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Definition & Scope
Organization of MM
Material Planning
Purchase Function
Stores Function
Inventimited Tender Enquiry (LTE)

What is LTE ?

ory Control
Terminology of MM
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MM in an R&D Organisation
E-Commerce
ERP
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Know Today's term

Exempt Carrier
A for-hire carrier that is free from economic regulation. Trucks hauling certain commodities are exempt
from Interstate Commerce Commission economic regulation. By far the largest portion of exempt carriers
transports agricultural commodities or seafood.

"If through any keyword search or any reference you have stumbled upon this professional and
exclusive site on MATERIALS MANAGEMENT, you've landed ,rightly, on a Unique site !!"

- Vijay Mathur, Life Time CPM, APP,MBA,M.Sc.

Every organization, big or small, depends on materials and services from other
organizations to varying extents. These materials and services are obtained through
exchange of money and the physical arrangement of it all is called Materials
Management or even Material Management.

Various materials used as inputs, such as raw materials, consumables & spares, are
required to be purchased and made available to the shops / users as & when needed
to ensure uninterrupted production. Therefore, efficient management of input materials
is of paramount importance in a business organization for maximizing materials
productivity, which ultimately adds to the profitability of the organization.

The main concern of any Business management is to maximise the Return on


Investment (ROI). The relationship of various entities here can be expressed as:

Profit Sales
ROI = ---------- X -----------------------------------------
Sales Current Asset + Fixed Asset

Thus ROI = profit margin + asset turnover rate


A firm's profit margin reflects management's ability to control costs in relations to
revenue. The asset turnover rate reflects management's ability to effectively utilize the
firm's productive assets.

Hence a firm can improve ROI in three ways :


• By reducing cost
• By getting more sales from available assets or Get
Currency converter
• By some combination of the above
Thus , it is the cost control that holds the key
In many manufacturing organisations, the cost of materials
alone happens to range from 40 % to 60 % of the total
expenditure. Obviously, a better management of material is
expected to ensure reduction in overall cost of operation
and smoothness in supply of inputs.

This requires well coordinated approach towards various

issues involving decision making with respect to materials.

All the materials related activities such as material planning & indenting, purchase
systems & procedure, variety reduction through standardization & rationalization,
reducing uncertainties in demand & supply, handling & transportation, inspection,
proper storage & issue of materials to the internal customers, inventory management,
vendor management & finally disposal of obsolete, surplus & scrap materials etc.
taken together is termed as “INTEGRATED MATERIALS MANAGEMENT”

To carry out these functions efficiently, it is essential to have a very good supplier
base, order booking process & inventory management system as well as expert
MATERIALS MANAGEMENT (MM) professionals.

Materials management ,thus, can be defined as a joint action of various materials


activities directed towards a common goal and that is to achieve an integrated
management approach to planning, acquiring processing and distributing production
materials from the raw material state to the finished product state.

Materials Management as such is a key business function that is responsible for co-
ordination of planning, sourcing, purchasing, moving , storing and controlling materials
in an optimum manner so as to provide a pre-decided service to the customer at a
minimum cost.

In its process of managing , materials management has such sub fields as inventory
management , value analysis, receiving, stores and management of obsolete , slow
moving and non moving.
Materials Management's scope is vast. Its sub functions include Materials planning
and control, Purchasing, Stores and Inventory Management besides others. The
various activities represent these four functions:
• Planning and control Learn Purchase Procedure
• Purchasing
• Value analysis and
• Physical distribution
The planning and control functions are inventory management , production planning
and scheduling.

Purchasing functions are buying, subcontracting, value analysis and follow ups.

Distribution functions are receiving , packaging, shipping, transportation and storage,


making it the Integrated Materials Management.

www.materials-manage.com ,an exclusive


site on Materials Management, has been
created and designed keeping in view the
needs of the undergraduate , post
graduate students and teachers and those
seeking a career in Materials Management
besides the already practicing managers
and professionals of Materials
Management, working in any sized firm
located either in the domain of the Private
sector or the Public sector, across the
world.

We expect business institutes , colleges and universities , worldwide, to make use of


this site to promote international traineeships for the students.
Business collaboration proposals are welcome on Materials Management services.
Please contact us
As you know , the fundamental objectives of the Materials Management function ,often
called the famous 5 Rs of Materials Management, are acquisition of materials and
services :

• of the right quality


• in the right quantity
• at the right time
• from the right source
• at the right time

From the management point of view , the key objectives of MM 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 deteriorations , 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

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.

