Purchasing Management Flashcards
(43 cards)
What is the purchasing function responsible for?
It is responsible for buying all goods and services that are needed by all the departments in the business.
What is the economic principle?
The purchasing price and stockholding costs are kept as low as possible in order to maximise profit and thereby improve profitability.
What are the 3 categories of goods and services within the context of purchasing management?
- Products used in the business to carry out the activities of the business (e.g. stationary or computers).
- Products bought with the aim to resell them.
- Goods bought to be used in the manufacturing process (e.g. clothing factory buying material/buttons/thread etc).
What 6 things are the purchasing department’s responsibility to find?
- the right ethical supplier to deliver…
- the quality
- the right quantity
- the right time
- the right place
- the best price
Explain the purchasing cycle.
- Identify the business need.
| V - Assess and select suppliers.
| V - Place order.
| V - Receiving of order.
| V - Assessing orders against invoice.
| V - Send resources to departments or warehouse.
Expand on the concept of identifying business needs under the context of purchasing management.
Begins with continuous research, which is undertaken to ensure the needs of different departments and customers are satisfied by obtaining the most suitable services/products.
At this stage in depth detail is decided on what should be ordered (such as type/size/colour/quantity). New and alternative products/services and improved technology must be researched in order to buy the best quality product that will provide good value for money.
Expand on the concept of assessing and selecting the best supplier under the context of purchasing management.
It is important to select a supplier that will deliver on the needs of the business:
At the right time
Required quantity
Required quality
Right place
Reasonable price.
Most suitable suppliers be found (Porters six forces!) while considering both local and international suppliers.
Expand on price as a factor to consider when assessing and choosing the best supplier.
Purchasing price does not = lowest price, but must be most reasonable price based on quality/quantity (bulk savings)/after sales service/time of purchase (e.g. season)/transport costs/discounts.
Price is often determined by the quantity ordered. If large volumes are ordered (Basic Clothing), the business can negotiate bulk discount. This can make the cost per unit lower.
Cash discount can be granted if the buyer pays cash or if the debtor settles early. Price charged for resources has an impact on the final cost of the goods/services sold to the consumer. Therefore: plays a big role in the competitive advantage of the
business in a market place.
How does the season affect discounts in agricultural and manufactured products?
Agricultural products –> cheaper during high season
Manufactured –> cheaper just before the end of the season
Expand on capacity as a factor to consider when assessing and choosing the best supplier.
Capacity describes the ability of a supplier to supply the right quality goods or services in the right quantity. (QQ).
If the supplier does not have the capacity to supply the necessary resources, it can impact the businesses production system and on the retail floor. This results in unnecessary delays and can have detrimental effects on the profits of the business.
Expand on support as a factor to consider when assessing and choosing the best supplier.
Need to considered the type of the support that is offered by the supplier. For example: Does the supplier offer training on new equipment? Is there a guarantee on equipment? Does the supplier deliver resources ordered?
Expand on labour as a factor to consider when assessing and choosing the best supplier.
Need to look at the labour situation of the supplier. Any possible labour unrest (e.g Strikes) could have a negative impact on the business receiving orders on time (e.g. current affairs such as taxi strikes).
Expand on reputation as a factor to consider when assessing and choosing the best supplier.
Need to check the reputation of the supplier and all the role players in the supply chain (e.g, ensuring they are ethical.) - it is important that supplier has a good reputation. If supplier is involved in unethical business practices, the brand of the business could impact on the sales and profit of the business.
Expand on delivery as a factor to consider when assessing and choosing the best supplier.
Supplier must be able to deliver the resources on time. Could look at the suppliers warehouse capacity (quality and quantity!), their transport, distribution facilities (e.g. warehouses), all logistical processes (from the order –> delivery).
Expand on the concept of placing one’s order under the context of purchasing management.
It is the job of purchasing management to:
Ensure that correct goods are delivered by timeous placing of orders and follow-up.
Make use of a stock control system in order to maintain correct inventory levels (ensuring they’re not over-stocked or under-stocked).
E.g: E.P.O.S.S.E (Electronic Point of Sale and Scanning Equipment) - when each item is received it is scanned in and captured using the bar code and when it is sold, which informs the purchasing clerk when to order more products.
Expand on the concept of the receiving of goods ordered under the context of purchasing management.
The business will have discussed the time frame for the delivery of resources by the supplier. When raw materials or products are delivered, a control system should be implemented in order to ensure the quality is acceptable, goods are not damaged, the correct quantity is received.
The warehouse clerk must be in charge of this process through:
1. Supplier issues a delivery note that is used when the quantity ordered is checked against the quantity actually delivered. Any problems should be immediately reported if goods are damaged.
2. Warehouse clerk will complete a goods received voucher to inform the purchasing department that goods have been received in a good condition.
3. Detailing the volume and type of stock entered into a computerised system to keep record of stock on hand. If the system is not electronic, a set of stock cards are used to keep a record of the stock (e.g. saved to the cloud).
4. Invoice is forwarded to the financial function to pay for the goods received. The business must have enough space available to store the products.
Expand on the concept of the assessing orders against the invoice under the context of purchasing management.
The purchasing function
must double check that
all goods are ordered and
have been received.
Expand on the concept of sending resources to departments warehouse under the context of purchasing management.
Resources to be stored are sent to the warehouse. Resources might be sent directly to the production department or other department. Then the purchasing manager should ensure that the necessary internal distribution channel is in place (remember the new textile distribution centre).
Define ‘stockpiling’ and comment on why it is important.
The process of ensuring there is sufficient stock available when needed.
This is important to ensure that:
- Any duplication of stock is eliminated.
- The smallest sum of minimum working capital is tied up in stock.
Define ‘warehousing.’
The storage of resources until they are needed by the different business functions.
What are functions of warehousing?
Storage, consolidate, break bulk and mixing, and postponement.
Expand on storage as a function of warehousing.
Warehouses store resources until they are needed by the business. The business should ensure there are always more resources that what is needed in the warehouse (meet the demand of customers).
In case of unexpected emergency or delay in the delivery process (current affairs - taxi strike in CT). This is called buffer stock - business must be careful no to have too much buffer stock= opportunity cost. Buffer stock will protect the business until such time as the products or resources are received.
Expand on consolidation as a function of warehousing.
Resources or products are supplied by a variety of suppliers (e.g T-shirt factory supplying T-shirt to MRP Clothing, PnP clothing).
Warehouse acts as the central point (DC=Distribution Centre) for all products to be kept until they are transported to where they are needed (own transport/couriers). All resources needed for production go to a central place (e.g. T-shirt factory). They are moved to the manufacturing plant once all the different elements have been received.
Expand on break bulk and mixing as a function of warehousing.
The business is able to purchase large quantities at a low price, which is called purchasing economies of scale. The bulk stock is then broken up and distributed to where it is needed. Large quantities of the same stock item will be delivered to the warehouse.
