Material management

Seminar on…

MATERIAL
MANAGEMENT

Presented By
Sonam M. Gandhi
Dept. of Industrial pharmacy

.
sneha.saloni@gmail.com 11

Content
 Purchasing-Centralized and Decentralized
 Vendor development
1. Survey stage
2. Enquiry stage
3. Negotiation & selection stage
4. Experience & Evaluation stage
 Buying Techniques
1. Quotations
2. Tenders
3. Negotiation
4. Discounts
 Purchasing cycle and Procedures
 Stores Management
 Salvaging and Disposal of Scrap and Surplus

Purchasing – Centralized & Decentralized

 Purchasing is an activity directed towards securing the materials,
supplies, equipment & services required in the operations of an
enterprise.

 Functions of Purchasing department :-
1. Ordering section places orders with the vendors

2. Service section follows the progress of the purchase orders, its
shipment by the vendor and its final receipt by the company

3. Records-section maintains all records of quotation, costs,
purchases.


 Types of purchasing :-
A. Centralized purchasing :
 Advantages :
a) It is an efficient system

b) It permits a greater degree of specialization for buying

c) Bargaining capabilities are better

d) Procuring becomes uniform & consistent materials are procured
without price differentiation

e) Duplication of efforts is eliminated

f) Purchasing procedure & payment of invoices become simple.


B. Decentralized purchasing:
 Advantages :
a) Purchasing system becomes more flexible & efficient

b) Procurement is faster

c) When purchases are made in a local place, it promotes better
public relations

d) Control over purchases is no longer remote.

 Disadvantages :
a) Quantity of discounts offered is less

b) It involves duplication of efforts.


Vendor deVelopment
 Vendor means a person who sells and supplies his or its
products

 Considerable efforts needed to indetifying ,developing
and evaluating the prospective suppliers

 Supplier expected to continously improve his product
and trying to reduce its cost

 Vendor development involves four stages as follows.


1) Survey stage – sources of information on potential
vendors
 Involves collecting information on difft. Supliers of the
desired materials
 Sources
a) Trade Directories :
 Information regarding dealers addresses ,regional
offices ,names ,types and range of products including
spares
 E.g. computer based trade directories
b) Trade journals :
 Contains advertisements of the materials related to
specific industries ,chemicals ,plastics , steels etc.


c) Telephone directories :
 Contains classified advertisements arranged
alphabetically , item wise or group wise
 Easy means of collecting the sources

d) Supplier’s catalogues:
 many manufacturer periodically publish catalogues and
pamphlets giving details of the products they
manufacture.
 Contains tech. information ,specification ,prices etc.

e) salesmen:
 Trained and competent personnel visit customers for
the possible business and orders


 Directly convey the information and clarify the doubts
and expanding the knowledge to a great extent

2) Inquiry stage – selection of potential suppliers
 After list prepared next step to inquire possible
suppliers
 Involves a detailed analysis of information finished by
vendors or collected
 Accreditation ,FDA approval and certifications
facilitates their selection
 While choosing suppliers ,comparision may be made in
regards to four aspects of competition
 Technological competition , service competition ,price
competition ,time based competition

 A first hand assesment of the capability of the
suppliers made by visiting supplier’s factory and satisfy
with respect to following

a) Internal facilities of the suppliers:

 Adequate facilities and quality control are essential for
the right quality
 Done under the charge of qualified and experienced
staff.
 Facilities such as modern equipments ,quality of inputs
maintainance,size and capacity,layout, housekeeping
and cleanliness be inspected


b) Financial adequacy and stability:
 Financial status of the vendor company should be
explored
 So that the items can be produced and supplied
without any difficulties at any stage

c) Reputation of the supplier’s :
 Reputation in the market in regards to prices and
promises of the delivery dates should be considered

d) Location of the supplier’s factory:
 Should be nearer to the buyer’s factory


 Only the selected suppliers considered for the third
stage

3) Negotiation and selection stage – Finalization of
suppliers

 These suppliers called for negotiations in order to
discuss business possibilities
 During this stage various terms namely credit, quantity
discount, quality control specification etc. can be
considered
 Several aspects of buying tech. used at this stage.


