TQM 2

Need for Selecting a suitable location choice for the first time or new organization

When starting a new organization, location choice for the first time

-Identification of regions

-Choice of a site within a region

In case of existing organization

-Plant manufacturing distinct products

-Manufacturing plant supply to specific market area

-Plant divided on the basis of the process or stages in manufacturing

-Plant emphasizing flexibility

In Case of Global Location

-Virtual Proximity

-Virtual Factory

I.in case of location choice for the first time or new organizations

-Cost economies are always important while selecting a location for the first time, but should keep in
mind the cost of long term business/organizational objectives. The following are the factors to be
considered while selecting the location for the new organization

1.Identification of Regions- The organizational objectives along with the various long term
considerations about marketing, technology, internal organizational strengths and weaknesses, region
specific sources and business environment, legal governmental environment, social environment and
geographical environment suggest a suitable region for locating the operations facility.

2Choosing of a site within a region- Once the suitable region is identified, the next step is choosing the
best site from an available set. Evaluation of alternative sites for their tangible and intangible costs will
resolve facilities-location problem.
When starting a new factory, plant location decisions are very important because they have direct
bearing on factors like, financial employment and distributions pattern. In the long run, relocation of
plant may even benefit the organization. But the relocation of the plant involves stoppage of production,
and also cost for shifting the facilities to a new location.

II.in case of location choice for existing organization

-In this case a manufacturing plant has to fit into a multi plant operations strategy. That is, additional
plant location in the same premises and elsewhere under following circumstances

1.Plant manufacturing distinct product- Each plant services the entire market. This strategy is necessary
where the needs of technological and resource inputs are specialized or distinctively different for
different product lines.

E.g a high quality precision product line should not be located with other product line requiring little
emphasis on precision. It may not be proper to have too many contradictions such as sophisticated and
old equipment, highly skilled and semi skilled personnel, delicate processes and those that could permit
rough handlings, all under one roof.

2.Manufacturing plant supplying to specific market are- Each plant manufactures almost all of the
company’s products. This type of strategy is useful where the market proximity considerations
dominates the resources and technology considerations. This strategy requires great deal of coordination
from the corporate office. An extreme example of this strategy is that of soft drinks bottling plants.

3.Plant divided on the basis of the process or stages in manufacturing- Each production process or stage
of manufacturing may require distinctively different equipment capabilities, labor skills, technologies,
and managerial policies and emphasis. Since the products of one plant feed into the other plant, this
strategy requires much centralized coordination of the manufacturing activities from the corporate office
that are expected to understand the various technological aspects of all the plants.

4.Plant emphasizing flexibility- This requires much coordination between plants to meet the changing
needs and at the same time ensures efficient use of facilities resources. Frequent changes in the long
term strategy in order to improve be efficiently temporarily, are not healthy for the organization. In any
facility location problem, the central question is: Is this a location at which the company can remain
competitive for a long time?

III.in case of global location

1.Virtual Proximity- With the advance telecommunication technology, a firm can be in virtual proximity
to its customers. For a software services firm much of its logistics is through the
information/communication pathway. Many firms use the communication highway for conducting a
large portion of their business transaction. Logistics is certainly an important factor in deciding on a
location—whether in the home country or abroad. Markets have to be reached. Customers have to be
contacted. Hence, a market presence in the country of the customer is quite necessary.

2.Virtual Factory- Many firms based abroad in the service sector and in the manufacturing sector often
out sources part of their business process to foreign location such as the Philippines. Thu, instead of
one’s own operations, a firm could use it’s business associates operations facilities.

Plant Layout- refers to physical arrangement of production facilities. It is the configuration of

departments work centers and equipment in the conversion process. It is a floor plan of the physical
facilities, which are used in production.

According to Moore “Plant layout is a plan of an optimum arrangement of facilities including personnel,
operating equipment, storage space, material handling equipment and all other supporting services
along with the design of best structure to contain all these facilities.

Objectives of Plant Layout

-The primary goal of the plant layout is to maximize the profit by arrangement of all the plant facilities to
the best advantage of manufacturing of the product.

