Ch. 2-Purchasing Flashcards
Merchant
Firms that buy goods in large quantities for resale purposes. Purchase their merch in volume to take advantage of quantity discounts and other incentives such as transportation economy and storage efficiency Exs: Wholesalers and retailers
Industrial Buyers
purchase raw materials for conversion purposes. Also purchase services, capital equipment, and MRO supplies. Ex: manufacturers, restaurants, landscapers, and florists
Purchasing
acquisition of required materials, services, and equipment
Contracting
acquisition of services
supply mgmt
expanded set of responsibilities of purchasing professionals: identification, acquistion, access, positioning, management of resources and related capabilities the org needs or potentially needs in the attainment of its strategic objectives
Procurement
development, value analysis, negotiation, expediting, contract administration, supplier quality control, and logistics activities
Goals of purchasing
- uninterrupted flows of raw materials at the lowest total cost
- improve quality of finished goods produced
- maximize customer satisfaction
Profit leverage effect
calculates the impact of a change in purchase spend o a firm’s profit before taxes, assuming gross sales and other expenses remain unchanged
ROA (return on assets)
ratio of firm’s net income to total assets: net income/total assets
Inventory turnover
of times inventory is used & replaced over an accounting period: cost of goods sold/ avg inventory
Material requisition
internal document used to request materials from the warehouse or purchasing dept
Purchase requisition
internal doc used to request the purchasing dept to buy specific goods or services
Traveling requistion
materials & standard parts that are requested on a recurring basis.
Follow-Up
proactive act to contact the supplier to ensure online delivery of the goods ordered
expediting
contacting a supplier to speed up an overdue shipment
UCC (Uniform Commercial Code)
Legislation that governs the purchase and sale of goods in every state except Louisiana
E- Procurement Steps
- Material user enters a purchase request (relevant info such as quantity and date needed)
- Purchase requisition approved & transmitted electronically to buyer
- Buyer reviews requisition, assigns qualified suppliers to bid (If over $50,000)
- Buyer reviews closed bids & selects suppliers
Advantages to E-procurement
- Time Savings
- Cost savings
- accuracy
- real time use
- mobility
- trackability
- mgmt benefits
- suppliers benefits
Small-value purchases
minimized so buyers are not overburdened with trivial purchases that may prevent them from focusing on more crucial purchases
Outsourcing
buying materials or components from suppliers instead of making them in-house
Reasons to buy or outsource
- cost advantage
- insufficient capacity
- lack of expertise
- quality
Reasons to make
- protect proprietary technology
- no competent supplier
- better quality control
- use existing idle capacity
- control of lead time, transportation, and warehousing costs
- lower cost
Break-even analysis
computes cost effectiveness of sourcing decisions when cost is the most important criterion
Supply Base
list of suppliers that a firm uses to acquire its materials, services, supplies, and equipment
Factors to consider while selecting supplies
- Process and product technologies
- Willingness to share technologies and info
- quality
- cost
- reliability
- order system & cycle time
- capacity
- communication capability
- location
- service
OEM (original equipment manufacturers)
Companies that make the final products
Tier-1
Company’s direct suppliers: provides parts or services directly to the OEM
Tier-2
suppliers’ suppliers of a company. provides outputs to tier 1 suppliers
Tier-3
suppliers’ suppliers suppliers of a company that sells their outputs to tier 2 suppliers
Sole sourcing
when the supplier is the only available source
Single sourcing
deliberate practice of concentrating purchases of an item with one source from a pool of viable suppliers
Reasons for a single supplier
- establish a good relationship
- less quality variability
- lower cost
- transportation economies
- proprietary product or process purchases
- volume too small to split
Reasons for multiple suppliers
- need capacity
- spread the risk of supply interruption
- create competition
- info
- dealing w/ special kinds of businesses
Centralized purchasing
single purchasing dept makes all the purchasing decisions
Decentralized purchasing
individual, local purchasing depts (such as plant level) make their own purchasing decisions
Advantages of centralization
- concentrated volume
- avoid duplication
- specialization
- lower transportation costs
- no competition between units
- common supply base
Advantages of decentralization
- better knowledge of unit requirements
- local sourcing
- less bureaucracy
Global sourcing
int’l purchasing
Import broker
Sales agent who performs transactions for a fee
import merchant
buys and takes title to the goods then resells them to the buyer
tariff
list or schedule showing the duties, taxes, or customs imposed by the host country on imports or exports
Non-tariff barriers
import quotas,licensing agreements, embargoes, laws, and other regulations imposed on imports and exports
World Trade Org
largest and most visible intl trade org dealing with the global rules of trade between nations: ensures that intl trade flows smoothly, predictably, and freely among member countries
NAFTA
remove trade and investment barriers among the U.S., Canada, and Mexico
EU
Consists of Belgium, France, Luxembourg, Italy, Netherlands, and Germany: create a single market without internal borders for goods and services, allowing member countries to better compete with markets like the U.S.
Barter
complete exchange of goods or services of equal value without exchange or currency
Offset
exchange agreement for industrial goods or services as a condition of military related export
Direct offset
joint venture and exchange of related goods
Indirect offset
exchange of goods or services unrelated to the initial purchase
counterpurchase
original exporter agrees to sell goods to a foreign importer and simultaneously agrees to buy specific goods or services from the foreign importer
Public procurement
(public purchasing) mgmt of purchasing and supply mgmt function in he govmt and nonprofit sectors such as educational institutions, hospitals, and fed, state, and local govmts
FAR (Federal Acquisition Regulation)
All fed govmt purchases must comply with this
GSA (General Services Administration)
responsible for most federal purchases
(FASA) Federal Acquision Streamlining Act
removes many restrictions on govmt purchases below $100,000
Buy American Act
mandates the U.S. govmt purchases and third party purchases that utilize federal funds to buy domestic produced goods, if the the price differential between the domestic and foreign products don’t exceed a certain % amount
green purchasing
environmental and health considerations while making purchasing decisions
