Procurement

Procurement is the process of obtaining goods or services, typically for business

purposes. Procurement is most commonly associated with businesses because
companies need to solicit services or purchase goods, usually on a relatively large
scale. It generally refers to the final act of purchasing but it can also include the
procurement process overall which can be critically important for companies leading
to final purchasing decision.

Logistics: This function of supply chain management requires immense coordination.

The manufacturing of products has commenced. It needs space for storage until it
is shipped for delivery. This calls for making local warehouse arrangements. Let’s
say; the products are to be delivered outside the city, state or country limits. This
brings transportation in the loop. There will also be a need for outstation
warehouses. Logistics ensures that products reach the end-point delivery without
any glitches.

1. Material Identification,
IDENTIFICATION OF MATERIALS AND CODING SYSTEMS
Chapter objectives:
By the end of this chapter, the learners should;
i) Know how identification of material is done
ii) Explain the characteristics of codes
iii) Describe the, methods of coding materials
iv) Understand types of codes
Introduction
Materials are a general term describing goods which are held by organization. The bulk of
these goods are usually intended for use in connection with:
 Production
 Operating activities
But the expression of materials also covers finished products;
 Awaiting dispatch to customers
 Goods awaiting at a point of sale or are display
 Scrap and packages held pending return to suppliers e.g. samples, by products.
Common Terms Used to Describe Various Kinds of Materials
  Stock in trade – material held by a wholesale, retail or other trading concern usually
bought in quantity at a low price to be sold as units at a higher price. E.g sugar,
bread utensils.
 Raw materials – these undergo, changes through manufacturing process in the
course of being incorporated into finished products e.g. coal, rubber, cotton, timber.
The finished product of one industry may be raw material of another. Raw materials
of right quality are most important in processing industries.
 Piece parts – small components manufactured from raw materials
 Bought parts – finished parts or assemblies purchased from outside suppliers by a
manufacturer either to be incorporated into his / her own product or to be sold as spares
or accessories.
 Equipment and spares- This include machines installations and vehicles as well as
their associated spare parts.
 Tools- include hand tools (hammer, screw drivers) used on machines such as
milling cutters.
 Gauges – devices for measuring dimensions of shapes of material or components
e.g.plug, screw etc.
 Jigs and fixtures – pieces of equipment especially designed for holding materials or
parts while undergoing machining, fitting and assembly or other.
 WIP – comprises incomplete items in the course of manufacture
 Packaging material – everything used for packing including wrapping materials
e.g. paper, straw, rope.
 Scrap and residue – waste, used or surplus materials or parts arising out of
manufacturing process or other activities.
 Free issue material – materials or components provided by a customer in connection
with some equipment or commodity being manufacturers by him/ hers they are delivered
to the supplier ‘s factory but remain the customer ‘s property and are not paid for or
charged by the manufactured. They are usually but not exclusively associated with goal
contracts and are sometimes described as embodiment loan items.
  General materials – All good which do not fall within any other category e.g.
cleaning materials, Protective clothing, paints, nuts, belts, greases et.c these are
frequently called maintenance repair and operating (MRO items e.g.
Identification of Material (Coding of Materials)
The normal way of identifying an article is by simple description. This by itself is not
entirely satisfactory for stores purposes several different names may be used for the same
thing e.g. a dust bin may also be called refuse container or rubbish receptacle.
Again in order to identify same articles/items accurately a very long and complicated
description is required.
Example
Everyone knows what a chair is but there are many kinds of chairs and to identify only one
of them properly, it‘s necessary to say it‘s an arm chair with frame made of beech, Polished,
curved without the spring seat, back and arms, finished in sage- green leather and fitted
with two forms rubber – cushions; this is not the whole story, for nothing has been said
about the quality of material or the dimensions or various parts.
For that reason, it’s necessary to have some logical basis of identification which is more
precise and less cumbersome. This can be done by using letters or figures or a combination
of both.
In summary Coding is a system of words, letters or combination of both that entails brief
information pertaining various materials. Coding is a logical way of describing materials
and it is used specifically to identify items exactness.
Characteristics of Codes
 Uniqueness: Each item should have one code
 Distinctiveness: To avoid errors, codes representing different items should be
distinctive.
 Clarity: Code should be entirely Alphabetical or Numerical
 Brevity: Codes should be brief but consistent with the requirement
 Expandable: codes should be able to cope with new additional items
 Unambiguous: Codes with similar letters should be avoided
 Significant: The code should signify something about the coded item
Advantages of a Coding System
  Avoids repeated use of long descriptive titles e.g. a very simple item like a writing
pad might be described as faint ruled pad, 30 cm by 2 bound along the narrow edge
of paper. Each line is 7.5 mm apart except for a margin of 20mm at the top of each
sheet paper and a margin of 10mm
 Accurately identifies all items. A separate code symbol is available for every
individual type of item of materials in different sizes indicating there are an
approved specification and any special character.
 Prevents duplication of items – all items are arranged in same order. It therefore
follows that similar stores will be grouped together and when an item is coded once
it should not be given any alternative code number.
 Assists standardization and variety reduction. This is one of the most important and
profitable uses of a code. the grouping of like items together makes it easy to examine
complete range of any given type of items and consider whether the number of varieties
used can be reduced and standardization achieved on the minimum number of the most