4) Experience and Evaluation stage – consolidation of
suppliers

 At this stage buyer evaluates the performance of the
vendor to improve the performance of the vendors in
which they are deficient
 This can be done on two aspects quality and delivery
 Various ways of evaluation:

1) Categorical method:
 The buyer prepares a list of factors which are considered

necessary for evaluation
 Once in a three months buyer prepares a performance

report

 Each supllier evaluated and a number of score is
calculated

80 -100 points Excellent
70 - 80 points Very good
60 – 70 points Good
50 – 60 points Average
40 – 50 points Very poor
 On the basis of evaluation a meeting should be held with
the suppliers and clear appraisal is given

2) Weighted point method :
 Evaluation involves a point rating based on the quality of

the goods received


 For this purpose points are assigned as :

quality 50 points
delivery 30 points
price 20 points

 The performance of each factor quantified for example
assumes that 160 lots received during a year and 16 lots
were rejected on account of poor quality so quality rating
obtained by

 Quality rating = number of lots accepted x 50
number of lots received


Delivery rating = number of lots delivered in time x 30
total number of lots delivered

Price rating = least offer received x 20
suppliers offer

3) Cost ratio method :
 An intricate system of determining the actual costs

incurred in purchasing , follow up ,transportation ,
packing ,duties ,receiving etc.

 Based on this costs ,the unit cost incurred by the buyer
is calculated

 for example , costs raring to quality works out to be
Rs.2000 and the total worth of material purchase Rs.2.0
lakhs per year then ,

Quality cost ratio = 2000 : 2,00,000 i.e. 1%

 Similarly when the cost of delivery is 1000 then

Delivery cost ratio = 1000 : 2,00,000 i.e.0.5 %


Buying Techniques
 Purchasing involves procurement of materials
,machinery and services needed for production and
maintainance

 Purchasing department procures right kind of material in
right quantities at right time and makes them available
for the production

 It also concentrate on the right source of material and
economic procurement


 Price is defined as the amt of money at which a thing is
valued or the value ,which a seller sets on his goods in
the market.
 Price is greatest variable in purchasing
 Buying tech. involves

a) Quotations
1) Spot quotations :
 Buyer can go in the market and collect minimum three

quotations and takes a spot decision

 Not possible In pharmaceutical materials but for office
stationary and computer peripherals


b) Floating a limited enquire :

 When the value of purchase is small

 Company sends letters to a few reliable vendors
requesting for prices ,analytical report and other details
for a perticular material

 At the top of this form ,the words’ THIS IS NOT AN
ORDER’

 The quotations collected in duplicate at least from three
suppliers and valid for one month from opening


 After getting quotations, comparative statement is made
and analyzed in the light of following points

- Price of material - material specifications
- Place of delivery - delivery period
- Taxes - terms of payment
- Validity of tenders - guarantee period

b) Tenders :
 A tender is a written letter or a published document .

 Aim to find out the price for procuring certain materials or
to get job done within the desired period and under
specified conditions


 Types of tenders
1) Single tender :
 Invited from one reliable suppliers only and is called for
under certain conditions
 Applicable to proprietary items ,high quality products
and for items such as pins ,clips ,pencils etc.
 When items are required urgently

2) Open tenders :
 Used when the value of purchases is high and when
supply sources not known or intended to locate more
supply sources
 Very expensive


 The buyer not aware of the capability of the supplier
there fore tenders invited from recognized or registered
firms

 Also called press tender because published in news
papers and trade journals

 The Vendor has to deposit an earnest money or security
deposit with the tender information and tender number

c) Negotiations :
 Negotiations may be defined as an art of arriving at a
common understanding through bargaining on the
essentials of a contract such as delivery ,specifications,
price and terms.


