2. Market Analysis:
The corporate objectives and requirements must be estimated over the next 5 to 10 years. The markets should be analyzed for supply trends, technological innovations, substitutes, evolution of new material and standards.
Critical materials from the company’s point of view, in terms of anticipated shortage, can then are isolated for top management’s attention. Materials have played a very important role in the progress of technology, ever since steel became the major material of engineering, aluminum became the commercial materials, are developed almost at exponential rate.
3. Price Analysis:
Analysis of price made by the suppliers should be done on a regular basis and their impact should be related to the cost of finished products. For this purpose it is essential to have detailed analysis of the cost structure of the raw material.
For similar groups of materials, such price analysis should be made and compared for various vendors. The causes should be identified so that various alternatives, such as use of alternate materials, change of suppliers, and so on, can be worked out.
4. Economic Analysis:
In a planned economy such as India, the economic policies have constantly influenced the major decisions taken by various organizations. Economic factors and other factors can seriously affect the availability of materials and consequently the price levels. Hence, a systematic analysis is necessary in this area.
5. Purchase Analysis:
Advantages and disadvantages in purchasing from manufacturer vis-a-vis dealers should be analyzed in the light of company’s operation. Cost benefit analysis must be done in vertical integration of critical raw materials and components.
An accepted policy in a new organization is the concept of vertical integration, i.e., the process in which the company decides to manufacture some of the critical raw materials and components. For this purpose, detailed cost-benefit analysis must be done.
6. Transportation Analysis:
Transportation cost forms a good percentage about 20 per cent of the cost of materials purchased in any organization. Analysis of the location of suppliers must be made in relation to the transportation cost.
The recent energy crisis has considerably affected the cost of transportation, making it necessary to take a fresh look at the transportation mix, namely, the proportion of goods moved by trucks, railways, ships and aero planes.
Many new developments are taking place. Railways, for example, have introduced Container Service, Quick Transit Service, Freight Forwarder Scheme, Mobile Booking Service, Parcel Express, etc.
It pays for the organization to avail of such facilities wherever suitable. Application of techniques, such as Linear Programming can also be explored in order to minimize transportation costs.