Lect 3_Procurement of Raw materials & MRP.pptx

this ppt is related to procurement of the raw materials

1. Supply Chain Management (MS-409) Lecture – 3 Supply Chain Management Drivers Procurement of Raw Materials and Material Requirement Planning Course Instructor: Dr. Ammar ul Hassan Email Id: [email protected] Department of Mechanical Engineering, University of Engineering & Technology, Taxila

2. Procurement of Raw Materials Procurement in manufacturing sector refers to the method of purchase of raw materials from an external source . Raw material procurement process involves researching, selecting, ordering, and paying for raw materials required for a business. Identifying and selecting vendors, negotiating prices and terms, and awarding contracts are some steps in the procurement process. Raw material selection involves several factors that includes cost, quality, availability, and delivery time .

3. Procurement of Raw Materials Raw material procurement is the process of identifying and acquiring the necessary materials to support production activities. Materials may be purchased in bulk, such as commodities or manufactured goods, or they may be purchased separately, such as components or subassemblies.

4. Procurement of Raw Materials The role of raw material procurement is vital for profitability and overall success of a business . In order to ensure a smooth supply chain management of raw materials, business can adopt strategies like building a distribution network, sourcing locally , etc. Demand collection can prove to be highly beneficial in procurement for large businesses.

5. Procurement of Raw Materials

6. Procurement of Raw Materials The material procurement process consists of seven main process steps. The key steps in the procurement of raw materials include the following:

7. Procurement of Raw Materials 1.Need analysis Assessing the need is the first crucial step in procurement where the company takes stock of the raw materials required from different teams and separate out the list depending on the priority of the needs. At this stage, the team handling procurement also determines the best way to procure raw materials in terms of cost saving and logistics .

8. Procurement of Raw Materials 2 .Contract negotiation and approval Once the list of procurement is decided, the procurement department identifies vendors and requests for quotes . At least three quotes are sourced as a practice, but it depends on the organization. The vendor with the lowest quotation is selected and post approval of the quote , the raw materials are transported to the manufacturing units.

9. Procurement of Raw Materials 3.Purchase requisition Once the list of procurement is decided, the procurement team seeks approval for the purchase . They also cross verify the list with different teams and the raw materials are approved as per their operational priority.

10. Procurement of Raw Materials 4.Purchase order review Prior to the final approval of the order, the senior procurement manager does one final review before approval . Once the approval is obtained from the procurement manager, the list is sent to the accounts department .

11. Procurement of Raw Materials 5.Funds for raw materials are verified Based on the list, the accounts department issues a purchase order to the vendor and releases the funds . That purchase order is an indication to the vendor that the request has been approved and that they can proceed with the request.

12. Procurement of Raw Materials 6. Shipping of raw materials While in selected cases, the vendors arrange for the transportation of raw materials , it does not always happen in the case of all suppliers. In most cases, businesses need to arrange for their own transportation to transfer the raw materials from suppliers to the manufacturing units.

13. Procurement of Raw Materials 7.Invoice approval and payment Once the raw materials reach the manufacturing unit, the products are cross verified against the bill and the invoice is approved and the payment is transferred to the suppliers .

14. Procurement of Raw Materials Procurement of raw Materials Strategies Source locally Build a list of locally sources Increase inventory Connect with a distributor

15. Classification of Engineering materials Most of the Engineering materials can be classified into main following categories : Metallic materials (Metals, Non-metals) Polymeric materials Ceramic materials Composite materials Electronic materials Advance materials

16. Classification, cont. Metals Steel, Cast Iron, Aluminum, Copper, Titanium, many others Ceramics Glass, Concrete, Brick, Alumina, Zirconia, SiN , SiC Polymers Plastics, Wood, Cotton (rayon, nylon), “glue” Composites Glass Fiber-reinforced polymers, Carbon Fiber-reinforced polymers, Metal Matrix Composites, etc.

17. Material Requirement Planning Material requirements planning (MRP) is a system for calculating the materials and components needed to manufacture a product. MRP helps to develop a production plan for finished goods by defining inventory requirements for components and raw materials.

18. Material Requirement Planning MRP system determines item by item, what is to be processed and when, as well as what is to be manufactured when. This is based on order priorities and available capacities.

19. Material Requirement Planning MRP consists of three primary steps : taking inventory of the materials and components on hand, identifying which additional ones are needed and then scheduling their production or purchase

20. Overview of MRP System

21. Product Structure File BOM A bill of materials (BOM) is a comprehensive inventory of the raw materials, assemblies, subassemblies, parts and components, as well as the quantities of each needed to manufacture a product. It is the complete list of all the items that are required to build a product. BOMs also include the instructions for procuring and using the materials.

22. Master production Schedule As the name implies, a master production schedule determines what products are manufactured, when they are produced, and in what quantities. The required raw materials are identified by the finished goods BOM, the data from which is integrated with current inventory data to create the MRP for raw materials procurement

23. MRP Example 1 Compute the MRP plan for the Item x shown below. Note that the item has an independent demand that requires a safety stock of 40 units to be maintained. Order Quantity = 70 Lead Time = 4 weeks Safety Stock = 40 Weeks 1 2 3 4 5 6 7 8 9 10 11 12 Project requirement 20 20 25 20 20 25 20 20 30 25 25 25 Schedule Receipts 70 On hand at the end of period 65 Planned order released

24. MRP Example Solution: Order Quantity = 70 Lead Time = 4 weeks Safety Stock = 40 Weeks 1 2 3 4 5 6 7 8 9 10 11 12 Project requirement 20 20 25 20 20 25 20 20 30 25 25 25 Schedule Receipts 70 70 70 70 On hand at the end of period 65 45 95 25 70 50 100 30 75 55 105 35 75 50 95 25 70 Planned order released 70 70 70

25. MRP Example 2 Compute the MRP plan for the component shown below. Use lot size of 60 and lead time of 1 week and a safety stock of 10 units to be maintained. Order Quantity = 60 Lead Time = 1 week Safety Stock = 10 Weeks 1 2 3 4 5 6 7 8 Gross requirement 60 140 30 130 Schedule Receipts 50 50 50 On hand at the end of period 20 Planned order released

26. MRP Example 2 Solution: Order Quantity = 60 Lead Time = 1 week Safety Stock = 10 Weeks 1 2 3 4 5 6 7 8 Gross requirement 60 140 30 130 Schedule Receipts 50 50 60 60 60 50 60 On hand at the end of period 20 70 70 60 10 120 60 40 180 70 10 50 180 50 Planned order released 60 60 60 60

27. MRP Benefits MRP assures that materials and components will be available when needed, minimizes inventory levels, production planning, purchase planning, recourse planning, reduces customer lead times, and improves customer satisfaction.

28. The End