PRODUCTION MANAGEMENT AND MATERIAL MANAGEMENT

TOPIC:PURCHASE OF CAPITAL EQUIPMENT

By, Ankit Kanojiya Roll No.94 SYB.M.S

CAPITAL EQUIPMENT:Definition: Equipment that you use to manufacture a product, provide a

service or use to sell, store and deliver merchandise. This equipment has an extended life so that it is properly regarded as a fixed asset.

TYPES OF CAPITAL EQUIPMENT: Power Generating Equipment

Machine Tools. Ground Support Equipment

CAPITAL EQUIPMENT PURCHASE The purchase of Capital equipment differs substantially from the purchase of production materials, supplies, or services. For Example :- Specialized production machinery, pumps, PCs, chemical processing equipment, conveyors, material handling trucks, office furniture, etc. are typical examples. For accounting purposes most firms classify these items as concurrent assets, which are capitalized and depreciated over the course of their economic lives. The Purchase of the Capital Goods is usually is planned in the days of the Prosperity and when Production and sales is rise is projected. The manufacturing and related departments are generally aware as to what they want for progress and to enhance the capabilities. They are waiting signal from the seniors to start. These people know the makes and Specifications. Users department which is manufacturing department does mainly the study of equipment or it may be under the area general management. That means till the time the Equipment is not there the work was going on. The purchase department has a chain of activity .The activities go hand in hand

Before a purchasing decision is made for capital items, follow these basic background procedures:-

Step 1: Determine a need. Step 2: Consider the budget. Step 3: Investigate options. Step 4: Consult with others in the organization. Step 5: Obtain price quotations. Step 6: Make a decision
Benefits from an equipment purchase may result from things like: Improved service or an ability to support a new service model decreased labour requirements decreased expenditures in repairs of existing equipment Faster service to customers improved quality Compliance with regulatory requirements related to food safety or employee safety Payback (in cost savings) over a specified period of time.

Significant differences between Capital Equipment and other items or services: One-time purchases Typically, these purchases occur only on a non-recurring basis, Lead Time Requirement While some of them are off-the-shelf items, most are not. Where these are customised, and needed to operate in specific conditions, Nature and size of expenditure Since the size of the expenditure for such equipment is normally very huge, it is a matter of significant concern to top management. The purchase price is further overshadowed in importance by other elements of cost. Paradoxical Situation The timing of capital purchase often presents a "paradoxical" situation. When the purchase business is good, the need for capital equipment is greater, and it may be that the other purchasers of the same or similar equipment are in the same situation. When this is the case, demand being high, one may find capital equipment price rising in a market of short supply. Conversely, when the business generally is poor, whereby organizations do not go for buying of fresh capital equipment, the equipment may be in plentiful supply, often at reduced prices. Availability of Sources Since many of the requirements of major equipment are specific and typical for different types of industries, the number of suppliers available is also very few Considerations in Source Selection The Buyer, when purchasing capital equipment, should keep in mind in source selection, the following considerations: Operating characteristics These features and capabilities can differ markedly among the machines available from different vendors. For this reason, the number of vendors willing to produce a machine capable of meeting every aspect of a purchaser's operating requirements is frequently limited. Source selection is thus limited, as compared to buying materials and items.

 Engineering features Compatibility with the buyer's existing equipment, process and layout are factors that need to be considered, and, they must also be in accordance with standards established by Regulatory Agencies. A few engineering considerations are noted below: Specific process capabilities Physical size and mounting dimensions Flexibility for movement Power requirements Maintenance (e.g. any extra programs essential? Safety features Pollution characteristics Finding a Supplier for Equipment To find a supplier, a dietary manager can use any of the following Local equipment suppliers. A local supplier may be able to identify options and explain the differences among them. In some locales, there may be a showroom where you can examine actual equipment. The Internet. Major manufacturers of equipment offer considerable product information on Web sites. Many also offer contact information for a dealer or representative in your own area who may be able to help you. Web sites catalog products from various suppliers. Interactive tools may allow you to request specifications by fax, or retrieve them directly from the Web site. Colleagues. It is also valuable to discuss equipment needs with colleagues, and obtain feedback and ideas about both specifications and products

Selecting Capital Equipment:

To make a decision about an equipment purchase, you can review a number of factors. These include: Suitability for intended use. Since a wide range of equipment products is available for almost any purpose, its important to consider the suitability of each product. Equipment that is appropriate for the needs of one operation may not be suitable for another. Suitability issues include how well the equipment can perform the required job. They also include the volume of work a piece of equipment can handle, compared with your own productivity requirements. For example, for a pizza oven, you need to consider how many pizzas you will need to cook at a time to meet service requirements, and how long it will take to cook them. Specified equipment must accommodate the load, as well as any anticipated increases in volume. Ease of operation. Equipment should be as easy to use as possible, requiring minimal steps for operation, and providing a user-friendly design. To evaluate this, its wise to test equipment, and involve employees who will be using it. Durability and warranty. It is necessary to confirm that the product will stand up to its intended use. For continued and intensive use, equipment must be designed to withstand the load. Warranty provides some indication of durability, as well as financial protection if the product cannot withstand use. Study a warranty carefully to determine any conditions that apply. Review what is and is not covered by the warranty, and whether service charges may apply

 Construction Closely aligned with durability is the integrity of the equipments construction. Seals of approval from the National Sanitation Foundation International, Underwriters Laboratories (for electrical equipment), and/or American Gas Association (for gas-operated equipment) are important considerations which impact the value of a proposed piece of equipment. Sanitation and safety controls. Equipment being considered must be safe to operate and must lend itself to sanitary food production. Therefore, equipment must be easy to clean and safe to operate and these concerns must be high on the list of selection factors. Compatibility with existing equipment. It is important that equipment work with other items currently available. For example, trays being purchased must fit into existing carts, and attachments for electric mixers must fit existing equipment. As applicable, be sure equipment being purchased will fit into available space, integrate into existing structures and utility systems, and move through existing doorways Assistance provided before and after purchase. Before a purchase, some suppliers provide design analysis,technical analysis, creative suggestions, and a plan for operational integration. After a purchase, suppliers may provide delivery, installation, on-site testing, demonstration, training, and maintenance. Evaluate and clarify tasks such as these. In cases where a supplier is not providing these services, it is also important to determine how each will be accomplished, and what costs will be incurred. Price. A detailed clarification of price incorporates the items above. In comparing prices from alternate suppliers, be sure you are comparing a bottom- line figure that reflects all associated costs.

 Operating cost. This is different from price, but is critical in the evaluation of what a piece of equipment will cost. Operating costs include the cost of energy to use the equipment, as well as the price of supplies. Some equipment uses proprietary, disposable supplies, available only from the manufacturer. Pricing for such supplies must be evaluated carefully. To analyze costs, it can be useful to project supply costs over a period of one year. Service and reputation. As ultimate success with a purchase depends on a suppliers reliability in meeting commitments, and the quality of service provide.. After looking at the factors above the further are as follows: Get management sanctioned for the indent Negotiation, Purchase and Follow-up The buyer assumes his customary responsibility for negotiating the final price, delivery, and related terms of the contract. The purchase order should be written with particular care, specifying the responsibility of both parties for equipment performance and post sale activities. Performance standards, inspection methods, and guarantee conditions should be clearly stated. Similarly, vendor responsibility for post sale services pertaining to installation, start up, operator training, maintenance checks, and replacement parts should be clearly written so that there is no question about what is expected. Make the payment and inform the accounts department about closing the sanctioned budget.