Module 2: Procurement

and Warehousing

DR. VEENA PAUL

Content

 Demand and supply management

 Forecasting techniques
 Planning -Strategic planning for material sourcing
 Outsourcing –strategies
 Merits and demerits
 Warehouse strategies
 Inventory
 Management models and control techniques
 Demand

 Demand is a very commonly used word and it represents a

persons’ need or desire for any particular commodity.
 Demand is the quantity of goods (or services) that can be
purchased by buyer at a particular price.
 Demand is the consumers’ willingness to buy, backed by his
capacity to pay for it.
 Demand can be effective only if it backed by purchasing power.
 For living a healthy life one needs plenty of sunshine and fresh air.
But the need here is not ‘demand’ in the economic sense as we
get it free and don’t pay for it.
 It can be derived, where, we want one commodity for the
production of another.
 Demand for a commodity is related to its price.
 If the price of sardine, a popular fish variety, is Rs.10 per kilogram,
we would think of buying one kilogram of it.
 One day if we find that the price has increased to Rs.30 per
kilogram, we would rethink before making our purchase and
probably settle for a little less, may be half a kilogram.
 For different prices of the commodity we find that the demand
also varies.
 Relationship between Price and Quantity
Demanded

Price per kilogram Quantity (kilograms) purchased

of sardine (Rs.)

10 1.00

20 0.75

30 0.50

40 0.25
 Law of Demand

 When the price of a

commodity increases,
the demand for it
decreases, given that
all other factors are
constant.
 Factors affecting demand - an
example
Factors Explanation
Income Higher the income, more the demand for pomfret when
compared to sardine / or quantity of sardine for a given price.

Price of related More the price of pomfret more the consumption of fish like
goods sardine.
Taste Prefer sardine for its nutritional quality as well as taste over other
varieties.
Special influence Availability, seasonality etc. , hygienic fish markets/ supermarkets,
good fish stalls.
Population Increase in population, increases consumption of fish.
 Supply

 Supply refers to the goods supplied at a given

price.

 Law of supply states that the higher the price

more will be the quantity supplied, all other
factors remaining constant and vice versa.
 Factors Affecting Supply

 Costof production: If the production costs are high

and the prices for the products are low, the
producers cannot survive and will have to stop
producing eventually.
 Prices of related goods
 Policies of the Government
 Supply and demand reflect the time
dimension.
 It is important to recognize that both supply
and demand can be influenced by
management actions.
 Forecasting

A forecast is an estimate of a future event

achieved by systematically combining and
casting forward in a predetermined way
data about the past.
Forecasting Methods

 Qualitative
 Time Series
 Causal
 Simulation
 Qualitative

 These forecasts are used where there is little or no

historical performance data to determine demand.
 They are typically based on an expert’s familiarity of
products, the industry and customer preferences.
 An expert’s opinion is usually useful when new
products are being introduced into the market.
 Time Series

 Time series forecasts rely on historical demand in order to

predict the future demand.
 There are a variety of computational methods that can be
used.
 Usually, this method is ideal for items that have a generally
defined historical pattern that does not change radically
from one year to the next e.g. “staple stock” items in a retail
store.
 Causal

 Causal forecasting is used when there is a visible correlation

between one or more variables to the demand for the
product.
 For example, disposable income, lifestyle indicators, etc. may
be used to determine the demand for many consumer
durable items.
 The method, however, requires a high level of sophistication
in modelling.
 Simulation

 This method is highly sophisticated and is mainly used where

the organization needs to generate multiple ‘what-if’
scenarios.
 For example, such a model would be able to provide answers
on the impact on product demand if prices are increased or if
disposable income decreases.
 In many cases, firms require to evaluate these types of
sensitivities so as to have a more robust forecast.