Author: R.K

Production and Purchasing Policy

A. Extent of vertical integration:	b. Production process	c. Setting Capacity 
•	Auto sector
•	Printing Press		
•	Farm vs. no Farm

d. Maintenance and Replacement

e. Make or Buy Supplies and Services 

f. Selection of Vendors

g. Coordination of Production,
    purchasing and sales.

Issues:

TQM

T= Timely production, Q=Maintaining Quality,  M= Low Cost (Money).

a)	Extent of Vertical Integration:

•	
Issues:

•	Investment – Savings ratios
•	Idle plant – skills.

Savvy
•	Marketing expense
•	Effect of patent and restricted supply
•	Flexibility
•	Volume required for economic production
•	Financial status of company
•	Management capacity.

b)	Production Process:

•	Choice of Technology; e.g., sugar, ice
•	Extent of Division of labor; e.g., job enlargement
•	Extent of mechanization; e.g., Agri-sector
•	Size and decentralization of plants; e.g., distance
•	R & D ; e.g., Electronics vs. furniture.

c)	Setting up capacity

Issues:

•	Both Tangible and intangible
e.g., Requirements problems, growth 

•	Peak vs. normal load
•	Backward taper capacity
•	Provision for growth
•	Balancing capacity; e.g., Enameling.  

d)	Maintenance and replacement

•	Levels of Maintenance
•	Preventive Maintenance
•	Scheduled Replacement

Q. P-225-230

A policy to make rather than to buy raw materials leads to ‘vertical integration’: a) which business risks are increased, and which decreased by it? b) Some criticize ‘VI’ as tending to limit competition. Do you believe it is socially undesirable for this reason? 

e)	Make or buy supplies and services

•	Production of containers and printed forms
•	Company power plant

Guides to make or buy policy:

•	Dependable source
•	Reasons for not using sources – a strong case
•	Co-ordination with outside source cumbersome:
-	Volume vs. cost
-	Speedy delivery

f)	Selection of Vendors

•	Concentration : One vs. multi
•	Factors determining vendors:
-	Importance attached to quality: Metal vs. drugs
-	Services
-	Reciprocity: Iron 	Ship		Motor
-	Role of price

Summary:

Vendor to meet company need | Characteristics of Desirable vendors | Factors limiting the choice

•	Quality:
-	Specification
-	Dependability

•	Size of vendors:
-	Interest in our business
-	Financial stability

•	Reciprocity
•	Time and expense of locating and dealing with new vendors

•	Services:
-	Delivery 
-	Repairing
-	Credit
-	Guarantee
-	Adjustments

•	Geo location
-	Local
-	Risk
-	Manufacturing vs. Jobber

•	Habit and conservatism 
•	Friendship and loyalty

•	Price:
-	Competitive Level
-	Inclination to squeeze
-	Protection on Changes

•	Alternative Sources:
-	Divide equally
-	One main source

•	Willingness to use Departments to try new vendors.