Unit 7 Chapter 23 Purchasing Purchasing Determining what

Unit 7 : Chapter 23 Purchasing

Purchasing • Determining what to buy & making arrangements with sources regarding final price, delivery, services expected, and method of payment • Also called “buying”

Buyers • Need to know what sells and what does not to figure out their projected sales to order the correct quantities of merchandise • Wholesale and retail buyers - purchase goods for resale, forecast customers’ needs and buy the products

Purchasing Situations • New Task Purchase (most complicated) • Modified Rebuy • Straight Rebuy

New-Task Purchase • Purchase is made for the first time • Triggered by – formerly unrecognized need – New manufacturing process – Organizational change • Salespeople prepare want slips based on customer requests

Modified Rebuy • Buyer has previously purchased a good, but some aspect changed – Using a new vendor – Comparison shopping – New trade information – New consumer trends or needs

Straight Rebuy • Buyer routinely orders the same goods from the same vendor

Purchasing Process 1. 2. 3. 4. 5. 6. Selection of products Selection of suppliers Negotiating terms of agreement Placing the order Payment Evaluation of process

1. Product Selection • Planning – merchandise plan • • planned sales beginning-of-the-month inventory planned reductions planned purchases • Analyze customer wants and needs • Decide on goods and quantities – basic stock list – model stock list – never -out list

2. Selecting Suppliers • Production Capabilities • Past Experiences • Product & Buying Arrangements – Consignment buying – Memorandum buying • Special Services – – UPC Codes Peg man merchandising services bonuses & gifts

3. Negotiating Terms • Discounts • Dating terms – – advance dating extra dating end-of-month dating receipt-of-goods dating • Delivery Arrangements – – FOB destination FOB shipping point FOB factory freight prepaid FOB destination charges reversed

4. Placing Order & 5. Payment • Purchase Order – legal contract between the buyer and the supplier that specifies the terms of the agreement • Invoice – the bill that is usually sent along with the merchandise - it requests payment - should look very similar to the purchase order

6. Evaluation • Rate of Sale – identify “keepers” • Stock Turnover – number of times the average stock has been sold and replaced in a given time period • Review Supplier Responsibilities

The Criteria for Selecting Suppliers 1. Production Capabilities – – buyer may request specific information about the source’s production capabilities may even visit the facility in person may solicit business references may review social issues to ensure quality working conditions • – Ex. To ensure facility isn’t a sweatshop – poor working conditions and negligent employee treatment Contract may be necessary

The Criteria for Selecting Suppliers cont 2. Past Experience • Many buyers maintain resource files that document past experiences with suppliers • • • Products carried Prices Delivery dating terms names of sales representatives Keep accurate records of customer returns and reasons • Returns relating to quality of product may result in the dropping of the supplier

The Criteria for Selecting Suppliers cont 3. Special Buying Arrangements – sales and return policies A. Consignment Buying – goods are paid for only after they are purchased by the final customer • • Applicable to wholesale and retail buying situations Offered as an incentive when new good introduced No-risk situation One problem – stolen or damaged items raises question as to who is responsible and must pay

The Criteria for Selecting Suppliers cont • Special Buying Arrangements cont B. Memorandum Buying – supplier agrees to take back any unsold good by a certain pre-established date • Buyer pays for all of the goods purchased but is later reimbursed for the goods returned in accordance to the agreement

Negotiating Terms • To evaluate suppliers, buyers must negotiate the following: 1. Prices 2. dating terms 3. delivery arrangements 4. Discounts • Dating Terms - involve when a bill must be paid and discount permitted for paying early.

Internet Purchasing • Business to Business electronic commerce has revolutionized the purchasing function • Estimates for online trade ranges from $2. 7 trillion to $7. 3 trillion by 2004 • Organizational buyers account for 80 percent of the total dollar value of all online transactions. • Internet makes purchases more efficient

Reverse Auction • Online auctions - seller sets asking price and buyers try to outbid each other • Companies post what they want to buy and suppliers bid for the contract • Advantage = lower prices • Disadvantage = privacy a problem • Some companies run own reverse auctions

Activity • Working with a partner, you are going to design a new Chattahoochee DECA t-shirt • You must research a local t-shirt printer and evaluate them based on the criteria we just discussed • Then you need to design a t-shirt based on what the supplier offers, ex. Material colors, printing methods, quantities offered • Calculate the cost of your order if you were to order 150 t-shirts