Purchasing, receipt and storage form an important part of a manufacturing company.
The process from purchasing to receipt, inventorying, manufacturing and storage of in-process and finished goods, to the distribution of the finished goods is one continuous or integrated system where the material flows from the supply market to the customers of the manufacturing company.
In today’s fast changing business world, it should not stop at the level of integration stated above. It is essential for the concept to be intensive and extensive in the overall scenario. In addition to the inter-functional that is purchasing and inventory control relationship, or, inventory and production linkage and other intra-organizational relationship e.g. for a multinational company with several facilities and customer sites located in different countries, a company needs to look at the inter-organizational links as well, even for managing the flows of materials and services.
Managing the flows of materials and services is a vital function in any organization. History has several examples where battles were lost because of the problems encountered in managing supplies to the armies.
In India’s history, the third battle of Panipat was a watershed. Marathas under the Peshwa of Pune were all powerful in those days. However they experienced problems in getting supplies in time at a crucial juncture in the battle. The rival Ahmed Shah Abdali took full advantage of that and the Maratha army was almost decimated. After that battle, Marathas were never as powerful. The control taken over by the British in the later decades could be attributed to this sudden power vacuum in this sub-continent. Management as a discipline owes much to the military operations. Even a project that is implemented expeditiously is said to be done on a ‘war footing’. It is common knowledge that the Military Operations Research, performed during World War II, later transformed into Operations Research, the much useful discipline of management as a science.
The flow of the supplies in the form of materials, services, information and finances is a long chain extending from the company to its supplier and further backwards to its supplier’s supplier and even further backwards to its supplier’s supplier’s supplier and so on. The chain extends forwards from the company to its customer and further forward to its customer’s customer, and even further to its customer’s customer’s customer and so on until the ultimate customer. Sometimes one may put a stop to this extension at some point beyond which it does not affect much.
The chain is as much for the materials flow as to the equally important flows of information, services and finances. In a war, these things were intuitively realized and appropriate action was taken. But, this attitude did not spill over into the civilian activities like business and government for the simple reason that nothing was required on a war footing.
Competition on the Basis of Time and Quality makes a Closer Coordination Essential:
Today, as global business has become extremely competitive, companies are feeling the need to look at business and its processes in a different way. Goods producing (manufacturing) companies and the services providing companies as well-are competing more today on the basis of time and quality which have become the prerequisites for running any business. Hence, a very close coordination with suppliers and distributors has become essential.
When supplies do not arrive on time or have inferior quality, it becomes a big problem for the company which cannot afford to waste precious money in keeping inventories of items and thus push up its own costs. It cannot afford to pass this increased cost to its customer who, in turn, cannot do so to his customer. Thus, what is required for the customer’s customer is as important as what is needed for the customer. It ought to be mentioned, in this context, once again that while there is always a need to be competitive on the basis of cost/price as well, that is not the sole determinant of a company’s competitiveness in the market. Besides price, quality and timely deliveries (or timely service) a company needs to be competitive on various other dimensions such as variety, flexibility, adaptability, innovativeness, cordiality, courtesy and empathy, all of which or a judicious combination which spell value for the customer, his customer and further the latter’s customer leading to the ultimate customer.
Now cost aspect due to competition has come into the inflow of materials and services and is called Inventory Control which is given importance and controlled by superior authority in Materials Management or Supply Chain Management.