Description
It explains the techniques used in purchasing like MRP, JIT, Centralized purchasing, criteria for supplier evaluation, different evaluation methods like categorical methods, weighted point method, cost-ratio method.
?
International marketing shortages, skyrocketing costs of materials and energy, fluctuating nationalistic moods, conflicting social goals, profit squeezes , and greater government regulation of business has brought about a recognition of the importance of purchasing function
?
?
Purchasing is now viewed as “ Asset – management through asset – utilization and inventory control. “ Some of the techniques used in purchasing are :? MRP ? JIT ? Centralized Purchasing
?
Under MRP( material requirements planning ), a firm estimates its future sales , schedules production accordingly ,and then orders parts and materials to coordinate with production schedules so that inventories will not become too large or too small
?
Multiple deliveries may be necessary to minimize inventory costs and existing inventories continuously monitored to accommodate for inaccuracies in sales forecasts and subsequent production
?
To utilize MRP, a growing number of firms are combining the functions of purchasing , transportation, inventory control, receiving and , in some instance , production control under one functional area referred to as
materials management
?
?
The effectiveness of MRP depends on the buyer notifying the supplier of material needs in advance of production schedules Since irregular deliveries and defective parts furnished by suppliers can require numerous adjustments in a producer’s MRP scheduling , suppliers who sell to organizations using MRP must work closely with customer firms to ensure that MRP systems are effective
?
The resultant benefits of MRP to both supplier and customer are
? ? ? ? Controlled inventory levels Better management of production costs Timely deliveries and Overall increase in efficiency and effectiveness of operations
?
JIT is an inventory control system which enables a manufacturer to maintain minimum inventory levels by relying on only one supplier to deliver frequent shipments just in time for assembly into final products
?
?
Objective of JIT is to develop long- term , one – supplier relationships to reduce the risk of interrupted material flows An advantage of such a relationship is the resultant improved quality of items supplied.
?
?
The use of JIT necessitates that supplier deliver the ordered product at the precise time in the precise quality It also requires the integration of the buyerseller’s materials management, engineering , purchasing, production and marketing systems to promote the efficient flow of parts and materials
?
JIT creates an atmosphere in which both buyer and seller contribute toward optimal cost / benefit trade- offs , with cost and performance each receiving full consideration
?
?
There is a growing tendency toward centralization of purchasing There are important differences in buying behavior between centralized and decentralized purchasing functions
?
?
In centralized purchase, the buyers concentrate their attention on selected items, developing extensive knowledge of supply and demand conditions. They are more familiar with cost factors that affect the supplying industry and understand well how vendors within the industry operate
?
?
This specialized knowledge, when combined with the volume buying that centralized purchasing controls, increases firm’s buying strength and its supplier options Centralized purchasers also tend to place different priorities on selected buying criteria
?
In comparison to local units where the emphasis is more on short – term cost efficiency and profit consideration, centralized units place more emphasis on long – term supply availability and supplier relationships
?
?
?
MRP, JIT and Centralized Purchasing have a definite impact on industrial marketing programs A close buyer – seller relationship needs to be developed through MRP and JIT It would also necessitate that supplier constantly monitor product quality and delivery capability
?
The buying organization’s objective in carefully evaluating and qualifying potential vendors is to locate those suppliers that
? Have the capacity to produce the needed item in the required quality and quantity ? Are capable of fulfilling delivery and service needs ? Are price competitive and ? Can be relied upon as a continuous source of supply
Supplier evaluation generally involves four basic considerations 1. Quality 2. Service 3. Delivery and 4. Price
?
?
? ?
CATEGORICAL METHOD WEIGHTED – POINT METHOD COST- RATIO METHOD
?
?
?
Supplier evaluation is based on the experience and opinions of the user departments It is subjective in nature and non quantitative in nature Can suffer from perceptual biases
?
?