The objectives of plant layout are:

1.Streamline the flow of material through the plant

2.Facilitate the manufacturing process

3.Maintain high turnover of in-process inventory

4.Minimize materials handling and cost

5.Effetive utilization of men, equipment and space

6.Make effective utilization of cubic space

7.Flexibility of manufacturing operations and arrangements

8.Provide for employee convenience, safety and comfort

9.Minimize investment in equipment

10Minimize overall production time

11.Maintain flexibility of arrangement and operation

12.Facilitate the organizational structure

Factors influencing plant location/facility location

-factors which influence the plant location or facility location on the basis of the nature of the
organization as:

*General locational factors- which include controllable and uncontrollable factors for all type of
organizations

*Specific locational factors- specifically required for manufacturing and service organizations

Location Factors two category

1.Dominant Factors- derived from competitive priorities(cost, quality ,time ,flexibility) and have a
particularly strong impact on sales or costs.

2.Secondary Factors- also important but management may downplay or even ignore some of them if
other factor are more important

Location models

1.Factor rating method

2.Weighted factor rating method

3.Load distance method

4.Cetre of gravity method

5.Break even analysis

Layout- configuration of departments, work centers, and equipment, with particular emphasis on
movement of work (customers or materials) through the system. Answer the questions on how
equipment, machinery, and people will arranged to make production process as efficient as possible.

Why decision layout are important

-they require substantial investments of money and effort

-they involve long term commitments which makes mistakes difficult to overcome

-they have significant impact on cost and efficiency of operations

Layout Design

Basic objective: To facilitate a smooth flow of work, material, and information through the system

Supporting objectives:

-Facilitate product or service quality

-Use workers and space efficiently

-Avoid bottlenecks

-Minimize material handling costs

-Eliminate unnecessary movement of workers or materials

-Minimize production time or customer service time

-Design for safety

Product Layouts- layout that uses standardized processing operations to achieve smooth, rapid, high
volume flow. This often used for repetitive processing (repetitive or continuous). High volume of
standardized goods is produced efficiently by people, equipment, or departments arranged in series of
workstation

Advantage:
-High rate of output

-Low unit cost

-Labor specialization

-Low material handling cost per unit

-High utilization of labor and equipment

-Established routing and scheduling

-Routine accounting, purchasing, and inventory control

Disadvantage:

-Create dull repetitive jobs

-Poorly skilled workers may not maintain equipment or quality of output

-Fairly inflexible to changes in volume or product or process design

-Highly susceptible to shutdowns

-Preventive maintenance, capacity for quick repair and spare parts inventories are necessary expenses
-Individual incentive plans are impractical

Process Layouts- layouts that can handle varied processing requirements. These are used for intermittent
processing- a discontinuous workflow. This is applicable to job hop and batch processing. These are
occasionally called as functional layouts because the process is designed such that operations of similar
nature or function are grouped together.

Advantage:

-Can handle a variety of processing requirements

-Not particularly vulnerable to equipment failures

-General purpose equipment is often less costly and easier and less costly to maintain

-It is possible to use individual incentive systems

Disadvantages:

-In process inventory can be high

-Routing and scheduling pose continual challenges

-Equipment utilization rates ae low

-Material handling is slow and inefficient

-Reduced spans of supervisions

-Special attention necessary for each product or customer

-Accounting, inventory control, and purchasing are more involved

Product Development Process

1.Idea Generation- systematic search for new product ideas.

Two Source of New idea

*Internal idea source- company finds new ideas internally. Means r/d, nut also contributions from
employee.

*External idea source- company finds new idea externally. Refers to all kinds of external sources.
Distributors, suppliers, but also competitors, the most important external source are customers. Because
the new product development process should focus on creating customer value
2.Idea Screening- Filtering the ideas to pick out good ones. The purpose of idea generation was to create
large number of ideas, the purpose of succeeding stage is to reduce that number.

3.Concept development and Testing- To go on in the new product development process, attractive ideas
must be developed into a product concept. A product concept is a detailed version of the new product
idea stated in meaningful consumer terms.

You should distinguish:

*A product ideas is an idea for possible product

*A product concept as a detailed version of the idea stated in meaningful consumer terms

*A product image the way consumer perceive an actual or potential product.

4.Marketing Strategy Development- When promising concept has been developed and tested, it is time
to design an initial marketing strategy for the new product based on the product concept for introducing
this new product to the market.

The marketing strategy statement consist of three parts and should be formulated carefully:
*A description of the target market, the planned value proposition, and the sales, market share and
profit goals for the first few years.

