Just in Time (Lean) Purchasing

Lean manufacturing and "just in time," or JIT, are often treated as two different phrases for the same thing, but they are not identical concepts. Just-in-time manufacturing is focused on efficiency, while lean manufacturing is focused on using efficiency to add value for the customer. Just-in-time manufacturing can be practiced on its own or as one step in the lean manufacturing process.

Just in Time Definition :

"Just-in-Time" means making "only what is needed, when it is needed, and in the amount needed." For example, to efficiently produce a large number of automobiles, which can consist of around 30,000 parts, it is necessary to create a detailed production plan that includes parts procurement. Supplying "what is needed, when it is needed, and in the amount needed" according to this production plan can eliminate waste, inconsistencies, and unreasonable requirements, resulting in improved productivity.

The advantages of a just-in-time are:

1. Cashflow is improved, as less money is tied up in raw materials, work-in-progress and finished goods.
2. Less need for storage space for raw materials and finished goods.
3. The business builds up strong relationships with its suppliers.
4. Communication and co-operation between the marketing and the production departments are improved.

The disadvantages of a just-in-time are:

1. The business may struggle to meet orders if their suppliers fail to deliver the raw materials on time.
2. The business is unlikely to 'bulk-buy' its raw materials and, therefore, it may lose the benefit of achieving economies of scale.
3. Buffer stocks are minimal and this may lead to the business having to reject customer orders requiring delivery immediately.

Lean Production Definition :

Lean manufacturing takes the concept of JIT and reexamines it from the perspective of customer value. The first step in the lean manufacturing process is to consider what aspects of the product add real value for the customer. For instance, if a customer is buying a stereo speaker, he might be looking for sound quality, durability and affordability. The first principle of lean manufacturing is that every step in the production process must add something of value that the customer actually wants.

Kanban System

In the TPS (Toyota Production System), a unique production control method called the "kanban system" plays an integral role. The kanban system has also been called the "Supermarket method" because the idea behind it was borrowed from supermarkets. Such mass merchandizing stores use product control cards upon which product-related information, such as a product's name, code and storage location, are entered. Because Toyota employed kanban signs for use in their production processes, the method came to be called the "kanban system." At Toyota, when a process refers to a preceding process to retrieve parts, it uses a kanban to communicate which parts have been used.

Inventory Management

Definition :

The overseeing and controlling of the ordering, storage and use of components that a company will use in the production of the items it will sell as well as the overseeing and controlling of quantities of finished products for sale.

A business's inventory is one of its major assets and represents an investment that is tied up until the item is sold or used in the production of an item that is sold. It also costs money to store, track and insure inventory. Inventories that are mismanaged can create significant financial problems for a business, whether the mismanagement results in an inventory glut or an inventory shortage.

Successful inventory management involves creating a purchasing plan that will ensure that items are available when they are needed (but that neither too much nor too little is purchased) and keeping track of existing inventory and its use. Two common inventory-management strategies are the just-in-time method, where companies plan to receive items as they are needed rather than maintaining high inventory levels, and materials requirement planning, which schedules material deliveries based on sales forecasts. 

Three key aspects of inventory :

1. The first aspect has to do with time. In terms of materials acquired for inclusion in the total inventory, this means understanding how long it takes for a supplier to process an order and execute a delivery. Inventory management also demands that a solid understanding of how long it will take for those materials to transfer out of the inventory be established. Knowing these two important lead times makes it possible to know when to place an order and how many units must be ordered to keep production running smoothly.

2. Calculating what is known as buffer stock is also key to effective inventory management. Essentially, buffer stock is additional units above and beyond the minimum number required to maintain production levels. For example, the manager may determine that it would be a good idea to keep one or two extra units of a given machine part on hand, just in case an emergency situation arises or one of the units proves to be defective once installed. Creating this cushion or buffer helps to minimize the chance for production to be interrupted due to a lack of essential parts in the operation supply inventory.

