Chapter 3 Flashcards
Can be defined as the act of obtaining merchandise; capital equipment; raw materials; services; or maintenance, repair, and operating (MRO) supplies in exchange for money or its equivalent
Purchasing
A key business function that is responsible for acquisition of required materials, services, and equipment
Purchasing
“Cast all your anxiety to GOD because he cares for you”
1 Peter 5:7
Can be defined as the act of obtaining merchandise; capital equipment; raw materials; services; or maintenance, repair and operating (MRO) supplies in exchange for money or its equivalent
Purchasing Profession
Wholesalers and retailers who purchase resale
Merchants
Purchase raw materials for convention, services, capital equipment and operating supplies
Industrial Buyers
It depends on situation and needs
Reactive Approach
Before and Analyzing
Proactive Approach
Benefits of Purchasing under Industrial Buyers
-Increase value and savings
-Building relationship and driving innovation
-Improving quality and reputation
-Reducing time to market
-Reducing supplier risk
-Generating economic impact
-Contributing to competitive advantage
Is a manual, paper-based system
Traditional Purchasing Process
What are the purchasing process
-Forecast and Plan Requirements
-Requirement Analysis
-Supplier Identification
-Contract and Negotiation
-Purchasing
-Supply Control and Inspection
-Supplier Measurement
Is slow and prone to errors due to duplication of data entries during various stages of the purchasing process
Manual Purchasing System
Steps of Manual Purchasing
- Material Requisition/Purchase Requisition
- The Request for Quotation (RFQ)
- The Purchase Order
Is where a single purchasing department, usually located at the firm’s corporate office, makes all the purchasing decisions, including order quantity, pricing policy, contracting, negotiations, and supplier selection and evaluation
Centralized Purchasing
Is where individual, local purchasing departments, such as at the plant level, make their own purchasing decisions
Decentralized Purchasing
Advantages of Centralized Purchasing
- Concentrated volume
- Avoid duplication
- Specialization
- Lower transportation costs
- No competition between units
- Common supply base
An obvious benefit is the concentration of purchase volume to create quantity discounts, less-costly volume shipments, and other more favorable purchase terms
Concentrated volume
Centralized purchasing eliminates the duplication of job functions
Avoid duplication
Centralization allows buyers to specialize in a particular product or group of items instead of being responsible for all purchased materials and services
Specialization
Centralization allows larger shipment to be mase to take advantage of truckload or railcar shipments, and get smaller shipments still can be arranged for delivery directly from suppliers to the points of use
Lower transportation costs
Centralization minimizes this problem
No competition between units
Advantages of Decentralized Purchasing
- Better knowledge of unit requirements
- Local sourcing
- Less bureaucracy
A buyer at the individual unit is more likely to know it’s exact needs better than a central buyer at the home office
Better knowledge of unit requirements
If the firm desires to support local businesses, it is more likely that a local buyer will know more about local suppliers
Local sourcing
Decentralization allows quicker response due to less bureaucracy and closer contact between the user and the buyer
Less bureaucracy
Advantage of hybrid purchasing organization
-Flexibility and adaptability
-Cost efficiency
-Strategic supplier relationship
Measures the impact of a change in purchase spends on a firm’s profit before taxes by the same amount
Profit leverage effect of purchasing
Is a financial ratio of a firm’s net income in relation to its total assets
Return on Assets Effect (ROA)
Formula of ROA
ROA=Net Income/Total Assets
Shows how many times a firm’s inventory is utilized and replaced over an accounting period, such as year
Inventory turnover
Is a good measure for computing the annual inventory turnover ratio
Monthly inventory average
Formula of Inventory turnover ratio
=Cost of goods sold/average inventory
Formula of Monthly Inventory turnover ratio
=cost of goods sold for the month/(beginning inventory + Ending inventory)/2
Formula of Annual inventory turnover ratio
=Cost of goods sold for the year/average monthly inventory
Extension of supplier’s evaluation
Supplier Certification
