Case Study

Output

Local Purchase Procedure made comfortable, Cash-Purchases stoppedresulting in cost-saving.

Challenge

In a metallic-component manufacturing Company, having 350+ workers, working round the clock,were facing higher indirect-material costs per month. The company owner identified that the expenses behind cash-purchases was substantially high. However thePurchase Department and Production Department justified that expenses were proportional to production volume. And both justifications sound true. Owners are mostly focused on the revenues and expenses, so abnormal expenses gets highlighted to them. The Operation teams are mainly focused only on production output, and they get satisfied when monthly output is normal.

Solutions

We did the 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;
      a. We removed the word “urgency” from their routine system.
      b. Top Priority Items – to be made available within 2 working days,
      c. Priority Items – to be made available within 7 working days,
      d. Normal Items – to be made available within 15 working days &
      e. 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 to more than 200. 3. Getting quotations against RFQs (requests for quote) by emailing to all registered vendors, and PO (purchase orders) 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-purchasers’ time was saved, and invested in other value-adding activities.
• Agreement with the registered vendors were done, including the below terms
      o Deliver goods only,
      o Provide door-delivery max. 3 times in a week,
      o Payment to be done on monthly basis,
• Cash payment for miscellaneous items was almost stopped,
• Price negotiation became more efficient,