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role of procurement in manufacturing

Updated on March 15, 2011

Materials management is an important activity of any business system, which is essential for any manufacturing sector.

The main objective of procurement .deptt is to maintain continuous production of product without any stoppages due to lack of raw material .Maintaining safety stocks of raw material .Procurement can be done in centralised or decentralised manner . Big corporates work on centralised manner where as small and medium companies does decentralised purchases.

The following are the main objectives of materials deptt for achieving the organizational goals :

To procure raw material at low cost

Main objective is to get raw material at lower cost as any cost saving in raw material cost reduces the cost of production as raw material constitutes around 50-60% of total cost of product. Manufacturer can enter into annual contracts or can have bulk orders with staggered delivery .

To maintain consistent quality

Quality of raw material has to be maintained even at competitive prices as quality of final product depends upon the quality of raw material . It can be done in two ways either having a inspection done at stores or Inspection done at vendors end. Vendor ratings is an effective tool to rank vendors as per the performance on quality front .

To ensure continuous supply of raw material

Create a good vendor base for maintaining seemless supply of material . Procurement with help of production planning schedules material as per MRP ( material requistion planning ) with lead time factored into it .

To minimize the carrying costs and ordering costs

The material function involves the incidental costs such as costs of ordering material, freight changes, storage costs etc. Reducing any of the above costs, would substantially increase savings, which inturn increases the profits. Techniques such as Economic Order Quantity are used in order to minimize the carrying and ordering costs.

To maintain a good relationship with supplier

A good relationship with the supplier shows the efficiency of the purchase department. Maintaining a good rapport with suppliers would not only have a good image in the industry, but also leads to certain economic advantages like reasonable price, preference in time shortages, intimation about forthcoming shortages etc., which will have an edge over the competitors.

Efficient record-keeping and prompt reporting

Materials management involves huge paper work. Paper processing work should be standardized through designing forms for recurring operations, submission of copies to the needy departments. It should ensure efficient record maintenance and reproduction of records when ever necessary.

To develop new sources and new materials

Purchase research helps in exploring new sources of supply. This may result in the supply of better quality of materials at favorable terms. Procurement of cheaper substitutes than the presently used material ( without affecting the quality) if any, should be availed. Thus it would reduce the cost.

Training and development of personnel

Materials department is an indispensable part of manufacturing sector. Efforts should be made to develop the personnel by training them if necessary; such training programs will not help to improve the morale of the employees but also, contribute to the qualitative.



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