Management Of Automatic Procurement Items

Automatic Procurement (AP) items are those that have regular consumption pattern and are used by more than one user in an organization. Procurement action or such items are taken centrally and cyclically by one department which also is responsible for their custody and consumption regulation. AP items also known as Stock Control Items have thus the following characteristics:

Items that are used by more than one user

Items that have regular consumption

Items those are consumable in nature

Items for whom sources are available

AP items are identified and listed periodically in each Plant for the convenience of all the users. These items are grouped under various commodities like fasteners, Hardware items, Electrodes, Cables etc based on the nature of these items.

Monitoring of Planning, indenting, Stock and issue of such items are monitored by a central agency under Materials Management, known as “Stock Control”.

Planning of AP items & Indents Raising

The Indents for the procurement of AP items are raised centrally by Stock Control section. For most of the items the indents are generated automatically by the computer system based on the trends of past consumption without involving detailed planning process. However special requirement by different users, additional capital repair requirements are considered while finalizing the quantity for procurement

Procurement action for APIs

Like any other Inventory replenishment system, API system also seeks to answer the following questions:

When to order for replenishment

How much quantity to order and

What system to follow

Some of the systems followed in the automatic indent generation are listed below

Periodic Review System (PRS)

The periodic review system of indent raising is also known as calendar based system or System. In this system, the stock position and consumption trends of different commodities are reviewed in a fixed time period and the indent is generated to cover the requirement up to the next review. Usually this review is done annually so that indents are raised for annual quantity.

Quantity System / Continuous monitoring / EOQ system

In the continuous monitoring system also known as Q-System, the stock position of items are monitored continuously through the system and the indents are raised for the items for which the stock level has reached a pre-fixed stock level.

The quantity for indent raising is usually a fixed quantity in this system known as Economic Order

Quantity (EOQ), which is the quantity to be procured with minimum total cost (procurement cost +inventory carrying cost etc).

However in practice, the fixed quantity to be procured is the annual requirement quantity and the stock levels (Inventory) is maintained by scheduling the delivery suitably.

Safety Stock, Re-Order Level

As the stock outs of items have adverse effect on the continuous running of the plant and the production, care needs to be taken to ensure continuous availability of items. However as the consumption of items and the supply of the same may vary due to uncertainties, sufficient stocks of the items are needed to be maintained to take care of such variations which is known as safety stock.

Safety stock is the minimum stock to be maintained to take care of stock out situations due to variation in the consumption as well as supply. Safety Stock = Buffer Stock to take care of consumption variations+ Buffer stock to take care of supply variations.

Safety stock of an item is decided based on the criticality of that item and uncertainties involved in the consumption & supply of that item. So Safety Stock varies for various categories of items.

Re-Order level (ROL) is the stock level of an item at which the procurement activity is initiated by raising indent so that the items are received before the stock out of that item.

ROL = Quantity required for the consumption during the lead time of procurement+ Safety Stock

Based on the lead time of procurement of the item & its safety stock requirement, the ROL is fixed for each AP item.

Monitoring of Stock levels:

The stock levels of the AP items are continuously monitored by Stock Control by taking Exception Reports of items approaching Safety Stock level, ROL, nil stock etc. and takes suitable corrective measures to ensure the timely receipt and availability of AP items. The percentage level of availability of AP items to users when required is known as Service Level of AP items.