The materials are directly required to produce a finished product are called direct materials e.g., personal computer, hard drive etc.Direct materials are required to be available in the right place, right quantity and the right time. Direct materials are related to cost of goods, whereas an an indirect material does not determine cost directly.Indirect materials do not delay production normally.Based on the focus on value/cost and critical nature , there are many indirect materials which are categorized under general items.Direct materials can be further categorized under bulk purchase, critical and strategic items.
Keywords: procurement, direct materials, indirect materials etc.
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:
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 chain green.
1.Weele, Arjan J. van (2010). Purchasing and Supply Chain Management: Analysis, Strategy, Planning and Practice (5th ed.). Andover: Cengage Learning. ISBN978-1-4080-1896-5.
2.Jump up^ Lewis, M.A. and Roehrich, J.K. (2009), Contracts, relationships and integration: Towards a model of the procurement of complex performance. International Journal of Procurement Management, 2(2):125–142.
Spread the love Introduction: There are terms related with Market Access initiative and Canada tariff facility. While third world countries like Bangladesh want to access in Canada market with their exports they need to know well about those terms. The important terms are mentioned below: Beneficiary Country: A beneficiary country is entitled for General Preferential tariff (GPT), LDC or MFN tariff […]
Existing amenities not enough to store, deliver large volume of vaccines within a short time, say experts The governments are considering banking on the existing cold chain for storing, transporting and distributing coronavirus vaccines while some professionals say the main challenge will be to manage such a large volume with the existing capacity. On November 5,2020 the Bangladesh government signed a trilateral memorandum of understanding (MoU) with Serum Institute of India and Bangladesh’s Beximco Pharmaceuticals Ltd to get three crore doses of Covid-19 vaccines from Serum, keeping in mind the existing cold chain. In 2020 during the COVID-19 pandemic, vaccines being developed may need ultra-cold storage and transportation temperatures as cold as −70 °C (−94 °F), requiring what has been referred to as a “colder chain” infrastructure. Disruption of a cold chain due to war may produce consequences similar to the smallpox outbreaks in the Philippines during the Spanish–American War, during which the distributed vaccines were inert due to lack of temperature control in transport. There are no uniform global practices to follow, customs, legal, and compliance issues, effects on the environment, supplier-related risks, issues with cold chain delivery — packaging, hardware issues, vehicle breakdown, etc. Besides the usual elements of risk that plague normal supply chains, cold chain logistics has its own exclusive set of problems such as product sensitivity, the increasing cost of freight, and growing regulatory hurdles.
Keywords: Cold Chain, Supply chain management, Vaccines, food.
While discussing Supply Chain Management Network Design the business issue of Supply Chain Sustainability is included by high-caliber executives. The aim is different for every company such as utilizing sustainable materials in the manufacturing process, optimizing supply chains to abbreviate greenhouse gas emissions, relying on renewable energy sources to power facilities, sponsoring edification funds for youth in the local community, etc. There is a shift of paradigm from firm level to supply chain level competition and the challenge of integrating sustainability targets into corporate comportment due to growing environmental and ethical cognizance ecumenically. A sustainable supply chain is quantified by triple bottom line, which are the upstream components of the supply chain.
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