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Module 4 : Market and Materials Management Analysis

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What is Material Management? Definition and Objectiv

es - Business Jargons
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The vendor development process is a sequence of actions that a corporation takes to discover, analyze, and choose
vendors to offer goods or services to the organization.

A vendor, sometimes known as a vendor, is a third-party organization frequently employed to carry out duties that a
business outsources. Vendors might be either an organization with several employees or a lone individual. Companies
may also decide to employ contractors to assign crucial jobs that their team requires assistance with.
Since vendors frequently finish a single job and are not salaried workers, using them might help a business save money.
Vendors can offer crucial services and help companies that are struggling to meet client demand. Vendors that
companies may use include:
•Retailers
•Manufacturers
•Software developers
•Wholesalers
•Maintenance providers
On behalf of a business, vendors can also carry out duties like producing brochures for marketing campaigns or tidying
up after events. Additionally, companies may hire suppliers to deliver or install computers, buy office furniture, and
place orders for janitorial supplies.
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6 Stages of Vendor Development

1. Vendor Selection
Your business depends on your choice of vendors. Additionally, classifying your supply base will help you manage those
vendors’ resources more efficiently and get the most out of them.
It would be ideal if all of your suppliers produced excellent work. However, businesses may have lengthy vendor lists that
number in the thousands, some of which are obviously more important for quality than others. Therefore, for active
vendor development management, selection should come first.
When starting their search, importers and buyers frequently take into account many factors in vendor development for
assessing possible sellers, such as:
•Minimum order quantity (MOQ): smaller customers or those on a tight budget will be particularly attentive to the
minimum order quantity (MOQ) a vendor requires.
•Payment terms: When choosing a vendor, importers of all sizes may take payment terms into consideration.
•Certifications: You could find value in typical certifications like ISO 9001 and ISO 14001. However, keep in mind that
certificates might not always be reliable, particularly in developing nations like China or Vietnam. An on-site audit is the
best way to confirm this.
•Production capabilities and capacity: this is a simple aspect, but many companies are unsure how to verify it. Among the
most reliable methods are requesting and approving a pre-production sample and conducting an on-site audit.
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our vendor development list should be divided into categories based on the following
criteria:
•Vendor type – crucial, tooling, office supplies, maintenance, and training
•Spending tiers: high, medium, and low
•Frequency of use – frequently, infrequently, rarely
•Second source vendor – yes or no
Filtering information in the approved list to manage vendor development
By adding these categories to the vendor development list, you can then filter this
information in a variety of ways to find:
•The top five most expensive vendors
•Top ten critical vendors
•Critical vendors with no backup
•Vendors who are rarely used and have little expenditure
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3. Auditing Vendors
Vendor audits, like most audits, are a snapshot in time. This method can collect a lot of information, and it is a
need for most quality management systems (QMS). Vendor audits are classified into two types:
Questionnaire-type vendor audits
The questionnaire, sometimes known as a phone call audit, is well-known among sourcing specialists. It’s a first
step that typically saves time by allowing you to vet vendors swiftly.
Questionnaires are useful in vendor development for gathering basic factual information about an organization
rather than judging how successful and efficient its operations are. For example, a questionnaire would provide
answers to questions such as:
•“What standards do you have for quality?”
•“How many staff members do you have, and how many of them are involved in quality control?”; and
•“What kinds of industries, and in what numbers, do you supply?”
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On-site vendor audits

Of course, on-site auditing would give you all the details from a questionnaire-based audit and much more, like:
•The QMS organization of the business.
•Information on performance.
•Management of products and processes.
•Results of certification audits and internal vendor audits.
•A tangible sense of the company’s operations and the culture it fosters.
•Personal contact with important employees of the vendor.

