Purchasing Definition
Purchasing The activity of acquiring goods or services
to accomplish the goals of an organization.
The major objectives of purchasing are to:
1. maintain the quality and value of a company's products,
2. minimize cash tied-up in inventory,
3. maintain the flow of inputs to maintain the flow of
outputs,
4. strengthen the organization's competitive position.
Purchasing Definition
Purchasing may also involve:
(a) development and review of the product specifications,
(b) receipt and processing of requisitions,
(c) advertising for bids,
(d) bid evaluation,
(e) award of supply contracts,
(f) inspection of good received, and
(g) their appropriate storage and release.
Planning Purchases
Purchasing decisions mean the difference
between success and failure for the
entrepreneur.
Purchasing also known as procurement, the
buying of all the materials needed by the
organization
Planning Purchases
Businesses need to get the best possible
products or materials for the price.
Making smart spending decisions can result in
better values for customers and larger profits for
the business.
Managing Purchases
Key Factors That Affect Purchasing
Selecting Selecting the right quality
Buying Buying the right quantity
Timing Timing your purchases
Choosing Choosing the right vendors
Getting Getting the right price
Receiving Receiving and following up on purchases
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Choosing the Right Vendors
Considerations in Vendor Selection
Reliability
Distance
Service
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Developing a Model Inventory
after identifying your inventory
needs, it is helpful to set up a
model inventory.
model inventory a
target inventory of what
a business thinks it will
need to keep in stock
Getting the Right Price
may be able to take advantage of quantity discount a
a quantity discount or a cash discount that a vendor
gives to a buyer who
.discount
places large orders
cash discount an
amount deducted from
the selling price for
payment within a
specified time period
Getting the Right Price
Contact several vendors to find
the best price.
A purchase discount, such as a trade discount a
discount from the list price
trade discount, can affect prices. of an item allowed by a
manufacturer or
wholesaler to a merchant
Getting the Right Price
Until you establish a good
working relationship, your new
vendor may request secured
funds. secured funds a form of
guaranteed payment, such
as a credit card, a
cashier’s check, a wire
transfer, or cash
Getting the Right Price
Dating Terms
Receipt-of-
Advance End-of-month
Early payment Extra dating goods (ROG)
dating (EOM) dating
dating
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Receiving and Following Up on Purchases
When you receive a shipment
from a vendor, it should be
accompanied by an invoice,
indicating size, cost, selling price, invoice an itemized
and other similar information. statement of money owed
for goods shipped or
services rendered
Inventory Management
When you keep too much inventory on hand, the cost of
inventory can increase by as much as 25 percent. Added
costs include:
financing insurance
opportunity shrinkage
storage obsolescence
Inventory Management
Inventory Management
Inventory Management
Financing cost on excess
inventory can impact the prices
businesses charge customers.
financing cost the cost
of interest paid to borrow
money
Inventory Management
A business can incur opportunity cost the
opportunity cost and storage cost associated with giving
up the use of money tied
cost by keeping too much
up in inventory
inventory.
storage cost the cost
associated with renting or
buying space needed to
store inventory
Inventory Management
A business with sound inventory insurance cost the cost
procedures can reduce insurance associated with insuring
inventory
.cost and shrinkage cost
shrinkage cost the cost
associated with the loss
of inventory items that are
broken, damaged,
spoiled, or stolen
Inventory Management
A business must closely monitor
inventory turnover rates in order
to control obsolescence cost on
items that remain in inventory
too long. obsolescence cost the
cost associated with
products or materials that
become obsolete while in
inventory
Planning Inventory
There are two steps involved in determining the amount of
inventory you need:
1. Calculate the supply you need.
2. Calculate the inventory investment.
Inventory Control
Inventory control systems include:
visual inventory system
perpetual inventory system
partial inventory system
just-in-time (JIT) inventory system
Warehousing
Warehousing operations can
occur in dedicated structure or an
assigned space within a structure.
warehousing the act of
holding and handling
goods in a warehouse
Warehousing
Warehouse
Operations
Picking
Areas rows
Receiving and Packing
shipping docks areas
Management
office &
lockers
Bulk storage Assembly
areas areas
Staging
areas
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Reordering
To maintain proper inventory levels, you need to decide
when and how much to reorder.
The type of inventory you keep determines which
reordering system is best for you:
periodic reordering
Non-periodic reordering
Reordering
Products or raw materials that are inexpensive, used often,
and easy to get should be reordered periodically.
A sandwich shop might restock bread daily.
Reordering
Lead time must be considered
for inventory that is suited to
non-periodic reordering.
lead time the gap in time
between placing an order
and receiving delivery
Reordering
When using a non-periodic
reordering system, inventory
needs must be projected so that usage rate how quickly
usage rate can be calculated and inventory will be used in a
given period of time
safety stock is available.
safety stock a cushion
of products or materials
that prevents a business
from running out of
inventory while waiting for
an order
Thank You All