Supplier Selection

Market Exploration Supplier Selection- Sources like Trade Journals, Catalogues, Directories, Industry Directories, Mil Standards, Customer Nomination basis, Govt. Nominated sources, Drawings etc Supplier Registration- Technical, Finance Performance, Quality Standards, Credentials from Customers etc, Vendor Development- Providing support like technical, process, tools, drawings and financial assistance in the form of advance payment. Vendor Evaluation: Categorical method, Weighted-Point Plan and the cost-ratio method Key factors like Delivery, Price, Quality, After Sales Service etc,

Purchasing Strategies and Practices: 1.Make / Buy decisions - Outsourcing Vs In sourcing 2. Single/Proprietary buying and Multiple source buying 3. Centralized buying and De-centralized buying 4. Direct buying and Purchases through Tendering 5. Supplies emanates out of Inter-Governmental Agreements 6. Long Term Business Agreements (LTBA) 7. Petty purchases 8. Spot purchases 9. Joint Ventures(JVs) 10. Director General of Supplies and Disposals(DGS&A) rate contracts

Single Source Buying Vs Multiple Source Buying

Proprietary Purchases Cost may not be competitive Negotiation becomes difficult/ Not possible Delay in supplies leads to Time overrun and cost overrun Quality can be improved Suppliers are treated as business partners/relationship can be improved Issues related to dependability needs to be considered

Competitive Purchases Cost competitiveness is ensured Negotiation very much possible Delays can be avoided Variation in quality of supplies is possible Suppliers are treated on Commercial angle Since more than one source is available dependability not an issue

Centralized buying Vs De-centralized buying

Preferred for common items through consolidation Price discount is possible Development of alternate source is possible considering quantities. Indigenization is possible /more meaningful Possibility of Transfer of Technology (ToT) can be explored Best suited for high value / technology driven items

Preferred for unique items Price discount may or may not be possible Development of alternate source may not be viable. Indigenization may not be possible / effective Decision on ToT is difficult. Best suited for varied products enviroment.

Types of Tenders and Bidding Systems

Types of Tenders Single /Proprietary Tenders Limited Tenders Open Tenders Global Tenders Pre-qualification Tenders Expression of Interest (EoI)

Bidding Systems Single bid Two bids Three bids Earnest Money Deposit(EMD) Performance Bank Guarantee(PBG) Security Deposit

Negotiations

Process through which all clarifications w.r.t technical, commercial etc are sought out both buyer and prospective supplier. It should not be a platform for either insulting or complaining each other. Negotiating means conferring, discussing or bargaining to reach agreement in business transactions. The Negotiation sessions are: i) Planning for negotiations- Preparation of Agenda ii) Pre-negotiation General business talk, simple straight forward approach as per the agenda iii) Negotiation process iv) Post-negotiation

Negotiation is a process of planning, reviewing, and analyzing used by a buyer and a seller to reach acceptable agreements or compromises. Key objectives of Negotiation: To obtain the quality specified To obtain a fair and reasonable price To set the supplier to perform the contract on time

Negotiating Techniques

i) The Bogey: Describes a tactic whereby a buyer tells a seller that they likes the product, but that Rs.50,000/= is all that can be paid. ii) Take it or Leave it: Describes a tactic whereby the buyer sets the seller know that they are firm on an issue and will not move further. Iii) Best And Final Offer: Describes a risky tactic (also known as the door knob price) that can either help or hinder bargaining power, depending on how it is applied. Iv) Concessions: Refers to the tactic of dropping some demands to produce gains in other areas.

ORDER PROCESSING

Receipt of quotations Identification of the Lowest Price (L1) Preparation of draft Purchase Order Obtaining Financial concurrence / scrutiny Putting up for CFAs approval Divisional approval / recommendation Complex recommendation Corporate Office approval Procurement Sub-Committee (PSC) approval Board approval Government approval wherever required.

Professional Ethics in Supply Management

Reciprocity- Trade relations ( By giving preference to some suppliers) Compliance to stipulated procedure (Purchase Manual / OSM) Transparent and openness Fair and courteous treatment of suppliers Integrity Being honest and upright in character No conflict of interest Focus on value for money Recording all meetings, documentation and file maintenance Seek approval for Competent Financial Authority (CFA) Dealing only with OEMS/ Dealers, Stockiest etc should be avoided No personal agenda / only organizational objectives

Seasonal Purchase
Concern areas: i) The available warehousing facility ii) The amount of liquid capital at hand. Purchasing policies: i) Conservative policy ii) Hindsight policy

Determining the optimal purchasing strategy

Division of time Planning horizon Known demand for all the periods No shortages are allowed No shortage cost has been assumed Only one price offer in a period No supply restrictions Prices fluctuate randomly and are independent of each other. Delivery is known and assumed to be instantaneous Stock once bought can not be resold.