*An outline of the product’s planned price, distribution and marketing budget for the first year

*The planned long term sales, profit goals and marketing mix strategy

5.Business Analysis- Once decided upon a product concept and marketing strategy, management can
evaluate the business attractiveness of the proposed new product. The fifth step in the development
process involves a review of the sales, cost and profit projections for the new product to find out
whether these factors satisfy the company’s objectives. If they do, the product can be moved on to the
product development stage.

6.Product Development- New product development process goes on with the actual product
development. Up to this point, for many new product concepts, there may exist only a word description,
a drawing or perhaps a rough prototype. But if the product concept passes the business test it must be
developed into a physical product to ensure that the product ideas can turned into a workable market
offering. The problem is though, that at this stage R/D and engineering costs cause a huge jump in
investment.

The R/D Department will develop and test one or more physical version of the product concept.
Developing a successful prototype, however, can take days, weeks, months or even years, depending on
the product and prototype methods.
7.Test Marketing -Last stage before the commercialization in the new product development process is
test marketing. In this stage of the new product development process is test marketing. In this stage of
the new product development process, the product and its proposed marketing program are tested in
realistic marketing setting. Therefore, test marketing gives the marketer experience with marketing the
product before going to the great expense of introduction.

Test marketing has given the management the information needed to make the final decision : launch or
do not launch the new product

8.Commercialization- Commercialization means nothing else than introducing a new product into the
market. At this point the highest cost are incurred: the company may need to build or rent a
manufacturing facility. Large amount may be spent on advertising, sales promotion and other marketing
efforts in the first year.

Factors to consider before the product is commercialized:

*Introduction Timing- For instance if the economy is down, it might be wise to wait until the following
year to launch the product. However, if competitors are ready to introduce their own products the
company should push to introduce the new product sooner

*Introduction Place- Where to launch the new product? Should it be launched in a single location, a
region in the national market, or the international market? Normally companies don’t have the
confidence , capital and capacity to launch new products into full national or international distribution
from the start, instead they usually develop a planned market rollout overtime.

Purpose of Product Design

Is product design a creative designer fancy?

-In popular perception, the term designer conjures up images of a maverick yet highly creative artist who
in his fits of imagination comes up with a hitherto not seen product.

What is design without creativity in it?

-Indeed design are creative in nature and they should be so. However in organizational context, the
design should serve the organizational objectives while being creative. Since an organization has a
purpose, the product design should help to serve the larger purpose

Design starts with conceptualization which has to have a basis. Providing value to the customer, the
return on investment to the company and the competitiveness of the company should form the basis of
the product design effort. What separates a product designer from a freelance artist is the former’s
orientation toward these organizational objectives
A product design has tremendous impact on what materials and components would be used, which
suppliers will be included, what machines or what type of processes will be used to manufacture it,
where it will be stored, how it will be transported.

A product design reflects a company’s overall strategy. Product development and design is primarily
governed by management decisions with respect to quality and pricing policy. A development program
and a market survey can provide information as to market potentialities as well as functional,
operational dependability and durability requirements and possibilities. Selection of the functional scope
and application of standardization, simplification, and specialization principles are closely related to plant
efficiency and to its net profit and must therefore be an integral part of management policy.

Challenges in new product development

-Trade offs

-Product economics

-Global competition

-time pressure

-dynamic environment

Major bottlenecks in new product development

-Incredible complexity of new product

-Sheer volume of new product

-Increasing number of stakeholders in every product

Product Analysis Diagram- Many factors have to be analyzed in connection with development and
design, factors varying in character and complexity, factors affiliated with different fields in production
and industrial engineering

Some of these may be grouped as follows:

1.Marketing Aspect

2.Production Characteristics

-Functional Aspect

-Operational Aspect
-Durability and dependability aspects

-Aesthetic aspect

3.Economic Analysis

-The profit consideration

-The effect of standardization, simplification, and specialization

-The break even analysis

4.Production Aspect

Product Characteristic

1.Functional Aspect- When the marketing possibilities have been explored, the functional scope of the
product has to be carefully analyzed and properly defined. The definition of the objective itself rarely
tells us very much about the functional scope envisaged. A functional analysis obviously affects the
design of the machine, its complexity, its appearance, and its price.

2.Operational Aspect- After determining functional aspect, the operational aspect has then to be
considered. Not only must the product function properly. It must be easy to handle and operate.
Sometimes it has to be adaptable to various operational conditions, and very often it is subjected to
varying degrees of potential operators. The designer problems becomes all more critical with the trend
for increased versatility because this characteristic implies using basic attachment as elements for
building skills, which increases with the complexity of machine.