The broad Materials function has the following as identified and interlinked sub
functions:
Materials planning and control: Materials
required for any operation are based on the
sales forecasts and production plans.

Planning and control is done for the


materials taking into account the materials
not available for the operation and those in
hand or in pipe line.

This involves estimating the individual


requirements of parts, preparing materials
budget, forecasting the levels of
inventories, scheduling the orders and

monitoring the performance in relation to production and sales.

Purchasing: Basically, the job of a materials manager is to provide , to the user


departments right material at the right time in right quantity of right quality at right price
from the right source.

To meet these objectives the activities undertaken include selection of sources of


supply, finalisation of terms of purchase, placement of purchase orders, follow up,
maintenance of relations with vendors, approval of payments to vendors, evaluating,
rating and developing vendors.
Stores : Once the material is delivered , its physical control , preservation , minimisation
of obsolescence and damage through timely disposal and efficient handling,
maintenance of records, proper locations and stocking is done in Stores.

Inventory control : One of the powerful ways of controlling the materials is through
Inventory control.

It covers aspects such as setting inventory levels, doing various analyses such as ABC ,
XYZ etc ,fixing economic order quantities (EOQ), setting safety stock levels, lead time
analysis and reporting.

Materials Management's scope is vast. Its sub functions include Materials planning
and control, Purchasing, Stores and Inventory Management besides others.

Materials management can thus also be defined as a joint action of various materials
activities directed towards a common goal and that is to achieve an integrated
management approach to planning, acquiring, processing and distributing production
materials from the raw material state to the finished product state.

In its process of managing , materials management has such sub fields as inventory
management , value analysis, receiving, stores and management of obsolete , slow
moving and non moving items. The various activities represent these four functions:

• Planning and control


• Purchasing
• Value analysis and
• Physical distribution

Organization of Materials Management Functions

The overall objectives of an organisation tend to be


achieved most efficiently when the organisation is
structured by grouping similar activities together.

The process begins by dividing the total operation


into its basic functional components. Each
component , in turn, is divided into a number of
sub-functions.

The process is continued until each individual job


encompasses a reasonable number of related
tasks. The basic aim is to have a system that is
functionalised , has proper control over the
activities and

is well co-ordinated. Materials Management provides an integrated systems approach


to the co-ordination of the materials activities and the control of total material costs.
Obviously, the MM organisation is derived from its fundamental objectives. Since
Materials management function ranges from receiving the material requisition to
placement of purchase orders and then on the other hand to receiving the material and
making it available to the users , a commonly seen organisation of materials
management is divided into an integrated sections as :

• Purchasing
• Stores
• Inspection
• Traffic

Once the whole Materials Management function has been divided into its different
sub-functions as above, the sub-functions too are divided into their functions which
are usually seen to be as :
Purchasing
• Administrative : Purchasing administration
involves all the tasks associated with the
management process, with emphasis on the
development of policies , procedures, controls and
the mechanics for coordinating purchasing
operations with those of other departments.

• Buying : It addresses to a wide gamut of activities


such as reviewing requisitions , analyzing
specifications, investigating vendors, interviewing
sales people studying costs and prices and
negotiating.

• Expediting : This is basically the order follow up


activity involving various types of vendor
relationship work.

Reviewing Order status, providing clarifications on


transportation, writing and emailing vendors etc.
• Special projects (Non routine) : In order to
facilitate smooth purchasing in a highly competitive
business environment , purchasing authorities have
to keep building the capacity to do better by taking
up as special projects activities such as vendor
development, vendor registration, value analysis,
market studies, system studies etc

• Routine : Purchasing process or procedure


involving routine or every day activities such as
dealing specific purchase file , placing orders,
maintaining records of commodities, vendors etc.
Stores

• Receiving Bay
• Custody
• Inventory control
• Disposal

Material Planning
In any integrated Materials Management environment, planning for getting the
materials is the starting point for the whole MM function. Materials planning sets the
procurement function and the subsequent material functions rolling.
Material planning is a scientific way of
determining the requirements starting with
raw materials, consumables, spare parts
and all other materials that are required to
meet the given production plan for a certain
period.
Material planning is derived from the over
all organisational planning and hence it is
always a sub-plan of the broad
organisational plan.
What it does is forecasting and initiating for
procurement of materials

Factors affecting Material planning :


1) Macro factors : Global factors such as price trends, business cycles, government's
import and export policies etc are called the Macro factors. Credit policy of the
government is a critical factor as banks follow these guidelines only while extending
financial support to a business entity.