 Can be often done before a purchase contract is
finalized for fixing and finalizing prices of materials
,terms and conditions

 Negotiation literally means a mutual discussion and an
agreement on the terms of transactions

 Takes place between two individuals or two sets of
individuals

 Communication is an important ingredient in the art of
negotiation

 Negotiation attempts at a win win situation to both
parties


 Negotiation does not mean horse trading or bargaining ,it
is mutually satisfactory settlement

d) Discounts :
 There are three ways through which materials may be

purchased

1) Volume contract :
 Employed to cover total purchase of ampoules ,bottles ,

and other accessories called quantity discount
 Because of large orders the seller able to obtain

economy in production ,packaging ,billing ,selling etc.
 Suppliers prepared to give a part of savings to the buyer


 Advantage of this type of purchase is that the contract
price is usually protected from increase or decrease of
prices
 In case of government purchases payment is made
through director general of supplies and disposals

2) Cash discount :
 Given If payments are made immediately on delivery

 Discount of 1% availed if the bill is paid in 60 days, 2% if

paid in 30 days , 3% if paid immediately

3) Cumulative discount :
 In this case Quantity might not fixed in the contract


 Discount is given on the basis of actual purchases and
appropriate to the quantity range

 For example ,buying is continued during the course of
year the price will be reduced beyond the certain volume

4) Consignment terms :
 Frequently used in retailing

 The buyer pays the price of the goods after selling the

goods
 A pharmaceutical company may agree on consignment

terms of the payments to a chemist’s shop.


Purchasing cycle and
Procedures
 A purchase department takes the purchasing decisions

 There is no standard method of organizing a purchase
department or no standard system and procedures

 Different organization having a different setups and
different types of procedures

 Purchasing cycle


SPELL OUT OF SPECIFICATIONS
NEED RECOGNITION & REQUIREMENTS

OFFICIAL REQUISION

SPECIFICATION CHECK SPECIFICATIONS PURCHASE
FILE PRICE /SUPPLIES ORDERS

INQUIRY
SELECT SUPPLIERS SUPPLIER’S
TENDER
RECORDS
IMPORT

QUOTATIONS
PRICES& TERMS
NEGOTIATIONS
FINALISATION


PURCHASE ORDER

SUPPLIERS
ACCEPTANCE

DELIVERY

MATERIALS &REPORTS
INVOICE CHECKED ANALYSIS
WITH
PURCHASE ORDER

PAYMENT MADE


1) Recognition of need ,receipt of purchase requisition :
 An official indent being sent in duplicate to purchase
department
 These includes:

name
quality specification
quantity specification
date by which material required
place at which material to be delivered

2) Selection of potential sources of supply:
 It is more economical to purchase materials directly from
manufacturing firms
 For purchasing a new items sources should be
developed


 The information requested is regarding the company’s
annual sales ,accounts, type of operations ,facilities
,description of quality control procedures should be
ascertained

3) Making request for quotation :
 Quotation is an inquiry to know whether the vendor can

supply the desired material and by what price

 Also include terms and condition such as taxes and
frieght

 Minimum three quotations required from difft. suppliers


4) Receipt and analysis of quotations :
 After receiving quotations a comparative statement of

prices prepared along with the terms

 Comparative statement analyzed in light of following
points and right quotation selected for ordering the
material

price of the material material specification
place of delivery delivery period
taxes terms of payment
validity of tender guarantee period

5) Selection of right source of supply :


 Though quoted price is an important consideration for
finalizing the purchases

 Based on the personal experience and reputation of the
company the right suppliers selected

6) Issuing the purchase order :
 Purchase order constitutes a legal documents and
serves as an authority to dispatch items by vendor

 When vendor accepts the purchase order it acts as
contract for delivery of items

7) Follow up and expediting the order :


 After placing order the purchase service section contacts
the vendor in order to ascertain the progress of the order

 Specially designed postcards containing the following
information for follow up
purchase order number
pre-decided delivery date
promised shipment date

8) Receipt of materials ,reports and analysis:
 Company receives the materials along with the analytical

reports
 After verification of the reports and purchase order the

material is warehoused


 The quality assurance personnel collect the samples
randomly and analyzed for its specifications

8) Checking and approving vendor’s invoice for payments :
 Bills are received along with goods or sometimes later
along with the receipted copy of invoice

 Invoice should be checked to ensure that the correct
material has been supplied

 Price are checked as per the purchase order and verified
whether agreed discounts are given or not.


