2b. Efficient Procurements of Raw Materials

What is procurement?

Getting the right supplies from the right supplier, at the right price

What is efficient procurement?

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

What is efficient procurement of raw materials crucial for?

Ensuring the success of any manufacturing process

What are factors that can influence the efficient of raw material procurement?

• Quality

• Cost

• Availability

• Delivery

• Relationship with suppliers (trust)

How can quality influence the process of sourcing raw materials?

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

• e.g. a construction company may need to procure high-quality steel to ensure the structural integrity of a building

How can delivery influence the process of sourcing raw materials?

Companies need to ensure that their raw materials are delivered on time, at a reasonable cost, and in a reliable manner. Many companies are now using an order and delivery process called just in time

• e.g. a car manufacturer may need to ensure that their raw materials are delivered on time to avoid delays in production

How can availability influence the process of sourcing raw materials?

Companies need to ensure that the raw materials they need are readily available (this is different to delivery on time)

• e.g. Tesla uses cobalt in their batteries and needs to ensure they have a steady supply of this rare earth metal

How can costs influence the process of sourcing raw materials?

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

• e.g. a textile manufacturer may need to source cotton at the lowest possible price to remain competitive in the market

How can relationship with suppliers (trust) influence the process of sourcing raw materials?

Companies need to ensure that they are working with reliable suppliers who can deliver quality materials on time and at a reasonable cost

• e.g. a construction company may need to work with a trusted supplier to ensure that their materials meet safety standards

What is just in time (JIT) stock management?

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

What are the advantages of JIT stock management?

• 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

What are the disadvantages of JIT stock management?

• Bulk buying economies of scale aren’t generally possible

• The ability to respond to unexpected increases in demand is limited in JIT stock management

• 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