2) Micro factors : These are essentially the factors existing within the organisation
such as corporate policy on Inventory holding, production plan, investments etc. For
any organisation, factors such as Lead

time of procurement , acceptable inventory


levels, working capital, seasonality,
delegation of power are micro factors.
Techniques of planning materials :
There are a few techniques used for
planning material for the given period. The
following two are , however, commonly
used :

1) Materials Requirement Planning


(MRP)
2) Requirement based on past
consumption

MRP has ,as its starting point, the annual


production plan of the manufacturing
concern. Once a firm determines its
annual production plan , the over all
material requirement , to meet the given
production plan, is worked out. It is a
detailed analysis encompassing the
materials and quantities available for use,
materials with quantities not available and

hence needing procurement, the actual lead time of procurement etc.

Since , it is always possible to have a situation where some parts of an assembly


are available and some others not available, Bill of Materials is exploded. It is
quantifying all the materials (components) needed for various assemblies , all needed
as per the production plan. BOM is thus a list displaying the code, nomenclature of an
item , its unit and quantity , location of use and also the estimated price of each
component. An explosion chart is a series of bills of materials grouped together in a
matrix form so that combining the requirements for different components can be made.
Once the BOM is ready , the same is handed over to the Purchasing wing which
initiates the purchasing acivities. MRP thus keeps in view the Lead time also. Using
computers, preparation of BOM through explosion of lists is quite easy and smooth.

Purchasing Function in Materials Management


Purchasing function , in a business environment , is one of the most critical functions
as it provides the input for the organisation to convert into output. Materials today are
lifeblood of industry. They must be available at the proper time, in the proper quantity ,
at the proper place, and the proper price. Company costs and company profits are
greatly affected by them as normally , a manufacturing organisation spends nearly 50%
of its revenue in purchasing.
Purchasing Function vs. Purchase
department :
Purchasing function is a function
commonly seen in all those organisations
that undertake purchasing activities.

Purchase department is a unit of an


organisation that performs purchasing
function.

The purchasing function is usually


performed by a specialised and
centralised purchasing department ,
directed by an efficient manager to
achieve the performance in an economical manner.

Profit making Centre ?


Purchasing is responsible for spending nearly half of a company's income for buying the
input materials.

Obviously, any saving achieved by it results into direct saving for the company and all
such savings are a company's profit.

Going by a thumb rule "even 1% saving achieved in Purchasing results in 5% profit for
any organisation".
Procurement vs. Purchasing
It is used to define one of several supply functions involved in logistics activities. In the
broadest sense procurement includes the entire process by which all classes of
resources (people, materials, facilities and services) for a particular project are
obtained. Since purchasing is a unique function , it differs a bit from procurement in the
sense that while procurement , with the same objective has a wider domain , purchasing
with the same objective is included in it !

Objectives of Purchasing:
The classical definition of objectives of purchasing is to buy materials and services of
the right quality , in the right quantity, at the right place , from the right source and at the
right time.
However , in general management parlance the objectives of purchasing are:
• To support company operations with an
uninterrupted flow of materials and services.

• To buy competitively and wisely

• To help keep a minimum Inventory

• To develop reliable alternate sources of supply

• To develop good vendor relationship and a good


continuing supplier relationship

• To achieve maximum integration with the other


departments of the firm

• To train and develop highly competent personnel

• who are motivated to make the firm as well as


their department succeed

• To develop policies and procedures which


permit accomplishment of the preceeding seven
objectives at the lowest reasonable operating
cost
The basic objective , in pure practical terms is ,of course, to derive the maximum value
for each unit of currency spent in buying.