Purchasing of capital goods

Key features: i) Non-repetitive ii) High value iii) Involves depreciation over the period of economic life. Differences: a) Extent of negotiations b) Lead time requirements c) Size of the expenditure d) Availability of sources

Considerations in evaluation of bids

Operating characteristics and the Engineering features Economic Analysis of the investment i) Payback period approach ii) Return on Investment (RoI) approach iii) Internal Rate of Return(IRR) iv) Discounted Cash Flow (DCF) Qualitative considerations: Reliability, soundness of the supplier, and operations and services rendered by the suppliers such as demonstration service, installation, and commissioning, after sales service, replacement of parts etc.

Comparison between Purchase and Lease

Purchase
Long term measure Involved in technology stable areas. Installation, commissioning, transportation cost etc are the responsibility of the supplier Asset/depreciation Purchaser is the full owner.

Lease Short term measure Best suited for less efficient piece of equipment Lessee is responsible for everything. Tax benefits Lesser retains full control of the equipment and not the lessee.

Deferred Payment Scheme(DPS)

The deferred payment scheme(DPS) allows approved importers to defer the payment of customs charges (including GST) accounted for on customs import entries. All charges that are accounted for on customs import entries can be deferred: i) Customs duty ii) GST iii) Import entry transaction fee Deferral of the payment of customs charges for up to 7 weeks with a minimum period of 3 weeks.

Importer can settle one months transactions with a single payment.

Problem:
A company wishes to buy a Capstan Lathe at an initial cost of procurement of Rs. 1,00,000. The M/C has an useful economic life of 10 years and will face a salvage value of Rs.5000 at the end of 10 years. The expected return is Rs.1,20,000 for 10 years. The company has alternative investment opportunity which will bring profit of 10% annually. Should the company buy the lathe?.

Module 4 Stores Management

The responsibility of the store-room manager is to maintain an efficient ,smooth running ,economical operation and give service to the plant. To do this, he must so arrange his stock that is readily available and in good condition and he must maintain an adequate staff to do the work required at a good space(Robert W.Bosler)

Stores ManagementContinued
The function of stores control is perhaps the least glamorous of all aspects of materials management and is yet so necessary and important (Gokaran). The storage of materials as one system can tell whether and to what extent lower manufacturing cost and compensate for higher inventory costs (Peter F.Drucker).

Storage System
Classified systems approaches: - The receipt system - Physical upkeep - Maintenance system Storekeeping - Saving them from all kind of damages and losses - Exercising over all control their movement.

Objectives of Storekeeping / Storage System

Minimization of cost of production Providing efficient service Establishing coordination between the various departments of the organization Advising the management

Advising Management
Physical verification and valuation Inspection Replenishment Obsolescence Disposal of scrap

Functions of Storekeeping / Storage System

Receipt of materials---- A proper record shall be maintained for all receipts. Storage & preservation---- Maintenance of space, minimum labor, physical verification 7 value of stores. Record-keeping----Maintenance of records Issue of materials----Materials are issued on proper authorization and requisition as and when demanded.

Factors underlying successful Storekeeping

Location /situation of storehouse Layout of the storehouse Records Preservation Verification and valuation Management

Benefits of successful Storekeeping

Avoiding unnecessary delay and confusion Smooth running by providing the materials on timely manner Blocking of capital through overstocking is avoided Hold-ups and delays are avoided by ensuring against understocking Physical verification and valuation Accounting for materials Minimizing wastages Availability of information To have a better cost control by ascertaining the cost of storage and cost of production.

Casher Vs Storekeeper
Casher Storekeeper

To receive and make payments To keep a proper record of all the receipts and payments together the authorizations Safety of cash Exercise control over the cash in possession

Receives and issue the materials Maintains a complete record

Safety of material

Exercise Control over the materials

A GOOD STORE LAYOUT

Aims for Maximum utilization of the available space Greater efficiency of the stores department Easier accessibility to all the materials Security of all the materials carried and records maintained. Greater economy and use of lesser time in receipt, movement, placement and issue of materials Minimization of spoilage, damage and other kinds of losses.