3.Durability/Dependability- Two factors closely related to selection of materials and class of

workmanship and hence to the design of the product and the economic analysis. Quality is not always a
simple characteristic to define, but durability and dependability are two factors that often determine
quality and have to be carefully considered by the designer.

Durability- defined mainly by the length of the active life, or endurance, of the product under given
working conditions, but a measure of the product capability to idle or withstand storage is also
considered in assessing durability.

Another aspect of durability is that of maintenance and repair. The amount of repair preventive
maintenance required for some products is closely related to quality and design policy. This is of
particular importance when the equipment is supposed to operate continuously and when any repair
involves a loss of running time.
Dependability- The capability of the product to function when called upon to do its job. Returning to our
matches, dependability may be related to the number of duds in a box, and while the manufacturer is
eager to reduce this number to a minimum, he need to choose the very best raw materials to ensure
that not even one match will fail.

Aesthetic Aspect- In what way does the appearance of a product affect its design? In most cases, where
the functional scope, durability, and dependability have already been defined, the aesthetic are mainly
concerned with molding the final shape around the basic skeleton. This molding of shape may very often
be severely limited in scope, and what finally emerge is sometimes termed a functional shape.

Functional Shape- A concept in its own right among designers. Those who believe in functional shape
argue that compatibility of function with shape is logical and should therefore be accentuated and
exploited, rather than covered up.

Tools utilized by designer to bring aesthetic:

1.Use of special materials- either for the parts of housing or as additional decorations. Notable is the use
of chromium strips, plastic woods, glass and fabrics for the purpose.

2.Use of Color- Either natural color of material concerned or by use of paints, plating, spraying, or even
lighting. Composition and contrast of color is of great importance to the industrial designer in facilitating
convenient operation and attractive appearance.

3.Texture supplements color- Either by appropriate treatment of the given surfaces or coating, Surface
finish and requirements of brightness as determined by styling may in turn affect the production
processes in the finishing stages.

4.Shaped denoted by outer contours and similar objects- Shape can be exploited to accentuate
particular feature, to create a sense of spaciousness or illusions of size, richness and dependability.

5.Line- used to break the form, also for the purpose of emphasizing parts of it, or to give a sense of
continuity, graciousness and stability.

6.Scaling the product, either to a blown up size or to a small size(modelling)- This creates novelty and
sense of completeness

7.Packaging, especially for small items- Novelty and attractiveness of packaging is often transferred in
the mind of the customer, attributing perhaps non existent values to the contents.

Materials Management- A function, which aims for integrated approach towards the management of
materials in an industrial undertaking. Its main objective is cost reduction and efficient handling of
materials at all stages and in all sections of the undertaking. Its function includes several important
aspects concerned with materials, such as, purchasing, storage, inventory control, material handling,
standardization.

Material Management- makes sure the materials available are aligned with the customer demands, thus
giving schedule of costs and resources that the company has or needs. Materials management controls
the flow of materials with demand, prices, quality and delivery schedules.

Materials are classified:

Direct Materials- That those process and give finished product

Indirect Materials- Those that do not generate a final product

Direct Materials- Those materials or raw materials in which value and importance are identified in order
to make the product is needed and they also represent cost and benefit of process. These direct
materials are essential for the quality of product because without them the product could lose value in
the market. They are vital in the production and its impossible to get out of them.

Indirect Materials- Those materials that are part of the production of the product but do not make a
difference to the final product. These cannot be calculated or measured, so their presence is not of high
relevance in the delivery of the final result.

Objectives of Material Management- The main objective of this method is the provision and monitoring
of appropriate process of the materials at the lowest cost.

1.Selection of the Materials- Correct selection of the required material, evaluation of this in sales with
the sales department.

2.Low Cost Operation- Low operating costs and maintain profit without neglecting the quality offered to
the customer. Receive and control the material in safe way and the good condition it must have. Identify
the stock and take the production process to get the final product.

Result of the Objectives of Materials Management can be the following:

*Constant supply of raw materials to continue production

*Economic purchase value can lead to increased productivity

*Minimize storage and stock control

*Minimize the cost of production to increase profits

*Buy better quality items at the most competitive price

Fundamental Objectives of Materials Management

-These objectives are called the 5 R’s of Material Management, they are the acquisition of materials and
services.

