Material needs of any organisation are many, such material requirements are varied from organisations to organisations, and department to department
Range and Variety of Material Requirements Needed
Every buyer must understand the range and variety of requirements needed by his organisation. A wide range of needs covering all types of industries in both the public and private sectors are presented below:
1. Capital Items
Capital assets or items are the tools by which an organisation works and create value. Infact they are characterised by the need to utilise additional capital to increase productivity, hence they are capital intensive Purchase of buildings and property, machines and equipment’s, vehicles, furniture and fittings, among others are good examples of capital items.
2. Production Materials
Purchase of raw materials, internally manufactured piece parts, packaging or insulating materials for use in production, processing of material such as plating of heat treatment of work in progress (W.I.P), bought out-parts from outside
3. Operating Supplies
These include spare parts for machines and equipment, tool, jigs and holding devices for machinery operations, patterns and templates for use in manufacture, etc.
4. General Supplies
These include lubricants, oils, greases and fluids, hand tools, protective clothing, electrical plugs, fuses, etc.
5. Packaging and Display Materials
These include protective packaging, name plates and transfers, advertising materials, brochures, instruction booklets, etc.
6. Office Supplies
All forms of stationery, telephone, telex and other service computing, copying and other services, staffing services. As well as solid fuels, gases and air services, electricity services, town and other water services.
8. Domestic Supplies
Food and other canteen supplies, clothing, linen and other supplies, domestic cleaning materials.
All these needs must be recognized, authorised and satisfied in a variety of ways in different organisations.
How Needs Differ According to Type of Business
Needs differ from organisations to organisations, depending on the nature of business. Needs are also determined and satisfied in different ways depending on the type of business.
Basically all needs can be classified into three main groups viz:
1. Needs which require capital expenditure e.g building, machines, vehicles, furniture, etc.
2. Needs for production materials which go directly into the finished product.
3. Needs for miscellaneous supplies which are supplies other than production materials needed to operate the business.
The acquisition of those needs would depend on the nature of business which may be primary (e.g extractive, horticulture, agriculture, etc) secondary (e.g Manufacturing, engineering /construction, etc.) and tertiary(e.g wholesaling, retailing, Banking & Insurance Services, professional services, etc)
How and Where Needs Arise
The need for capital items such as vehicles grows with each stage of development. They are needed at the Power Holding Company of Nigeria (PHCN), Nigeria Port Authority, Nigerian Breweries PLC., Nigerian Guiness PLC., and in short in the fields, by transport organisation, the Police and the health authority. The purchasing department specialise in giving advices on the appropriate needs and suitability. The different classifications of needs, arise in different circumstances and in different places in the company,
1. Capital Needs
These needs arise in top management meetings either when the company is first set up or when major changes requiring capital expenditure are taking place. However, all needs should be based on availability of funds through budgeting and other purchasing policies. The reason is that one of the ‘unforgivable for the competent procurer is the exceeding of a purchase budget.
In this regard, protecting budgeted costs should always rank high in the priorities so as to avoid over spending or commitments.
2. Production Materials
Need for these materials arise out of the operating plans of the organisations, the company requires them to make goods to meet a sales forecast, satisfy a production programme or a specific . customer’s order. Such materials may be requisitioned by the production department or purchased for stock against stock levels by the materials control department.
Large, valuable or special items requisitioned are usually delivered directly to production or material control unit in line with the production programme, while small, inexpensive, standard items are held in stock against inventory levels.
3. Miscellaneous Supplies
These include everything required to operate a business other than capital purchases and production materials. Two ways of satisfying these needs include; to hold them in stock against stock levels if they are to be used on a continuous basis or to allow departmental supervisors to request to buy as needed if the need for them is irregular, discontinuous and non-vital.
Therefore, need for these items may arise out of needs for capital items in top management deliberations, from sales forecasts, production programmes and customers’ orders needs. They may also arise out of the need for replenishment against stock levels or requests to order by departmental supervisors.
4. Design and Development Needs
These needs arise when an organisation is designing new or processes. So, the material needs to carry out tests or prototypes are usually determined by the people involved, as the need arise. The quantities are normally small, the items are also-varied. and the requirement immediate.
How Authority To Purchase Is Initiated
Authority to purchase or authority to commit the organisation means the acceptance and approval made by a higher or responsible officer to allow the subordinate to procure items needed into the organisation. Such approvals are usually signed and granted by superior officer who may include board of directors, managing director, head of departments, plant foremen, inventory control officers all of whom originate and authorize purchase requisitions.
Purchasers are expected to clarify inaccuracies in the interpretation of needs with the authorizers of the requisition documents, before he takes any action to obtain supplies. Every requisitioning documents must carry some indication of authorizing source from which the needs have been initiated e.g account need to be charged with the purchase.
Management may also control origination and purchase authorizations by designating certain individual to sign requisitions before it is countersigned by the general manager especially if the requisition exceed specified value of volume.
1. Authority for capital Purchase
These are authorised by top management. Each project is allocated a project budget and/or vote number, Modifications, amendments or alterations to a project must receive top management approval before material connected with the changes can be requisitioned.
2. Authority for major production items
Where production is against a production programme, the programme becomes the authority to purchase. The programmes is usually based on sales forecast or an order book. These are approved by top management directly or implicitly
3. Authority to Replenish Stocks
For minor production items or important miscellaneous supplies, requests to m replenish stocks are usually raised by inventory control clerks through the m operation of stock levels. These levels are predetermined by Stores management after considering stockholding factors such as; rate of consumption, risk of obsolescence, risk of deterioration, cost of holding stock as against cost of purchasing, bulk discounts from quantity ordered, transport costs consideration, policy of deliveries, etc.
4. Authority for minor Miscellaneous Supplies
These needs are intermittently required, for running a department. Since they do not justify tight control, management delegates the requisitioning authority of these needs to the supervisor of the department concerned. The amount or value which can be authorised by the supervisor is usually pegged down to limited value or volume.
5. Authority for Special Needs
Design and development needs are treated like capital need. They are thus originated and authorised by top management.