T3 l PURCHASES l Purchasing cycle l Storage of Stock Flashcards
Goods and services can be divided into how many categories?
Three categories.
What is the first category?
Products used in the business for the activities of the business, e.g. computers or stationery used in the business.
2nd Category?
Products purchased with the specific purpose of reselling them e.g. Pick Ε Pay buys canned food to sell it again to the final consumer at a profit.
3rd Category?
Goods purchased for the purpose of using them during the manufacturing process, e.g. the processing of raw materials by means of capital goods. Capital goods refer to the machinery and equipment used during production, e.g. the conveyor belts or other tools used in the factory.
What is the economic principle?
The purchase price and inventory storage costs must be kept as low as possible so that profits can be as high as possible and to thereby improve profitability.
What must the purchasing department be sure of?
- Right Supplier
- Right Quality
- The right amount of Product
- Right Time
- Right Place
- Right Price
What is The Purchase or Procurement Cycle?
Step 1: Identify a Business Needs
Step 2: Asses and choose the best supplier
Step 3: Placing of Orders
Step 4: Receiving of goods ordered.
Step 5: Assessing the order against the invoice.
Step 6: Send resources to the department warehouse.
Step 1: Identify a Business Needs
Ensure that all the needs of all the different departments (and customers) can be satisfied by making sure that the most appropriate product/service is purchased.
The purchasing department must obtain full details regarding what to order. This will include information on the type, size, color, quantity, etc. of the goods needed.
New and alternative products, services, and improved technology must be researched to buy the best quality product that will provide good value for money.
Step 2: Asses and choose the best supplier
- Price
- Capacity
- Support
- Delivery
- Reputation
- Labor
Price
The purchase price does not have to be the lowest price, but the most reasonable price.
The price is often determined by the quantity ordered.
Seasonal discounts often apply to agricultural products (cheaper in peak season) or on manufactured goods just before the end of the season.
The price asked for the resources or products will have a direct impact on the final cost of goods / services that is sold to the end consumer and will therefore play a major role in the overall competitive advantage of a business in the market.
Capacity
The capacity of a supplier to provide the right quality goods/services in the right quantities.
Support
Does the supplier provide training for new equipment that was purchased?
Is there a guarantee (after-sales service) on equipment?
Does the supplier deliver the ordered products on time?
Labour
The purchasing function will investigate the labor situation of the supplier, any possible labor unrest that harms the timely receipt of orders that the business can have.
Reputation
The supplier must have a good reputation because if the supplier is involved in unethical practices, it can have a negative impact on the businessβs sales and profits.
An example to illustrate this point:
In 2011 there was a huge protest after a bunch of workers from Foxconn, a Chinese business that makes electronic parts for the use in Apple products, committed suicide because they were forced to work extremely long hours in small spaces at unacceptably low wages. Apple has experienced negative publicity through this because their business deals with Foxconn and had to address the issue to convince consumers that they will not tolerate such behaviour.
Delivery
It is of utmost importance for the business to determine whether the supplier can deliver resources on time. This includes an investigation of the size and capacity of the supplierβs warehouse and their transport and distribution facilities, as well as all other logistical processes.
