The purchasing department in a manufacturing organization that requires a steady supply of various chemicals, fulfills its role by playing a delicate balancing act.
It is necessary to ensure that the production process is not disrupted due to a supplier, or a distributor failing to meet a delivery commitment. To tackle a contingency of this nature, it is essential to maintain an adequate level of stocks.
It is also crucial to bear in mind that storing large quantities of different chemicals has several cost implications. Maintaining greater quantities of inventories could result in blocking working capital. It would also be necessary to develop additional storage capacity, leading to greater expenditure as well as the need to devote management time to monitor these facilities.
How can a purchasing department meet all its varied objectives?
Develop a reliable distributor and supplier network
It is important that an organization has more than one supplier for the same chemical. While quality issues are definitely to be considered, there are several other factors to be taken into account.
- What is the turnaround time for a particular supplier? Are delivery deadlines scrupulously adhered to? Even one vital consignment that is late can throw the entire production cycle out of gear, and lead to a lost customer and a tarnished reputation.
- In many instances, third-party distributors offer a great deal of value. Even if their prices are marginally higher, they make up for this by offering flexible terms, lower order quantities, and a far higher level of service than a manufacturer can deliver.
- Very often, third-party distributors are ideal for smaller companies who do not have the order quantities necessary to source chemicals from foreign suppliers. Small and mid-sized organizations can get a cost advantage that is similar to their larger competitors if they place orders on distributors. These distributors aggregate the requirements of several customers and are in a position to offer a globally sourced product portfolio.
Prepare for a sudden surge in demand
A manufacturing organization may receive a large order that could lead to a consistent stream of steady business. At times like this, the purchasing department’s role becomes critical.
It is best to prepare for eventualities of this type by establishing alternative supply lines well in advance. Those purchasing departments that buy only from a restricted set of suppliers or distributors may be unable to meet the needs of the organization when there is a spike in demand for the company’s product or an urgent requirement for certain chemicals that are normally not purchased in large quantities.
Buying only from the lowest cost supplier, or a distributor that has the most reliable turnaround cycle, may not help in a situation where there is non-standard demand for certain chemicals. Identifying and trying out different suppliers with varying strengths and capabilities is a key factor for the success of a purchasing department.
Devise procedures to handle the complexity of purchasing chemicals
Purchasing departments may be required to arrange for dozens of different chemicals in varying quantities. Every chemical that is required in the manufacturing process has multiple suppliers, each of whom has their own set of advantages and downsides. It is essential to understand this complexity and deal with it in a manner that delivers the greatest benefits to the purchasing organization.
While price and product quality are usually the prime considerations when deciding upon a supplier, factors like flexibility of delivery and speed of delivery also play a role in differentiating between alternative sources of supply. Purchasing departments within each company would need to develop a strategy that is structured in a manner to meet their specific needs.
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