Stores Equipments
Steel vs wooden equipments Racks Containers Measuring equipment Ladders and steps Cleaning equipment

Shelving (open/ closed type) Trays Pigeon hole cupboards Pallets Trays Tote boxes

Types of Store Depots /House

Main or Central Stores Depot Sectional or Branch Stores Depot Tool Stores Depot Warehouses

Main or Central Stores Depot

Main functions: To receive all the materials, tools, equipment etc, To issue the material to sectional or branch stores depot, tools to tool depots and equipments to various departments To take steps for the replenishment of stock

Advantages and Disadvantages

Sectional or Branch Stores Depot

The main stores depot issues the materials to the sectional stores depots for a certain period, say on weekly basis or monthly basis The sectional or branch stores depots are located in each section, unit, branch etc This depot , in turn draws its requirement from the main or Central Stores Depots

Tools Stores Depot

This store is responsible for issuing tools, spare parts and other accessories to different sections in general and production department in particular. The tools are drawn from the main store once and then they are issued by the stores depots as and when required by the departments.

Warehouses
Warehouses are the godowns which take the responsibility of keeping and storing goods and providing ancillary services in order to help the small and medium sized traders and manufacturers who, because of technical and economic reasons may not like to have their own store house.

Types of Warehouses: Ordinary warehouse and Bonded warehouse.

Why do we need Layout Design?

The goal of warehouse layout design is to optimize warehousing functions and achieve maximum efficiency and space utilization. Areas: Reserve storage, forward pick up, cross docking, shipping, receiving, assembly special handling lines and quality inspection area.

Key principles of Layout and operation of warehouse system

Using the most suitable unit load Making the best use of space Minimizing movement Controlling movement and location Providing safe, secure and environmentally sound conditions Maintaining at minimum overall operating cost.

Factors affecting warehouse layout and planning

Inside factors
Flow of goods in the warehouse (U flow or Through flow)
Movement of people and equipments

Outside factors
Size & configuration of site
Site access

Access to stock & minimizing congestion

Stock replenishment Handling of goods in and out of the warehouse Supervision, safety and stock security

Local authority plans

Site details Financial considerations Building factors

Layout models
Two main approaches of the plan of material flows i.e, U flow and Through' flow. U flow: Occurs when the goods receipt and dispatch functions are located at the same end of a warehouse building. Advantages: Excellent utilization of dock resources, facilitating cross docking and yields excellent security Best suited for Cross Docking.

Layout models.Continued
Through flow layout: Through flow happens when separate loading bay facilities for outbound and shipping are provided, often at opposite end of warehouse. Disadvantages: Goods need to travel the full length of the warehouse, even for goods that have a higher throughput level. It is difficult to control the movement and also less flexible.

Costing of Issues to Production

Details
Rising price levels: Cost of materials issued Cost of inventory levels at the end of a period Falling price levels: Cost of materials issued Cost of inventory levels at the end of a period High Low Medium Medium Low High Low High Medium Medium High Low

FIFO

Average Method

LIFO

Stores Procedures and Records for Receipt, Inspection, Issue

We live in a world where the future is uncertain and the accountant is reporting events of the past (Harold Bierman Jr.) Stores accounting refers to the mathematical process which reveals the quantity, quality and value of stores carried and preserved in a storehouse on a given date relating to a specified period. Past experience, errors, reconciliation etc.

Stores Recording and Documents used

Receipt of Materials Materials Receipt Book / Receipt Note (GRN) Daily Receipt Voucher Package Slip Bin Card Stock Ledger Stock Identification Card / Tags

Inspection of Materials
Purchase Order(PO) Daily Receipt Voucher Inspection Note / Inspection Cum Receiving Report (ICRR) Rejection Note Bin Card Stock Ledger Stock Identification Card

Issue of Materials
Materials Requisition Slip / Stores Requisition(SR)

Bin Card Gate Pass Stock Ledger Stores Advice Note

Verification of Stores
Stock-taking Sheet Stock Valuation Sheet Bin Card Materials Transfer Sheet / Inter Unit Stock Transfer (IUST) Materials Return Note Stock Ledger

Materials Control
Stock Day Sheet Stock Ledger Card Kardex Card Stock Day Card: This is a statement prepared daily by the stores dept for submission to the management giving the daily operations. It also helps in ascertaining the activities of the stores dept.

Materials ControlContinued Stock Ledger Card: Provides information on stock position on daily basis and activities of stores dept. Kardex Card : It is a card used for materials control in a stores dept. It offers knowledge of up-to-date stock position and the action taken in connection with its replenishment, when ever any necessity arises.

