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 and storage
cost by keeping too much
inventory.
opportunity cost the
cost associated with giving
up the use of money tied
up in 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 can be calculated and
safety stock is available.
usage rate how quickly
inventory will be used in a
given period of time
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