this ppt is related to procurement of the raw materials

2. 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: amar.hassan@uettaxila.edu.pk
Department of Mechanical Engineering,
University of Engineering & Technology,
Taxila

3. 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.

4. 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.

5. 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.

6. Procurement of Raw Materials

7. 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:

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

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

16. Classification of Engineering materials
Most of the Engineering materials can be classified into main
following categories :
1. Metallic materials (Metals, Non-metals)
2. Polymeric materials
3. Ceramic materials
4. Composite materials
5. Electronic materials
6. Advance materials

17. 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.

18. 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.

19. 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.

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

22. Overview of MRP System

24. 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.

26. 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

33. 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

34. 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

35. 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

36. 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

37. 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.

38. The End