1. Operations Management
Unit 5
Purchasing

2. V.Prabakaran, AP/MBA - Unit 5 - Purchasing
Purchase Management
In a narrow sense, the term ‘purchasing’ refers merely to the act of buying an item at a price
In a broader meaning of purchasing makes it a managerial, activity which goes beyond the simple act of buying and includes the planning and policy activities covering a wide range of related and complementary activities.
‘Procurement’
Some uses procurement instead of purchasing. The term procurement is broad in its meaning and covers the duties performed by the purchasing department as well as such additional functions of materials supervision and management as inventory control, receiving, incoming inspection and salvage operations.
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V.Prabakaran, AP/MBA - Unit 5 - Purchasing

3. V.Prabakaran, AP/MBA - Unit 5 - Purchasing
Objective:
The objective of the function is to ensure continuity of supply of raw materials, sub-contracted items and spare parts and at the same time reduce the ultimate cost of the finished goods.
The different parameter of purchasing are :
Purchasing items with right price
Purchasing items with right quality
Purchasing items with right time
Purchasing item from right source
Purchasing item of right quantity
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V.Prabakaran, AP/MBA - Unit 5 - Purchasing

4. Functions of Purchasing Dept.
Responsibilities often fully delegated to the purchasing function:
(a) Obtaining prices
(b) Selecting vendors
(c) Awarding purchase orders
(d) Following up on delivery promises
(e) Adjusting and settling complaints
(f) Selecting and training of purchasing personnel
(g) Vendor relations
2. Responsibilities often shared with functions other than purchasing function:
(a) Obtaining technical information and advice
(b) Receiving sales presentations and arranging for sales opportunities with interested personnel
(c) Establishing specifications
(d) Scheduling orders and deliveries
(e) Inspecting
(f) Specifying delivery method and routing
(g) Expediting
(h) Accounting
(i) Purchasing and market research
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V.Prabakaran, AP/MBA - Unit 5 - Purchasing

5. V.Prabakaran, AP/MBA - Unit 5 - Purchasing
Cont…
(j) Inventory and warehousing policy and control
(k) Forward buying and hedging policies and procedures.
(l) Construction contracting
(m) Service contracts and agreements
(n) Sale of scrap, salvage and surplus
(o) Purchasing for employees
(p) Contracting for machines and equipments
(q) Development of specifications
(r) Transportation and traffic
(s) Determination of whether to make or buy
(t) Customs
3. Responsibilities often divorced from purchasing but of particular interest to purchasing:
(a) Receiving and warehousing
(b) Payment of invoices.
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V.Prabakaran, AP/MBA - Unit 5 - Purchasing

6. V.Prabakaran, AP/MBA - Unit 5 - Purchasing
Purchase Cycle
Recognition of need
Description of need
Select the suitable source for the purchase
Determine the price and availability
Prepare the purchase order and sent out to the supplier
Accept the purchase order obtained from the supplier
Followup – Delivery date, time, late penalty
Checking the invoice and approve for payment
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V.Prabakaran, AP/MBA - Unit 5 - Purchasing

7. V.Prabakaran, AP/MBA - Unit 5 - Purchasing
Purchasing policies
Ancillary development
Make or buy situation
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V.Prabakaran, AP/MBA - Unit 5 - Purchasing

8. Ancillary development
The sub contractor is an ancillary unit
All the public sector undertakings of Govt. of India have been given a directive to look in the development of ancillary unit
The entrepreneurs should be given all the facilities for setting up such ancillary units and other facilities including land, electric power, water and necessary know how / managerial guidance
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V.Prabakaran, AP/MBA - Unit 5 - Purchasing

9. V.Prabakaran, AP/MBA - Unit 5 - Purchasing
Cond…
Production process, equipment handling / selection and layout
Production aids like design, drawing, tooling & quality control procedure
Manpower planning
Production planning and control
Management aids like cost-accounting, industrial engineering & marketing
Sourcing of finance and obtain them
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V.Prabakaran, AP/MBA - Unit 5 - Purchasing

10. Advantages & Disadvantages
It results in spread of entrepreneurial base
It promotes industrial development
Regular supply of materials to the prime / parent company
Difficult – product modification
Job allocation for the prime company employee is difficult
May be abused
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V.Prabakaran, AP/MBA - Unit 5 - Purchasing

11. Role of purchase manager
The decision to make or buy is normally taken by the committee comprising of representatives from production (needs and capacities), accounting (cost), engineering (quality and suitability) and purchasing (cost comparison)
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V.Prabakaran, AP/MBA - Unit 5 - Purchasing

12. V.Prabakaran, AP/MBA - Unit 5 - Purchasing
Speculative buying
Forward buying – is the practice of buying materials in a quantity exceeding current requirement but not beyond foreseeable requirements
Speculative buying – takes place where profit is sought to be made by buying at low price and selling at high price
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V.Prabakaran, AP/MBA - Unit 5 - Purchasing

13. Supplier Evaluation & Selection
One of the most important processes performed in organizations today is the evaluation, selection and continuous measurement of suppliers.
Selecting a vendor is now as important a process as developing new products.
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V.Prabakaran, AP/MBA - Unit 5 - Purchasing

14. V.Prabakaran, AP/MBA - Unit 5 - Purchasing
Cond…
Supplier selection process is a multi-criteria problem, which includes both qualitative and quantitative factors.
Purchasing commands a significant position in most organizations sincepurchased parts, components, and supplies typically represent 40 to 60 percent of the sales of its end products.
Thus relatively small cost reductions gained in the acquisition of materials can have a greater impact on profits.
Suppliers have a large and direct impact on the cost, quality,technology, and time-to-market of new products.
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V.Prabakaran, AP/MBA - Unit 5 - Purchasing

15. V.Prabakaran, AP/MBA - Unit 5 - Purchasing
Cond…
Organization’s ability to produce a quality product at a reasonable cost and in a timely manner is heavily influenced by its suppliers’capabilities.
Supplier selection is one of the key issues of SCM because the cost of raw materials and component parts constitutes the main cost of a product Management.
A sound supplier selection decision today can reduce or prevent a host of problems tomorrow
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V.Prabakaran, AP/MBA - Unit 5 - Purchasing

16. V.Prabakaran, AP/MBA - Unit 5 - Purchasing
Thanks..
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V.Prabakaran, AP/MBA - Unit 5 - Purchasing