Procuring Raw Materials

The raw material costs form a significant part of the overall cost of products. Maintaining low material costs by streamlining procurement will lead to the reduction in overall costs. The e business technologies help in negotiatint for a win win strategy with the suppliers. The four major activities in material proctrement are discussed below:

Selecting suppliers

The process of selecting suppliers is initiated when the purchase orders for products that do not have any approved suppliers are cleared. This process car, turn out to be costly and time consuming. The firm places an invitation for tender and shortlists potential suppliers. The short listed suppliers are then required to send the request for quotation (RFQ). The RFQ contains the product details and terms of nego~iation. The company then selects suppliers and places orders for products.

Ordering materials and services

Three options are available for organizations to procure materials and services. 7hese include:

Replenishment

The first option available to the firm to replenish the raw materials based on the sales forecast. These sales forecasts are jointly prepared by the departments of production, procurement and logistics. If the order to be placed is for new products, then the company would place a blanket order. But most often the need will be to replenish existing products and so a 'call off' order would be issued to the suppliers.

The above process is often referred to as VeDdor Managed Inventory (VMI). VMI involves the sharing of forecast information, information on current inventory levels and logistics information between the suppliers and the firm. The online technologies used for this process are electronic VMI, electronic demand forecasting, electronic invoicing and electronic advance shipment notices. The cycle time is saved and. accuracy is improved by e enabling ordering process,

Ad hoc buying

Ad hoc buying is the single puchase of items. These items do not come under procurement and are not directly related to production. The steps in adhoc buying are

Managing the product launch.
Distributing the product.
Reviewing development success.

Managing the product launch requires effective communication on promotion, advertising and launch to the target customers. The product design may be modified based on the customer feedback. Online customer feedback can help in fine tuning product development. This will lead to cost reduction and improved information accuracy.

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