Classified into two categories: Merchants - wholesalers / retailers, who purchase for resale purposes Industrial Buyers - primary task is to purchase raw materials for conversion purposes
Primary goals of purchasing is to ensure uninterrupted flow of raw materials at the lowest total cost, to improve quality of the finished goods, and to maximize customer satisfaction.
Purchase Spend - money a firm spends on goods and services
Profit-Leverage Effect - a dollar decrease in purchase spend directly increases profits by the same amount. The decrease must be achieved through better purchasing that allows the firm to acquire materials of similar or better quality at a lower cost.
ROA: net income / total assets Also known as ROI
Inventory Turnover: COGS / Average Inventory
Manual Purchasing System
1) Material Requisition (MR) a. A user writes the product, quantity, delivery due date, on the MR. b. There are duplicates made for the user, warehouse, and accounting department. 2) Traveling Requisition (TR) a. sometimes used when a product is ordered on a regular basis. The user just enters the quantity and date needed and submits to warehouse. The TR will return to user when order is filled. 3) Planned Order Release a. Used to place orders directly with suppliers. b. If the material is available in the warehouse, it is released to the user without going through the purchasing department. Request for Quotation - if there is no current supplier, the buyer must find a pool of qualified suppliers and issue an RFQ.
Request for Proposal - used for a complicated and highly technical component part. RFP allows suppliers to propose new material and technology.
When a suitable supplier is found, the buyer issues a Purchase Order (PO) in duplicates to the supplier.
The supplier then sends a sales order. These are legally binding.
Electronic Procurement Systems (e-Procurement)
Advantages - Time savings - Cost savings - Accuracy - Real time - Mobility - Trackability - Management - Benefits to the suppliers
Small value purchasing orders Procurement Credit Card / Corporate Purchasing Card (P-Cards) Blanket or Open-End Purchase Orders Blank Check Purchase Order Stockless Buying or System Contracting Petty Cash Standardization and Simplification of Materials and Components
Reasons for Buying or Outsourcing
Cost Advantage Insufficient