Staff Name
: Mrs.Sabitha
Class
: II BBM CA & RM
Subject
: Production and Materials Management
UNIT III
Organisation of Materials Management - Fundamental Principles - Structure – Integrated
materials management - Purchasing – procedure - principles - import substitution and import
purchase procedure - Vendor rating - Vendor development
SECTION A
1. The request for tenders should contain: Quality of items, Quantity to be purchased,
period of delivery
2. “Hand-to-mouth buying” is also referred as: Purchasing by requirements
3. Each branch or department buys its own materials and equipment: Decentralized
purchasing
4. This technique heavily relies on the judgment and experience of the decision-maker:
Categorical plan
5. Vendor Management consists of vendor rating: Vendor development
6. Selection of acceptable suppliers is the main activities of: Purchasing
7. Materials management as an : Operating function
8. Value analysis is also one of the : Purchasing Policies
9. The first phase of materials management: Purchasing
10. For efficient purchasing: Five ‘R’s are required.
SECTION B
1. Explain the basic principle of Material Management.
Material management is a scientific technique, concerned with Planning, Organizing
&Control of flow of materials, from their initial purchase to destination.
Principles
Effective management & supervision

It depends on managerial functions of Planning, Organizing, Staffing, Directing,
Controlling, Reporting, Budgeting

Sound purchasing methods

Skillful & hard poised negotiation

Effective purchase system

Should be simple

Must not increase other costs

Simple inventory control programme
2.Define Integrated Material Management.
All the materials related activities such as material planning & indenting, purchase systems &
procedure, variety reduction through standardization & rationalization, reducing uncertainties in
demand & supply, handling & transportation, inspection, proper storage & issue of materials to
the internal customers, inventory management, vendor management & finally disposal of
obsolete, surplus & scrap materials etc. taken together is termed as “INTEGRATED
MATERIALS MANAGEMENT”
.
To carry out these functions efficiently, it is essential to have a very good supplier base, order
booking process & inventory management system as well as expert MATERIALS
MANAGEMENT (MM) professionals
3.Explain Vendor Rating.
Vendor Rating is a system used by buying organizations or industry analysts to record,
analyze, rank and report the performance of a supplier in terms of a range of predefined criteria,
which may include such things as:

Quality of the product or service

Delivery performance and reliability

Cost, price

Capabilities

Service

Financial continuity of the firm
The method includes defining the criteria and the weight each criterion receives in the overall
result, development of the questions and questionnaires, actually carrying out the measurements,
and finally interpreting the results. If vendor ratings are carried out periodically or even ongoing,
the
results
(per
vendor)
can
be
analyzed
and
compared
over
time.
Benefits of Vendor Rating

Clear and objective overview of performance of suppliers

Enables better vendor management

Incidents and escalations can be monitored earlier

Suppliers are stimulated to improve their performance

In the case of periodical vendor rating: analyze trends in vendor performance
If vendor rating is carried out before the placement of an order, it is also known as Supplier
Evaluation. When undertaken after order fulfillment, it is also referred to as Supplier Rating.
SECTION C
1. Explain Import Substitution.
Import substitution industrialization or "Import-substituting Industrialization"
(called ISI) is a trade and economic policy that advocates replacing imports with domestic
production.
[1]
It is based on the premise that a country should attempt to reduce its foreign
dependency through the local production of industrialized products. The term primarily refers to
20th century development economics policies, though it was advocated since the 18th century.
It has been applied to many countries in Latin America, where it was implemented with
the intention of helping countries to become more self-sufficient and less vulnerable by creating
jobs and relying less on other nations. The ISI is based primarily on the internal market. The ISI
works by having the state lead economic development through nationalization, subsidization of
vital industries (including agriculture, power generation, etc.), increased taxation to fund the
above, and highly protectionist trade policy. Import substitution industrialization was gradually
abandoned by developing countries in the 1980s and 1990s due to disappointment with the
results.
Adopted in many Latin American countries from the 1930s until around the 1980s, and in
some Asian and African countries from the 1950s on, ISI was theoretically organized in the
works of Raúl Prebisch, Hans Singer, Celso Furtado and other structural economic thinkers, and
gained prominence with the creation of the United Nations Economic Commission for Latin
America and the Caribbean (UNECLAC or CEPAL). Insofar as its suggestion of state-induced
industrialization through governmental spending, it is largely influenced by Keynesian thinking,
as well as the infant industry arguments adopted by some highly industrialized countries, such as
the United States, until the 1940s. ISI is often associated with dependency theory, though the
latter adopts a much broader sociological outlook which also addresses cultural elements thought
to be linked with underdevelopment.
2.Explain Purchasing Procedure
Purchasing is the formal process of buying goods and services. The Purchasing Process can
vary from one organization to another, but there are some common key elements.
The process usually starts with a 'Demand' or requirements – this could be for a physical part
(inventory) or a service. A requisition is generated, which details the requirements (in some cases
providing a requirements speciation) which actions the procurement department. A Request for
Proposal (RFP) or Request for Quotation (RFQ) is then raised. Suppliers send their quotations in
response to the RFQ, and a review is undertaken where the best offer (typically based on price,
availability and quality) is given the purchase order.
Purchase orders (PO) can be of various types including:

