Chapter 8: Purchasing management

Question 1

What does the purchasing department have to find?

Answer 1

-the right supplier to deliver —the right quality
-the right quantity
-at the right time
-the right place
-at the best price.

Question 2

What is the purchasing function?

Answer 2

The purchasing function is responsible for buying all goods and services that are needed by all the departments in the business.

Question 3

Purchasing Cycle

Answer 3

-Assess and select supplier
-Place order
-Receiving of order
-Assessing orders against invoices.
-Send resources to departments or warehouse.

Question 4

Assessing Supplier

Answer 4

Price
Capacity
Support
Labor
Reputation
Delivery

Question 5

Trade discount

Answer 5

a reduction in the listed selling price that the supply charges.

Question 6

What is Stockpiling?

Answer 6

Stockpiling is the process of ensuring there is sufficient stock available when needed.

Question 7

An efficient stockpiling system is important to ensure:

Answer 7

Any duplication of stock is eliminated.

The smallest sum of minimum working capital is tied up in stock.

The risk of theft, fire and stock obsolescence is minimised.

Savings in respect of storage space and handling costs are achieved.

Question 8

Warehousing
Storage:

Answer 8

Warehouses will store resources until they are needed by the business.

Question 9

Consolidate:

Answer 9

If resources or products are supplied by a variety of suppliers, the warehouse acts as the central point for all products to be kept.

Question 10

Break bulk and mixing:

Answer 10

The idea is that the business is able to purchase large quantities at a low price and then break the bulk and distribute the stock to where it is needed.

Question 11

Postponement:

Answer 11

Delays occur when products need to be assembled, labeled and packaged according to special orders that have been placed.

Question 12

Types of stock

Raw materials:

Answer 12

Raw materials

Question 13

Semi-finished goods

Answer 13

Semi-finished goods have already been processed but are not yet ready for final consumption. An example will be logs of wood that are not ready to be used as furniture.

Question 14

Finished goods or manufactured goods

Answer 14

Finished goods or manufactured goods

Question 15

Perishable stock

Answer 15

Perishable stock can be in the form of raw material, semi-finished goods, or finished goods, and require special storage facilities such as cold storage. This includes meat, cheese and fruit.

Question 16

Maintenance stock

Answer 16

Maintenance stock is consumed within the business, such as cleaning materials or oil lubricate machines.

Question 16

Dangerous material

Answer 16

Dangerous material must be stored according to prescribed regulations.

Question 17

Quantity Management

Answer 17

There should always be sufficient goods and services available in the business to meet the needs of the business and external customers.

Question 18

The most economic ordering quantity:

Answer 18

is that quantity of a particular stock item which can be obtained regularly and stored at the lowest possible unit cost.

Question 19

Two important aspects to consider are:

Answer 19

Stock ordering costs and holding costs.

Question 20

A buffer stock:

Answer 20

is a stock that is kept in case there is a delay in the delivery of the new order to ensure the business does not lose customers to competitors.

Question 21

JIT system just in time means that:

Answer 21

the purchasing department plans and controls the different purchasing activities so that resources arrive at the business just before they are needed.

Question 22

What is the main advantage of this system?

Answer 22

The main advantage of this system is that stock levels do not exceed the demand of resources used in the business.

Question 23

Economies of scale:

Answer 23

Economies of scale refer to the business being able to benefit from cost advantages due to the size of the business.

Question 24

Diseconomies of scale:

Answer 24

refer to a situation where the size and scale of operations have a negative impact on the cost efficiency of the business.

Question 25

What does buying on credit do?

Answer 25

Buying on credit improves the cash flow of the business.