4.

1 Purchasing and Materials management

5.1.1 Purchasing
Purchasing describes the process of buying. It is the learning of the requirement, identifying and
selecting a supplier, negotiation price. Purchasing is an element of the wider function of
procurement and it includes many activities such as ordering, expediting, receipt and payment.
Purchasing is responsible for obtaining the materials, parts, supplies and services needed to
produce a product or provide a service.

5.1.2 Materials Management

It includes planning, organising, communicating, directing and controlling of all those activities
mainly concerned with the flow of materials into an organisation. Material management views
material flows as a system.

Material management is defined as the planning, acquiring, storing, moving and controlling of
materials as per the requirement of the organisation. Materials management is basically related
with the smooth flow of materials. The major activities covered under materials management are
the anticipation of the materials required in the organisation from time to time. It involves
ordering and obtaining materials from the suppliers, introducing the materials to the organisation
and monitoring the status of materials. It helps to optimize the usage of facilities, personnel and
funds and to provide service to the user in the line with the organizational aims. Materials
management is the coordination and control of the various material activities.

5.2. The Principles of Materials Management

1. Planning Principle: All material handling should be the result of a deliberate plan where the
needs, performance objectives and functional specification of the proposed methods are
completely defined at the outset. A plan is a prescribed course of action that is defined in
advance of implementation. In its simplest form a material handing plan defines the material
(what) and the moves (when and where); together they define the method (how and who).

2. Standardization Principle: Standardization means less variety and customization in the

methods and equipment employed. Material handling methods, equipment, controls and software
should be standardized within the limits of achieving overall performance objectives and without
sacrificing needed flexibility , modularity and through put anticipation of changing future
requirements

3. Work Principle: The measure of work is material handling flow (volume, weight or count per
unit of time) multiplied by the distance moved. Material handling work should be minimized
without sacrificing productivity or the level of service required of the operation.

4. Ergonomic Principle: Ergonomics is the science that seeks to adapt work or working
conditions to suit the abilities of the worker. Human capabilities and limitations must be
recognized and respected in the design of material handling tasks and equipment to ensure safe
and effective operations.

5. Unit load Principle: A unit load is one that can be stored or moved as a single entity at one
time, such as a pallet, container or tote, regardless of the number of individual items that make
up the load. Unit loads shall be appropriately sized and configured in a way which achieves the
material flow and inventory objectives at each stage in the supply chain.

6. Space Utilization Principle: Space in material handling is three dimensional and therefore is
counted as cubic space. In work areas, cluttered and unorganized spaces and blocked aisles
should be eliminated. In storage areas, the objective of maximizing storage density must be
balanced against accessibility and selectivity. When transporting loads within a facility the use of
overhead space should be considered as an option. Effective and efficient use must be made of
all available space.

7. System Principle: A system is a collection of interacting and/or interdependent entities that

form a unified whole. Material movement and storage activities should be fully integrated to
form a coordinated, operational system which spans receiving, inspection, storage, production,
assembly, packaging, unitizing, order selection, shipping, transportation and the handling of
returns.

8. Environmental Principle: Environmental impact and energy consumption should be

considered as criteria when designing or selecting alternative equipment and material handling
systems. Environmental consciousness stems from a desire not to waste natural resources and to
predict and eliminate the possible negative effects of our daily actions on the environment.

4.3 The Principles of Purchasing

Some of the principles of purchasing are:

1. Right Quality: Right quality refers to suitability of an item for the purpose it is required. For
producing the goods of best quality, the best grade of raw material may be the right quality
whereas for producing items of medium quality, the average lowest grade may be the right
quality.

2. Right Quantity: Materials purchased should be of right quantity. The right quantity is the
quantity that may be purchased at a time with the minimum total cost and which obviates
shortage of materials. Ensuring and maintaining a regular flow of materials for carrying the
production activity is the vital aim of any purchase organisation. Excess purchases should be
avoided, it results in overstocking and capital is unnecessarily blocked and inventory carrying
cost goes up. Economic order quantity helps in determining the right quantity of materials to be
ordered.
3. Right time: The right time at which the purchases are to be made is of vital importance. Right
time means the time when the stock reaches the minimum level. The reorder level of material is
fixed for each item under the principle of right time.

- Right source: Selecting the right source for the purchase of materials is an important
consideration in the purchase procedure. The right source for the procurement of materials is that
supplier who can supply the material of right quality as ordered, at a right time at which the
materials were required to be supplied, at an agreed price with supplier.