Weights are assigned to the different evaluation criteria Assigning weights to each factor enables the buyer to develop a composite performance index that can be quantitatively used to compare suppliers
FACTOR
QUALITY DELIVERY COSTREDUCING SUGGESTIONS PRICE
WEIGHT
40 30 20
ACTUAL PERFORMANCE
90 % ACCEPTABLE 90 % ON SCHEDULE % OF TOTAL RECEIVED = 60 125 % OF LOWEST PRICE 100/125 = 0.8
PERFORMANCE SCORE
40 x .9=36 30x .9=27 20x.6 = 12
10
10x.8=8
TOTAL COMPOSITE PERFORMANCE SCORE
83
?
?
The advantage of weighted – point method of supplier evaluation to the buyer is that a number of evaluative criteria can be proportioned to correspond with the values of the firm It also forces the buyer to define the key attributes of a supplier and objectively evaluate them, thus minimizing much of the subjective evaluation that occurs under the categorical method
?
?
?
?
The cost- ratio method is based on the use of cost analysis in evaluating suppliers Under this method, all identifiable purchasing costs are related to the value of products received The choice of costs depends on the products involved Commonly used categories are quality,
delivery, service and price
?
?
High ratio of costs to products correspond to low rating of supplier Low ratio means the supplier’s rating is high
?
From the buyer’s perspective, cost associated with quality include such factors like
? ? ? ? Visits to the vendor’s plant Evaluation of samples Inspection of incoming shipments Costs associated with defective products ( e.g. unusual inspection procedures, rejected parts, and manufacturing time lost due to defective parts )
?
?
?
Industrial marketers must be aware of the criteria that buyers employ in evaluating their offerings Evaluation criteria of buying organizations would however vary, depending on their objectives , requirements, and structures By developing a rating system based on customer criteria , a similar system can be used by the selling firm to :-
1.
2.
3. 4.
Promote and enhance the value of the company’s product and services Provide special control over items that customers consider critical to their operations Improve efficiency of internal planning and control Supply “ hard facts “ in support of contract negotiations
doc_592714503.pptx
It explains the techniques used in purchasing like MRP, JIT, Centralized purchasing, criteria for supplier evaluation, different evaluation methods like categorical methods, weighted point method, cost-ratio method.
?
International marketing shortages, skyrocketing costs of materials and energy, fluctuating nationalistic moods, conflicting social goals, profit squeezes , and greater government regulation of business has brought about a recognition of the importance of purchasing function
?
?
Purchasing is now viewed as “ Asset – management through asset – utilization and inventory control. “ Some of the techniques used in purchasing are :? MRP ? JIT ? Centralized Purchasing
?
Under MRP( material requirements planning ), a firm estimates its future sales , schedules production accordingly ,and then orders parts and materials to coordinate with production schedules so that inventories will not become too large or too small
?
Multiple deliveries may be necessary to minimize inventory costs and existing inventories continuously monitored to accommodate for inaccuracies in sales forecasts and subsequent production
?
To utilize MRP, a growing number of firms are combining the functions of purchasing , transportation, inventory control, receiving and , in some instance , production control under one functional area referred to as
materials management
?
?
The effectiveness of MRP depends on the buyer notifying the supplier of material needs in advance of production schedules Since irregular deliveries and defective parts furnished by suppliers can require numerous adjustments in a producer’s MRP scheduling , suppliers who sell to organizations using MRP must work closely with customer firms to ensure that MRP systems are effective
?
The resultant benefits of MRP to both supplier and customer are
? ? ? ? Controlled inventory levels Better management of production costs Timely deliveries and Overall increase in efficiency and effectiveness of operations
?
JIT is an inventory control system which enables a manufacturer to maintain minimum inventory levels by relying on only one supplier to deliver frequent shipments just in time for assembly into final products
?
?
Objective of JIT is to develop long- term , one – supplier relationships to reduce the risk of interrupted material flows An advantage of such a relationship is the resultant improved quality of items supplied.
?
?
