
price of bought out material by right sourcing is considered as a
profit. Any saving due to avoidance of wastage and obsolescence
adds to profit.
Reduction of inventories without affecting production adds to
profit by reducing inventory carrying costs. Since materials
department is considered as a spending department (i.e. cost
centre), every rupee saved on purchasing is a rupee earned (i.e.
profit). For instance, many Japanese companies have slogan We live
by sales, but make our profit through materials
Material managers can significantly contribute to the
profitability of the firms by implementing scientific techniques
which can result in decreased working capital, less cash outflow
and hence increased profit or reduced costs.
