Professional Documents
Culture Documents
Chapter 7
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Purchasing
the process of buying Requires input from:
Marketing Engineering Manufacturing Manufacturing Planning and Control
what materials to order when to order them
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed. 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Income Statement
Sales Cost of Goods Sold Purchases Other expenses Profit Before Tax $100
$50 40
90 $ 10
99 $ 11
89 $ 11
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Objectives of Purchasing
Obtain goods and services:
of the required quantity and quality at the lowest possible cost at the best possible service and delivery while maintaining and developing suppliers
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Purchasing Functions
Determining purchasing specifications
right quality right quantity right time (delivery) right place (delivery)
Selecting supplier
right source
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed. 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Purchasing Cycle
1. Receive and analyse purchase requisitions
2. Select suppliers, issue quotations 3. Determine the right price 4. Issue purchase orders 5. Followup to assure correct delivery 6. Receive and accept the goods 7. Approve invoice for payment
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed. 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Selecting Suppliers
Often from a list of approved suppliers For small items:
internet catalogues trade journals
Requesting Quotations
Written inquiries sent to enough suppliers
to ensure competitive and reliable quotes are received
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Establishing Specifications
Purchasing can help to make the best buy
Quantity requirements Price Requirements Functional Requirements
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Quantity Requirements
Small volume
find a standard item
Large items
design for economies of scale reduce cost satisfy functional needs
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed. 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Price Requirements
Relates to the use of the item
Relates to the selling price of the finished product
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Functional Specifications
What the item is expected to do
Set by the end user
performance expectations aesthetic expectations
Description by Brand
Items are patented Special supplier expertise Small quantity
not worth the effort of developing specifications
Preferred by
customers the buyer
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed. 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Description by Brand
Reputation of the supplier
guarantees / warranties
Limits competition
higher price easy to inspect
Description by Specification
Physical and chemical specifications
buyer defined
Performance specifications
state what the item is supposed to do uses supplier expertise
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed. 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Specifications
Too loose
may not give the desired performance
Too detailed
costly to develop may limit competition
Should allow for multiple sources Can be difficult to do i.e. colors Best to use suppliers standard products
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed. 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Sources of Specifications
Buyer specifications
expensive and time consuming
Standard specifications
set by government and nongovernmental agencies SAE 10W30 motor oil Underwriters Laboratories (UL) ASME steel standards
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed. 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Standard Specifications
Widely known and accepted Lower in price Adaptable to customers needs
Market grades
describe many aspects of a product eggs: Grade A small, medium or large
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed. 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Engineering Drawings
Detailed description of parts
finishes tolerances materials used no other way to describe the item
Miscellaneous Specifications
Samples used for colors / patterns Combination of methods
e.g. curtains
drawing of the window dimensions fire or safety rating type of material to use samples of pattern desired
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Selecting Suppliers
The right supplier:
can supply the quality needed has the capacity to deliver the quantity need and on time (JIT deliveries?) makes a profit, but at a good price contributes to the improvement of your product
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Technical Ability
Do they have the technical capability? Is there a program of product development and improvement? Can they assist in improving your product? Their products become part of your product
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Manufacturing Capability
Can they consistently meet the specifications and quality desired?
quality control programs competent personnel
Reliability
Reputable Stable Financially strong
Were in this together
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
After-Sales Service
Service organization Supply of spare parts Technical support
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Supplier Location
Location may effect delivery time Local inventories May be required for after-sales service
will your customers require service?
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Other Considerations
Credit terms Willingness to hold inventory JIT Information technology Reciprocal business
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Price
Not always the lowest May include other services
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Supplier Selection
On-going relationship Mutual benefit Supplier can depend on future business Buyer can be:
assured supply of quality products technical support product improvements / problem solving
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed. 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Identifying Suppliers
Internet Catalogues Salespeople Trade magazines Trade directories Salespeople of the buyers firm
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Things that must be considered as part of what we will be buying The relative importance of each of the factors How well each supplier compares on each factor The weight times the rating
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Weighted-Point Plan
1. 2. 3. 4. Select the factors Assign a weight to each factor Rate the suppliers for each factor Rank each supplier
multiply the weight by the rate for each factor
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Weighted-Point Plan
Price Determination
Direct influence on companys profit 50% of cost of goods sold (CoGS) Package of:
function quantity service price
Upper limit
established by buyers
Lower limit
established by sellers
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed. 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Analyzing Costs
Fixed Costs
costs incurred no matter the volume of sales
equipment, insurance, overhead
Variable Costs
costs which vary with the volume produced
direct labor, direct materials
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Analyzing Costs
Total cost = fixed cost + (var cost/unit)(volume)
Unit cost = total cost volume = fixed cost + variable cost per unit volume
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Price Negotiation
Buyer needs knowledge of sellers costs Buyer must have sufficient clout Should benefit both supplier and buyer Savings must justify the time and effort required
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Standard products
price set by catalogue listings little room for negotiation
Purchasing
coordinates the flow of goods from suppliers
Contract Buying
Long term contract with a supplier for small volume items
Authorize releases against the contract when goods are needed
Supplier may be given a copy of the material requirements plan Requires close coordination Works best with Buyer / Planner concept
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed. 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Reliable
in delivery promises
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed. 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Contract Buying
Assures supplier of a certain amount of business Suppliers are more responsive to buyers needs
Assures buyer that capacity will be available when needed Buyer can delay actual ordering
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed. 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
The Internet
Internet
open public access to posted information valuable source of supplier and product information
Intranet
internal to company personnel only
Extranet
between participating companies
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed. 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Measurement systems
all aspects of the supply chain