Essential Procurement and Inventory Management Principles
Impact of Purchase Volume Failures
Failures in purchase volume can lead to significant disruptions in production.
Essential Written Purchasing Policies
To achieve organizational goals, purchasing policies should address:
- Power Supply: Ensuring a continuous flow of required materials.
- Specifications: Establishing acceptable characteristics and tolerances for goods.
- Price and Quality: Guidelines that balance cost with desired quality standards.
- Research and Development: Seeking new products or improving existing ones.
Consequences of Excess Purchase Volume
Excessive purchasing leads to unsold inventory, material shortages, and increased carrying costs.
Inventory Control Methods
- Maximum and Minimum: Used for standard materials with stable prices and high-volume usage.
- Goods and Equipment Controls: Systematic tracking of assets.
Key Procurement Policies
- Specifications
- Price and Quality
- Ethics
Benefits of Anticipated Purchases
Yes, anticipated purchasing is advisable as it mitigates uncertainty in obtaining volumes that could jeopardize future production.
The Material Purchases Budget
The budget involves formulating plans for a future period, expressed in numerical terms.
Economic Importance of Purchasing
Purchasing is vital because it directly impacts budget efficiency, material savings, and the prevention of operational shortages.
Financing Purchases
Financing is typically carried out through bank loans or, most commonly, by purchasing on credit from suppliers.
Functions of Materials Management
- Planning supplies and material control
- Production scheduling
- Reception
- Material research
- Storage
- Purchasing
- Plant material movement
- Traffic
- Quality control
- Inventory control
Interdepartmental Dependencies
The purchasing department relies on: Production, Marketing, and Finance.
The Bidding Process
The process includes: Sources of funding, selection of bidders, the bidding process itself, and the equipment selection process.