The procurement department is in charge of obtaining the necessary materials and supplies for the organization.
Materials Purchased for Conversion
The items bought under this category are raw materials that will be used up or transformed during the production process. They are also known as direct materials since they are not frequently sold to customers. Raw materials may include petroleum, coal, wood, and different types of metals. Usually, these products are bought in large quantities and based on their quality or grade. The key factors in this category are meeting quality standards, cost-effectiveness, and timely delivery.
Direct Materials – Is defined as “Material that becomes a part of the final product in measurable quantities.
Materials Purchased for Resale
Businesses in this category purchase materials for resale to wholesalers, distributors, and retailers. These companies act as intermediaries in the supply chain, facilitating the movement of inventory from the production source to the end customer.
Typically, buyers in this area purchase finished goods inventory, rather than materials that require additional processing before being sold. In this category, buyers identify customer demand, search for materials based on targeted levels of quality, delivery, quantity, and price, and sell competitively based on price, quality, availability, and service.
Finished Goods Inventory – Those items on which all manufacturing operations, including final test, have been completed. These products are available for shipment to the customer as either end items or repair parts.
Materials Purchased for Support (MRO and Capital Assets)
Materials purchased in this category have two subcategories that include maintenance repair and operating supplies (MRO) and capital assets.
MRO Supplies – Items used in support of general operations and maintenance such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations.
Capital Assets – A physical object that is held by an organization for its production potential and that costs more than some threshold value. Examples include machinery and equipment.
Businesses require MRO (Maintenance, Repair, and Operating) items for general operating activities, repairs, or necessary services. These items include general supplies such as copy paper, pens, paper towels, light bulbs, equipment repair parts, and various forms of equipment. Manufacturers, service businesses, institutions, utilities, and government entities are among the businesses that use these types of goods.
When purchasing goods or services in this category, it’s important to have a buyer who is knowledgeable, a detailed request for quotation, a thorough search for suppliers, price negotiation, and a budget in place.