Role of Purchasing & Materials Management in an Enterprise

Gamini Madhuraarachchi – B.Sc. (Mgt), DPMM, DIPPCA

Module 1

Course : Advance Diploma in Purchasing and Materials Management

Institute of Supply and Materials Management

Introduction

Understand the contribution of the procurement process to the sustainability of an enterprise and the extent to which the importance of material management is involved.

Who is an Entrepreneur?

A person who creates a new business, takes many risks and enjoys many results.

Enterprise ?

Enterprise, is about designing a business, starting, doing maintaining.

What is Business ?

Business is the process of making money from the production / supply of goods (services), or the purchase and sale of goods.

Simply put, it is “any activity that is included for profit is a business.

“We sell for living. But we make profit by Purchasing”

- Japaneese Slogen -

Purchasing and Warehouse are Profit Centers

Definition

Purchasing

NdKavhl ysñldÍ;ajh tla mqoa.,hl=f.ka ;j;amqoa.,fhl=g uqo,a moku u; udreùu

Materials Management - ද්‍රව්‍ය කළමනාකරණන ම

සකස්තමද්‍රව්‍ය කළක මඅව්‍ය කශ්‍ළතණමසැලසුම්මකිරීකමසඳහණමසකණගම්මභණවිතණම

න රමහැකි ණව්‍ය කයි. ද්‍රව්‍ය කළක මඅව්‍ය කශ්‍ළතණමප්‍රසම්පණදර මහණමවව්‍ය කරත්ම

නණර් න්මසඳහණමසන්ිවේදර මවනවර්.

Purchasing and MM

• Purchasing

A business activity directed to securing the materials, supplies and equipment received in the operation of an organization

• Material Management

The ability that companies use to design overall monetary requirements. Communicates for material needs procurement and other functions.

Evolution of Human & Purchasing Management

History- Homo Erectus Human- Barter System

Exchange System- Purchasing Management- Supply Management- Warehouse Management- Logistics Management- Procurement Management- Supply chain Management

IMPORTANCE OF P&MM TO AN ENTERPRISE

Public of Private - Materials requirement (Size, Nature)

- 50% to 60% of the sale price represents cost of purchased materials. (COS)

P & MM - Reduction by 10%

- Out of the sales of one rupee you get a profit of 10 cents

- 50% COS, 50% profit (Profit is 60 cents)

The importance of material management for an organization

Specialization of materials

1. Contribution to cost

2. Increase with production

3. Scarcity

Stage 1

Board of Directors

Managing Director

Internal Auditor

General Manager

Manager Finance Personnel Research &Dev Adm. Manager Sales Manager

Or Manager Manager

Manager Production

Purchase Stores Stock Control

Officer Officer Officer

Stage 2Board of Directors

Managing Director

Internal Auditor

General Manager

Manager Personnel Production Finance. Sales Manager Research

P& MM Manager Manager Manager Manager & Development

Purchase Stock Control Stores

Officer Officer Officer

Buyer Buyer Asst. Stock Store keeper Store keeper

A B Controller A B

Stage 3

Board of Directors

Managing Director

Internal Auditor

Director Purchase Finance R & D Technical Sales Manager Personnel

& Material Mgt. Manager Manager Production Manager

Manager

Purchase Stock Stores

Manager Controller Manager

Purchasing & MM in Government Institutes

In public procurement, government institutions involve to procure sophisticated goods, specialized services and large

construction works ensuring the satisfaction of objectives within legal frame work.

Objectives

• Value For Money (VFM)

• Adhere to the Standards and Specifications

Right Quantity

Right Quantity = Required Quantity

The Right Quantity to be procured, to ensure that the stocks are

maintaining at optimum levels that prevent interruption in flow

of needed resources.

The aim is to avoid negative effects of both excessive and

insufficient stock.

