Purchasing Chapter 23

Planning Purchases Who does the shopping in your household? How does that person know what to buy, how much to buy, and when and where to shop?

Organizational Buyers Buy goods for business purposes, usually in much greater quantities than the average consumer. What they buy requires a knowledge of the operations of the firm, especially in manufacturing and service operations. Need to know trends of that industry

Industrial Markets People responsible for purchasing may be called purchasing managers, industrial buyers, or procurement managers. Key function is to buy goods and services for use in the business. Industrial buyers have to be directly involved with production planning.

Example of Industrial Manager Consider the case of a purchasing manager for an outerwear apparel manufacturer. Marketing department predicts the company will sell 500 style no. 1900 jackets in the coming season. Purchasing manager must know how much fabric, insulation, and thread and how many zippers it takes to produce one style no. 1900 jacket. (this is called bill of materials) Total of all materials necessary to make one jacket can be multiplied by 500 to determine exactly what needs to be purchased to meet the sales goal.

Example of Industrial Manager Cont. To determine WHEN to buy those items, this person would be responsible for materials requirement planning. Manager must know the capacity of the manufacturing facility (need room for the supplies, raw materials, and finished goods). Timelines need to be exact as to maintain the master production schedule.

Resellers Wholesale and retail buyers purchase goods for resale – they forecast customers’ needs and buy the necessary products. Must plan far in advance of particular season so they know how much to purchase.

Six-Month Merchandise Plan Budget that estimates planned purchases for a six-month period. Read Page 412 -413 of book. Example on page 414

Open to Buy Amount of money left for buying goods after all other expenses have been considered. Price-(Goods Received + Goods Ordered) = OTB $15,500-($6,500+2,000) $15,500-$8,500 = $7,000 To determine actual money buyer has to spend: Must calculate markup percentage used by the buyer and deduct that figure from the retail value. 100%-markup % = % attributed to cost of the item 100%-45% markup = 55% (cost) 55% (cost) x $7,000 (retail) = $3,850 OTB at cost

Planning Purchases for a Chain Store Centralized buying – usually done at company headquarters. Buyers buy all the items for a department of part of a department Example: Three buyers for a shoes department – one for casual shoes, another of traditional shoes, and another of better shoes…different brands, etc. Centralized buying is done in order to create a unified image for the chain. Computers allow buyers to study sales daily – they can determine where goods are selling quickly and slowly.

Chain store operation continued Decentralized buying – when authority for retail decisions is made at low levels in the organization. Chain stores want to have special goods in their stores not available elsewhere.

Government Markets Government units – the federal, state, or local agencies that are responsible for purchasing goods and services for their specific markets. Federal Aviation Administration, Department of Sanitation, Public Library, local school board Makes up one of the largest single markets for retail goods and services in the world. Huge consumer of goods ranging from food for school lunches to equipment for the military and US Postal Service

The Buying Process Page 417 of book – you take notes and hand them in to Mrs. Kretzschmar. This is a by yourself activity.