Purchasing is no doubt a vast subject and as the competition among the firms grows
this function of business is expected to see a lot of evolution

Types of Purchasing:
Considering the nature of business an organisation has there could be different
approaches and hence Purchasing can be any of these types:
Forward Buying
Tender Buying
Speculative Buying
Systems Contracting
Rate Contract
Reciprocity
Zero Stock buying
Blanket Order

Selection of Source (Supplier)-------Purchase procedure (contd..)


'Sourcing' or 'Selection of source/s' is a major challenge for any Purchasing manager.
Source of supply of required materials is basically selection of a suitable supplier. The
Purchasing manager has to ensure , getting the material / service from the right source
(one of 5 R).

Once the Indent (also called requisition or Material Procurement Requisition/ MPR) is
received in the Purchase department ,the concerned dealing person scrutinizes it , in
respect of :

• The complete specifications including


drawings, if required
• Consumption pattern
• Stock in hand and dues in
• Budget availability
• Availability of all prescribed enclosures and
certificates,
• Estimates
• Inspection guidelines, if any
On being fully satisfied that the next stage activities i.e. sourcing is now called for, the
mode of selection of source , often called mode of tendering is decided.

In many firms , if the number of items is not large then the sources are known and on
the basis of suppliers record the Purchase order can be placed.

However, in government firms where opportunities are supposed to be given to any


eligible supplier, tendering is resorted to.
Tendering is a process by which a
potential source is contacted through a
notice called Notice Inviting Tender (NIT).

The NIT contains the details of material /


service required , the terms and
conditions applicable for entering into an
agreement with the seller, offers made in
response to NIT by the probable seller
(Bidder) , for finally reaching the point of
agreement between the selected bidder
and the buyer.
NIT is issued by the buyer and Tender is
submitted by the interested bidders /
tenderers.
Depending upon various reasons, mainly emanating from the extent of knowledge about
the existence of a source (supplier), the mode of tendering is decided.

Selection of Source, Modes of Tendering.....Purchase procedure (contd..)


Obtaining materials at the right price is a
major challenge for any purchaser.
The right price is never an absolute term
but is extremely relative.
It takes in view the right quality, the right
time and the right source of supply.

Obviously , the mode of tendering also


depends on the kind of materials to be
purchased, when being purchased and
from whom.
Price , as such, happens to be the sole
determinant of any purchasing process.
Other things remaining constant , the
exercise of determination of the right price has resulted into different modes of
tendering. The process finally succeeds in finding the right source or seller.

A tendering process addresses itself by clearly describing the need i.e. materials or
service with complete specification (tender specification) so that there is no ambiguity
left between the purchaser and the seller, identifying the sources (vendors / suppliers )
from whom the need can be satisfied and spelling out the terms and conditions for
agreement between the seller and the buyer. It's basically the urge to get the right price
that the concept of competitive buying emerged.

It implies generating competition among the sellers in respect to the price for their
acceptable materials / service , on the basis of other terms and conditions , by the
buyer.

It is based on the tendering process that ultimately the seller is selected for placement
of order.
The following are the widely recognised modes of tendering ,both in private and the
public sector domains.

In fact, these modes are the modes of tendering recognised by the materials
management function every where :
• Open Tender/ Global Tender
• Limited Tender Enquiry (LTE)
• Single Tender
• Rate Contract,
• DGS&D Rate Contract
Besides the above , other dimension of the modes of tendering is the tendering steps
that is to be followed while scruitinising the tenders. The following are popularly used
methods :
• Single Bid
• Two stage Bid
• three stage Bid etc.

election of Source, Limited Tender .....Purchase procedure (contd..)


Limited Tender Enquiry (LTE)

What is LTE ?

This mode of selecting vendor/s refers to


inviting tenders from only a limited numbers
of bidders. Since tendering is limited to only
a few bidders it is presumed that the
bidders are well known to the purchaser for
their capability etc.LTEs are issued in such
a way that sufficient competitive quotations
are received from the bidders.

Thus LTE is resorted to only when reliable


bidders ( manufacturers/ suppliers/ traders/
contractors ) are known. For this purpose,
the Purchasers maintains a list of
'approved' or registered vendors.

Thus the selection of a vendor for LTE is done by the purchaser to ensure that :

• the firms are financially and technically sound


• the past performance of the firms with regard to quality ,price and adherence to
time schedule has been acceptable
• the Supplier has successfully made the last supply
How it is operated ?
An LTE is also an Notice Inviting Tender (NIT) , limited only to a few bidders.
Hence, all the documents that make an NIT ,such as description of requirement,
associated terms and conditions , a fixed date and time for responding etc are sent ,
called tender enquiry, to the bidders.