1.The Right Material

2.At The Right Time

3.In the Right Amount of the quality that is

4.At the Right Price

5.From the Right Sources

Scope or Function of Material Management

1.Material Planning and Control- Involves estimating the individual requirements of parts, preparing
materials budget, forecasting the levels of inventories, scheduling the orders and monitoring the
performance in relation to production and sales.

2.Purchasing- Includes selection of sources of supply finalization in terms of purchase, placement of

purchase orders, follow up, maintenance of smooth relations with suppliers, approval of payments to
suppliers, evaluating and rating suppliers

3.Stores Management-

4.Inventory Control or Management- Inventory generally refers to material in stock. It is also called the
idle source of an enterprise. Inventories represent those items, which are either stock for sale or they
are in process of manufacturing or they are in form of materials, which are yet to be utilized. It is
therefore, necessary to hold inventories of various kinds to act as a buffe between supply and demand
for efficient operation of the system. Thus an effective control on inventory is a must for smooth and
efficient running of the production cycle with least interruption

5.Other Related Activities

a.3S

*Standardization- Producing maximum variety of products from minimum variety or materials parts, of
tools and processes. It is the process of establishing the standards or units of measure by which extent
quality, quantity, value, performance etc. may be compared and measured.

*Simplification- The concept is closely related to Standardization. Simplification is the process of

reducing the variety of products manufactured. Simplification is concerned with the reduction of product
range, assemblies, parts, materials and design
*Specification- It refers to a precise statement that formulizes the requirements of the customer. It may
relate to product, process or a service

b. Value Analysis

-Concerned with the cost added due to inefficient or unnecessary specifications and features. It makes
its contribution in the last stage of product cycle, namely, the maturity stage. At this stage research and
development no longer make positive contributions. In terms of improving the efficiency of the functions
of the product or adding new functions to it.

c. Ergonomics

-The human factors or human engineering is concerned with man machine system. Ergonomics is “The
design of Human Tasks” , man-machine system, and effective accomplishment of the job, including
displays for presenting information to human sensors, controls for human operations and complex man
machine systems.

d. Just in Time

-Inventories are bought on time when it needed

Key Benefit of Material Management

-Improve customer service

-Reduce inventory excesses

-Shorten delivery times

-Lower overall handling cost in manufacturing, distribution and transportation

-Enhance handling through streamlining and better timing

-Facilitate product control through better monitoring and management

Material Management Process- Typically includes the receiving and inspection of raw materials as well as
the shortage of those raw materials before they go through manufacturing runs to assemble into
finished goods.

Material Planning- Scientific Technique of determining in advance the requirements of raw materials ,
ancillary parts and components, spare etc. as directed by the production program it is a sub-system in
overall planning activity. There are many factors, which influence the activity of material planning. These
factors can be considered as macro and micro systems.

1.Macro Factors- Some of macro factors which affect material panning are price trends, business cycles,
government import policy

2.Micro Factors- Some of the micro factors that affect material planning are plant capacity utilization,
rejection rates, lead times, inventory levels, working capital, delegation of powers and communication.

Technique in Material Planning

a.Bill of materials explosion

Bills of Materials→Explosion Chart→Requirement of Materials→Delivery schedules for materials

Forecasting Techniques

1.Weighted Averages

2.Exponential Smoothing

3.Trend Analyses

4.Correlation

Sales Forecast

1.Product Requirements

2.Product Mix

3.Product Structures

The basis for material planning Is the forecast demand for the end products. Forecasting techniques such
as weighted average method, exponential smoothening and time series models are used for the same.
Once the demand forecast is made, it is possible to go through the use of material planning.

Bill of materials- a document which shows list of materials required, unit consumption location code for
a given product

Explosive Chart- s series of bill of material grouped in a matrix form so that combined requirements for
different components can be done requirements of various materials are arriving at from the demand
forecast using bill of materials, through explosion charts. Thus requirement material plan will lead to be
the development of delivery schedule of the materials and purchasing of those material requirements

b. Past Consumption Analysis

-For continuously needed materials and the materials where no bill of materials is possible, this
technique of analysis is adopted. The past consumption data is analyze ad a projection for the future on
the basis of past experience and future need is made. To prepare is such a projection –“ average” or
“mean” consumption and the “standard deviation” are taken as bases and as guideline for each item.

These are all statistical tools and are very effective to absorb the stock of fluctuation in consumption of
direct and indirect materials where no straightforward norms of consumption can be formulated, In the
process industries, this technique Is particularly suitable.

