Procurement or Purchasing plays an important role in any manufacturing industry . Savings can be
achieved during procurement process by implementing ideas mentioned below . Suppliers /Vendors can
also contribute in suggesting cost reduction' s ideas .Raw material, services constitutes major part of
cost of product .Procurement department has now prime role in contributing savings in company .It is
obvious from the above table that major expense for any manufacturing unit is buying raw material .these
contribution are approx and vary industry to industry..
Given are few ideas which can result in savings
.
- BULK BUYING-The companies which have greater geographical presence or are multi locational
can achieve better price by buying bigger volumes instead of buying for individual units. Central
buying policies are recommended for such unit .Bulk buying results in annual contracts for a period
of six - twelve months for entire year requirement with prices being finalised for the entire period .
- OPPORTUNITY BUYING-Most of the commodities and raw material has seasonal cycle of prices
as they peak and fall in intervals .Hence we can book maximum amount of our requirement when
prices are low .
- LOCAL VENDORS -Vendors should be located in close vicinity of company which helps in
keeping low inventory as well as low freight cost .
- PARTNERSHIPS WITH MAJOR VENDORS-It is highly recommended to have partnership with
vendors in either having equity or technical collaboration so as to pass on savings to the
customer . Which results in cost reduction in manufacturing cost. Most of the Automobiles Majors
has this kind of arrangement with their vendors .Vendors are assured of business .
- E PROCUREMENT-Putting up tenders and requirement on Internet and setting up auction for
requirement on web which helps in reaching out more numbers of vendor base . This also helps in
cutting cost when we opt for conventional way of asking tender /quotation . Most popular way of
procurement strategy is reverse auction , where the lowest price bidder takes away the order
.
- BUYING MATERIAL FROM TAX EXEMPTED AREA .-In several countries the federal/ State govts
provide tax heavens for manufactures for certain period say 10- 15 years .Hence buying from
these area s helps in cutting cost .In common parlance it is called TAX HOLIDAYS . Look out for
such places prior to placing orders.
- ALTERNATE MATERIAL-Select high cost items and replace it by some low cost material . eg ;
steel by plastic/aluminium .
- TRY MERGE IN TRANSIT- The concept of in-transit product merging—where, for example, two
things are shipped from different locations and then married in transit so that they reach the
customer as a single shipment—can be seen as a technique for reducing inventory if the need for
the customer to simultaneously receive multiple SKUs is a given. To some extent, merge-in-transit
represents an extension of postponement beyond the distribution center walls.
- VENDOR MANAGED INVENTORY (VMI). With the appropriate incentives, allowing suppliers to
assume the responsibility for replenishment of your inventory, because of their visibility into both
their own inventory and production schedule and your demand data, can almost always reduce your
inventory.
- VENDOR STOCKING PROGRAM (VSP). Used primarily for maintenance inventories but applicable
to all, VSPs require a supplier to commit to an extremely high service level for delivery of specific
SKUs within a fixed time at a predefined markup. VSPs can reduce or eliminate inventories for slow-
moving products. There are numerous ways to take better control of inventory and decrease its
associated costs. The key to managing inventory successfully is to continuously measure your
performance and look for new ways to improve. These 25 strategies should get your organization
thinking about what it can do to lower inventory costs.
More on procurement strategies
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Complete hand book on Procurement: www.PurchasingDesk.com
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