The enquiries are sent on the same day and a date is mentioned ,clearly, for opening
it.

The original LTE papers are despatched through registered post/ under certificate of
posting/ e-mail/ FAX/ Courier on the address of the firm as available in the records of
the purchase department.

Single Tender Enquiry (STE)

What is STE ?

It refers to issuing Tender enquiry to only


one firm i.e. to single firm. It happens
usually when :

The item concerned is manufactured by


only one firm. It is then called a Proprietary
(Original Equipment Manufacturers - OEM)
Enquiry. Such Proprietary items are
purchased from their manufacturers only.
Sometimes , due to an arrangement with
the dealers , a firm may not like to respond
directly to an enquiry. In such situations
LTEs can be issued to many dealers of
that firm for having competition for getting
better price.

The item concerned is manufactured by many firms but due to certain specific
reasons ,enquiry can be issued to only one party. It usually happens in case of
retrofitting cases where the earlier material has been supplied by the same firm and the
needed material is to be fitted in that only, for example , spare parts of an equipment.

Normally, the proprietary items are purchased on supplier's terms as the supplier knows
that the buyer depends on it only for meeting the requirement. This is disadvantageous
from buyer point of view. In fact, the more are the vendors, the more is the competition
and the more are the chances of getting comparatively low price , a situation that
favours any buyer.

RATE CONTRACT
What is Rate Contract ?
In certain situations , mostly in case of
manufacturing units but otherwise also,
there are items of regular use for which it
is advantageous on commercial as well as
technical grounds to have one long term
order / contract with one or more than one
vendors to meet the recurring requirement.

The rate contract is entered into when the


total annual requirement of certain items is
large but not fixed.

Rate contracts may also be entered into


for items which are identified as of regular
and
repetitive consumption.

What is normally done is that a rate is fixed ,through tendering and selection process of
a vendor and then repeated orders are placed depending on as and when the
requirement arise.
How it is done ?

For entering into rate contracts / long term contracts, the mode of tendering to be
followed may be decided as per the nature of the item, the available sources, etc.

Thus, rate contract enquiries may be either


Open Tender/ Limited Tender/ Single
Tender , depending upon the nature of the
item.

All other conditions applicable to issuing


tenders are same, such as while issuing
LTE for rate contract, it should be ensured
that only reliable and reputed
manufacturers/ suppliers/ contractors are
contacted or else if the source is not
known clearly Open tendering may be
resorted to.
Items such as Chemical & Reagents, Oil &
Lubricants can be procured on Rate
contracts basis
DGS&D RATE CONTRACT

DGS & D is a CENTRAL PURCHASE & QUALITY ASSURANCE ORGANISATION of


Govt. of India, Department of Supply, Ministry of Commerce.
In the year 1860, the British Govt. evolved a concept of CENTRAL BUYING & set up
INDIA STORES DEPARTMENT in LONDON for meeting procurement needs of Govt. of
India.
Established in 1951 in its present form for rendering procurement services to Central &
State Govt. by placing Rate Contracts for common user items & contracts against their
ad-hoc demands.
Adhoc procurement decentralized in December, 1991. Main function now is to conclude
RATE CONTRACTS.
Quality assurance functions continue to remain centralized as before.
Continues to be the NODAL Agency of Govt. of India for purchase policy & procedure.
Govt. Departments/Organisations, who have not built-up their own infrastructure for
purchase, can raise their demands on DGS&D for ad-hoc procurement.
Handling procurement against several WORLD BANK & ASIAN DEVELOPMENT BANK
aided projects for modernisation of POLYTECHNICS & VOCATIONAL TRAINING
CENTRES, NATIONAL AIDS CONTROL. NATIONAL/ STATE HIGHWAYS, Hydrology
Project
Services continue to be available to PUBLIC SECTOR UNDERTAKINGS &
AUTONOMOUS BODIES.

It enters into Rate contracts for a number of items of wide demand by the different
ministries and Public Sector Undertakings ( http://www.dgsnd.gov.in/ )
Such demanding agencies are known as
Direct Demanding Office under the
DGS&D contracts.

