OPERATIONS MANAGEMENT

Lecture 13

Purchase Policy
Purchasing: Purchasing is responsible for obtaining the materials, parts, supplies, and services needed to produce a product or provide a service. The goal of the purchasing is to develop and implement purchasing plans for products and services that support operations strategies.

Importance of Purchasing
Quality of goods or services Timing of deliveries Impact on operations Supply chain management Lean Production Out sourcing Business to business relationship Impact on profits

Duties of Purchaser
1. 2. 3. 4. 5. 6. Identify sources of supply Negotiating contracts Maintain databases of suppliers Obtain goods & services in time Select best suppliers Act as a liaison between supplier and various internal departments

Purchasing Interfaces

Operations

Legal

Accounting

Purchasing
Data Processing Suppliers Receiving Design

Purchasing Interfaces
Purchasing has interfaces with a number of other functional areas, as well as with outside suppliers. Purchasing is the connecting link between the organization and the suppliers. In this capacity, it exchanges information with suppliers and functional areas. The interactional purchasing with other functional areas such as: 1. Operations 2. Legal Department 3. Accounting 4. Design and Engineering 5. Receiving 6. Suppliers

Purchasing Interfaces
1. Operations: Operations constitute the main source of requests for purchased materials, and close cooperation between these units and the purchasing department is vital if quality, quantity, and delivery goals are to be met. Moreover, in order to make purchasing effective, timely communications must be made for cancellations, changes in specifications, or changes in quantity or delivery times.

Purchasing Interfaces
2. Legal Department: The purchasing department require the assistance of legal department for contract negotiations, in drawing up bid specifications for non routine purchases and in helping interpret legislation on pricing, product liability and contracts with suppliers. 3. Accounting: Accounting is responsible for handling payments to suppliers and must be notified promptly when goods are received in order to make advantage of possible discounts. In many firms, data processing is handled by the accounting department, which keeps inventory records, checks invoices, and monitors vendor performance.

Purchasing Interfaces
4. Design and Engineering: It usually prepares material specifications, which must be communicated to purchasing. Because of its contacts with suppliers, purchasing is often in a position to pass information about new products and materials improvement on to design personnel. 5. Receiving: Receiving checks incoming shipments of purchased items to determine whether quality, quantity and timing objectives have been met, and it moves the goods to temporary storage. Purchasing must be notified when shipments are late.

Purchasing Interfaces
6. Suppliers: Suppliers or vendors work closely with purchasing to learn what materials will be purchased and what kind of specifications will be required in terms of quality, quantity and deliveries.

The Purchasing Cycle

The Purchasing Cycle: Series of steps that begin with a request for purchase and end with notification of shipment received in satisfactory condition. Main steps in the purchasing cycle: 1. Purchasing receives the requisition: The requisition includes: a. Description of the item or material desired b. The quantity and quality necessary c. Desired delivery dates d. Who is requesting the purchase

The Purchasing Cycle

Main steps in Purchasing: 2. Purchasing selects a supplier: a. Identify suppliers that have the capability of supplying the desired goods. b. If no suppliers are currently listed in the files then new ones are sought 3. Purchasing places the order with a vendor: a. If the order involves a large expenditure, particularly for a one-time purchase of equipment then vendors will be usually asked to bid on the job, and the operating and design personnel may be asked to assist in negotiations with the vendors. b. If the order involves small purchases then it can be handled directly between the operating unit requesting a purchased item and the supplier.

The Purchasing Cycle

4. Monitoring Orders: Routine follow-up of orders, especially large orders or those with lengthy lead times, allows the purchasing department to project potential delays and relay that information in the operating units. 5. Receiving Orders: Receiving must check incoming shipments for quality and quantity. It must notify purchasing, accounting, and the operating unit that requested the goods.