4. Measuring Vendor Performance

If your technologies enable making the information freely accessible, you may easily assess vendor performance.
And if properly applied, KPIs will develop into a very potent instrument. Vendor KPIs are an effective way to
gauge a vendor’s overall performance, including:
•Right first time
•Delivery on time
•Response time, quotes, and inquiries
•Defect rate
•Inspection and auditing results
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5. Vendor Development
Some larger companies will have a dedicated staff of vendor-quality engineers who work mostly in-house, rather than at
vendors’ facilities, and spend the majority of their time there. This defeats the goal of vendor development quality
engineering.
In order to have the greatest impact and influence on “right the first time” quality, the engineer should spend the majority
of his or her time at the vendors’ facilities. Smaller businesses, in particular, need to approach this carefully and use all the
information at their disposal to make wise decisions regarding vendor status.
The value of personally visiting your vendors For Vendor Development
Even if your company is small, you still need to set aside time to visit vendors for better vendor development, go over
their specifications, and clearly outline your organization’s deliverables and expectations.
Create an agenda in advance and make sure to plan each visit thoroughly. For example, this is one of your most important
suppliers. In that case, you should stay a few days and walk through the entire process with them, including design,
manufacturing, inspection, packaging, delivery, etc.
Make the most of your visit, and you can leave with the assurance that everyone is aware of what is required. Nothing
compares to taking the time upfront with your vendors to prevent issues later.
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6. Vendor Management
The ongoing management should be customized to meet the requirements of each vendor once the development
stage has reached an acceptable level of maturity.
To understand each vendor’s needs and any necessary corrective actions, it is essential to monitor vendor
performance continuously.
For instance, seasonal variations in a single vendor’s production capacity may cause delays in delivery. You can
prevent more disruptions at that plant by taking necessary action by monitoring on-time delivery over time.

Similar to how current quality reporting can assist you in identifying and resolving product problems that keep
happening at particular plants. Better vendor development management tactics are made possible by this
transparency.
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vendor selection criteria:

1.Quality product or service, meeting any technical specifications
2.Value with reasonable cost and terms
3.Transportation costs
4.Discounts for volume and early payment
5.On-time delivery
6.Financial strength
7.Excellent customer references
8.Customer service
9.Trustworthy
10.Regulatory compliance
11.ESG sustainability
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Methods of Pricing
The pricing method can be described as the process through which the value is asserted to a product or service to be sold
to the final consumer. Several factors can influence the product’s pricing, including the product’s demand, market
competition, and cost. Since the product price can leave a long-lasting impact on the business’s existence, pricing methods
need to be studied thoroughly before one is adopted.
Cost-oriented Methods
The cost-oriented method of pricing is a traditional method that is widely used by most entrepreneurs even today. Further,
this method is divided into three major parts: cost-plus pricing, target returning pricing, and markup pricing.
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Perceived Value Pricing Method

The perceived value pricing method is where the product price is decided based on the customer’s expectations.
Value Pricing Method
This pricing method is when the company produces high-quality products at low costs.
Going-rate Pricing Method
The third is the going-rate pricing method, where the product price is decided based on other similar products available in
the market.
Auction-type Pricing Method
The next on the list is the auction-type pricing method, where the product price is auctioned.
Differential Pricing Method
Finally, the differential pricing method is where the product prices vary from customer to customer. Prices of this type are
mostly dependent on factors like area, time, and potential customers.
Skimming Pricing
Skimming pricing is another popular method that marketers use to elevate their product sales. Here, the firm charges the
maximum price of the product in the initial stages and reduces the price with time.
Premium Pricing
Premium pricing is a pricing strategy where the product price is set higher than the prices of similar products.
Psychological Pricing
Psychological pricing is a practice where the price of the product is set slightly lower than that of the whole number. For
example – 999, 599, and so on.
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Cost-plus Pricing
In cost-plus pricing, the total cost of the product is calculated, which is further sold with a certain percentage of the
owner’s profit.
Target Returning Pricing
The target return pricing is a popular pricing method, where the price is determined based on the target rate of
return on the investment.
Markup Pricing
In this method, the specific percentage of product cost is added to the product’s end price to obtain the final price.
Thus, the company decides to fix the product price in such a way that it can get the invested amount during the
production stage.
Penetration Pricing
This method is a strategy used by most marketers to attract customers to their business. The product is sold at lower
or discounted prices during its initial offering. The lower prices help attract more customers, thereby keeping the
competitors away.
Market-oriented Methods
In the market-oriented method, the product price is decided based on the latest market trend and research. It is
further divided into five major parts:
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Determinants of the Marketing Price

