Efficient procurements of raw materials

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Description and Tags

6 Terms

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Efficient procurement

acquiring goods and services in a way that minimizes the consumption of resources while still meeting quality and delivery requirements

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Efficient Procurement of raw materials is…

crucial for ensuring the success of any manufacturing process

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Important factors in procurement

  • Quality of raw materials - If the raw materials are of poor quality, then the final product may not meet the desired standards

  • Cost of raw materials - Cost is a critical factor in raw material procurement. Companies need to ensure that they are getting the best possible price for their raw materials without sacrificing quality

  • Availability of raw materials - Companies need to ensure that the raw materials they need are readily available

  • Delivery (costs,speed, reliability) - Companies need to ensure that their raw materials are delivered on time, at a reasonable cost, and in a reliable manner, Many companies use an order and delivery process caled JIT

  • Relationship with suppliers - Companies need to ensure that they’re working with reliable suppliers who can deliver quality materials on time and at a reasonable cost.

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Just In Time (JIT) Stock mangement

A process in which raw materials are not stored onsite but ordered as required and delivered by suppliers ‘just in time’ to be used

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Advantages of JIT

  • Stockholding costs are minimised

  • Close working relationships are developed with a small number of trusted suppliers

  • Cash flow is improved as money isn’t tied up in stocks

  • Unused storage space is available for productive use

  • Teamwork is encouraged so employee motivation is likely to be improved

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Disadvantages of JIT

  • Bulk buying economies of scale aren’t generally possible

  • The ability to respond to unexpected increases in demand is reduced

  • Administrative costs related to frequent ordering are increased

  • Unreliable suppliers (late or poor quality deliveries) can quickly halt production

  • Significant changes to organisational structure (a system that defines how a business is run, including how employees are grouped and who reports to whom) and production controls are needed