The use of JIT necessitates that supplier deliver the ordered product at the precise time in the precise quality It also requires the integration of the buyerseller’s materials management, engineering , purchasing, production and marketing systems to promote the efficient flow of parts and materials
?
JIT creates an atmosphere in which both buyer and seller contribute toward optimal cost / benefit trade- offs , with cost and performance each receiving full consideration
?
?
There is a growing tendency toward centralization of purchasing There are important differences in buying behavior between centralized and decentralized purchasing functions
?
?
In centralized purchase, the buyers concentrate their attention on selected items, developing extensive knowledge of supply and demand conditions. They are more familiar with cost factors that affect the supplying industry and understand well how vendors within the industry operate
?
?
This specialized knowledge, when combined with the volume buying that centralized purchasing controls, increases firm’s buying strength and its supplier options Centralized purchasers also tend to place different priorities on selected buying criteria
?
In comparison to local units where the emphasis is more on short – term cost efficiency and profit consideration, centralized units place more emphasis on long – term supply availability and supplier relationships
?
?
?
MRP, JIT and Centralized Purchasing have a definite impact on industrial marketing programs A close buyer – seller relationship needs to be developed through MRP and JIT It would also necessitate that supplier constantly monitor product quality and delivery capability
?
The buying organization’s objective in carefully evaluating and qualifying potential vendors is to locate those suppliers that
? Have the capacity to produce the needed item in the required quality and quantity ? Are capable of fulfilling delivery and service needs ? Are price competitive and ? Can be relied upon as a continuous source of supply
Supplier evaluation generally involves four basic considerations 1. Quality 2. Service 3. Delivery and 4. Price
?
?
? ?
CATEGORICAL METHOD WEIGHTED – POINT METHOD COST- RATIO METHOD
?
?
?
Supplier evaluation is based on the experience and opinions of the user departments It is subjective in nature and non quantitative in nature Can suffer from perceptual biases
?
?
Weights are assigned to the different evaluation criteria Assigning weights to each factor enables the buyer to develop a composite performance index that can be quantitatively used to compare suppliers
FACTOR
QUALITY DELIVERY COSTREDUCING SUGGESTIONS PRICE
WEIGHT
40 30 20
ACTUAL PERFORMANCE
90 % ACCEPTABLE 90 % ON SCHEDULE % OF TOTAL RECEIVED = 60 125 % OF LOWEST PRICE 100/125 = 0.8
PERFORMANCE SCORE
40 x .9=36 30x .9=27 20x.6 = 12
10
10x.8=8
TOTAL COMPOSITE PERFORMANCE SCORE
83
?
?
The advantage of weighted – point method of supplier evaluation to the buyer is that a number of evaluative criteria can be proportioned to correspond with the values of the firm It also forces the buyer to define the key attributes of a supplier and objectively evaluate them, thus minimizing much of the subjective evaluation that occurs under the categorical method
?
?
?
?
The cost- ratio method is based on the use of cost analysis in evaluating suppliers Under this method, all identifiable purchasing costs are related to the value of products received The choice of costs depends on the products involved Commonly used categories are quality,
delivery, service and price
?
?
High ratio of costs to products correspond to low rating of supplier Low ratio means the supplier’s rating is high
?
From the buyer’s perspective, cost associated with quality include such factors like
? ? ? ? Visits to the vendor’s plant Evaluation of samples Inspection of incoming shipments Costs associated with defective products ( e.g. unusual inspection procedures, rejected parts, and manufacturing time lost due to defective parts )
?
?
?
Industrial marketers must be aware of the criteria that buyers employ in evaluating their offerings Evaluation criteria of buying organizations would however vary, depending on their objectives , requirements, and structures By developing a rating system based on customer criteria , a similar system can be used by the selling firm to :-
1.
2.
3. 4.
Promote and enhance the value of the company’s product and services Provide special control over items that customers consider critical to their operations Improve efficiency of internal planning and control Supply “ hard facts “ in support of contract negotiations
doc_592714503.pptx