- Right Price: It is that price which brings the best ultimate value of the money invested in
purchasing the materials. Deciding the right price of a product depends on variety of factors, viz.
Quality, delivery time and ultimate life of the material, demand and supply curve, extent of
competition, government restrictions, after sales services, discount offered etc.

- Right place: Besides obtaining the materials of the right quality and quantity from the right
source at the right price, it should be ensured that the materials are available at the right place.
Transportation and material handling costs are greatly affected by the selection of the right place
from where the materials are to be acquired. For minimizing these costs, selection of right place
for the acquisition of material is of utmost importance.

4.4 Interface of Purchasing with other Functions in Production

To discharge its responsibilities adequately, the purchasing department must actively cooperate
with other departments not only to procure materials, supplies and services for the company but
to give and receive information so that purchase department could make a very significant
contribution to company’s profit improvement and operational cost reduction. Some specific
areas which must be closely watched for maintenance of good relationship and elimination of
conflicting tendencies include:

1) Relationship with Design/Engineering Department. In manufacturing industrial concerns, it

is usually the initial responsibility of the design or engineering to prepare the technical
specifications for a company's products and the materials that go into them. Engineering must
have the constant help of the purchasing department.. It is the responsibility of the purchasing
department to scrutinize the cost elements in order to ensure that the quality of the needed item
fulfil the function or which it is required at the lowest possible cost The purchase department can
also help the engineering department by conducting market surveys and searching for new and
better materials and equipment. The engineering department, in turn, can render assistance to the
purchase department in deciding specifications, i.e. what should be the right quality of the
various materials procured by the company

2) Purchasing and Production: The production department is the main materials, or suppliers,
'customer and it is therefore of primary importance that the services to production are satisfactory
in all respects. The closest cooperation is essential not only on the provision of materials, but
also on the stock levels to be manufactured in accordance with the policy for inventory control.
The production-purchasing relationship begins when the user department transmits its
manufacturing schedule or materials requisition to the purchasing department. Purchasing
subsequently translates these documents into a procurement schedule. Hence, while the
production department has the responsibility for reducing high quantity products in sufficient
quantities by meeting customers’ needs, the purchasing department assists production to meet
targets by making available raw materials and suppliers of the right quantity at the right place
and time

3) Relationship with Marketing: In a typical merchandising company, the marketing or sales

department has the responsibility of making sales forecasts, providing market information,
boosting sales, increasing market shares etc. the developed sales forecast cost only served as the
basis of all the activities: production, financial and personnel projections of an organization, but
also the basis of purchasing plans and forecast based on the expected volume of production.
One vital area in which purchasing- Sing function continuities immensely to the marketing
function is in the area of efficient buying and assurance of continuous availability of materials
to meet sales target.

4) Purchasing and finance: The relationship between purchasing and finance covers several
important areas. Indeed, the interaction between these two departments takes place almost on a
day-to-day basis, Since the purchase department spends bulk of the income of the company.
The accounts department and the purchase department must work in close harmony in several
identifiable areas bordering c' provision of data for budgeting and panning, provision of costing
information, settlement of supplier bills, adherence to companies polices, rules and regulation
relating to purchase transaction, etc.

5) Purchasing and Store: The links between the stores and purchasing in terms of their
activities have always been very close and largely interdependent, and any inefficiency or lack of
cooperation on either side is soon reflected in the order. purchasing is responsible for buying all
the goods and services needed by the organization. Purchasing relies on stores for a wide variety
of supportive activities. Purchasing need stores to keep it informed about the levels of stocks at
any given time and it is up to store to keep purchasing up-to-date as to the total stock situation.
This will enable purchasing to ensure that stocks are produced and that a balance and economic
flow of goods and services is provided. Hence, a close relationship between purchasing and store
is necessary in order to ensure that materials are ordered strictly in term of actual requirements
and in the overall interest of economy.

6) Relationship with the maintenance department: The purchasing department in this case has
added responsibility in supplying equipment materials and machinery spare parts to the
maintenance department as and when required. To ensure that the materials, tools, spare parts &
equipment needed by the maintenance department are in stock, purchasing department must be
aware of all long-and short-term maintenance plans as produced by the maintenance department.
Similarly, the maintenance department will have to advise on the initial quantities of spare parts
be provided when any major new part or machinery is installed.

Assignment: 1. Role of Purchasing and Materials Management in Production