suitable types.
 Provides a foundation for an efficient purchasing organization. Apart from the fact
that a coding system improves stock recording and control, it enables buying
instructions to be conveyed easily and quickly. Grouping of items with codes
facilitates the purchasing organization or department into commodity sections each
engaged on the buying of a particular range of items/store. This is especially
important where the is a central buying office serving several dispersed units
because demands for materials from units can be programmed to deal with the same
commodity group for all concern at the same time thus enabling the buyer to hence
full advantage of quantity discount.
 Simplify manual recording- Forms a convenient basis for sorting and recording of
documents sheets and in fact, basic materials document enables them to be sorted
into the number order. Then they are easily posted to the records which are arranged in the
same order.
 Simplifies mechanical records It would be practically impossible to employ
computers for material recording in the absence of coding systems. The limitation
 of the equipment prohibits the use of long descriptions because of the it would take
do input necessary data.
 It’s convenient for central analysis of unit stare house records where there are a
number of outlined store houses, and records a where there are a number of outlined
store house and records are kept at central point, a code is a necessity to make sure
that same item has the same identification in every unit. The central stock records
can therefore be kept in a code number order showing how much is in stock and
what the movement is for each stock holding point separately with a total for the
organization as a whole. This act not only facilitates economical savings but enables
the central office to arrange for the transfer of material from one unit to another as
and when required.
 Can be employed as a basis for stock control account. This also is usually arranged
to correspond with the commodity groups or laid down coding system.
 Simplifies pricing and costing – price list consisting all of the materials are
cumbersome and reference to them is difficult and slow. The use of codes and
numbers automatically provides a reliable index for all items. This feature of coding
is emphasized in the case of production material code number may be arranged so
as to correspond with cost headings thus simplifying materials costing.
 May be used as store house location system- it’s clearly desirable that goods in the
store house are arranged in an orderly manner. One way is to arrange items in the
sequence of stores coding system as far as practicable.
Disadvantages of Stock Coding
 The process of preparing stock codes is tedious
 It requires a lot of memorizing
 It complicates the storage function further
 It may lead to a proliferation of jargon making it difficult for outsiders to
understand.
Methods of coding materials
 By nature of item: This is coding of items according to their inherent characteristics.
Similar items into a series of main groups then each group is further subdivided
into subgroups or sections
  By the end use of the item: This is coding of items according to or to correspond
with the purposes for which the items will eventually be used.
 By the location of the item: This is the coding of materials on the basis of the
location within the store where the materials are to be found e.g. the gangways,
shelves, pallets etc.
 By source of supply: Here materials are coded according to the supplier or origin.
If there are three suppliers the coding would be 1,2,3 or A, B, C. Coding of materials
may be in accordance to local or international sources
 By the customer who will buy the end item: here materials are coded according to
the final consumer who will eventually buy the end product e.g. individual
consumer, industrial consumer, institutional consumers or resell government
bodies.
Types of Codes
 Numeric e.g. 05/09/2009
 Alphanumeric e.g. PE/0721
 Alphabetical e.g. M/N/Z
Interpretation of Codes
The logical development of a coding system is for every symbol employed to have a
significance (conveying some information about the item) so that in theory at least, it
should be possible for inspection of the code letters or numbers to say exactly what item is
represents giving sufficient details in each case to identify the article precisely.
Illustration
Let us consider the coding of copper rod by this system using numerical only as symbols.
To do this we must begin at the point where the total stock is divided into its main groups
and follow the splitting up of these main groups through various sub divisions until we
arrive at individual item.
The first digit indicates the segregation of a total range of numbers used by a production
engineering factory into the following main classification
1. Raw materials
2. Bought at parts
3. Tools
4. Gauges
5. Fixtures
6. Machinery spares
7. Piece
8. Scrap
9. General stares
10. Finished product
The second digit shows the first sub-divisions of this classification. Selecting
classification to illustrate this significance of 2nd digit in this code is Timber 01- rubber 02-
metal 03- textile 04- plastics 05 – paper 06- glass 07 – leather 08- paint 09- chemical.
The 3rd digit divides again fencing
0.2 Metals as example
02.0 ferrous 02.1 Non- ferrous metals to
The other numbers in this sequence 02.2 to 02.9 are not in use all metals are covered by
the two categories of ferrous and non – ferrous
The 4th digit makes another split in the case of 02.1 none ferrous
- 02.1 Aluminum
- 021.4 Lead
- 021.2 Zinc
- 02.13 Nickel
- 02.14 Copper
The 5thdigit operates as follows
02.14 copper – 02.14.0 lugot
02.141 plates
02.142 Sheer
CODE SYMBOLS
 Alphabetical e.g. ABCD
 Numerical e.g. 05,6,1,2
 Alpha numerical e.g. p2
GROUP PRESENTATIONS

1. Inventory Management and Inventory Decision Making,

2. Managing procurement systems, capabilities, and administrative processes,
3. Procurement Strategy Development, Demand and supply market analysis,
4. Supply Chain Process, Procurement scheduling and planning,
5. Introduction to Logistics Management, Role of Logistics in Business,
6. Logistics and Customer Service and Operation Management,
7. Global Logistics, Green procurement and logistics management
8. Material Requirement Planning (MRP), Requisition Monitoring, Requisition Follow-up
and Modifier,
9. Material Obligation Validation, Drivers in logistics systems and supply chains,
10. Transportation, Warehousing, ethical issues in procurement and logistics management and
contemporally issues in procurement and logistics management