Question

1. Discuss the importance of purchasing and what to consider in selecting suppliers.

2. Describe inventory and how to maintain effective contro

Answer 1

Answer:

1. Discuss the importance of purchasing and what to consider in selecting suppliers.
Purchasing is important because it is the starting point of ensuring quality delivery of product by ensuring the right kind of raw materials are collected from the right supplier at right time at the right price and made available at the right time for smooth flow of production purposes.

The various challenges faced in purchasing includes

• Liaison with suppliers and maintain goodwill - supplier relationship manager
• Maintain an amicable long term relationship with the best vendors and critical suppliers
• Ensure the process is managed in a cost effective and timely manner not compromising on quality

Importance of Purchasing

• It is an activity if properly managed can bring about cost saving on the final product
• It ensures smooth flow of raw materials into production process and maintain the normal tempo of production
• It can help in managing escalating costs during stock shortages
• It also suggests alternative products in times of emergency to ensure production goals are achieved.

Process

• Identifying place of availability of raw materials
• Verifying and scrutinizing the appropriateness of raw materials to be purchased (purchase Indents)
• Quotation collection and scrutinizing
• Vendor selection and listing
• Negotiation and release of purchase orders
• Inward inspection of raw material supplied
• Managing invoice received from supplier
• Follow up procedure

Factors to be considered for Selection of Supplier.

Supplier performance in terms of time and price competitiveness – Competency and consistency

• Single vendor or multivendor
• Value congruence between supplier and company
• Vendors experience in the market - Convenience/Simplicity and risk absorption ability
• Flexibility in operations and Agility
• Quality consciousness - Commitment to quality and safety
• Eco friendly - Social Responsibility
• Additional services provided

Describe inventory and how to maintain effective control

Inventory is the physical stock of goods available in an industry, stationeries, it can be raw materials purchased for production of goods, tools and spare parts, work in progress Finished goods, defective supplies etc.

Inventory control is aimed at reducing the cost involved in holding excessive stock and at the same time ensure adequate supply of raw materials and supplies at the right time.

Effective control of inventory can be ensured by

• Manage inventory based on is importance
• Physical stock verification and comparing it with perpectual inventory system in the organization,
• Valuation of inventory ,
• Stock of lost and expired stocks.
• Engage technology for Inventory Management

The loss due to expiry of stocks as well as managing the cost of holding inventory. There are various techniques namely

Type of method	Focus	Classification of goods
ABC Analysis	Based on consumption of goods – Based on Pareto’s 80- 20 rule	A requires very strict monitoring B Moderate and C Low monitored
XYZ Method	Considers value of products	High, Medium and Low
HML Analysis	Considers usage and price of each unit of element- similar to ABC classification	High, Medium and Low
VED Analysis	Used for automotive spares based on critical importance	Vital, essential, desired
FSN Classification	Based on rate of consumption	Fast, Slow, Non moving