Inventory management is not limited to documenting the delivery of raw materials and the movement of those materials into operational process. The movement of those materials as they go through the various stages of the operation is also important. Typically known as a goods or work in progress inventory, tracking materials as they are used to create finished goods also helps to identify the need to adjust ordering amounts before the raw materials inventory gets dangerously low or is inflated to an unfavorable level.

3. Finally, inventory management has to do with keeping accurate records of finished goods that are ready for shipment. This often means posting the production of newly completed goods to the inventory totals as well as subtracting the most recent shipments of finished goods to buyers. When the company has a return policy in place, there is usually a sub-category contained in the finished goods inventory to account for any returned goods that are reclassified as refurbished or second grade quality. Accurately maintaining figures on the finished goods inventory makes it possible to quickly convey information to sales personnel as to what is available and ready for shipment at any given time.

Definition of Material Management

Materials Management thus can be defined as that function of business that is responsible for the coordination of planning, sourcing, purchasing, moving, storing and controlling materials in an optimum manner so as to provide service to the customer, at a pre-decided level at a minimum cost.

Material management is an approach for planning, organizing, and controlling all those activities principally concerned with the flow of materials into an organisation.
The scope of Materials Management varies greatly from company to company and may include material planning and control, production planning, Purchasing, inventory control, in-plant materials movement, and waste management.

It is a business function for planning, purchasing, moving, storing material in a optimum way which help organisation to minimize the various costs like inventory, purchasing, material handling and distribution costs.

The fundamental objectives of the Materials Management function ,often called the famous 7 Rs of Materials Management, are acquisition of materials and services  :

right quality right quantity right time right product right price right place right customer From the management point of view , the key objectives of Material Management are :   To buy at the lowest price , consistent with desired quality and service  To maintain a high inventory turnover , by reducing excess storage , carrying costs and inventory losses occurring due to obsolescence  and pilferage. To maintain continuity of supply , preventing interruption of the flow of materials and services to users To maintain the specified material quality level and a consistency of quality which permits efficient and effective operation  To develop reliable alternate sources of supply to promote a competitive atmosphere in performance and pricing  To minimize the overall cost of acquisition by improving the efficiency of operations and procedures To hire, develop, motivate and train personnel and to provide a reservoir of talent To develop and maintain good supplier relationships in order to create a supplier attitude and desire furnish the organisation with new ideas , products, and better prices and service To achieve a high degree of cooperation and coordination with user departments To maintain good records and controls that provide an audit trail and ensure efficiency and honesty To participate in Make or Buy decisions

 

PURCHASING DECISIONS AND BUSINESS STRATEGY

Introduction to Purchasing Strategy

 In most industrial firms, material constitutes 60-80 percent of the total revenue dollars. Purchased inputs offer a potential source for helping a company develop leverage against its competitors. Purchasing can give the firm advantages over its competitors. In essence, firms must design their purchasing actions to emphasize the competitive strategy.

Purchasing and Competitive Strategy Linkage

 Purchasing profesionals are expected to develop options that can help business units remain competitive. Purchasing managers need to devise purchasing actions such that they are consistent with each other and with the firm's competitive strategy. The buyer performance measures or reward criteria are other factors that influence the purchase criteria.

Strategic Purchasing

 Purchasing decisions or actions that constitute purchasing strategy are determined by the firm's competitive priorities, its resource capabilities, and the environment. In the formulation of purchasing strategy, the organization's competitive priorities, the organization's strengths and weaknesses, and the competitive environment must be considered. 

Competititve Strategy

 A firm can compete in two broad alternate ways. It can either seek competitive advantages on cost or choose to differentiate itself from its competitors on some attributes of the product or in the way it markets its product.

• Cost and differentiation : It is important but too broad to be useful for management faced with day-to-day decision making.
• The competitive strategy must be articulated in terms of copetitive priorities. Key environmental factors also must be considered.

Supply Chain Strategy

 As competitive forces increase, customers demand better product, faster delivery, increased service, and decreased cost. As firms become more competitive, a rippling effect is experienced by the suppliers. As inventory levels are reduced throughout the supply chain, each member becomes less insulated from demand variation.