Essentials of Material Control and Advantages

-Material control is a system that assures the continuous availability of all types of materials in right
quantities and of requisites quality. But without blocking excessive investment in raw materials and
inventories

-Material control is defined a systematic control and regulation over purchasing, storing, and
consumption of materials so as to maintain a smooth flow of production with optimum investment in
inventories

Essential of Material Control

1.Proper coordination and cooperation between various departments dealing In purchase department,
store department, receiving department, inspecting department, accounting department.

2.Central purchasing department under the control of a competent and expert purchase manager

3.Proper classification and codifications of materials

4.Material quality should be properly planned

5.Perpetual inventory system should be operated. So that date information is available and he quantity
of materials In stock

6. Adequate records should be introduced to control materials during production and the quantities
manufactured for stock

8.Various stock level should be scientifically fixed for each item of materials

9.Purchase of materials should be controlled through budgets

10. Ther should be regular reporting to management regarding purchases, issues and stocks of materials

Advantages

1.Eliminate waste In use of materials

2.Reduce the risk of loss from fraud and theft

3.Helps in keeping perpetual inventory and other records to facilitate the preparation of accurate
materials report to the management

4.Capital tied up in inventories

5.Reduce the cost of storage

6.Furnishes quickly and accurately the value of materials use various departments

7.Prevent production delays due to lack of materials by supplying proper quantities at the right time

3 Steps in Material Planning

1.Identify requirements for items to be included in material planning run

2.Running the material planning and creating suggestions for action

3.Firming the suggestions to release manufacturing orders and purchase orders

Main objective of Material Planning

-The main objective of material planning is to balance the demand for materials with the supply of
materials so that an appropriate quantity of materials is available when they are needed

Purchasing- An important function of management, in any industry purchasing means buying of

equipment, materials, tools, part etc. required for industry. The importance of the purchase varies with
nature and size of industry.

In Small Industry performed by Works Manager. In large manufacturing concern; it’s done by a separate
department

The moment a buyer places an order he commits a substantial portion of the finance of the corporation
which affect the working capital and cash flow position. He is a highly responsible person who meets
various salesmen and thus can be considered to have been contributing to the public relations effort of
the company. Thus, the buyer can make the company’s image by his excellent or poor relations with the
vendors.

Objectives of Purchasing

-Ensure continuity of Supply of raw materials, sub contracted items and spare parts and to reduce the
ultimate cost of the finished goods. In other words, the objective is not only to procure the raw materials
at the lowest price but to reduce the cost of the final product.

1.To avail the materials, suppliers and equipment at the minimum possible cost.

-These are the inputs in the manufacturing operations. The minimization of the input cost increases the
productivity and resultantly the profitability of the operations

2.To ensure the continuous flow of production

-Through continuous supply of raw material, components, tools etc. with repair and maintenance service

3.To increase the asset turnover

-The investment in the inventories should be kept in minimum in relation to the volume of sales. This will
increase the turnover of the assets and thus the profitability of the company

4.To develop an alternative source of supply

-Exploration of alternative source of supply of materials increases the bargaining ability of the buyer,
minimization of cost of materials and increases the ability to meet the emergencies.

5.To establish and maintain the good relations with the suppliers

-Maintenance of good relations with the supplier help in evolving a favorable image in the business
circles. Such relations are beneficial to the buyer in terms of changing the reasonable price, preferential
allocation of material in case of material shortages.

6.To achieve maximum integration with other department of the company

-The purchase function is related with the production department for specifications and flow of material,
engineering department for the purchase of tools, equipment and machines, marketing department for
the forecast of sales and its impact on procurement of materials, financial department for the purpose of
maintaining levels of materials and estimating the working capital required, personnel department for
the purpose of manning and development the personnel of purchase department and maintaining good
vendor relationship

7.To train and develop the personnel

-Purchasing department is manned with varied types of personnel . The company should try to build the
imaginative employee force through training and development

8.Efficient record keeping and management reporting.

-Paper processing is inherent in the purchase function. Such paper processing should be standardized so
that record keeping can be facilitated. Periodic reporting to the management about the purchase
activities justifies the independent existence of the department

Parameter in Purchasing

Ten R’s of the art of efficient purchasing Described as the basic principle of purchasing

1.Right Price- Primary concern of the manufacturing organization to get an item in right price. Right price
need not be the lowest price.

