Purchasing Purchasing According to ALFORD BEATTY PURCHASING is

Purchasing

Purchasing According to ALFORD & BEATTY • PURCHASING is the procuring of materials, supplies, tools, & services required for equipment, maintenance & operations of a manufacturing unit. 1

PURCHASING 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.

Purchasing Effective purchasing ensures availability of right type & quality of material at the right time. 3

Steps in the Purchasing Process • Accurate description of desired commodity or service • Selection of possible sources of supply • Determination of price and terms • Preparation of purchase order • Follow-up or expediting • Receipt and inspection of goods • Clearing the invoice and payment • Maintenance of records 1

COMPONENTS 1. Describe the importance of planning purchases. Making smart spending decisions can result in better values for customers and larger profits for the business.

COMPONENTS 2. Identify factors that affect purchasing. Factors that affect purchasing are selecting the right quality, buying the right quantity, timing the purchases, choosing the right vendors, getting the right price, and receiving and following up on purchases.

COMPONENTS Purchasing Model inventory Vendors Trade discount Quantity discount Cash discount Secured funds Invoice

Objectives 1. Identify differences among produce vendor options. 2. Understand types of liability insurance. 3. Describe purchasing specifications for fresh produce that result in obtaining the desired product. 4. To procure proper quantity of material. 5. To ensure good purchase 6. Timely supply of material. 7. To ensure minimum wastage of material sources. 9

Objectives 8. Scheduling of material( short & long term requirement). 9. To find alternative source 10. Reasonable price 11. Maintaining quality standards. 12. Competitive position 13. Comparison policy 14. To develop supplier relationship 15. Suitable method of purchasing 10

Types of purchasing 1. CENTRALISED PURCHASING All purchasing is done at one level i. e. by purchase department of the firm 11

Types of purchasing 1. CENTRALISED PURCHASING A. Advantages 1. Economy in buying 2. Uniform purchasing policy 3. Creation of specialization 4. Centralized purchasing 5. Minimize duplication 6. Exercising control over inventory 12

Types of purchasing 1. CENTRALISED PURCHASING A. Disadvantages 1. Delay in material supplied to different departments. 2. Possibility of purchasing of wrong material 3. Recording is confusion with lots of variety. 13

Types of purchasing 2. DECENTRALISED PURCHASING All purchasing will be done at own level i. e. by each purchase department of the firm seperately. 14

Types of purchasing 2. DECENTRALISED PURCHASING A. Advantages 1. Requirements fulfills quickly. 2. Department heads are responsible. 3. Less possibility of wrong type of good. 15

Types of purchasing 2. DECENTRALISED PURCHASING A. Disadvantages 1. 2. 3. 4. Lack of uniformity Needed expertise department Problem of C 0 -ordination Economies of large scale purchasing are not available. 16

Principles of Right Purchasing RIGHT QUALITY RIGHT PLACE RIGHT QUANTITY RIGHT SOURCE RIGHT TIME RIGHT PRICE MGT 560

Planning Purchases Purchasing decisions mean the difference between success and failure for the entrepreneur. Section 15. 1 Purchase Planning and Management purchasing also known as procurement, the buying of all the materials needed by the organization

FUNCTIONS OF A PURCHASING MANAGER • PREPARING PURCHASE BUDGET • RECEIVING PURCHASE REQUISITIONS • IDENTIFYING THE SOURCE OF SUPPLY • INVITING THE TENDERS • SELECTING THE SUPPLIERS • ISSUE OF PURCHASE ORDER • PROGRESS CHASING OF PURCHASE ORDER

FUNCTIONS OF A PURCHASING MANAGER • • • Receiving goods Returning material if not conforming Making payment to the suppliers Coordinating the activities Providing good leadership

Essential Qualifications of a Purchasing Manager Personal quality Leader Knowledge of the Field Formal education & training Professional Qualification

Managing Purchases Key Factors That Affect Purchasing Selecting the right quality Buying the right quantity Timing your purchases Choosing the right vendors Getting the right price Receiving and following up on purchases 22

Choosing the Right Vendors Considerations in Vendor Selection Reliability Service Distance 23

Getting the Right Price 1. Contact several vendors to find the best price. 2. A purchase discount, such as a trade discount, can affect prices. 3. An entrepreneur may be able to take advantage of a quantity discount or a cash discount. trade discount a discount from the list price of an item allowed by a manufacturer or wholesaler to a merchant quantity discount a discount that a vendor gives to a buyer who places large orders cash discount an amount deducted from the selling price for payment within a specified time period

Getting the Right Price Dating Terms Early payment Advance dating Extra dating End-ofmonth (EOM) dating Receipt-ofgoods (ROG) dating 25

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, and other similar information. invoice an itemized statement of money owed for goods shipped or services rendered

Description of Product or Service • Description by brand • Description by specification • Specification by physical or chemical characteristics • Specification by material & method of manufacture • Specification by performance or function • Description by engineering drawing 2

Determination of Price and Terms • • • Use of quotations and competitive bidding Firm bidding Determination of most advantageous bid Collusive bidding The problem of identical prices Negotiation Provision for price changes Discounts Contract cancellation 6

Best Buy The best buy is the best combination of technical and procurement factors. Procurement Factors • Price • Delivery • Lead time Technical Factors • Useful life • Materials of construction • Design 7

Legal Aspects of Purchasing Four Factors of a Valid Contract • Competent parties • Legal subject matter or purpose • An offer and an acceptance • Consideration MGT 560

Legal Aspects of Purchasing Warranties • Express warranty • Implied warranty of merchantability • Implied warranty of fitness for a particular purpose • Warranty of title MGT 560

Acquisition of Services • • • Value of the service Degree of repetitiveness Degree of tangibility Direction of the service Production of the service Nature of the demand Nature of the service delivery Degree of standardization Skills required for the service

Opportunities for Joint Purchasing MGT 560

Procedure – Best Case Scenario Flow Identify Need Team Formation Study & Analysis Evaluation Decision/Vendor Negotiation Acquisition Implementation Acceptance/ Post Evaluation Long-term Vendor Management

Factors affecting location of Purchase department Availability of personnel Freight costs Nature of material Special merits of locations Space value Proximity to service facilities Personal factors Government rules regulations

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