Procurement management [8] *G10 Flashcards
Purchasing function responsible for…
Buying goods/services needed by all departments of the business
Categories (departments needing goods)
*Products used by the business to carry out activities (computers, stationery)
*Products bought with the aim of reselling
*Products used for manufacturing (raw; semi-finished; finished; capital goods)
The economic principle
Purchase costs are kept as low as possible to maximize profit
Purchasing function must find
The right SUPPLIER to provide the right QUANTITY, the right QUALITY at the right TIME+PLACE at the BEST PRICE. (SQQTPB)
What the Purchasing department must consider when picking a supplier
*Price - must be reasonable on quality, price, quantity + discounts
*Capacity - (right quality @ right quantities)
*Support - (do they deliver; can they assist on how to use)
*Labour
*Reputation
*Delivery
Name all parts of purchasing cycle
- Identify needs
- Asses+Select best supplier
3.Placing of orders ( have stock control system… they ensure correct inventory levels)
4.Receiving of goods ordered(control system checks the stuff + signs delivery note) - Assessing orders ( checking if everything is ok)
- Send resources to warehouses/departments
What’s stockpiling
Ensures that there’s enough stock available when needed
Warehousing?
Storage of different resources until needed by departments.
Functions of warehousing
STORAGE
CONSOLIDATE
BREAK EN BULK
POSTPONEMENT
*storage
- Warehouses store resources until needed by the business
- Ensures there’s more resources than needed in case of emergencies 🚨
*consolidate
- Warehouse is a central point for products until they’re transported
*breaknbulk + mixing
Large amounts of stock are made into smaller quantities needed by different parts of the business
*postponement
- Different elements are kept in warehouse until orders are placed
- (labels, bubble wrap, boxes)
Different types of stock
*raw material
*semi-finished goods
*finished goods
*capital goods
*perishable stock
*dangerous material
*maintenence stock (consumed within business)
Most economic ordering quantity
Quantity of an item (that’s obtained regularly) is stored at the lowest possible unit cost
What to think about most ordering quantity
*Stock ordering costs (transport+insurance)
*Holding costs
Good thing about keeping stock low
*saves money and space
Good thing about keeping stock high
*less likely of running out of goods
What’s JIT ( just in time)
Purchasing department makes sure goods arrive just before they’re needed
THIS: *REDUCES STORAGE COSTS + SAVES SPACE
MAKES SURE STOCK LEVELS DONT EXCEED DEMAND
ENSURES SUPPLIER IS RELIABLE
What’s economies of scale
The business being able to benefit from cost advantages
Examples of discounts
*Trade- loyalty + relationship
*Bulk negotiations
*Seasonal- usually agricultural (high season)
*Cash- debtors pay cash/early
Good thing about using credit
It improves cash flow
The process is faster
Bad thing about using credit
Business can change interest
Bad skills = debt
Diseconomies of scale
Business doesn’t have cost advantages
High chance of losing money