Kardex offers a wide range of automated storage and retrieval solutions, each designed to increase productivity and maximize on floor space, allowing companies to become more competitive in their daily operations. Kardex has designed, manufactured and installed more than 140,000 solutions across a broad spectrum of industries.

Module 5 Practical problems in MM

Dead stocks, surplus stocks and scraps Systems & Procedures for disposal and control Materials Handling and Transportation Management- Case Studies Evaluation of MM performance.

Obsolete, Surplus and Scrap Materials

Obsolete: Items are those materials and equipment which are not damaged and which have economic worth but which are no longer useful for the companys operation owing to many reasons such as changes in product line, process, materials and so on. Surplus: Items are those materials and equipment which have no immediate use but have accumulated due to faulty planning, forecasting and purchasing. However, they have a usage value in future.

Obsolete, Surplus and Scrap MaterialsContinued

Scrap: Items generated due to process wastages, residues, flashes, borings, etc. They may have end use within plant sometimes, otherwise they have a market value. Reasons : Changes in product design Rationalization Cannibalization Faulty planning and forecasting

Obsolete, Surplus and Scrap MaterialsContinued

Reasons.. Faulty purchase practices Other causes Non-moving items Scrap and disposal procedures

Write-Off and Disposal

Reasons for disposal Is there any alternative usage in other section or outside organization? If it is defective material, then can it be salvaged and used? Has there been any effort to return it to the vendor? How and who accepted it during inspection? What was the last purchase qty and date and stock held then? What action has been taken to prevent recurrence of similar nature?

Write-Off and DisposalContinued

What is the estimated price of the item as is where is condition? What are the comments of users, finance, audit and disposal committee with regard to the above?.

Materials Handling
The movement of materials (or things) is a wasteful and expensive activity..though objectively it is a technical business function( Ralph Sims, Jr). Materials Handling is the art of preparing, placing, positioning and moving the materials with ease, speed, economy and safety.

Materials Handling..Continued
Materials Handling is the art and science involving movement, packaging, and storing of materials in any form by means of gravity, manual effort or power actuated machinery( American Materials Handling Society). 30-40% materials handling cost is added to production cost. 50% of handling time is added to production time.

Importance of Materials Handling

Cost and time of materials handling can be reduced to a greater extend by adopting a sound system of materials handling procedure. It also ensures the following: Reduction in accidents Elimination of manual labor and greater job satisfaction Reduction in inventory of WIP Increase in production.

Guidelines for cost reduction in a Materials Handling System.

Reduce materials handling to its minimum Logical sequence of operations Conserve power and fuel Consult materials management department Proper selection of handling equipments Minimize the breakdown of equipments Have maximum weight of units load Minimize non-productive handling operations Avoid wasteful movements Centralized storekeeping Ensure coordinated efforts.

Evaluation of MH System
Materials Handling Time Ratio (MHTR) Materials Handling Labor Ratio (MHLR) Materials Handling Cost Ratio (MHCR) Materials Handling Direct Labor Loss Ratio (MHDLLR) Materials Movement Operation Ratio or MMOR

SUPPLY CHAIN MANAGEMENT. The process of planning, organizing, and controlling the flow of materials and services from suppliers to end users / customers. This Integrated approach incorporates suppliers, supply management, integrated logistics and operations (Russell Morey,1997)
Primary logistics activities Transportation Facility Structure Inventory Material Handling Py. Service response logistics activities Waiting time Capacity Delivery

Communication and Information

SCMContinued.
Integrated Logistics When logistics activities and service response logistics operate in conjunction with each other, they become Integrated Logistics. Logistics includes: - Transportation - Shipment of goods - Inventory - Warehouse management

TRANSPORTATION

Key factors(Slater,1990,Gattorna & Watters,1996) - Company characteristics - Product characteristics - Customer characteristics - Market structure - Environmental issues Ranking of various modes of transportation
High Low

Cost Speed Dependability Capability Fuel efficiency Loss or damage

Air Air Road Road Water Water

Water Water Water Air Air Rail

Characteristics of different modes of transportation

Mode of Transportation
Rail Trucking Air

Characteristics
Low value, high density, bulk products, raw materials, inland containers Small loads, point to point service flexible, more reliable, less damage, more expensive More expensive and fastest mode of freight transport, light weight, small packages, high value, perishable critical goods, less theft

Package delivery

Small packages, fast and reliable, Increased with ebusiness, primary shipping mode for internet companies like Amazon, Dell Computers
Combines several modes of shipping, truck, water and rail, containers Transport oil and products in liquid form, high capital cost, economical use, long life and low operating cost

Intermodal Pipe line