DGS & D fixes rates and terms and


contracts with many firms and for many
items yearly and thus the interested
buyers, mostly the direct demanding
agencies and PSUs can place orders on
such firms for meeting their requirements.

The advantage is in economy of time s the


buyer doesn't have to go through the
tendering process which certainly is time
consuming ,at times. The DGS & D finalises the rate contracts in the start of a financial
year and the rate, terms and conditions usually hold for the entire financial year.
Sometimes, the rates do undergo changes with the consents of the sellers.
How it is done ?

Order / Enquiries are issued directly to the supplier(s) having DGS&D Rate Contracts by
the purchaser.

Purchase Procedure (Steps)

Recognition and description of need


Transmission of need (Indenting)
Selection of Source to satisfy the need
Contracting with the accepted source
Following up with the source / supplier
Receiving and inspecting material
Payment and closure of the case

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Purchase Procedure
A typical purchase department is usually engaged in purchasing a number of materials
and services falling in different categories. The activities are performed regularly by
purchase professionals with the objective of fulfilling organisation's materials and
services needs.

Naturally, depending upon the nature of procurement, environmental practices etc the
purchasing systems and procedures may also vary substantially. However , purchase
procedure can be seen to have a bit of standardisation across the globe and therefore a
professional purchasing system does show following steps that eventually constitute a
purchasing cycle.:

• Recognition and description of need


• Transmission of need
• Selection of Source to satisfy the need
• Contracting with the accepted source
• Following up with the source
• Receiving and inspecting material
• Payment and closure of the case

Recognition and description of need

Procurement activities in an organisation start right since the stage a need is felt for any
material or service.

An organisation categorises it's material requirements into two broad ways , viz.
Inventory Control item or Non inventory item.

A department within the organisation may require an item which is non inventory and
thus the department concerned shall have to describe the need. It implies writing down
the specification of the item , the volume (quantity) etc of the item and some other
related information to process it further.

For an Inventory item ,usually, there is a forecasting method by which the need for an
item is addressed. What could be a need ?

The need for an item may be at regular


interval , one time or even be sporadic in
nature. This could be an item needed for
running a machine , certain raw material
needed for production, a service in terms
of maintenance of a machine or for doing
certain job needing the employment of
labour, materials, machines etc.

Why need must be described clearly ?

The need, also called materials


requirement, must be defined clearly as
this is the stage where the right need
description shall ultimately lead to getting
the right material / service.

Once the need is made available to the purchaser, through a requisition , he has to
check the requisition for its correctness and completeness and then to ensure that
appropriate method has been used to satisfy the user and also to select the supplier.

Transmission of Need (Indent Raising) Purchase Procedure (contd.....)


Once need for a specific item or service has been established the next step shall be to
transmit the need to the purchasing people for processing at their end. It may require
certain paper work or electronic media to do this job.
Transmission of need to Purchase department is usually done through any one of the
following three forms:

1) Standard Purchase Requisition


A Purchase requisition is a document that
is used to list down the requirement and is
sent to Purchase department for further
processing.

Since material requirement is a regular


phenomenon for an organization , every
organization develops a formatised paper
or electronic requisition which is filled up
by the user department who has assessed
the need for the item.

It is also known as "Raising of an indent"


or
"Raising a "Materials Purchasing Requisition"

The indents for purchase of materials/ job contracts is raised by the department
concerned or any agency within the organization authorized to raise the indent. These
Indents are prepared in the a format designed by the organization. The indent carries a
unique identification number and is also checked for its correctness by the higher
authorities within the department , usually the the Head of the Department. Appropriate
ways are devised for control purposes.
In the indent , the Indenter gives complete
information w.r.t. the description and
specification of the material to be procured
such as description of the jobs to be
executed along with the materials to be
supplied and equipment.
For the items to be supplied, the quantity
along with detailed specifications and
drawing number, etc., are given in the
indent.
Similarly, for the equipment to be deployed
the desired capacities of the equipment,
their ownership, procurement through
rent/lease, etc., are specified in
the Indent. The overall quality of the jobs to be executed along with the expected
Performance Guarantees are also mentioned in the Indent.
Normally the specifications given are standard ones conforming to national or
international standards organisations such as IPSS, PS, ISS or DIN, etc. Wherever
required, additional information in the form of Manufacturing Drawings , a check-list ,a
certificate on the prescribed proforma, in respect of proprietary items , incorporation of
special requirement of inspection/check-list for special packing instructions, matching/
complementary parts of an equipment/ assembly , etc are enclosed in adequate
numbers with the Indent.

