There are some materials, which are used for the production of
products. But, some materials and services are used as a support
of the main production process. Although, the whole procurement
process should consolidate orders to take advantage of economies
of scale and quantity discounts.
After completion of supplier selection, contact making, product
design etc., a buyer-supplier engages in a transaction, which is called
procurement. After buyer places the order a supply chain must be
ready to do this if the required materials not made in a factory. The
process culminates in receiving the finished goods by buyer
paying for the order.
Direct and Indirect materials:
There are direct and indirect materials. Both are required to
procure. We can think about apparel manufacturers who need to
buy fabric, accessories etc. for the production of apparels. But
sometimes need to buy a personal computer, hard drive etc. also.
The materials are directly required to produce a finished apparel
are called direct materials and personal computer, hard drive etc.
are categorized as indirect materials.
Supplier manufacturer relationship:
Direct materials are required to be available in the right place,
right quantity and the right time. So that supply and demand are
matched in the supply chain. The procurement process needs to
design to facilitate production plan and desired level of inventory
for on time delivery. The procurement process should be visible to
manufacturer and supplier and any mismatch should be alerted
well ahead. Thus, the focus of the whole process is to reduce
inventory to match product supply and customer demand well.
SAP MM helps the manufacturer to track the process.
Direct vs. Indirect Materials:
Differences between direct and indirect materials are as follows:
-Direct materials are related to cost of goods, whereas an
an indirect material does not determine cost directly.
-And the delay in receiving materials will cause a delay in production.
But indirect materials do not delay production normally.
-A Number of transactions are low in case of direct materials. But, for
the indirect material, no. of transactions may be high.
Design Collaboration helps procurement areas:
If the Deign collaboration of a procurement department in a
manufacturing company is good and proactive enough, they work
closely with other working areas and with third party suppliers
also, this helps to derive considerable material benefit. Thus , the
overall return on investment increases through cost reduction,
quality improvement, and decreased time to market. The Design
responsibility goes to suppliers. Manufacturing and logistics
principles should be followed well.
Other categories of procurement:
However, based on the focus on value/cost and critical nature , there
are many indirect materials which are categorized under general
items. In this case, acquisition/transaction cost should be lower.
Direct materials can be further categorized under bulk purchase,
critical and strategic items. Under bulk purchase items, there are
the bulk packaging and bulk chemical items etc. For these items
service and performance under different dimensions are important.
Critical items are found with long lead time and the main objective of
procurement is availability, rather than cost. For strategic items,
the buyer-supplier relation is long term. Lifetime cost/value is
important for this category.
When we procure in a firm, we need to acknowledge above
mentioned things for a sustainable procurement process. Also, we
should think about society and environment to make our supply