Materials Management

Main Objectives - Lowest price

- Reduce excess storage, minimize inventory maintenance costs, and prevent bulk losses

- Maintain an optimal stock

- Prevent obstruction of fluid flow

- Maintaining the quality of the goods

- Development of alternative sources

- Maintain supplier relationship

Cost of Purchased Goods

Types of Cost

- Material Cost

- Transport

- Packing Charge

- Loading / Unloading Charges

- Duty / Taxes

- Supplier’s Profit

- Documentation Charges

- Others

Reducing Cost• Discounts on marked price

• Negotiations on other costs

• Allocating labour force, Machinery, Items, Transport

• Special Prices for Bulk Quantity

• Removing obstacles of the supplier

• Assisting to the Production process

• Forward Buying

• Better Payment Systems

විකුණුම් හා හ්‍රව්‍ය හිරිව්‍ය

විකුණණනහලදහභ ණ්ඩ්‍ලහිරිව්‍ය හනිරූපණ හකරන්නන්හභ ණ්ඩ

සෑදීන් හස් ූර්ණහවි දමයි. භ ණ්ඩහසෑදීන් හිරිව්‍ය ටහ්‍රව්‍ය , ශ්‍රම ,

උපන ෝගිත හසාහසම ගමහවිකුණණනහනේහසෑදීමටහඅ්‍ශ්‍ය හඅනනකුණත්හ

සි ලුහවි ද් හඇතුළත්හනේ.

Cost of Sales = (Opening Stock + Purchase) – Closing Stock

Sales and material costs

• The cost of goods sold represents the total cost of making the goods. The cost of making goods includes materials, labor, utilities and all other expenses required to make what the company sells.

Cost of Sales = (Opening Stock + Purchase) – Closing Stock

Increasing the PROFIT

If, Beyond your control..??

Materials Requirement Planning

• In an organization, proper resource planning is required to ensure proper manufacturing processes and operations.

• MRP refers to a planning technique

- Involves inventory planning and control, project planning and scheduling.

- It allows managers to estimate the quantity of raw materials needed for production and to schedule delivery.

- It makes it easy for the managers to manage, organize and assemble the materials.

Material Requirement Planning (MRP)

Need of MRP

For a Certain Time Period

01. Final Production Process is Complex

02. Value of Finished good is high

03. Long Lead Time

04. Production Cycle is too long

05. Composition is complex

Functions of MM

1. Production and Material Controlling (Stock Controlling)

2. Purchasing

3. Managing of Non-manufacturing stocks

4. Transportation

5. Material handling

6. Receipt

1. Product and Material Control:(Stock Controlling)

• The Production Manager sets production schedules for the future. Production schedules determine the

requirements for parts and materials. Production schedules are adjusted based on the orders received or the expected demand for the goods. Ensure that every type or part of a material is provided to keep the product running smoothly. (SC)

• Ex : BOQ , BOM

2. Purchasing

• The Purchasing Department has the power to make purchases based on requests issued by other departments. This department keeps agreements with suppliers and collects prices etc, on time. The department strives to procure quality goods at reasonable prices.

• Purchasing is a management activity that goes beyond the

simple purchasing process and includes planning and policy activities covering a wide range of relevant and complementary activities.

3. Handling of Non-manufacturing stocks

• Non-manufacturing materials such as office supplies, decaying tools and maintenance, repair and operational supplies are maintained according to non-business requirements. These non-product stocks may not be needed on a daily basis, but it

is essential to have them in stores. Lack of such non-productive stocks may lead to work stoppage.

4. Transportation

• Transporting goods from suppliers is an important function of material management. The Department of Traffic is responsible for organizing the transport service. Vehicles can be purchased for business, or these can be outsourced. It all depends on the

quantity and frequency of material purchases. The aim is to provide cheap and fast transportation for the arriving goods.

5. Material Handling:

• In a manufacturing company, the movement of the material is taken care of and the cost of handling the material is controlled.

It also appears that there is no material wastage or loss during their movement. Special equipment is

available for handling the material.

6. Receipt of Goods

• The Department of Acceptance has the responsibility of

unloading the goods, calculating the units, determining their quality and sending them to the stores. The Purchasing Department will also be notified

of the receipt of various items.

The 7 best MRP systems

• Netsuite

• Fishbowl

• IQMS

• JobBOSS

• SAP Cloud ERP

• InforVISUAL

• Odoo

Enterprise Resource Planning (ERP)

ERP provides the materials manager with some effective and necessary tools that help in the management of materials or other production resources. It has a

centralized database that simplifies workflows and reduces labor.

ERP was introduced after MRP when the organizations realized that it’s necessary to manage their office operations too.

What is SAP?

• SAP is one of the world’s leading producers of software

for the management of business processes, developing

solutions that facilitate effective data processing and

information flow across organizations.

How do you pronounce SAP? Not “SAP”. It is S-A-P

Inter Departments Relationship