Materials and Inventory Management
Raw materials, partly finished products, finished products, and supplies must be purchased, physically handled, and stored. That is the job of materials and inventory management.
The Purchasing Task
Purchasing can greatly affect profits for manufacturers, retailers, and wholesalers. In manufacturing this is especially true when materials and parts are a major part of total manufacturing costs. Many firms have a separate purchasing department with its own manager.
Finance, purchasing, production, and engineering people often work together to develop a list of specifications for parts and to plan for their procurement. The goal is to get the level of quality required at the best price.
Firms usually develop standard purchasing policies. For example, some purchasing agents concentrate all purchases for a specific good or service with one or two “certified” suppliers because that supplier’s past performance has proven excellent. Other purchasing agents do not follow that policy. They fear being taken for granted or “putting all their eggs in one basket.” A strike at a supplier’s plant, for example, could place the buyer firm in a bad position.
Purchasing policy often involves reciprocity. Reciprocity is a purchasing policy under which a customer buys from a supplier if that supplier also buys from the customer.
Two tools purchasing managers use are value analysis and vendor analysis.
Whenever a specification (such as “steel will be at least 98 percent pure”) is thought to add unnecessary cost, its function is examined. Perhaps there is a cheaper way. Value analysis is an evaluation of existing product specifications and an elimination of nonessential requirements. The evaluation might involve a committee of engineers, cost accountants, production representatives, and others. They review the specification set by the user department.
The purchasing department evaluates possible suppliers, makes a decision, and then sends a purchase order to the chosen supplier. To do this it uses vendor analysis. Vendor analysis is an evaluation and rating of the technical, financial, and managerial abilities of potential suppliers in terms of their past performance.
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