Standard - a one time buy;

Planned - an agreement on a specific item at an approximate date; and

Blanket - an agreement on specific terms and conditions: date and quantity and amount
are not specified.
Purchase Orders are normally accompanied by Terms and Condition which form the contractual
agreement of the Transaction. The Supplier then delivers the products/service and the customer
records the delivery (in some cases this goes through a Goods Inspection Process. An invoice is
sent by the supplier which is cross-checked with the Purchase Order and Document which
specifying that the goods received. The payment is made and transferred to Goods supplier.
Purchasing Procedures
The specifications and number/quantity and delivery of
equipment, devices and materials are determined by the
department(s) that will be using the product(s) or materials. The
Purchasing Department conducts purchase activities based on
purchase requests submitted by the/these department(s).
The Purchasing Department, at its sole discretion, selects
companies from which estimates will be sought. Suppliers are
selected from the files of "Companies with Previously
Established Business Relationships", "Companies from Which
Estimates Can Be Requested" and "Products and Suppliers".
Selection is made by comprehensivly evaluating such factors as
the quality and performance of the equipment, device(s) or
materials to be purchased, compatibility with existing facilities,
degree of reliability, product requirements including safety,
delivery time, the scale of the order, after-sale service and the
company's previous business record. As a rule, Osaka Gas asks
several companies to submit estimates. However, only one
company may be specified for estimate submission in such
special cases as those concerned with industrial property rights,
those requiring maximum levels of safety that only one specific
supplier can ensure, cases where only one specific supplier can
assure compatibility with existing facilities, or in case of urgency.
As a rule, when requesting an estimate from a company that it has
selected, Osaka Gas will set out a specification from listing Osaka
Gas's requirements in respects of quality, performance standard,
size, inspection and method of inspection. The selected
companies will be asked to submit cost estimates and
specifications to Osaka Gas prior to a specified date.
Specification sheets submitted by potential suppliers at their own
expense are checked by the Purchasing Department and the
department(s) that will be using the product(s), in order to
determine whether the required standards are met by the
product(s). All products must pass this examination. During this
process, Osaka Gas may request additions or changes to the
specifications.
After valid cost estimates and specifications have been
comprehensively evaluated in respect of price, technical
requirements, etc. Osaka Gas will commence negotiation with the
company with the most attractive proposal to discuss the amount
of the contract and other terms and conditions. The selection of
such a company shall be made by Osaka Gas at its sole discretion.
Contract terms and conditions will be decided upon mutual
agreement.
The business will be established upon conclusion of a contract, in
the form of a written document if necessary. The obligations and
liabilities of Osaka Gas arise only when such contract is
concluded.
Delivery dates specified in the contract must be strictly observed.
Precise details of the delivery schedule will be agreed between
the supplier and the relevant department(s) of Osaka Gas.
Delivered
equipment,
device(s)
or
materials
must
pass
inspections conducted by the relevant department(s) of Osaka
Gas. When deemed significant, an interim inspection may be
conducted during the manufacturing process.
Payment will be made according to the payment terms specified
in the contract