 9)Closing of completed orders :

 Before closing the completed the file copy of the
purchase order must be checked against both the
delivery reports and vendor’s invoice
 Then the purchase file is closed


Store ManageMent
 The success of a business to large extent depends on
the efficient storage of the materials

 Store manager responsible for executing the function of
the stores

 Ideally stores should be located adjacent to the
manufacturing area

 Stores layout should be planned with the objectives such
as to achieve minimum wastage of space and to achieve
maximum ease of operations


 Ideally raw materials stored nearer to use and finished
goods nearer to shipping area
 So that handling costs will be minimum and other costs
related to its operations are reduced

 Some specific functions of the stores department as
follows:

1) Receiving and recording of raw materials :
 Goods should be inspected visually for labeling and for

damage
 The containers are then stored in quarantine area with

label “not released“
 The receipt of materials entered in the records


2) Analytical reports for raw materials :
 Receipts of the materials informed to the quality control

department so as to collect samples for analysis

 The material reach the final storage station and then
chemical assay ,microbiological assay or physical assay
should takes place

 Rejected materials should be clearly marked as such
and stored separately

 Should be destroyed or returned under supervision of
quality control department


3) Positioning and storage :
 Separate storage space should be allocated for

quarantine ,approved raw materials and bulk products

 So mixing of the materials can be avoided

 It should be placed as such so can be easily located and
easily found

 Special care should be given to the printed packaging to
avoid mislabeling

 Stores maintained as such materials do not suffer any
damage or pilferage


 Depending upon properties , materials should be stored

4) Issuing and recording :
 Issue of the material should be followed as per the policy

of FIFO (first in ,first out)

 Materials issued against the receipt of authorized
material requisition by stores

 This functions serviced promptly so that production
continue without interruption.

5) Receiving and dispatch of finished goods:


 Stores receives the finished goods from the production
department

 After approval of quality control these are dispatched
against the orders placed by customers

6) Maintainance of sufficient stocks :
 Stores maintains safety stocks

 Accordingly the purchasing cycle initiated at appropriate
times so that items never run out of stocks


Salvaging and disposal of scrap and
surplus
 Word scrap and surplus symbolized waste and to the
extent they account for the loss of profits results from
following

 Mistakes in procurement
 Wrong planning decisions
 Wasteful processes in production

 In modern management surplus and scrap cannot be
treated as inevitable


 These are attacked before they arise and the primary
concern is to reduce these to minimum

 The following measures are adopted and monitored :
1) Controlling of surplus and scrap
2) Salvaging or converting the waste for advantageous
use
3) Disposing of the surplus and scrap to the best
advantage

 The production department primarily controls the first
function by proper design while purchase department
handles the second and third function


 The responsibility of disposing scrap and surplus usually
assigned to the purchase department

Salvage

 Salvaging defined as the processing of materials for
advantageous use or disposal of company’s property,
which no longer economically used in its position.


referenceS

 Pharmaceutical Production & Management by C.V.S. Subrahmanyam,
Vallabh Prakashan, first edition, pg. no. 260-267.

 Modern business organization & Management systems approach by
Prof.S.A.Sherlekar,V.S.Sherlekar, Himalaya publishing house, 5 th
edition,pg.no.5.38–5.58.

 Applied production & operation management by Evans, Anderson, Sweemey
& Williams, 3rd edition, West publishing company ltd.


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