 Companies participate in a variety of supplier relationships and take on a variety of roles. Each company can be supplier, customer, or end-user of products. Supplier partnerships can be categorized using five factors : 

1. Degree of risk/reward
2. Type of relationship
3. Information
4. Planning 
5. Asset ownership

Introduction to Supply Chain Management

Introduction to Supply Chain Management.

If your company makes a product from parts purchased from suppliers, and those products are sold to customers, then you have a supply chain. Some supply chains are simple, while others are rather complicated. The complexity of the supply chain will vary with the size of the business and the intricacy and numbers of items that are manufactured.






Elements of the Supply Chain:
A simple supply chain is made up of several elements that are linked by the movement of products along it. The supply chain starts and ends with the customer.

• Customer: The customer starts the chain of events when they decide to purchase a product that has been offered for sale by a company. The customer contacts the sales department of the company, which enters the sales order for a specific quantity to be delivered on a specific date. If the product has to be manufactured, the sales order will include a requirement that needs to be fulfilled by the production facility.
  
• Planning: The requirement triggered by the customer’s sales order will be combined with other orders. The planning department will create a production plan to produce the products to fulfill the customer’s orders. To manufacture the products the company will then have to purchase the raw materials needed.
  
• Purchasing: The purchasing department receives a list of raw materials and services required by the production department to complete the customer’s orders. The purchasing department sends purchase orders to selected suppliers to deliver the necessary raw materials to the manufacturing site on the required date.
  
• Inventory: The raw materials are received from the suppliers, checked for quality and accuracy and moved into the warehouse. The supplier will then send an invoice to the company for the items they delivered. The raw materials are stored until they are required by the production department.
  
• Production: Based on a production plan, the raw materials are moved inventory to the production area. The finished products ordered by the customer are manufactured using the raw materials purchased from suppliers. After the items have been completed and tested, they are stored back in the warehouse prior to delivery to the customer.
  
• Transportation: When the finished product arrives in the warehouse, the shipping department determines the most efficient method to ship the products so that they are delivered on or before the date specified by the customer. When the goods are received by the customer, the company will send an invoice for the delivered products.

Supply Chain Management

To ensure that the supply chain is operating as efficient as possible and generating the highest level of customer satisfaction at the lowest cost, companies have adopted Supply Chain Management processes and associated technology. Supply Chain Management has three levels of activities that different parts of the company will focus on: strategic; tactical; and operational.

• Strategic: At this level, company management will be looking to high level strategic decisions concerning the whole organization, such as the size and location of manufacturing sites, partnerships with suppliers, products to be manufactured and sales markets.
  
• Tactical: Tactical decisions focus on adopting measures that will produce cost benefits such as using industry best practices, developing a purchasing strategy with favored suppliers, working with logistics companies to develop cost effect transportation and developing warehouse strategies to reduce the cost of storing inventory.
  
• Operational: Decisions at this level are made each day in businesses that affect how the products move along the supply chain. Operational decisions involve making schedule changes to production, purchasing agreements with suppliers, taking orders from customers and moving products in the warehouse.

definition of purchasing, purchasing agents and procument.

Definition of purchasing;


        The activity of acquiring goods or services to accomplish the goals of an organization.
The major objectives of purchasing are to (1) maintain the quality and value of a company's products, (2) minimize cash tied-up in inventory, (3) maintain the flow of inputs to maintain the flow of outputs, and (4) strengthen the organization's competitive position
.
       Purchasing may also involve (a) development and review of the product specifications, (b) receipt and processing of requisitions, (c) advertising for bids, (d) bid evaluation, (e) award of supply contracts, (f) inspection of good received, and (g) their appropriate storage and release.


Definition of Purchasing agents;

      Administrator who assits in selection and purchase of goods and services by gathering and screening information about products, prices, and suppliers. He or she may also solicit bids from vendors and make awards of purchasing contracts.

Definition of Procument;

     “Procurement” is the overarching function that describes the activities and processes to acquire goods and services. Importantly, and distinct from “purchasing”, procurement involves the activities involved in establishing fundamental requirements, sourcing activities such as market research and vendor evaluation and negotiation of contracts. It can also include the purchasing activities required to order and receive goods

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