Efficient procurements of raw materials

Efficient procurement

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

Efficient Procurement of raw materials is…

crucial for ensuring the success of any manufacturing process

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.

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

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

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