Here is the list of primary determinants affecting the marketing price:
•Product cost
•Demand and utility
•Competition in the market
•Legal and government rules and regulations
•Pricing objectives
•Use of marketing methods
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Direct costs are typically variable costs, they can also

include fixed costs. Rent for a factory, for example, could
be tied directly to the production facility. Typically, rent
would be considered overhead. However, companies can
•Direct labor
sometimes tie fixed costs to the units produced in a
•Direct materials
particular facility.
•Manufacturing supplies
•Wages for the production staff
•Fuel or power consumption
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Direct costs are expenses associated with production and sales. The cost of raw material and labor required to
manufacture a product would be categorized as direct costs. Indirect costs are fixed expenses a business incurs
to keep the company running no matter the activity level.

Examples of indirect costs include lost productivity, absenteeism, and retraining expenses. Accidents typically
result in an increase in insurance costs.

Hidden costs are costs that are often overlooked and not immediately apparent but can have a significant
impact on the bottom line of an organization.

Hidden costs involve obscuring or omitting additional fees, charges, or costs until the user is well into the
purchasing or sign-up process. By that point, the user has already invested time and effort into the transaction
and is more likely to proceed despite the unexpected costs.
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HIDDEN COST EXAMPLES

1. Material-saving Initiatives

2. Many actions to maximize material utilization increase labor costs.

3. Storing and using remnants seems like an obvious way to improve material utilization.
4. Incomplete Solution
Often companies purchase software to solve their most obvious material utilization problems without understanding the
impact of nonintegrated software systems.
5. Poor Part Mix
Most companies optimize material consumption for cutting but rely too heavily on material utilization percentages as an
indicator. The best nesting software can’t create a better part mix when it is geometrically impossible. If you cut mostly
large parts, nesting alone will not help you increase material utilization. You instead need to purchase material in sizes
that will create the least scrap.
6. Poor Design
The labor cost associated with an overdesigned part, or a part made of several material gauges, is obvious. The cost such
a part has on material utilization is less obvious.
7. Poor Planning
When people think of saving money through planning, they usually think of time and not material.
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A two-step process
According to an Economic Times article, market development is a two-step process.
Segmentation analysis – research
The company begins by doing a segmentation analysis. It then shortlists market segments that are worth
targeting. In this case, it is trying to get new customers interested in an existing product.
The aim is to boost sales by tapping into a new segment or a market the company has not yet exploited.
As soon as it has chosen a segment, the company then creates a promotional strategy. In other words, it
finds ways of attracting those consumers.
To attract that segment, Economic Times says that the company:
“May have to take the support of both audio and visual media to push the product deeper into the
market.”
Pricing
The marketing team will also have to price the product competitively, especially if rivals have similar
strategies.
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Market feasibility is a study that identifies the success of a product in a particular market. It helps to identify the
potential markets, market competition, potential development in the market, and market analysis to evaluate the
business idea.

feasibility studies are usually conducted based on ideas, products. campaigns, processes, businesses, and trends in the
market. Feasibility studies are done based on how things are happening in the current market, how the market will
respond to the product, and the potential advantages and problems that may arise.

Importance of conducting a market feasibility study

Any entrepreneur who is planning to start a new business, or an investor who is planning to invest in a new business
takes a huge risk. The risk of not being successful in the selected market or not being successful in the selected
product category can create a huge impact on the entrepreneur as well as the investor.
Through logical tools, feasibility studies can identify whether the particular product has a possibility of being
successful in the selected market segment. It provides the advantages and disadvantages in entering a particular
market and allows the entrepreneur/ investor or the marketing team to make an informed decision. This reduces the
risk of financial losses as well as reputational damages.
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DECISION IN MATERIAL MANAGEMENT

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unit-03 (decision making in international marketing) |
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