In some organizations , especially bigger ones, the cost estimates also form part of the
indent and as such are to be done by the indentor.
Estimated values provide a basis for examining the reasonableness of the prices
offered by the parties.

2) Traveling Purchase Requisition (TPR)


Mostly found in manually operated purchase systems , it is usually done by the
Inventory control section .
It is a simple printed card that is filed with the inventory
control record for an item. Since TPR are a means to
communicate and activate purchase it also carries
information such as :
• Complete description of the item to be purchased
• List of approved suppliers for the items,
maintained by the Materials Management
department
• Last Purchased price
• Past Consumption record
• Reorder quantity value
Since TPRs are raised for Inventory items , the need of
the item arises on the basis of certain forecasting
methods employed by the Inventory control section.
Popular methods are Periodic Review system , Fixed
quantity system or Reorder point system

3) Bill of Materials
In brief, all the parts / components needed to make a
product ,when listed along with the individual quantity,
are called Bill of materials.

This is basically a list ,structured in the same way a


product can be thought of. For example, when a design
personal produces design of a new product then he
may be needing a number of parts that ultimately when
assembled shall produce the item concerned.
List of such parts is called Bill of Materials (BOM).

All other things remain the same as in case of other


forms of transmission of need of an item.

Selection of Source (Supplier)-------Purchase procedure (contd..)


'Sourcing' or 'Selection of source/s' is a major challenge for any Purchasing manager.
Source of supply of required materials is basically selection of a suitable supplier. The
Purchasing manager has to ensure , getting the material / service from the right source
(one of 5 R).

Once the Indent (also called requisition or Material Procurement Requisition/ MPR) is
received in the Purchase department ,the concerned dealing person scrutinizes it , in
respect of :

• The complete specifications including


drawings, if required
• Consumption pattern
• Stock in hand and dues in
• Budget availability
• Availability of all prescribed enclosures and
certificates,
• Estimates
• Inspection guidelines, if any
On being fully satisfied that the next stage activities i.e. sourcing is now called for, the
mode of selection of source , often called mode of tendering is decided.

In many firms , if the number of items is not large then the sources are known and on
the basis of suppliers record the Purchase order can be placed.

However, in government firms where opportunities are supposed to be given to any


eligible supplier, tendering is resorted to.
Tendering is a process by which a
potential source is contacted through a
notice called Notice Inviting Tender (NIT).

The NIT contains the details of material /


service required , the terms and
conditions applicable for entering into an
agreement with the seller, offers made in
response to NIT by the probable seller
(Bidder) , for finally reaching the point of
agreement between the selected bidder
and the buyer.
NIT is issued by the buyer and Tender is
submitted by the interested bidders /
tenderers.
Depending upon various reasons, mainly emanating from the extent of knowledge about
the existence of a source (supplier), the mode of tendering is decided.

You will learn how to strategically measure purchasing performance, plus…


• How to improve your spend management by implementing a buying plan
• How to select the best suppliers by using cross-functional commodity teams, scorecards,
and total cost of ownership analysis
• How to improve vendor performance through a supplier performance management
program
• How to optimize supplier relationships
• How to improve risk management
• How to map and improve processes
• How to leverage technology such as eProcurement and Internet Reverse Auctions
• How to conduct benchmarking
• How to achieve efficiency through the systemization of purchasing operations
• How to utilize a strategic plan

You will learn how to make the many


decisions necessary to identify the best
potential suppliers, plus…
• How to most effectively prioritize requisitions
• How to decide when to use competitive bidding, negotiation, or both
• How to successfully conduct competitive bidding using solicitation tools such as RFP's
and RFQ's
• How to use financial and operational analysis to select suppliers with not only the best
monetary offer, but also the least risk of failure
• How to determine whether a contract, purchase order, or other method of ordering is best
for a certain purchase
• How to use follow up techniques to ensure supplier compliance
• How to close out a transaction with confidence
• How to think like a purchasing manager
• How to prepare for the future of purchasing