Case Study : Indirect-Material Cost in a Manufacturing Company.

Output :

Local Purchase Procedure made comfortable, Case-Purchase stopped resulting in cost-saving.

Challenge :

In a metallic - component manufacturing Company, having 350+ workers, working around the clock, were facing higher indirect-material cost per month. The company owner identified that the expenses behind cash-purchase was substantially high. However the purchase department and production department justified that expenses were proportional to production volume. And both justifications sound true. Owners are mostly focused only on production output, and they get satisfied when monthly output is normal.

Solutions :

We did the case study, analysis and found that root-cause of the over-expense was the over-usage of cash-purchasing all the small and urgent items. 

The concrete solution done by Virat was;

1. Setting up priority criteria, and making that understood by all their departments;
• We removed the word "urgency" from their system.
• Top Priority Items - to be made available within 2 working days.
• Priority Items - to be made available within 7 working days.
• Normal Items - to be made available withing 15 working days &
• Repeat Items - as per the predefined frequency.
2. We introduced "Vendor Registration", and their purchaser got 65 local vendors (in 4 weeks) registered, and today that number would have reached more than 200.3. 
3. Getting quotations against RFQs(Request For Quote) by emailing to all registered vendors, and PO(Purchase Order) was made compulsory for all purchases.
4. Vendor rating introduced, and every supply by the vendor was scored, and accordingly the vendors were either appreciated or warned for their underperformance.

Benefits :

• The driver and cash-purchaser's time was saved, and invested in other value adding activities.
• Agreement with the registered vendors were done, including the below terms :
• Deliver goods only,
• Provide door-delivery max 3 times a week,
• Payment to be done on monthly basis.
• Cash payment for miscellaneous items was almost stopped.
• Price negotiation became more efficient.