2.Right Quality- Implies that quality should be available, measurable and understandable as far as
practicable. In order to determine the quality of a product sampling schemes will be useful.

3.Right Time- For determining the right time, the purchase manager should have lead time information
for all product and analyze its components for reducing the same. Lead time is the total time elapsed
between the recognition of the need of an item till the item arrives and is provided for use

4.Right Source- Source from which the material is procured should be dependable and capable of
supplying items of uniform quality. The buyer has to decide which item should be directly obtained from
the manufacturer

5.Right Quantity- Concept such as economic order quantity, economic purchase quantity, fixed period
and fixed quantity systems, will serve as broad guidelines. Buyer should use his knowledge, experience,
and common sense to determine the quantity after considering factors such as price structure,
discounts, availability of items, favorable reciprocal relations and make or buy relations.

6.Right Attitude- Developing the right attitude too, is necessary as one often across such statements:
“Purchasing knows the price of everything and value nothing” We buy price and not cost. Therefore
purchasing should keep ‘progress’ as its key activity and should be future oriented.

7.Right Contracts- Buyer has to adopt separate policies and procedures for capital and consumer items.
He should be able to distinguish between indigenous and international purchasing procedures. He
should be aware of the legal and contractual aspect in international practice

8.Right Material- Right type of material required for the production is an important parameter in
purchasing. Techniques such as, value analysis will enable the buyer to locate the right material.

9.Right Transportation- Right mode of transportation have to be identified as this forms a critical
segment in the cost profile of an item. It is an established fact that the cost of the shipping of ore, gravel,
sand etc. is normally more than the cost of the items itself.

10.Right Place of Delivery- Specifying the right place of delivery, like head office of works, would often
minimize the handling and transportation.
Purchasing Procedure- The procedure describes the sequence of steps leading to the completion of an
identified specific task. The purchasing procedure comprises the following steps as shown in the figure
below.

1.Recognition of the Need- The initiation of procedure starts with the recognition of the need by the
needy section. The demand is lodged with the purchase department In the prescribed Purchase
Requisition Form forwarded by the authorized person either directly or through the Stores Department.

Purchase Requisition- Clearly specifies the details, such as, specification of materials, quality and
quantity, suggested supplier etc.

2.The Selection of Supplier- Involves two basic aspect; searching for all possible sources and short listing
out of identified sources. The complete information about the supplier is available from various sources,
such as, trade directories, advertisement in trade journals, direct mailing by the suppliers, salesmen,
suggestion from business associates etc. It should be noted that low bidder is not always the best bidder.
When everything except price is equal, the low bidder will be selected.

3.Placing The order- Once supplier is selected next step is place order. Purchase order is a latter send to
the supplier. At least six copies of purchase order are prepared by the purchase section and each section
is separately signed by the purchase officer.

Out of these copies one copy for each is sent to Store Keeper, Supplier, Account Section, Inspection
Department, and to the department placing the requisition and one copy is retained by the purchase
department for record.

4.Follow up the order- Follow up procedures should be employed wherever the costs and risks resulting
from the delayed deliveries of materials are greater than the cost of follow up procedure, the follow up
procedures tries to see that the purchase order is confirmed by the supplier and the delivery promised.

5.Receiving and inspection of materials- The receiving department receives the materials supplied by the
vendor The quantity is verified and tallied with the purchase order. The receipt of the materials is
recorded on the specially designed receiving slips or forms which also specify the name of the vendor
and the purchase order number. It also records any discrepancy, damage condition of the consignment
or inferiority of the materials.

6.Payment of the invoice- When the goods are received in satisfactory conditions, the invoice are double
checked before it is approved for the payment. The invoice are checked to see that the goods were duly
authorized to purchase, they were properly ordered, they are priced as er the agreed terms, the quantity
and quality confirm to the order, the calculations are arithmetically correct etc.
7.Maintenance of the records- Is an important part and parcel of the efficient purchase function. In the
industrials firms, most of the purchases are repeat orders and hence the past records serve as good
guidance for future action. They are very useful for deciding the purchases and in selecting the best
source of the supply.

8.Maintence of vendor relations- The quantum and frequency of the transactions with the same key
suppliers provide a platform for the purchase department to establish and maintain good relations with
them. Good relations develop mutual trust and confidence in the course of the time which is beneficial
to both the parties. The efficiency of the purchase department can be measured by the amount of the
goodwill it has with it suppliers