Tag: Material

Purchasing method

A method used by businesses to buy products and/or services.
A purchasing system manages the entire acquisition
process, from requisition, to purchase order, to product
receipt, to payment.
Purchasing systems are a key component of effective inventory
management in that they monitor existing stock and help
companies determine what to buy, how much to buy and when
to buy it.

FUNCTIONS OF PURCHASE DEPARTMENT

Purchase materials at lowest possible cost while maintaining quality. Maintain good relationship with the suppliers. Take advantage of economies of scale. Maintain records efficiently. Develop highly competent personnel. Co-ordinate with all the departments of the organization.

TYPES OF PURCHASING SYSTEM Tender System Stockless Purchase System Blanket Order E-Purchasing / E-Procurement Subcontracting Rate Contract Method Petty Cash System Capital Equipment Purchase

Subcontracting refers to the process of entering a contractual agreement with an outside person or company to perform a certain amount of work. The outside person or company in this arrangement is known as a subcontractor. Many small businesses hire subcontractors to assist with a wide variety of functions

. Example: A small business may use an outside firm to prepare its payroll.Subcontracting is probably most prevalent in the construction industry, where builders often subcontract plumbing, electrical work, drywall, painting, and other tasks. In some cases, a general contractor may only be used as the construction manager or supervisor. In that case, subcontracting accounts for all of the physical work done on the premises. The general contractor’s only responsibility is to approve the contracts, keep the project within budget, and inspect the work.

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Objectives of MRP

The objectives of material requirement planning in operations management are:

(a) It determines the quantity and timing of finished goods demanded.

(b) It determines the time phased requirements of the demand for materials, components and sub-assemblies over a specified planning time horizon.

(c) It computes the inventories, work-in-process batch sizes and manufacturing and packing lead times.

(d) It controls inventory by ordering materials and components in relation to orders received rather than ordering them from stock level point of view.

(e) It improves customer service by meeting delivery schedules promised and shortening the delivery lead times.

(f) It reduces inventory cost by reducing inventory levels.

(g) It improves plant operating efficiency by better use of productive resources.

Material requirements planning (MRP) is a production planning and inventory control system. An MRP integrates data from production schedules with that from inventory and the bill of materials (BOM) to calculate purchasing and shipping schedules for the parts or components required to build a product.

There are three primary functions of an MRP system. First, the system helps ensure that the appropriate materials are available for production and the necessary products are available for customers to avoid shortages. Second, MRP reduces waste by maintaining only the lowest possible materials and product levels in stock. Lastly, an MRP system helps plan manufacturing functions, delivery schedules and purchasing. When an MRP system is doing its job, it reduces material waste while also avoiding product shortages. Data integrity, however, is a major issue for successful material requirements planning. The data fed into the system must be accurate; otherwise, serious production and stock errors may occur.

MRP was developed by engineer Joseph Orlicky as a response to the Toyota Production System, the famous model for lean production. The first computerized MRP system was tested successfully by Black & Decker in 1964.

Material requirement planning

Material Requirement Planning is a special technique to plan the requirements of materials for production. For the manufacturing company to produce the end items to meet demands the availability of sufficient production capacity must be coordinated with the availability of all raw materials and purchased items from which, the end items are to be produced.

In other words, there is a need to manage the availability of dependent demand items from which the products are made. Dependent demand items are the components, i.e., materials or purchased items, fabricated parts or sub-assemblies that make up the end product.

One approach to manage the availability of dependent demand items is to keep a high stock of all the items that might be needed to procured the end items and when the on-hand stock drops below a present re-order level, the items are procured or bought as the case may be to replenish the stock to the maximum level.

However, this approach is costly due to the excessive inventory of components, fabricated parts and sub-assemblies to ensure high service level.

An alternative approach to manage these items is to plan for procurement or manufacture of the specific components that will be required to produce the required quantities of end products as per the production schedule indicated by the master production schedule (MPS). The technique is known as Material Requirement Planning (MRP) technique.

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