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Purchasing 1

The document discusses key aspects of purchasing and procurement. It notes that purchasing involves monetary transactions to obtain needed materials on time, considering factors like price, quality and reliability. Manufacturing organizations on average spend 55% of revenue on outside materials/services, 6% on labor, and 3% on overhead. Procurement simply refers to acquiring goods and services an organization needs. Effective purchasing leverages buying power, commits to dependable suppliers, and works to reduce suppliers' total costs.

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47 views

Purchasing 1

The document discusses key aspects of purchasing and procurement. It notes that purchasing involves monetary transactions to obtain needed materials on time, considering factors like price, quality and reliability. Manufacturing organizations on average spend 55% of revenue on outside materials/services, 6% on labor, and 3% on overhead. Procurement simply refers to acquiring goods and services an organization needs. Effective purchasing leverages buying power, commits to dependable suppliers, and works to reduce suppliers' total costs.

Uploaded by

parth32
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Purchasing

Activities to reliably obtain materials by the


time they are needed in the product supply
process.
Important considerations include price,
quality, lead times, and reliability.
Manufacturing organizations spend an average
of 55 percent of revenue for outside materials
and services.
These same organizations spend only 6
percent on labor and 3 percent on overhead.
Purchasing Versus Procurement
Purchasing implies a monetary transaction.

Procurement is simply the responsibility for acquiring


the goods and services the organization needs.
Total sales = $10,000,000
Purchased materials = 7,000,000
Labor and salaries = 2,000,000
Overhead = 500,000
Profit = 500,000
To Double Profits ...
Increase sales by 100 percent
Increase selling price by 5 percent
Decrease labor and salaries by 25 percent
Decrease overhead by 100 percent
Decrease purchase cost by 7.1 percent
Widespread use of JIT has increased
importance of purchasing and procurement
since delays in the receipt of materials will
stop a JIT program dead in its tracks.
Differences Between Purchasing by Individuals
and Organizations
Organizations purchase larger volumes and
dollar amounts.
Organization may be larger than its suppliers.
Very few suppliers exist for certain
organizational goods, whereas many typically
exist for consumer goods.
Certain discounts may be available to
organizations.
Key Elements of Effective Purchasing
They leverage their buying power.
They commit to a small number of dependable
suppliers.
They work with and help their suppliers reduce total
cost.
Purchasing Cycle

Requisition Accounting system

Financial approval
Payment

Market Assessment
Receipt and accounting for
Goods/services received
Purchase decision
Delivery

Ordering
Nine Goal of Purchasing

1. Uninterrupted flow of material


2. Manage Inventory
3. Improve Quality
4. Develop suppliers
5. Standardize
6. Achieve Low cost
7. Improve competitive position
8. Improve cross functional relationships
9. Reduce administrative costs
Types of purchases

1. Raw Material
2. Purchase parts
3. Maintenance Repair Operating
4. Packaging
5. Services
6. Tools
7. Resale items
8. Equipment
In general purchasing describes

1. The Process Of Buying


2. Knowing The Need
3. Supplier Selection
4. Price Negotiation
5. Follow Up Ensuring Timely Delivery
Difference between purchasing and procurement

1. Purchasing
2. Stores
3. Traffic
4. Receiving
5. Inspection
6. Salvage
Purchasing should directly affect the profitability

1. The Right material


2. From the right source
3. In the right quantity
4. In the right condition
5. At the right time
6. At the right price
7. With the right service
The Role of Sourcing
ina Supply Chain
Sourcing is the set of business processes required
to purchase goods and services
Sourcing processes include:
Supplier scoring and assessment
Supplier selection and contract negotiation
Design collaboration
Procurement
Sourcing planning and analysis
Benefits of Effective
Sourcing Decisions
Better economies of scale can be achieved if orders are
aggregated
More efficient procurement transactions can
significantly reduce the overall cost of purchasing
Design collaboration can result in products that are
easier to manufacture and distribute, resulting in
lower overall costs
Good procurement processes can facilitate
coordination with suppliers
Appropriate supplier contracts can allow for the
sharing of risk
Firms can achieve a lower purchase price by
increasing competition through the use of auctions
Supplier

Scoring and Assessment
Supplier performance should be compared on the
basis of the supplier’s impact on total cost
There are several other factors besides purchase price
that influence total cost
Supplier Assessment
Replenishment Lead
Factors
Pricing Terms
Time Information
On-Time Performance Coordination
Supply Flexibility Capability
Delivery Frequency / Design Collaboration
Minimum Lot Size Capability
Supply Quality Exchange Rates,
Inbound Transportation Taxes, Duties
Cost Supplier Viability
Supplier Selection- Auctions and
Negotiations
Supplier selection can be performed through
competitive bids, reverse auctions, and direct
negotiations
Supplier evaluation is based on total cost of using
a supplier
Auctions:
 Sealed-bid first-price auctions
 English auctions
 Dutch auctions
 Second-price (Vickery) auctions
Contracts and Supply Chain Performance
Contracts for Product Availability and Supply Chain
Profits
Buyback Contracts
Revenue-Sharing Contracts
Quantity Flexibility Contracts
Contracts to Coordinate Supply Chain Costs
Contracts to Increase Agent Effort
Contracts to Induce Performance Improvement
By :- JIGNESH
[email protected]

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